The Vincentian authorities thank staff for the constructive engagement, comprehensive assessment, and policy advice. The authorities have expressedsatisfaction with the discussions and are in broad agreement with staff’s assessment and recommendations.

St. Vincent and the Grenadines has had to deal with multiple shocks in the past few years. Amid addressing the COVID-19 pandemic, the authorities were confronted with the onslaught of the eruption of the La Soufriere volcano. Notwithstanding low levels of vaccination and multiple waves, the authorities have had relatively good success in the management of the pandemic. COVID-19 protocols have been lifted, allowing for normal day-to-day activities to resume. However, continued efforts to increase vaccination rates are important to build resilience to new COVID-19 outbreaks and the impacts these would have on growth prospects. Although the eruption-related impact on the agriculture sector is estimated to be smaller than initially expected and post-eruption reconstruction activity took placeearlier and faster than anticipated, the eruption of the volcano had both social and economic impact. Appropriately, the authorities prioritized measures to protect lives and livelihoods, thus reducing loss of life and cushioning the worst of the effects.

The St. Vincent and the Grenadines economy has also felt the impact of Russia’s invasionof Ukraine through high food and fuel prices, and monetary tightening policies in advanced economies will also have negative implications. Led by recovery in tourism, agriculture and construction, economic growth is projected at 5 percent in 2022, which would allow real GDP to reach pre-pandemic levels this year. Growth is projected to accelerate to 6 percent in 2023 as implementation of large-scale construction projects intensifies. Period average inflation is projected to accelerate to 5.8 percent and to ease in 2023–24. Given the uncertainty in the global economy, risks are tilted to the downside. A protracted war, lingering inflationary conditions, new COVID-19 waves, and the ever-present threat of frequent natural disasters could reshape the economic outlook.

The combination of external shocks and their impacts on public finances has resulted in a worsening public debt situation despite the authorities’ strong efforts to contain the fiscal deficit. Debt is assessed as sustainable but remains at high risk of distress. We concur with staff’s assessment that fiscal policy should prioritize health, reconstruction spending, green investments, and support to the vulnerable while maintaining fiscal prudence. We also acknowledge that social support should be temporary and targeted. However, the authorities indicate that the duration of support will be determined by the length of the various crises, as these cannot be withdrawn prematurely. The authorities remain committed to implementing a fiscal responsibility framework that enhances fiscal sustainability to be better able to withstand external shocks and rebuild fiscal buffers. They will continue with strong efforts to mobilize revenue by enhancing tax policy and strengthening tax administration and simultaneously contain non-priority spending.

Preserving financial stability is crucial and is an important part of the authorities’ plans. The financial sector has demonstrated resilience to the ongoing shocks. Capital buffers remain well above regulatory requirements, andthe regionalaverage and profitability indicators for banks have remained positive. However, NPLs have increased compared to pre-pandemic levels but remained below the regional average. The Eastern Caribbean Central Bank’s (ECCB) recently introduced guidance on provisioning is being implemented by the banking system and will build further resilience. The authorities will continue to work with the ECCB to ensure that stability in the sector is maintained as pandemic support measures are withdrawn. The authorities support the introduction of the EC digital dollar, DCash, as this could help build financial inclusion, and St. Vincent and the Grenadines became the front-runner in the Eastern Caribbean Currency Union (ECCU) in the uptake since the launch of the pilot in August 2021. However, the momentum has waned and will require added efforts by the ECCB to raise public awareness and improve communication with end-users to boost confidence and uptake.

The authorities propose to continue work to strengthen the regulatory and supervisory frameworks and improve crisis preparedness and management. In that regard, new legislation for regulatory provisions for friendly societies and cooperative societies were strengthened under the new Friendly Societies Actand the recently approvedamendments to the Cooperative Societies Act, and risk management and internal control guidelines for insurance companies published. The ECCU’s harmonized Virtual Asset Business Act was approved by Parliament, and an action plan for its implementation has been prepared. Looking ahead, authorities propose to transition to risk-based supervision, including incorporating risks related to climate change and cyber threats, to strengthen crisis preparedness, including by developing a crisis management framework for the non-bank financial sector. Additionally, they propose to improve analysis and transparency, including preparing and publishing periodical financial stability assessments, and will also continue to implement the measures in response to the National Risk Assessment and enhance the AML/CFT monitoring framework.

Climate change remains a macro-critical matter for St. Vincent and the Grenadines. The authorities are keen to adopt mitigation measures to reduce the impacts and are implementing a comprehensive National Adaptation Plan (2018–30).To thatend, they intendto conducta C-PIMA assessment and have made this formal request to the Fund, which is planned to take place in early 2023. They are strengthening financial resilience that includes three layers of instruments comprising a self-insurance contingencies fund to cover post-disaster emergency measures, enrolling in the regional risk-sharing facility—CCRIF, gaining access to the regional climate risk insurance for fisheries, and arranging contingent credit lines under the World Bank’s CAT DDO. They are also developing a Disaster Risk Financing Strategy (DRFS) that is expected to strengthen their ability to assess, reduce, and manage disaster-related fiscal risk.

Access to funds to finance resilience building remains a major hurdle, and authorities intend to promote a deeper use of insurance by the private sector to build resilience. In addition, the authorities are evaluating the RST with a view to deciding on access. They are hopeful that conditionalities for access to the RST could include commitments already given for other development finance and propose to work with the rest of the ECCU to highlight areas where the RST could be better tailored to the needs of the region. Given the ever-present threat from climate change, the authorities are keenly aware of the need to have adequate contingency plans to be able to respond and that the RST is a useful addition to these plans.

The authorities of St. Vincent and the Grenadines are fully committed to public transparency and good governance. They have met the conditions under the RCF with the publication of monthly COVID-19-related expenditures. The authorities have also consented to the Fund’s publication of the staff report for this Article IV consultation.

Our authorities place a high value on engagement with the Fund and appreciate the work of the mission team and the Fund’s responsiveness during these crises. Given capacity constraints, the authorities have relied on Fund capacity development, mostly through the Caribbean Technical Assistance Centre (CARTAC). They have participated in-person in both the 2022 Spring and Annual Meetings, taking the opportunity to discuss critical development issues with staff and benefitting from Fundadvice. Given the authorities’ commitment to reform, together with support from the international community, St. Vincent and the Grenadines is well placed to recover from the current challenges as the global environment improves.