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St Kitts Achieves Fiscal Targets

by Phillip Morton,

20 June 2012

Despite stagnant growth in Saint Kitts and Nevis during the first quarter, strong tax revenue performance during the first quarter of the year aided the territory in achieving the fiscal policy objectives agreed under a financial assistance package with the International Monetary Fund (IMF).

The Fund reported that the uncertain global economic environment, which has impacted the economy as a whole but the construction sector in particular, has led it to revise downward the territory's economic growth forecast for the territory to 0% this year.

Despite fiscal policy plans being forecast on the basis of higher growth, the head of the IMF mission, George Tsibouris, said: “Buoyant non-tax revenue and higher-than-expected income tax receipts more than offset a slight decline in taxes on international trade. Expenditure restraint particularly on capital outlays also contributed to a better-than-expected overall fiscal balance and a reduction in budgetary arrears.”

“The structural benchmarks at end-March 2011 were also met. Proposals for reform of the social safety nets and for the rationalization of the liquefied petroleum gas subsidies have been presented to the Cabinet. These constitute important first steps towards consolidating the variety of social assistance provided by the government, and will help to better target these programmes to the most vulnerable.”

The IMF reported that authorities have made "notable" progress both towards debt reduction and its restructuring to ensure sustainability. "The new bonds to complete the debt exchange have been issued and are being serviced as scheduled. An agreement to reschedule the debt owed to members of the Paris Club was reached in May 2012, which would extend the repayment period to twenty years with a seven-year grace period,” said the statement, noting also that a shareholders' agreement had been reached, and a special purpose vehicle incorporated, to facilitate a domestic debt for land swap.

The IMF said the mission and the authorities had agreed on a draft memorandum of economic and financial policies that maintains the fiscal targets and structural benchmarks for 2012 allowing for the completion of a third review under the Stand-by Arrangement, scheduled for August 2012.

“The authorities have reiterated their strong commitment to the policies and objectives of their home-grown economic programme aimed at restoring fiscal and debt sustainability. Notwithstanding the overall good programme performance to date, there are still risks related to the uncertain global economy,” the IMF added, pointing to the weak recovery in domestic economic activity, despite modest growth in tourist arrivals.

Against this background, the IMF urged authorities to consider macroeconomic policies that could help spur growth, including in the area of expenditure management, to secure the fiscal space for an acceleration of infrastructure and priority social projects; tax policy; and the environment for doing business.

TAGS: tax | fiscal policy | international financial centres (IFC) | budget | International Monetary Fund (IMF) | offshore | Saint Kitts and Nevis

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