New IMF report on St Kitts & Nevis

Friday, November 7, 2003

BASSETERRE, St Kitts: The Washington-based International Monetary Fund (IMF) has blamed hurricanes Georges, Lenny and Jose and the September 11th terrorist attack on the United States for interrupting the economic growth of St. Kitts and Nevis.

In its latest Article IV Consultations, the financial institution noted that during the early to mid-1990's, the economy of St. Kitts and Nevis was able to record real GDP growth of five and a half percent annually, "which was interrupted in 1998 by Hurricane Georges, followed by Hurricanes Lenny and Jose in 1999."

"Post-hurricane reconstruction led to a temporary resumption of growth in 2000 and before September 11, 2001, but contributed to widening the fiscal deficit despite already high public indebtedness," said the report. It added that fiscal and debt problems have been exacerbated by large and persistent losses in the sugar industry.

The IMF said real GDP growth in 2002 decelerated to 0.8 percent, from 2.3 percent in 2001, owing to significant declines in tourism, manufacturing, and construction, which were only partly offset by a strong sugar crop and an expansion in the retail trade and transportation sector.

The institution encouraged the Government of St. Kitts and Nevis to address weaknesses in the economy, especially in the areas of private capital flows and debt, the finances of the public enterprises and labour statistics.

The International Monetary Fund noted that although a larger sugar crop and some resurgence in tourism had secured a mildly positive increase in Gross Domestic Product (GDP) in 2002/03, growth in St. Kitts and Nevis remains relatively weak, and below the rate achieved in the early to mid-1990s.

"Directors considered that a strengthening of growth will depend crucially on a prudent fiscal policy - in order to reduce the very high level of public debt - and further progress in structural reforms," said the report.

The IMF also welcomed the sizeable fiscal adjustment contained in the 2003 budget, which is to be achieved through expenditure cuts and revenue enhancements. In the period ahead, the authorities are encouraged to intensify their focus on fiscal consolidation measures, with a view to regarding debt sustainability over the medium term and fostering faster growth.

"Directors considered that a strengthening of the fiscal consideration, especially on the expenditure side, will also be essential in order to provide a cushion for possible weather-related projects have now been completed, there is room to reduce capital expenditures more vigorously. In this vein, future expenditures should be limited to already-initiated or concessional, externally-financed projects," said the report. 

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