Abstract
IMF Country Report No. 22/346
Copyright Page
IMF Country Report No. 22/346
ST. VINCENT AND THE GRENADINES
2022 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ST. VINCENT AND THE GRENADINES
November 2022
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2022 Article IV consultation with St. Vincent and the Grenadines, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its November 14, 2022, consideration of the staff report that concluded the Article IV consultation with St. Vincent and the Grenadines.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on November 14, 2022, following discussions that ended on August 31, 2022, with the officials of St. Vincent and the Grenadines on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on October 28, 2022.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the World Bank.
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
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
Telephone: (202) 623-7430 • Fax: (202) 623-7201
E-mail: publications@imf.org Web: http://www.imf.org
Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
© 2022 International Monetary Fund
Press Release
PR22/390
IMF Executive Board Concludes 2022 Article IV Consultation with St. Vincent and the Grenadines
FOR IMMEDIATE RELEASE
Washington, DC – November 17, 2022: On November 14, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with St. Vincent and the Grenadines.
St. Vincent and the Grenadines is recovering from the pandemic and 2021 volcanic eruptions. The authorities’ decisive policy responses—supported by two IMF Rapid Credit Facility (RCF) disbursements and financing from other International Financial Institutions—helped protect lives and livelihoods and contain economic scars. Output decline in 2020 was the lowest in the ECCU and the economy is estimated to have grown by 0.8 percent in 2021 supported by strong post-volcanic eruption reconstruction activity. Nevertheless, the recovery is facing headwinds from inflation pressures reflecting higher import prices. Despite the authorities’ strong efforts to contain fiscal deficits, critical responses to the shocks pushed up public debt to about 89 percent of GDP as of end-2021. The financial system has weathered the shocks relatively well so far with adequate capital and liquidity buffers.
The economy is projected to grow by 5 percent this year, supported by large-scale investment projects and recoveries in tourism and agriculture. Growth is projected to strengthen further in 2023 as large-scale construction projects get into full swing. External inflation pressures are expected to raise the annual inflation to 5.8 percent in 2022. The outlook is subject to significant downside risks, stemming primarily from an abrupt slowdown in trading partners’ growth, potential delays in investment projects including due to supply chain disruptions, and the ever-present threat of frequent natural disasters.
The authorities seek to rebuild fiscal buffers over the medium term and are balancing the need to support the vulnerable, building resilience, and maintaining fiscal prudence. While the primary deficit is estimated to widen as the port construction starts, the primary balance excluding pandemic-, volcano-, and port-related spending is expected to improve from -0.4 percent of GDP in 2021 to 1.6 percent in 2022. They also remain committed to reaching the regional debt ceiling and the medium-term fiscal strategy set out in the 2021 RCF.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities’ proactive responses to the pandemic and volcanic eruptions that reduced economic scarring and contributed to a small positive growth in 2021. They noted that while the outlook is favorable, supported by large-scale investment projects and continued recovery of agriculture and tourism, it is subject to significant downside risks and the economy remains vulnerable to shocks.
Directors agreed that near-term priorities continue to be health and reconstruction spending and supporting the vulnerable, while maintaining fiscal prudence. Directors encouraged the authorities to keep the generalized fiscal relief temporary as announced and continue to enhance the coverage and targeting of the social safety net. As the economy recovers, fiscal policy should move from income support to active labor market policies (ALMP) to facilitate training and employment.
Directors stressed the importance of rebuilding fiscal buffers, including by fully operationalizing the Fiscal Responsibility Framework (FRF), to withstand shocks and reinforce fiscal sustainability. They welcomed the authorities’ continued commitment to reaching the regional debt target and the medium-term fiscal strategy set out in the 2021 Rapid Credit Facility (RCF). They noted that it is important to recalibrate and fully operationalize the FRF to underpin the commitment and signal a credible medium-term fiscal plan. Directors underscored the need for continued complementary fiscal institutional reforms to support the effective implementation of the FRF, and also called for building additional buffers and preparing contingency plans, which will be key to increasing resilience to external shocks.
Directors emphasized the need for continued broad-based structural reforms to support inclusive growth, promote employment, and bolster resilience to natural disasters. They noted that the recent and ongoing key infrastructure projects are instrumental for addressing supply-side constraints to growth and improving structural resilience. Directors welcomed the authorities’ efforts to further improve the business climate, including through the planned new Investment Act, and to invest into human capital by improving the scope, coverage, and effectiveness of technical and vocational education and training (TVET) programs, and considered that the TVET programs should be complemented by ALMP to facilitate employment. Directors also supported the authorities’ efforts to further develop the tourism sector to contribute more to the economy.
Directors noted that the financial sector remains broadly stable. They stressed the need to closely monitor asset quality following the end of the loan moratoria and bolster the provisioning levels. Directors considered that the financial authorities should continue to strengthen the supervisory and regulatory frameworks and improve crisis preparedness. They also welcomed the authorities’ strong efforts to strengthen the AML/CFT framework.
St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2018–27
In percent of exports of goods and services.
The authorities rebased GDP to 2018 and improved methodology with support from CARTAC (2021). As a result, nominal GDP in 2018 increased by 9 percent.
St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2018–27
| Social and Demographic Indicators | ||||||||||
| Area (sq. km) | 389.3 | Net enrollment rate, secondary (percent, 2018) | 89.0 | |||||||
| Population (2022) | Labor market indicators (2017) | |||||||||
| Total (thousands) | 110.9 | Unemployment rate | 25.8 | |||||||
| Rate of growth (percent per year) | 0.1 | Youth unemployment rate | 40.3 | |||||||
| Density (per sq. km.) | 284.9 | Labor force participation rate | 67.8 | |||||||
| Population characteristics | Gross domestic product (2021) | |||||||||
| Life expectancy at birth (years, 2016) | 73.0 | (millions of US dollars) | 872 | |||||||
| Infant mortality (per '000 live births, 2016) | 15.2 | (millions of EC dollars) | 2,355 | |||||||
| Under 5 mortality rate (per '000, 2016) | 17.0 | (US$ per capita) | 7,879 | |||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| Prel. | Proj. | |||||||||
| Output and Prices | (Percent change) | |||||||||
| Real GDP (market prices) | 3.2 | 0.7 | -3.7 | 0.8 | 5.0 | 6.0 | 4.8 | 3.5 | 2.7 | 2.7 |
| Nominal GDP (market prices) | 4.8 | 3.0 | -4.6 | 0.4 | 8.5 | 10.6 | 6.9 | 5.6 | 4.8 | 4.8 |
| Consumer prices, end of period | 1.4 | 0.5 | -1.0 | 3.4 | 8.0 | 2.1 | 2.0 | 2.0 | 2.0 | 2.0 |
| Consumer prices, period average | 2.3 | 0.9 | -0.6 | 1.6 | 5.8 | 4.6 | 2.0 | 2.0 | 2.0 | 2.0 |
| Banking System | (Percent change) | |||||||||
| Broad money, percent change | 1.7 | 9.9 | -4.5 | 12.8 | 1.2 | 5.7 | 6.9 | 5.6 | 4.8 | 4.8 |
| Credit to private sector | -0.5 | 1.1 | 3.3 | 0.0 | 0.0 | 2.0 | 3.0 | 4.2 | 4.8 | 4.8 |
| Central Government Finances | (Percent of GDP) | |||||||||
| Total revenue | 26.7 | 27.7 | 30.5 | 31.4 | 30.0 | 30.7 | 29.3 | 29.6 | 29.4 | 29.4 |
| Tax revenue | 23.1 | 22.6 | 23.7 | 26.7 | 25.0 | 24.6 | 24.8 | 24.8 | 24.8 | 24.8 |
| Grants | 1.7 | 3.0 | 2.7 | 1.6 | 2.7 | 3.7 | 2.2 | 2.4 | 2.2 | 2.2 |
| Total expenditure and net lending | 27.5 | 30.3 | 35.8 | 38.8 | 38.2 | 36.8 | 38.0 | 31.9 | 28.8 | 28.5 |
| Current expenditure | 24.0 | 24.4 | 27.4 | 29.5 | 27.3 | 26.2 | 25.5 | 24.8 | 24.4 | 24.2 |
| Of which: Wages and salaries | 12.1 | 12.4 | 13.8 | 14.3 | 13.6 | 12.8 | 12.3 | 12.0 | 11.8 | 11.8 |
| Interest | 2.2 | 2.3 | 2.2 | 2.6 | 2.5 | 2.7 | 2.7 | 2.7 | 2.4 | 2.2 |
| Capital expenditure | 3.5 | 5.9 | 8.5 | 9.3 | 10.9 | 10.6 | 12.6 | 7.1 | 4.4 | 4.2 |
| Overall balance | -0.8 | -2.7 | -5.3 | -7.3 | -8.2 | -6.1 | -8.7 | -2.4 | 0.6 | 1.0 |
| Overall balance (excl. grants) | -2.5 | -5.7 | -8.0 | -8.9 | -10.9 | -9.8 | -10.9 | -4.8 | -1.6 | -1.2 |
| Primary balance | 1.4 | -0.4 | -3.1 | -4.8 | -5.7 | -3.4 | -6.0 | 0.3 | 3.0 | 3.2 |
| External Sector | (Percent of GDP unless indicated otherwise) | |||||||||
| External current account | -10.2 | -3.1 | -15.1 | -22.8 | -26.5 | -27.6 | -19.8 | -13.8 | -10.2 | -9.0 |
| Exports of goods and services | 36.4 | 36.0 | 21.7 | 15.9 | 22.5 | 29.5 | 36.7 | 38.7 | 39.2 | 39.7 |
| Imports of goods and services | 51.2 | 46.7 | 43.0 | 47.7 | 54.4 | 60.9 | 59.2 | 55.8 | 53.0 | 52.4 |
| Public sector external debt (end of period) | 49.3 | 48.1 | 54.8 | 66.3 | 68.9 | 72.6 | 75.4 | 76.0 | 73.5 | 70.3 |
| External public debt service 1/ | 12.4 | 14.0 | 23.8 | 23.4 | 38.8 | 18.2 | 14.4 | 15.2 | 15.1 | 14.4 |
| Memorandum Items | ||||||||||
| Holdings of SDRs (in millions of EC$) | 3.1 | 4.2 | 2.7 | 44.5 | 44.5 | 44.5 | 44.5 | 44.5 | 44.5 | 44.5 |
| Gross public sector debt (in percent of GDP) | 69.4 | 68.1 | 79.5 | 89.3 | 87.8 | 88.0 | 89.2 | 87.8 | 83.2 | 79.2 |
| Nominal GDP (market prices; in millions of EC$) 2/ | 2,388 | 2,459 | 2,347 | 2,355 | 2,556 | 2,826 | 3,022 | 3,189 | 3,341 | 3,500 |
In percent of exports of goods and services.
The authorities rebased GDP to 2018 and improved methodology with support from CARTAC (2021). As a result, nominal GDP in 2018 increased by 9 percent.
St. Vincent and the Grenadines: Selected Social and Economic Indicators, 2018–27
| Social and Demographic Indicators | ||||||||||
| Area (sq. km) | 389.3 | Net enrollment rate, secondary (percent, 2018) | 89.0 | |||||||
| Population (2022) | Labor market indicators (2017) | |||||||||
| Total (thousands) | 110.9 | Unemployment rate | 25.8 | |||||||
| Rate of growth (percent per year) | 0.1 | Youth unemployment rate | 40.3 | |||||||
| Density (per sq. km.) | 284.9 | Labor force participation rate | 67.8 | |||||||
| Population characteristics | Gross domestic product (2021) | |||||||||
| Life expectancy at birth (years, 2016) | 73.0 | (millions of US dollars) | 872 | |||||||
| Infant mortality (per '000 live births, 2016) | 15.2 | (millions of EC dollars) | 2,355 | |||||||
| Under 5 mortality rate (per '000, 2016) | 17.0 | (US$ per capita) | 7,879 | |||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| Prel. | Proj. | |||||||||
| Output and Prices | (Percent change) | |||||||||
| Real GDP (market prices) | 3.2 | 0.7 | -3.7 | 0.8 | 5.0 | 6.0 | 4.8 | 3.5 | 2.7 | 2.7 |
| Nominal GDP (market prices) | 4.8 | 3.0 | -4.6 | 0.4 | 8.5 | 10.6 | 6.9 | 5.6 | 4.8 | 4.8 |
| Consumer prices, end of period | 1.4 | 0.5 | -1.0 | 3.4 | 8.0 | 2.1 | 2.0 | 2.0 | 2.0 | 2.0 |
| Consumer prices, period average | 2.3 | 0.9 | -0.6 | 1.6 | 5.8 | 4.6 | 2.0 | 2.0 | 2.0 | 2.0 |
| Banking System | (Percent change) | |||||||||
| Broad money, percent change | 1.7 | 9.9 | -4.5 | 12.8 | 1.2 | 5.7 | 6.9 | 5.6 | 4.8 | 4.8 |
| Credit to private sector | -0.5 | 1.1 | 3.3 | 0.0 | 0.0 | 2.0 | 3.0 | 4.2 | 4.8 | 4.8 |
| Central Government Finances | (Percent of GDP) | |||||||||
| Total revenue | 26.7 | 27.7 | 30.5 | 31.4 | 30.0 | 30.7 | 29.3 | 29.6 | 29.4 | 29.4 |
| Tax revenue | 23.1 | 22.6 | 23.7 | 26.7 | 25.0 | 24.6 | 24.8 | 24.8 | 24.8 | 24.8 |
| Grants | 1.7 | 3.0 | 2.7 | 1.6 | 2.7 | 3.7 | 2.2 | 2.4 | 2.2 | 2.2 |
| Total expenditure and net lending | 27.5 | 30.3 | 35.8 | 38.8 | 38.2 | 36.8 | 38.0 | 31.9 | 28.8 | 28.5 |
| Current expenditure | 24.0 | 24.4 | 27.4 | 29.5 | 27.3 | 26.2 | 25.5 | 24.8 | 24.4 | 24.2 |
| Of which: Wages and salaries | 12.1 | 12.4 | 13.8 | 14.3 | 13.6 | 12.8 | 12.3 | 12.0 | 11.8 | 11.8 |
| Interest | 2.2 | 2.3 | 2.2 | 2.6 | 2.5 | 2.7 | 2.7 | 2.7 | 2.4 | 2.2 |
| Capital expenditure | 3.5 | 5.9 | 8.5 | 9.3 | 10.9 | 10.6 | 12.6 | 7.1 | 4.4 | 4.2 |
| Overall balance | -0.8 | -2.7 | -5.3 | -7.3 | -8.2 | -6.1 | -8.7 | -2.4 | 0.6 | 1.0 |
| Overall balance (excl. grants) | -2.5 | -5.7 | -8.0 | -8.9 | -10.9 | -9.8 | -10.9 | -4.8 | -1.6 | -1.2 |
| Primary balance | 1.4 | -0.4 | -3.1 | -4.8 | -5.7 | -3.4 | -6.0 | 0.3 | 3.0 | 3.2 |
| External Sector | (Percent of GDP unless indicated otherwise) | |||||||||
| External current account | -10.2 | -3.1 | -15.1 | -22.8 | -26.5 | -27.6 | -19.8 | -13.8 | -10.2 | -9.0 |
| Exports of goods and services | 36.4 | 36.0 | 21.7 | 15.9 | 22.5 | 29.5 | 36.7 | 38.7 | 39.2 | 39.7 |
| Imports of goods and services | 51.2 | 46.7 | 43.0 | 47.7 | 54.4 | 60.9 | 59.2 | 55.8 | 53.0 | 52.4 |
| Public sector external debt (end of period) | 49.3 | 48.1 | 54.8 | 66.3 | 68.9 | 72.6 | 75.4 | 76.0 | 73.5 | 70.3 |
| External public debt service 1/ | 12.4 | 14.0 | 23.8 | 23.4 | 38.8 | 18.2 | 14.4 | 15.2 | 15.1 | 14.4 |
| Memorandum Items | ||||||||||
| Holdings of SDRs (in millions of EC$) | 3.1 | 4.2 | 2.7 | 44.5 | 44.5 | 44.5 | 44.5 | 44.5 | 44.5 | 44.5 |
| Gross public sector debt (in percent of GDP) | 69.4 | 68.1 | 79.5 | 89.3 | 87.8 | 88.0 | 89.2 | 87.8 | 83.2 | 79.2 |
| Nominal GDP (market prices; in millions of EC$) 2/ | 2,388 | 2,459 | 2,347 | 2,355 | 2,556 | 2,826 | 3,022 | 3,189 | 3,341 | 3,500 |
In percent of exports of goods and services.
The authorities rebased GDP to 2018 and improved methodology with support from CARTAC (2021). As a result, nominal GDP in 2018 increased by 9 percent.
Title page
ST. VINCENT AND THE GRENADINES
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
October 28, 2022
KEY ISSUES
Context. St. Vincent and the Grenadines is recovering from the pandemic and 2021 volcanic eruptions. Despite the authorities’ strong efforts to contain deficits, critical fiscal responses to these shocks pushed up public debt, which—while assessed as sustainable—remains at high risk of distress should future shocks materialize. The economy is projected to grow by 5 percent in 2022, supported by large-scale investment projects and recoveries in tourism and agriculture. Surging commodity prices, fueled by Russia’s war in Ukraine, are expected to raise inflation sharply to 5.8 percent in 2022, adding to fiscal and external pressures and weighing on the recovery. So far, the financial system has weathered the shocks relatively well. The outlook is subject to significant downside risks primarily from an abrupt slowdown in trading partners’ growth, potential delays in investment projects including due to supply chain disruptions, and the ever-present threat of frequent natural disasters.
Key Policy Advice. The consultation focused on policies to support a resilient and inclusive recovery, while safeguarding debt sustainability and financial sector stability.
Near-term fiscal policy should give priority to health and reconstruction spending and supporting the vulnerable through temporary targeted support and enhanced social me nets, while maintaining fiscal prudence. Once the recovery takes hold, the authorities should recalibrate and fully operationalize the fiscal responsibility framework (FRF) to build fiscal space, withstand shocks, and strengthen the credibility of reaching the regional debt target. Vulnerability to further shocks call for building additional buffers and making contingency plans. Continued fiscal institutional reforms are key to the effective implementation of the FRF.
Given the importance of a sustainable and inclusive recovery for public debt sustainability, broad-based structural reforms, including supply-side reforms, building human capital, and improving business environment, are needed to improve productivity and competitiveness and to mitigate scarring effects. Continuing to build resilience to natural disasters and climate change is also vital.
Continued close monitoring of asset quality in the financial sector is needed as loan moratoria ended. Efforts to strengthen regulatory and supervisory frameworks and improve crisis preparedness should be sustained.
Approved By
Patricia Alonso-Gamo (WHD) and Boileau Loko (SPR)
Discussions took place in Kingstown during August 18–31, 2022. The mission team comprised Nan Geng (head), Sophia Chen, Isabela Duarte, Marie Kim, and Dmitriy Kovtun (all WHD). The team was supported by Anahit Aghababyan, Beatriz Garcia-Nunes, and Archit Singhal (all WHD). Rosamund Edwards (OED) participated in several meetings, and Philip Jennings (OED) joined virtually the concluding meeting. Kimberly Waithe (CDB) also joined the mission. The mission met with Honorable Prime Minister R. Gonsalves, Honorable Minister of Finance C. Gonsalves, regulators, senior government officials, labor unions, the opposition party, and representatives from the financial and business sectors.
Contents
ACRONYMS AND ABBREVIATIONS
CONTEXT
THE COMPOUND SHOCKS AND POLICY RESPONSE
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Fiscal Policy: Safeguarding Debt Sustainability While Supporting a Resilient and Inclusive Recovery
B. Supporting Resilient and Inclusive Growth and Promoting Job Opportunities
C. Maintaining Financial Sector Stability While Supporting the Recovery
D. Data Issues
AUTHORITIES’ VIEWS
STAFF APPRAISAL
FIGURES
1. Key Macroeconomic Indicators
2. Real Sector Developments
3. External Sector Developments
4. Fiscal Sector Developments
5. Financial Sector Developments
TABLES
1. Selected Social and Economic Indicators, 2018–27
2. Balance of Payments, 2018–27
3. Central Government Operations, 2018–27 (Millions of Eastern Caribbean dollars)
4. Central Government Operations, 2018–27 (Percent of GDP)
5. Monetary Survey, 2018–27
ANNEXES
I. Implementation of Past Fund Policy Advice
II. Macroeconomic Impact of the Large-Scale Investment Projects
III. Tourism in St. Vincent and the Grenadines: The Impact of Recent Shocks and Opportunities for the Future
IV. Inflation Outlook
V. External Sector Assessment
VI. Risk Assessment Matrix
VII. An Adverse Scenario and Contingency Planning
VIII. Operationalizing St. Vincent and the Grenadines’ Fiscal Responsibility Framework
IX. The Pension System and Reform Options
Acronyms and Abbreviations
| ALMPs | Active labor market policies |
| AML/CFT | Anti-Money Laundering and Combating the Financing of Terrorism |
| CAD | Current account deficit |
| CARTAC | Caribbean Technical Assistance Center |
| CAT DDO | Catastrophe Deferred Drawdown Option |
| CBR | Correspondent Banking Relationship |
| CCRIF | Caribbean Catastrophe Risk Insurance Facility |
| CDB | Caribbean Development Bank |
| CF | Contingencies Fund |
| CU | Credit union |
| ECCU | Eastern Caribbean Currency Union |
| CFATF | Caribbean Financial Action Task Force |
| FSA | Financial Services Authority |
| FRF | Fiscal Responsibility Framework |
| FRM | Fiscal Responsibility Mechanism |
| GDP | Gross domestic product |
| GIR | Gross international reserves |
| MoF | Ministry of Finance |
| MTEFO | Medium-Term Economic and Fiscal Outlook |
| NDC | Nationally Determined Contributions |
| NDRFS | National Disaster Risk Financing Strategy |
| NEER | Nominal effective exchange rate |
| NEMO | National Emergency Management Organization |
| NIIP | Net international investment position |
| NIS | National Insurance Services |
| NPL | Nonperforming loans |
| NRA | National Risk Assessment |
| OECS | Organization of Eastern Caribbean States |
| PFM | Public financial management |
| PIMA | Public Investment Management Assessment |
| RCF | Rapid Credit Facility |
| REER | Real effective exchange rate |
| VCT or St. Vincent | St. Vincent and the Grenadines |
| TA | Technical assistance |
| TAPA | Tax Administration and Procedures Act |
| TVET | Technical and Vocational Education and Training |
| VEEP | Volcanic Eruption Emergency Project |
| WB | The World Bank |
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
