Nevis Determined To Overcome Fiscal Woes

by Amanda Banks, Tax-News.com, London

22 September 2011

Following the re-election of the Nevis Reformation Party, Nevis Deputy Governor General Eustace John has underscored that the government remains committed to continuing deficit reduction efforts over the next five years.

Nevis, one of the islands that comprise Saint Kitts and Nevis, implemented a 17% value-added tax in November 2010, after earlier hiking excise taxes and fees to government, among other measures. In the Throne Speech, John said that the government has announced that it has implemented the tax hikes necessary to begin fiscal consolidation and will now focus over the next five years on implementing measures to cut government expenditure.

“As a result of the global financial and economic crisis, it was necessary to increase the debt and run budget deficits especially over the past three years. This is not unique to Nevis. Governments worldwide have been forced to undertake similar fiscal expansion to mitigate the effects of the crisis. Consequently, the stock of debt has increased to USD359m as at June 30, 2011. Similarly, the costs associated with servicing the debt has increased,” John said.

“Consequently, Nevis, along with the federal government, has embarked on a fiscal and macroeconomic stabilization programme in collaboration with the International Monetary Fund through its Stand-By Arrangement to restore fiscal balance and place the debt on a downward trajectory. We have already implemented a number of revenue reform measures, the most significant being the value-added tax. In the future, we will concentrate on expenditure reduction and debt management,” he added.

John said that the government's strategy "is very clear" and as a result measures will be put in place to:

• Begin immediately to wind down the stimulus programme;
• Exercise greater control over current expenditure which would result in a moderate reduction in the size of the public sector and the freezing of wages;
• Strengthen the monitoring and evaluation of budgets to eliminate waste, and focus expenditure on priority areas;
• Establish fiscal and debt targets for the government consistent with the ECCB (Eastern Caribbean Central Bank) guidelines; and
• Develop a comprehensive debt strategy to guide the borrowing of the government.

“These measures will require some sacrifice by all of us in the short and medium-term, but are necessary to build the foundation for a strong and resilient economy in the future," John continued. "We have insisted in our discussions with the IMF, the need to maintain the safety net programmes as well as transfer payments to health and education to protect the most vulnerable in the society. It was agreed that these programmes will be maintained at existing levels during the implementation of the fiscal adjustment programme.”

“We are optimistic that by the ending of 2013 the fiscal situation would have improved significantly,” he concluded.

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