IMF Concludes 2007 Article IV Consultation With St Vincent And The Grenadines

by Mary Swire, for LawAndTax-News.com, Hong Kong

17 March 2008

On February 4th, 2008, the Executive Board of the International Monetary Fund (IMF) concluded its Article IV consultation with St Vincent and the Grenadines, the results of which were published on Thursday.

In their conclusion, the Directors welcomed St Vincent and the Grenadines' recent strong macroeconomic performance, marked by robust economic growth, fiscal consolidation, and declining debt levels.

Directors noted that the potential upside risks to inflation, the high current account deficit, and the still-high public debt require continued efforts to maintain macroeconomic stability.

They also welcomed the authorities' commitment to diversifying the economy, further developing the tourist industry, lowering the cost of doing business, and reducing the vulnerability to economic shocks to address these medium-term challenges.

The IMF Directors stressed that continued fiscal consolidation is needed to lower the public debt-to-GDP ratio, and create room to raise social spending. They welcomed the recent introduction of a value-added tax (VAT) and encouraged the authorities to resist pressures to change the VAT rates and the exemption structure.

They also supported the early introduction of market valuation-based property taxes, the reduction of tax concessions, and the timely pass-through of international oil price changes.

Spending restraint will also be important, they observed, particularly through control of the wage bill and prioritization of capital expenditure.

Additionally, Directors noted the authorities' plan to accelerate investment in tourism-related infrastructure, in particular the ongoing construction of a new international airport.

While the higher investment is expected to raise the economy's growth potential, and planned land sales could help to fill the financing gap, Directors encouraged the authorities to undertake an updated study of the financing structure, and to seek additional grant and concessional financing to contain the potential impact on the country's debt position.

While the real effective exchange rate is broadly in line with fundamentals, Directors considered that maintaining St. Vincent and the Grenadines' external competitiveness will require continued fiscal consolidation along with growth-enhancing reforms.

They expected the current account deficit, which is mainly financed by grants and foreign direct investment, to decline over the medium term in line with the fall in infrastructure and tourism investment.

The IMF officials welcomed the authorities' ongoing efforts to reform the National Insurance Services, including through increases in the contribution rate, and encouraged the authorities to integrate the civil service pension system with the National Insurance Services.

Directors also welcomed the amendments to the Banking Act and encouraged the establishment of a single regulatory unit to supervise non-bank financial institutions.

Finally, Directors welcomed the authorities' efforts to improve the quality of statistics, and encouraged further efforts to improve the coverage and timeliness of data.

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