WASHINGTON, Nov 18, The International Monetary Fund (IMF) says St. Vincent and the Grenadine’s economy is projected to grow by five percent this year, supported by large-scale investment projects and recoveries in tourism and agriculture.
“Growth is projected to strengthen further in 2023 as large-scale construction projects get into full swing. External inflation pressures are expected to raise the annual inflation to 5.8 percent in 2022,” the IMF said after its executive board concluded the Article IV consultation.
The Washington-based financial institution said that the outlook is subject to significant downside risks, stemming primarily from an abrupt slowdown in trading partners’ growth, potential delays in investment projects, including due to supply chain disruptions, and the ever-present threat of frequent natural disasters.
It said that St. Vincent and the Grenadines is recovering from the pandemic and 2021 volcanic eruptions and that the authorities’ decisive policy responses, supported by two IMF Rapid Credit Facility (RCF) disbursements and financing from other International Financial Institutions, helped protect lives and livelihoods and contain economic scars.
It said output decline in 2020 was the lowest in the Eastern Caribbean Currency Union (ECCU), and the economy is estimated to have grown by 0.8 percent in 2021, supported by strong post-volcanic eruption reconstruction activity.
“Nevertheless, the recovery is facing headwinds from inflation pressures reflecting higher import prices. Despite the authorities’ strong efforts to contain fiscal deficits, critical responses to the shocks pushed up public debt to about 89 percent of GDP (gross domestic product) as of the end of end-2021. The financial system has weathered the shocks relatively well so far with adequate capital and liquidity buffers,” the IMF said.
It said that the authorities seek to rebuild fiscal buffers over the medium term and are balancing the need to support the vulnerable, build resilience, and maintain fiscal prudence.
The IMF said while the primary deficit is estimated to widen as the port construction starts, the primary balance, excluding pandemic-, volcano-, and port-related spending, is expected to improve from -0.4 percent of GDP in 2021 to 1.6 percent in 2022.
It said the government also remains committed to reaching the regional debt ceiling and the medium-term fiscal strategy set out in the 2021 RCF.
The IMF directors said that while the outlook is favorable, supported by large-scale investment projects and continued recovery of agriculture and tourism, it is subject to significant downside risks, and the economy remains vulnerable to shocks.
They agreed that near-term priorities continue to be health and reconstruction spending and supporting the vulnerable while maintaining fiscal prudence.
The directors encouraged the authorities to keep the generalized fiscal relief temporary as announced and continue to enhance the coverage and targeting of the social safety net. As the economy recovers, fiscal policy should move from income support to active labor market policies (ALMP) to facilitate training and employment.
The IMF stressed the importance of rebuilding fiscal buffers, including by fully operationalizing the Fiscal Responsibility Framework (FRF), to withstand shocks and reinforce fiscal sustainability and welcomed the authorities’ continued commitment to reaching the regional debt target and the medium-term fiscal strategy set out in the 2021 RCF.
The IMF said it is important to recalibrate and fully operationalize the FRF to underpin the commitment and signal a credible medium-term fiscal plan.
“Directors underscored the need for continued complementary fiscal institutional reforms to support the effective implementation of the FRF, and also called for building additional buffers and preparing contingency plans, which will be key to increasing resilience to external shocks.”
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