In its recent mission to St Kitts and Nevis the International Monetary Fund applauded progress made in bringing down the country's public debt, but warned that many fiscal reforms, including the introduction of VAT, and regulatory reforms were increasingly necessary.
With the report published on January 27, 2009 the IMF urged St Kitts and Nevis to make sustained efforts to push through structural reforms, such as tax reform, improving the business climate, and deepening regional integration, stating that the reforms are crucial for enhancing its competitiveness and underpinning the currency union.
The report, based on the IMF mission between January 13-14, says:
“Despite recent progress in financial sector reforms, the long-enjoyed financial stability in the region cannot be taken for granted going forward. Waning economic growth after a period of rapid private credit expansion poses a major risk to the stability of banking system, through the deterioration of banks' asset quality. There is an urgent need to intensify oversight on banks and bring the nonbank financial sector under effective supervision. The significance of foreign banks in the ECCU also calls for strengthened cross-border regulatory cooperation and information sharing, which the ECCB has been pursuing.”
“With very high public debt levels, there is little, if any, room for counter-cyclical fiscal policy in the ECCU. Minimizing fiscal slippages would require following through on revenue reforms (including the introduction and successful implementation of value added taxes), containing expenditures and enhancing efficiency (particularly public investment and civil service wage bills), and strengthening debt management. Within this framework, a well-targeted social safety net is crucial for mitigating disproportionate impact of economic hardships on the poor. Strengthening the currency union will also require establishing and meeting annual fiscal targets that can credibly achieve the ECCB's public debt to GDP target of 60% by 2020 from its current level of 93% of regional GDP.”
The report also noted that St Kitts and Nevis has been successful in tackling its public debt, which has fallen 20% during 2005-2008.
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