The IMF report, the first for 2015, noted tourism arrivals began declining in the last three months of 2014, and that an 8 per cent decline in tourism arrivals for the first two months of 2015 has “reduced the prospects for the sector.”
Meredith Arnold McIntrye, who led the latest IMF mission to the country from March 9 to 16, however said low fuel prices will likely keep inflation low this year and narrow the current account deficit.
The government in February lowered gasoline prices slightly from EC $14.99 to EC $13.50 per gallon after the price of oil dropped from over US $120 a barrel last year to currently under US $45 per barrel. The government has resisted dropping prices lower, however, and so has been able to increase tax earnings.
The IMF team leader explained the modest growth prediction for 2015, barring any change in policies.
“This projection reflects, on the upside, lower oil prices, the recovery in the United States, and the opening of the new airport terminal. On the down side, the large decline in tourist arrivals in the first two months of 2015 (about 8 per cent) has reduced the prospects for the sector,” McIntrye said.
The IMF team carried out its third monitoring exercise following the end of the more than US $102 million loan or Stand-By-Arrangement in 2013.
“The fiscal performance was weaker than previously projected and financing pressures were large and substantial. Partly reflecting fiscal loosening in the run-up to the general elections, the overall fiscal deficit in 2014 reached 2.9 per cent of GDP,” McIntrye said.
The IMF said increase public investment, higher than expected transfers and increased spending on goods and services accounted for most of the deficit. The IMF noted that with more debt payments becoming due, the gross financing needs also increased to 10.3 per cent of gross domestic product (GDP).
The ratio of public sector debt to GDP increased to 98.7 per cent of GDP.