ST. KITTS-IMG outlines policy measures to stabilize debt and reduce vulnerability in St. Kitts and Nevis.

WASHINGTON, CMC – The executive directors of the International Monetary Fund (IMF) say continued fiscal consolidation, supported by a strong fiscal resilience framework, is critical for St. Kitts and Nevis to stabilize debt, rebuild buffers, and reduce vulnerability to shocks.

They said that under a moderately front-loaded consolidation scenario combining expenditure rationalization and revenue mobilization, public debt would stabilize at the regional benchmark by 2031, and higher government deposits would help rebuild buffers.

“Current expenditure requires further rationalization, including streamlining goods and services spending,” the IMF directors said, following bilateral discussions under Article IV.

The Washington-based financial institution had earlier indicated that economic growth in the twin-island federation had slowed in 2025 but is expected to rebound to 2 percent in 2026 and strengthen over the medium term.

It said construction, agriculture, renewable energy projects, and the continued expansion of tourism activities support the projected pickup this year. However, elevated oil prices associated with the war in the Middle East would weigh on the economy through their impact on tourism and transportation sectors.

Inflation is expected to rise moderately to 2.2 percent in 2026, driven by higher global energy and food prices, before stabilizing over the medium term. The current account deficit remains wide at 14.6 percent of gross domestic product (GDP) in 2025, well above the pre-pandemic average.

The IMF said that the banking system remains broadly stable, although vulnerabilities persist. Geothermal and solar energy projects are advancing steadily.

The executive directors said policy measures to mitigate the impact of higher oil prices should be well-targeted and time-bound. They said tax revenue has ample scope to increase by rolling back Covid-era concessions, broadening the value-added tax (VAT) base, strengthening property taxation, increasing excises, and improving tax administration.

The executive board said formally adopting fiscal rules anchored by the regional debt benchmark is essential to underpin fiscal consolidation efforts.

“This would help the authorities’ ongoing efforts to reduce reliance on Citizenship by Investment (CBI) revenues, mitigate fiscal procyclicality, and strengthen policy credibility. The planned Sovereign Wealth Resilience Fund is also welcome; its implementation…would help manage CBI revenue volatility, enhance disaster resilience, and support long-term fiscal sustainability”.

Under the CBI program, foreign investors are granted citizenship of the twin island Federation in return for making a substantial investment in its socio-economic development.

The IF has noted that with CBI revenue declining further, the overall fiscal deficit widened to 11.7 percent of GDP in 2025, public debt edged up closer to the 60 percent of GDP regional benchmark, and government deposits declined further.

It said persistently low CBI revenues are expected to keep deficits elevated in 2026 and over the medium term, while public debt is projected to continue rising. Debt sustainability is maintained, but contingent liabilities from public banks and the Social Security Fund (SSF) pose significant risks.

The IMF executive board said that parametric reforms to the SSF should proceed without delay to prevent reserve depletion by 2040.

It said that the banking system remains broadly stable, although vulnerabilities persist. Capital positions have strengthened, and non-performing loans (NPL) ratios have continued to decline, while credit growth has remained robust.

“Financial sector policies should focus on resolving legacy NPLs, strengthening provisioning, and further de-risking investment portfolios. Comprehensive reform of the Development Bank is critical to safeguard financial and fiscal stability. The FSRC’s oversight framework for the non-banking sector should be further strengthened,” the executive board added.