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Saint Vincent and the Grenadines is facing a challenging 2011 following two natural disasters, Hurricane Tomas in October 2010, and flooding in April 2011. Following economic contraction in 2010, the government plans to implement reforms to enhance the territory's attractiveness to international investors to combat the deficit, adding to tax reforms announced earlier in the year.
Nita Thacker, who led a recent IMF mission, commented following the visit that economic activity contracted by 1.8% last year, and is expected to remain subdued this year despite some pickup in reconstruction activity. Growth is expected to recover in 2012 and reach its potential level of 3.5% over the medium-term, provided recovery in advanced economies does not stall, she added.
“These developments have also put pressure on the government’s fiscal position as revenues have not kept pace with the increased demand for spending. The ensuing deficits have been financed by borrowing, mainly external, leading to an increase in the public sector debt-to-Gross Domestic Product (GDP) ratio,” Thacker observed, adding:
“The authorities recognize the need to ensure medium-term fiscal and debt sustainability, and the need to build financial buffers given the vulnerability to shocks. In this context, they are committed to generate primary surpluses in the range of 2% of GDP over the medium-term.”
“Structural reforms aimed at improving the business climate and making the country more competitive such as improving access to credit, enhancing labor skills, and customs administration reforms will help to ensure strong and sustained growth over the medium-term.”
“With respect to the financial sector, continued close monitoring and decisive action to ensure that all financial institutions meet the prudential requirements will be key to safeguarding the stability of this sector. In this context, the mission emphasized the importance of setting up the planned Single Regulatory Unit to strengthen financial sector supervision."
In February the government of Saint Vincent and the Grenadines announced a number of measures to boost tax receipts, including an overhaul of the island's property tax system, a crackdown on unpaid property tax, hikes to stamp duty rates, the closure of a number of tax loopholes and increases in a number of fees.
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