KINGSTOWN, St. Vincent, MC – The International Monetary Fund (IMF) says that while St. Vincent and the Grenadines’ economy has demonstrated resilience in the face of repeated shocks, vulnerabilities remain significant.
“Wide fiscal deficits, high and rising public debt, and large external imbalances underscore the need for decisive policy action. To reduce debt, prompt and sizeable fiscal consolidation is needed as well as structural and financial sector reforms that support growth and enhance resilience,” said Sergei Antoshin, who headed an IMF delegation that ended a one-week visit here on Tuesday.
Speaking at a news conference flanked by Prime Minister Dr. Godwin Friday, the IMF official said that the fiscal situation has continuously deteriorated since the COVID-19 pandemic and that in the past six years, St. Vincent and the Grenadines has suffered from the pandemic and two major natural disasters, and is now facing the oil price shock from the war in the Middle East.
“As a consequence, fiscal deficits have widened, driven by post-disaster rebuilding and relief as well as large construction projects and rising current expenditure,” Antoshin said, noting that the debt ratio rose by 45 percentage points of gross domestic product (GDP) since 2019, with about half of the increase occurring in the last two years, reaching 113 percent of GDP in 2025.
He said since coming to office last November, the Friday administration has introduced value-added tax (VAT) free days, expanded the wage bill, and increased social support as one-off measures.
He said that the 2026 budget, passed in February, envisages a 19 percent of GDP deficit, while the authorities are making progress in securing its funding.
“Capital expenditure plans for 2026 remain ambitious, at 17 percent of GDP,” Antoshin said, noting that the IMF is projecting a deficit of 12 percent of GDP in 2026, assuming lower capital expenditure than budgeted in line with past underexecution.
“Without a decisive change in policies, public debt is set to continue to rise. Under the baseline with no change in policies, fiscal deficits are projected to remain large, propelling the debt ratio to 145 percent of GDP by 2031, and gross financing needs to 26 percent of GDP.”
Antoshin said the war in the Middle East has worsened the near-term outlook for growth and inflation, with growth moderated to 3.7 percent in 2025 as the post-pandemic rebound faded, while tourism and construction remained strong.
“Looking ahead, growth is expected to decelerate further in 2026-27 in light of higher oil prices, a weaker global outlook, and the normalization of construction activity, converging to 2.7 percent in the medium term. Inflation is projected to rise sharply because of the war-related commodity price shocks to 2.9 percent by the end of 2026 and thereafter stabilize at two percent,” he added.
Antoshin said the current account deficit widened to 20 percent of GDP in 2025, mainly driven by construction-related imports and increased profit repatriation by hotels, despite strong growth in tourism receipts.
He said the external position is assessed to be substantially weaker than the level implied by medium-term fundamentals and desirable policies. The current account deficit is projected to remain high at around 20 percent of GDP in 2026 and narrow gradually to 17 percent of GDP by 2031.
Antoshin said bank credit growth to households and micro firms has been insufficient amid a fast expansion by credit unions.
“The local bank, which dominates the financial sector, has low non-performing loans (NPL), adequate provisions, and high capital, but also a very large sovereign exposure. Credit unions have maintained rapid lending.”
Antoshin said St. Vincent and the Grenadines has been at high risk of debt distress since 2016, while fiscal indicators have further weakened. In addition, the country is exposed to natural disasters that may have significant fiscal implications. Among global risks, a more protracted war in the Middle East would further weaken growth, deteriorate the terms of trade, and push up inflation.
“The high risk of debt distress calls for urgent fiscal consolidation,” he said, noting that there was agreement on the need to promptly implement an ambitious fiscal consolidation to avoid the prospects of a disorderly fiscal adjustment.
“In addition, the authorities may consider marketable assets for privatization. Finally, developing a contingency plan with concrete measures would allow the government to act promptly, should fiscal risks materialize.”
Antoshin said the IMF has proposed an illustrative active policy scenario to reduce the risk of debt distress.
“The scenario aims to change the debt trajectory within three years and achieve the regional debt target of 60 percent of GDP in the long term. The primary balance would have to improve by 11 percentage points of GDP during 2027-29 to achieve a debt reduction.
“This implies reaching a three per cent of GDP primary surplus in 2029. Such a primary surplus, high by the country’s standards but accomplished by others in the region, would need to be maintained over the long term. As tax revenue is already relatively high, the adjustment would have to be carried out mainly through expenditure measures.”
He said that the IMF delegation has welcomed the authorities’ work on their debt reduction strategy and that the authorities have already prepared a comprehensive strategy to put the debt ratio on a downward trajectory. The next step would be to identify and quantify concrete measures.
Antoshin said expenditure measures should prioritize streamlining, while protecting the vulnerable, especially amid the oil price shock.
“A comprehensive expenditure review would be useful to identify areas for streamlining. The authorities have expressed interest in the Fund’s technical assistance. The wage bill is high, based on the country’s historical record and international comparisons, and could be reduced through natural attrition and wage moderation.
“Other primary expenditure categories also remain above pre-pandemic averages and should be rationalized, while protecting health and education. Reforming the public sector pension system, based on past Fund advice, would help streamline expenditure,” Antoshin said, adding, “social support programs need to protect the vulnerable. Still, digitalization of assistance could help better identify and target beneficiaries and limit leakage”.
Antoshin said tax revenue needs to be preserved, and tax administration further strengthened.
“A comprehensive tax reform would result in a more growth-friendly and equitable system. The authorities have expressed interest in additional technical assistance from the Fund. To improve efficiency and collection, the VAT base needs to be broadened.
“There is no room to lower the VAT standard rate; instead, the special rate for tourism should be brought in line with the standard rate,” he said, welcoming the authorities’ ongoing work on extending VAT to digital and remote services, reforms of real property taxation, and progress with tax administration and collection, with emphasis on digitalization, with continued support from the Caribbean Regional Technical Assistance Centre (CARTAC).
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