Abstract
IMF Country Report No. 22/351
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IMF Country Report No. 22/351
ST. KITTS AND NEVIS
2018 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ST. KITTS AND NEVIS
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 2018 Article IV consultation with St. Kitts and Nevis, 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 September 14, 2018, consideration of the staff report that concluded the Article IV consultation with St. Kitts and Nevis.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 14, 2018, following discussions that ended on July 9, 2018, with the officials of St. Kitts and Nevis on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 6, 2018.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for St. Kitts and Nevis.
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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© 2022 International Monetary Fund
Press Release
PR22/400
IMF Executive Board Concludes 2018 Article IV Consultation with St. Kitts and Nevis
FOR IMMEDIATE RELEASE
Washington, DC – November 21, 2022: On September 14, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with St. Kitts and Nevis.
Growth decelerated marginally in 2017, as the continued decline in CBI inflows slowed growth in construction. Consumer inflation was low, partly due to a small contraction in food prices. The overall fiscal balance remained in surplus but has deteriorated markedly since its 2013- peak, and the debt-to-GDP ratio increased marginally from the previous year. The current account deficit remains high and only marginally declined in 2017, as the decline in CBI receipts was more than offset by growing tourism receipts and a significant decrease in imports. Foreign reserves at the ECCB remained at comfortable levels, well above the various reserve-adequacy metrics. The banking sector has reported capital and liquidity ratios that are well above the regulatory minimum but has elevated NPLs and risks, including delays in completing the debt-land swap arrangement and loss of Corresponding Banking Relationships (CBRs).
Medium-term growth is projected to fluctuate around 3 percent under the current policies. It is projected to improve in 2018-20 as the implementation of FDI projects in the tourism sector accelerates and decelerate to around 2.7 percent over time as the momentum slows down. The current account deficit is projected to worsen over the medium term, driven by higher FDI- related imports associated with tourism projects and a tapering of CBI inflows, partially offset by growth in tourism receipts. Downside risks include lower than projected CBI inflows; further delays in resolving the debt-land swap; failure to tackle worsening financial sector vulnerabilities; exposure to major natural disasters; a tighter financial environment from higher U.S. interest rates; and spillovers from regional financial challenges, including loss of CBRs. On the upside, stronger CBI inflows and higher growth in advanced economies could support growth compared to the baseline.
Executive Board Assessment2
Executive Directors welcomed St. Kitts and Nevis’s good macroeconomic performance in recent years. However, growth has slowed over the past year, and the medium-term outlook remains moderate. Directors acknowledged significant challenges, including those associated with declining Citizenship By Investment (CBI) inflows, financial sector vulnerabilities, tighter global financial conditions, and weather-related shocks. Against this background, Directors encouraged policies to safeguard macroeconomic and financial stability, together with reforms to strengthen competitiveness and foster inclusive growth.
Directors noted that, absent any corrective policies, public debt is expected to increase over the medium term, as revenue from CBI receipts further declines. They considered that a significant fiscal adjustment is needed to reverse debt dynamics. The adjustment could focus on both revenue and expenditure measures, including streamlining tax incentives, restructuring activities funded by the Sugar Industry Diversification Foundation, and containing the wage bill through a multi-year framework.
Recognizing the need to maintain fiscal buffers to assist in covering the cost of natural disasters, Directors recommended the establishment of a Growth and Resilience Fund (GRF), which should be linked to a fiscal responsibility framework. They suggested that access to the GRF could be used to respond to adverse shocks and to support natural disaster resilience investment projects. The GRF should have a sovereign wealth fund structure in line with international best practices.
Directors expressed concern about the high level of NPLs and urged the authorities to prioritize their resolution, which would include the operationalization of the Eastern Caribbean Asset Management Corporation, a credit bureau, and the strengthening of foreclosure and insolvency legislation. They supported the implementation of IFRS9 and new regulations on provisioning and valuation and encouraged the authorities to closely monitor capitalization levels of the banking system.
Directors encouraged the authorities to take decisive steps to accelerate land sales under the debt-land swap arrangement to mitigate the fiscal and financial sectors from contingent liabilities. They also emphasized the importance of remaining vigilant to CBR risks, enhancing the AML/CFT regime, and strengthening the transparency of the CBI program.
Directors agreed that comprehensive structural reforms would strengthen the potential for diversified and inclusive growth, and address competitiveness challenges. They welcomed ongoing efforts to improve the ease-of-doing business, support skills development, promote growth in tourism and other sectors, and strengthen social policies and security. Improving labor productivity and promoting trade integration at the regional and international level are also necessary to support competitiveness.
St. Kitts and Nevis: Selected Economic and Financial Indicators 2015–20
Authorities revised historical GDP growth backwards from 2015.
Includes St. Kitts and Nevis (in the past, only St. Kitts data was reflected).
In relation to broad money at the beginning of the period.
Consolidated general government balances unless otherwise noted. Primary and overall balances are based on above-the-line data.
Excludes CBI budgetary fees, SIDF grants and Investment proceeds, and CBI due diligence costs.
Reflects operations linked to the restructuring of public debt.
Reflects the debt-land swap equivalent to EC$565 million in 2013 and EC$231 million in 2014.
St. Kitts and Nevis: Selected Economic and Financial Indicators 2015–20
| Est. | Proj. | |||||
|---|---|---|---|---|---|---|
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| (Annual percentage change; unless otherwise specified) | ||||||
| National income and prices | ||||||
| Real GDP (factor cost) 1/ | 2.7 | 2.9 | 2.1 | 2.7 | 3.5 | 3.5 |
| Consumer prices, end-of-period 2/ | -2.4 | 0.0 | 0.8 | 2.0 | 2.0 | 2.0 |
| Consumer prices, period average 2/ | -2.3 | -1.2 | 0.4 | 1.4 | 2.0 | 2.0 |
| Real effective exchange rate appreciation (+) (end-of-period) | -2.8 | -0.4 | -2.5 | … | … | … |
| Banking system | ||||||
| Change in net foreign assets 3/ | -5.3 | -1.3 | -7.8 | 3.6 | 1.4 | 0.0 |
| Credit to public sector 3/ | -0.8 | -5.1 | 0.7 | -3.7 | 2.5 | 3.2 |
| Credit to private sector 3/ | 1.5 | 0.4 | 0.8 | 1.1 | 1.2 | 1.3 |
| Broad money | 2.5 | -4.0 | -3.4 | 0.9 | 5.2 | 4.5 |
| (In percent of GDP) | ||||||
| Public sector 4/ | ||||||
| Total revenue and grants | 36.3 | 32.2 | 30.2 | 32.7 | 27.6 | 26.8 |
| o/w Tax revenue | 20.1 | 19.3 | 19.1 | 19.4 | 19.3 | 19.3 |
| o/w CBI fees | 11.6 | 6.8 | 5.7 | 7.4 | 2.6 | 2.0 |
| Total expenditure and net lending | 31.0 | 28.2 | 29.6 | 29.2 | 30.4 | 30.3 |
| Current expenditure | 24.4 | 24.0 | 24.8 | 24.6 | 26.1 | 26.2 |
| Capital expenditure and net lending | 6.6 | 4.2 | 4.8 | 4.6 | 4.3 | 4.2 |
| Primary balance | 7.3 | 5.6 | 2.1 | 5.1 | -1.3 | -1.8 |
| Overall balance | 5.3 | 4.0 | 0.5 | 3.5 | -2.8 | -3.5 |
| Overall balance (less CBI inflows) 5/ | -5.5 | -3.0 | -5.4 | -4.0 | -5.3 | -5.4 |
| Foreign financing | -6.8 | -1.9 | -0.9 | -0.9 | -0.9 | -0.8 |
| Domestic financing | 1.2 | -0.9 | -0.1 | -3.0 | 3.3 | 3.9 |
| Change in arrears | -0.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Sale of assets | 0.5 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 |
| Extraordinary financing 6/ | 0.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total public debt (end-of-period) 7/ | 66.1 | 61.5 | 62.9 | 63.6 | 63.4 | 63.3 |
| Public debt service (percent of total revenue and grants) | 24.5 | 11.2 | 8.5 | 7.6 | 8.6 | 9.6 |
| External sector | ||||||
| External current account balance | -9.2 | -12.0 | -11.2 | -10.9 | -17.3 | -17.8 |
| Trade balance | -26.5 | -30.7 | -27.9 | -30.4 | -32.4 | -32.4 |
| Services, net | 27.8 | 26.9 | 25.1 | 27.4 | 23.0 | 22.6 |
| o/w Tourism receipts | 32.6 | 33.4 | 37.6 | 38.0 | 38.3 | 38.6 |
| FDI (net) | 13.6 | 13.3 | 8.9 | 10.2 | 12.8 | 12.7 |
| External public debt (end-of-period) | 25.2 | 20.2 | 16.1 | 14.2 | 12.2 | 10.4 |
| (In percent of exports of goods and nonfactor services) | ||||||
| External public debt service | 6.8 | 3.8 | 3.5 | 2.9 | 3.0 | 2.7 |
| External public debt (end-of-period) | 44.9 | 38.7 | 31.5 | 26.6 | 24.9 | 21.5 |
| Memorandum items | ||||||
| Net international reserves, end-of-period | ||||||
| (in millions of U.S. dollars) | 280.4 | 312.8 | 358.2 | 358.2 | 354.5 | 350.7 |
| (in percent of broad money) | 25.0 | 29.0 | 34.4 | 34.1 | 32.1 | 30.4 |
| Holdings of SDRs, in millions of U.S. dollars | 13.8 | 13.8 | 14.8 | 15.8 | 16.8 | 17.8 |
| Nominal GDP at market prices (in millions of EC$) | 2,528 | 2,591 | 2,602 | 2,714 | 2,868 | 3,031 |
Authorities revised historical GDP growth backwards from 2015.
Includes St. Kitts and Nevis (in the past, only St. Kitts data was reflected).
In relation to broad money at the beginning of the period.
Consolidated general government balances unless otherwise noted. Primary and overall balances are based on above-the-line data.
Excludes CBI budgetary fees, SIDF grants and Investment proceeds, and CBI due diligence costs.
Reflects operations linked to the restructuring of public debt.
Reflects the debt-land swap equivalent to EC$565 million in 2013 and EC$231 million in 2014.
St. Kitts and Nevis: Selected Economic and Financial Indicators 2015–20
| Est. | Proj. | |||||
|---|---|---|---|---|---|---|
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| (Annual percentage change; unless otherwise specified) | ||||||
| National income and prices | ||||||
| Real GDP (factor cost) 1/ | 2.7 | 2.9 | 2.1 | 2.7 | 3.5 | 3.5 |
| Consumer prices, end-of-period 2/ | -2.4 | 0.0 | 0.8 | 2.0 | 2.0 | 2.0 |
| Consumer prices, period average 2/ | -2.3 | -1.2 | 0.4 | 1.4 | 2.0 | 2.0 |
| Real effective exchange rate appreciation (+) (end-of-period) | -2.8 | -0.4 | -2.5 | … | … | … |
| Banking system | ||||||
| Change in net foreign assets 3/ | -5.3 | -1.3 | -7.8 | 3.6 | 1.4 | 0.0 |
| Credit to public sector 3/ | -0.8 | -5.1 | 0.7 | -3.7 | 2.5 | 3.2 |
| Credit to private sector 3/ | 1.5 | 0.4 | 0.8 | 1.1 | 1.2 | 1.3 |
| Broad money | 2.5 | -4.0 | -3.4 | 0.9 | 5.2 | 4.5 |
| (In percent of GDP) | ||||||
| Public sector 4/ | ||||||
| Total revenue and grants | 36.3 | 32.2 | 30.2 | 32.7 | 27.6 | 26.8 |
| o/w Tax revenue | 20.1 | 19.3 | 19.1 | 19.4 | 19.3 | 19.3 |
| o/w CBI fees | 11.6 | 6.8 | 5.7 | 7.4 | 2.6 | 2.0 |
| Total expenditure and net lending | 31.0 | 28.2 | 29.6 | 29.2 | 30.4 | 30.3 |
| Current expenditure | 24.4 | 24.0 | 24.8 | 24.6 | 26.1 | 26.2 |
| Capital expenditure and net lending | 6.6 | 4.2 | 4.8 | 4.6 | 4.3 | 4.2 |
| Primary balance | 7.3 | 5.6 | 2.1 | 5.1 | -1.3 | -1.8 |
| Overall balance | 5.3 | 4.0 | 0.5 | 3.5 | -2.8 | -3.5 |
| Overall balance (less CBI inflows) 5/ | -5.5 | -3.0 | -5.4 | -4.0 | -5.3 | -5.4 |
| Foreign financing | -6.8 | -1.9 | -0.9 | -0.9 | -0.9 | -0.8 |
| Domestic financing | 1.2 | -0.9 | -0.1 | -3.0 | 3.3 | 3.9 |
| Change in arrears | -0.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Sale of assets | 0.5 | 0.4 | 0.4 | 0.4 | 0.4 | 0.4 |
| Extraordinary financing 6/ | 0.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total public debt (end-of-period) 7/ | 66.1 | 61.5 | 62.9 | 63.6 | 63.4 | 63.3 |
| Public debt service (percent of total revenue and grants) | 24.5 | 11.2 | 8.5 | 7.6 | 8.6 | 9.6 |
| External sector | ||||||
| External current account balance | -9.2 | -12.0 | -11.2 | -10.9 | -17.3 | -17.8 |
| Trade balance | -26.5 | -30.7 | -27.9 | -30.4 | -32.4 | -32.4 |
| Services, net | 27.8 | 26.9 | 25.1 | 27.4 | 23.0 | 22.6 |
| o/w Tourism receipts | 32.6 | 33.4 | 37.6 | 38.0 | 38.3 | 38.6 |
| FDI (net) | 13.6 | 13.3 | 8.9 | 10.2 | 12.8 | 12.7 |
| External public debt (end-of-period) | 25.2 | 20.2 | 16.1 | 14.2 | 12.2 | 10.4 |
| (In percent of exports of goods and nonfactor services) | ||||||
| External public debt service | 6.8 | 3.8 | 3.5 | 2.9 | 3.0 | 2.7 |
| External public debt (end-of-period) | 44.9 | 38.7 | 31.5 | 26.6 | 24.9 | 21.5 |
| Memorandum items | ||||||
| Net international reserves, end-of-period | ||||||
| (in millions of U.S. dollars) | 280.4 | 312.8 | 358.2 | 358.2 | 354.5 | 350.7 |
| (in percent of broad money) | 25.0 | 29.0 | 34.4 | 34.1 | 32.1 | 30.4 |
| Holdings of SDRs, in millions of U.S. dollars | 13.8 | 13.8 | 14.8 | 15.8 | 16.8 | 17.8 |
| Nominal GDP at market prices (in millions of EC$) | 2,528 | 2,591 | 2,602 | 2,714 | 2,868 | 3,031 |
Authorities revised historical GDP growth backwards from 2015.
Includes St. Kitts and Nevis (in the past, only St. Kitts data was reflected).
In relation to broad money at the beginning of the period.
Consolidated general government balances unless otherwise noted. Primary and overall balances are based on above-the-line data.
Excludes CBI budgetary fees, SIDF grants and Investment proceeds, and CBI due diligence costs.
Reflects operations linked to the restructuring of public debt.
Reflects the debt-land swap equivalent to EC$565 million in 2013 and EC$231 million in 2014.
Title page
ST. KITTS AND NEVIS
STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION
August 6, 2018
KEY ISSUES
Context. Macroeconomic performance has improved over the past five years, but vulnerabilities remain. On current policies, public debt is expected to increase over the medium term, as revenue from the Citizenship-by-Investment (CBI) program declines sharply and expenditure increases when previously off-budget expenditure by the Sugar Industry Diversification Foundation (SIDF) is integrated to the budget. The banking system suffers from weak profitability, high non-performing loans (NPLs), and in some cases land holdings that generate little income. Actions to improve the business environment should be complemented by stronger efforts to strengthen governance and anticorruption frameworks.
Article IV. Discussions focused on measures to safeguard macroeconomic and financial stability, including identifying fiscal adjustment measures, actions to aggressively tackle NPLs, and encouraging progress in completing the debt-land swap. Staff urged the authorities to ensure that public debt fall to 60 percent of GDP by 2023, by implementing a fiscal adjustment of 4 percent of GDP over 2019-23. This adjustment would comprise streamlining tax incentives, restructuring SIDF-funded activities, and containing growth in the wage bill. Staff stressed that the sale of lands under the debt-land swap must be stepped up to protect the financial and fiscal sectors from contingent liabilities. Staff also urged remedial measures to resolve high NPLs and suggested that the authorities should support efforts by the ECCB to monitor bank capital given deteriorating asset quality in the banking system. To boost inclusive growth, staff called for further efforts to improve the business climate, strengthen the labor market and education system to address skill gaps, and foster growth in tourism and enhance diversification.
Authorities’ views. The authorities broadly concurred with staff’s policy recommendations. They agreed to consider bringing the SIDF expenditures on budget together with the revenues and streamlining tax incentives in the context of a comprehensive strategy. An NPL reduction strategy that targets large loans that account for the bulk of the NPLs was developed and is being monitored by the ECCB. The authorities agreed on the urgency of completing the sale of lands under the debt-land swap arrangement and will devise a time-bound plan to sell the land to the extent possible. They concurred with the importance of achieving sustainable and more inclusive growth by strengthening competitiveness.
Approved By
Robert Rennhack (WHD) and Rupa Duttagupta (SPR)
The staff team comprising Arnold McIntyre (head), Takuji Komatsuzaki and Mauricio Vargas (all WHD), and A.M. Wickham (IMF local economist) visited Basseterre and Charlestown during June 25-July 9, 2018. The mission met with Prime Minister the Honorable Timothy Harris, Premier of Nevis Honorable Mark Brantley, Deputy Governor of the ECCB, the Financial Secretary of St. Kitts and Nevis, the Permanent Secretary of Finance of the Nevis Island Administration, the Citizenship by Investment Unit, Ministries of Agriculture, Health, Labor, Social Development, and Sustainable Development, and other senior public officials, and representatives of the Financial Services Regulatory Commission, Leader of the Opposition, and financial and business community. Courtney Williams from the Office of the Executive Director participated in the discussions. In addition to the mission team, Gonzalo Salinas (WHD) also contributed to the Staff Report.
Contents
Glossary
RECENT ECONOMIC DEVELOPMENTS
OUTLOOK AND RISKS
POLICY DISCUSSIONS
A. Preserving Fiscal and Debt Sustainability
B. Financial System at a Crossroads
C. Strengthening Competitiveness and Boosting Growth
STAFF APPRAISAL
BOXES
1. Rise and Fall of the SIDF
2. The Debt-Land Swap Arrangement
FIGURES
1. Regional Context
2. Real Sector Developments
3. Fiscal Sector Developments
4. External Sector Developments
5. Banking System Developments
TABLES
1. Basic Data
2a. Federal Government Fiscal Operations, 2014–23 (In millions of Eastern Caribbean dollars)
2b. Federal Government Fiscal Operations 2014–23 (In percent of GDP)
3. Balance of Payments, 2014–23
4. Monetary Survey, 2014–23
5. Indicators of External and Financial Vulnerability, 2011–17
6. External Financing Requirement and Sources, 2014–23
7. Selected Labor Indicators
ANNEXES
I. Risk Assessment Matrix
II. External Stability Assessment
III. Progress on 2017 Article IV Policy Recommendations
IV. Debt Sustainability Analysis (DSA)
Glossary
| AML/CFT | Anti-Money Laundering and Combating the Financing of Terrorism |
| BOP | Balance of Payments |
| CARTAC | Caribbean Regional Technical Assistance Centre |
| CBI | Citizenship-By-Investment |
| CBRs | Correspondent Banking Relationships |
| CCTV | Closed Circuit TV |
| CDB | Caribbean Development Bank |
| EBA | External Balance Assessment |
| ECAMC | Eastern Caribbean Asset Management Corporation |
| ECCB | Eastern Caribbean Central Bank |
| ECCU | Eastern Caribbean Currency Union |
| FATF | Financial Action Task Force |
| FDI | Foreign Direct Investment |
| GDP | Gross Domestic Product |
| GRF | Growth and Resilience Fund |
| MHI | Mandatory Health Insurance |
| NCD | Non-communicable disease |
| NIA | Nevis Island Administration |
| NPLs | Nonperforming Loans |
| OECS | Organization of Eastern Caribbean States |
| PAHO | Pan-American Health Organization |
| PFM | Public Financial Management |
| PEP | People Employment Program |
| REER | Real Effective Exchange Rate |
| SIDF | Sugar Industry Diversification Foundation |
| SLSC | Special Land Sales Company |
| SGBP | State Guaranteed Benefits Package |
| SKIPA | St. Kitts Investment Promotion Agency |
| UCS | Universal Coverage Scheme |
| UHC | Universal Health Coverage |
| UHI | Universal Health Insurance |
| UWI | University of the West Indies |
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.
