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IMF Country Report No. 20/179
ST. VINCENT AND THE GRENADINES
REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ST. VINCENT AND THE GRENADINES
May 2020
In the context of the Request for Disbursement Under the Rapid Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on May 20, 2020, following discussions that ended on May 8, 2020 with the officials of St. Vincent and the Grenadines on economic developments and policies underpinning the IMF disbursement under the Rapid Credit Facility. Based on information available at the time of these discussions, the staff report was completed on May 14, 2020.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association (IDA).
A Statement by the Executive Director for St. Vincent and the Grenadines.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2020 International Monetary Fund
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ST. VINCENT AND THE GRENADINES
REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY
May 14, 2020
Executive Summary
Context. The fallout from the global pandemic crisis is hitting St. Vincent and the Grenadines hard. Tourism receipts (accounting for nearly 30 percent of GDP) have dried up, as tourism arrivals have come to a complete halt. The economy is now projected to contract by 5.5 percent —7.8 percentage points below pre-COVID-19 projections. Local outbreaks of COVID-19 have thus far been contained.
Request for Fund support. The pandemic crisis is giving rise to an urgent balance of payments need, which, if not addressed, would result in immediate and severe economic disruption. Reflecting the large external financing gaps arising from the sharp deterioration of the balance of payments position and the large fiscal needs to immediately increase public health spending and support the most vulnerable, the authorities are seeking financial assistance under the Rapid Credit Facility (RCF) exogenous shock window of SDR 11.7 million, equivalent to 100 percent of quota, to be used for budget support. Staff supports this request.
Main Policy Recommendations.
In the short term, increase health spending and adopt measures to support the vulnerable, while providing a broad temporary relief to the economy, with a package of measures totaling 3½ percent of GDP (as planned).
Once the pandemic shock subsides and the economy begins to recover, resume fiscal consolidation to put the public debt on a firmly downward trajectory. Both revenue and expenditure measures, including the reprioritization of public investment projects (as part of a plan to build resilience against natural disasters), are required.
In the area of financial sector policies, keep intensified monitoring of financial sector vulnerabilities and enhance capacity for prompt action to ameliorate the effects of the crisis.
Approved By
Patricia Alonso-Gamo (WHD) and Chad Steinberg (SPR)
Discussions took place via conference calls on May 6 and 8, 2020. The team comprised K. Ishi (head), M. Rosales Torres, C. Castellanos Garcia, and C. Pizzinelli (all WHD). B. Rankin and R.J. Edwards (OED) participated in the discussions. The IMF team held meetings with Prime Minister Honorable R. Gonsalves; Finance Minister Honorable C. Gonsalves, other senior government officials, and other international financial institutions. T. Khan and S. Konate provided valuable assistance.
Contents
CONTEXT
COVID-19 SHOCK AND MACROECONOMIC IMPACT
POLICY DISCUSSIONS: ENSURING DEBT AND FINANCIAL SUSTAINABILITY
MODALITIES OF SUPPORT
AUTHORITIES’ VIEWS
STAFF APPRAISAL
REFERENCE
FIGURES
1. Real Sector Developments
2. External Sector Developments
TABLES
1. Selected Social and Economic Indicators, 2017–25
2. Balance of Payments Summary, 2017–25
3 Summary of Central Government Operations, 2017–2025 (In millions of EC)
4. Summary of Central Government Operations, 2017–2025 (In percent of GDP)
5. Indicators of Capacity to Repay the Fund
ANNEX
I. Macroeconomic and Resilience Impacts of the Port Modernization Project
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ST. VINCENT AND THE GRENADINES
REQUEST FOR DISBURSEMENT UNDER THE RAPID CREDIT FACILITY—DEBT SUSTAINABILITY ANALYSIS
May 14, 2020
Approved By
Patricia Alonso-Gamo, Chad Steinburg, (IMF), and Marcello Estevão (IDA)
Prepared by the staffs of the International Monetary Fund and the International Development Association
| Risk of external debt distress (current policies): | High |
| Overall risk of debt distress | High |
| Granularity in the risk rating | Sustainable |
| Application of judgement | No |
| Risk of external debt distress (current policies): | High |
| Overall risk of debt distress | High |
| Granularity in the risk rating | Sustainable |
| Application of judgement | No |
The debt sustainability analysis (DSA) indicates that St. Vincent and the Grenadines’ public debt is sustainable but remains at high risk of distress for both external and overall public debt (unchanged from the previous assessment in the 2018 Article IV Staff Report). 1 With the pandemic crisis and the economic contraction, the fiscal position will deteriorate in 2020, and total public and publicly guaranteed debt is expected to increase from 75.2 percent of GDP in 2019 to 85.8 percent in 2020. Beyond 2021, the large port project will put additional pressure on public finances.
The authorities are committed to increasing the central government primary balance from a deficit of 3.7 percent of GDP in 2020 to a surplus of no less than 2.1 percent of GDP by 2025, mainly through expenditure-side measures (e.g., containing the growth of current spending and prioritizing capital programs). This will put the debt-to-GDP ratio on a solid downward path after 2021 and make debt sustainable in a forward-looking sense. Under staff’s baseline scenario, the present value (PV) of public debt as a percent of GDP is projected to start falling in 2021 and that of external debt in 2024 but stay above indicative benchmarks for an extended period. The PV of debt-to-exports and the debt service-to-exports ratios would fall below the indicative threshold by 2021 and 2023, respectively (Figures 1 and 2).
St. Vincent & the Grenadines: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2020–2030
Citation: IMF Staff Country Reports 2020, 179; 10.5089/9781513545745.002.A000
Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.St. Vincent & the Grenadines: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2020–2030
Citation: IMF Staff Country Reports 2020, 179; 10.5089/9781513545745.002.A000
Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.St. Vincent & the Grenadines: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2020–2030
Citation: IMF Staff Country Reports 2020, 179; 10.5089/9781513545745.002.A000
Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
St. Vincent & the Grenadines: Indicators of Public Debt Under Alternative Scenarios, 2020–2030
Citation: IMF Staff Country Reports 2020, 179; 10.5089/9781513545745.002.A000
Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.St. Vincent & the Grenadines: Indicators of Public Debt Under Alternative Scenarios, 2020–2030
Citation: IMF Staff Country Reports 2020, 179; 10.5089/9781513545745.002.A000
Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.St. Vincent & the Grenadines: Indicators of Public Debt Under Alternative Scenarios, 2020–2030
Citation: IMF Staff Country Reports 2020, 179; 10.5089/9781513545745.002.A000
Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.Front Matter Page
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