IMF Welcomes St Kitts And Nevis Tax Changes

by Amanda Banks, Tax-News.com, London

18 August 2011

The International Monetary Fund (IMF) has praised St Kitts and Nevis for its fiscal reform agenda and changes to the tax system, but warned that more work needs to be done.

Concluding its latest assessment of the islands, the IMF has said that St Kitts and Nevis is experiencing a mild, slow recovery from a prolonged period of recession. The economy had been hit, in particular, by a fall in tourism receipts and foreign direct investment-related construction receipts.

To deal with increasing fiscal imbalances, a high deficit and a rising debt-to-GDP ratio, the government began implementing a fiscal adjustment programme at the end of last year. IMF financial assistance was also requested, in support of the economic reform plan, which was designed, in part, to get debt on a downward trajectory.

The IMF noted the three-pronged reform agenda set out by the government, which includes: fiscal consolidation intended to increase revenues and contain spending; comprehensive debt restructuring; and a strengthening of the financial sector.

Responding to the changes, the IMF commended the government's work on front-loaded fiscal consolidation, pointing specifically to a raft of tax reform measures. Value-added tax and excise tax reforms were introduced in November, 2010, import duty exemptions were streamlined and an environmental levy was brought in on new vehicles.

Turning to the financial sector, the IMF references the establishment of a Banking Sector Reserve Fund as a backstopping mechanism for liquidity support, if needed. The IMF also welcomed ongoing efforts to strengthen oversight of non-bank financial institutions, including the creation of a Single Regulatory Unit.

In terms of future work, the IMF believes that a debt-to-GDP ratio of 200% poses a significant risk to the territory's outlook. Urgent action is required to restore debt sustainability and achieve a higher growth path. Fiscal adjustment must be sustained over the medium-term it said, and the government must also aim at strengthening public finance management, improving the business climate, removing obstacles to growth and restoring lost competitiveness.

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