IMF Urges Urgent Action to Restore Debt Sustainability

According to a government release on Tuesday, 16th August, 2011, the IMF has cautioned the Labour Administration of Dr. Denzil Douglas, that the elevated public debt-to-GDP ratio continues to pose significant risks to the economic outlook of the country.

The release however highlighted that it was also the view of the IMF that the country’s economy was on a slow path to recovery from what has been a prolonged downturn.

The IMF is calling on the government to take urgent action to restore debt sustainability and to achieve a higher growth path.

Government has already hinted on its intention to execute a wide-scale debt restructuring program while at the same time undertaking a more comprehensive reform agenda. These initiatives are expected to be supported by a massive Standby Arrangement with the IMF that will provide access to hundreds of millions of dollars in loan disbursements, as required by government.

According to the government release, IMF directors have commended the St. Kitts and Nevis authorities for embarking on what they called front-loaded fiscal consolidation, which includes introduction of a VAT, implementation of an excise tax and electricity tariff reform, and a freeze of the public wage bill.

They agreed that fiscal adjustment must be sustained over the medium term and welcomed the authorities’ commitment to adopt further measures in case of a revenue shortfall.

The IMF directors noted that further strengthening of the financial sector is also a critical element of the authorities’ economic program. They looked forward to the establishment of a Banking Sector Reserve for temporary liquidity support to solvent banks, if needed. Directors also welcomed the ongoing efforts to strengthen the oversight of non-bank financial institutions, including establishment of the Single Regulatory Unit.

The IMF is said to have advised the government to fully implement their structural reform agenda. These forms should aim at strengthening public financial management, improving the business climate, enhancing the social safety nets, removing obstacles to growth, and restoring lost competitiveness.

In its background, the IMF noted that St. Kitts and Nevis’ tourism-dependent and highly indebted economy is recovering slowly from a two year-long recession. Activity is estimated to have declined both in 2009 and 2010, due to a fall in tourism receipts and foreign direct investment (FDI)-related construction activities. A mild recovery is underway in 2011, driven primarily by the outlook for the United States (St. Kitts and Nevis’ major export market) and the reopening of the Four Seasons Hotel in Nevis. Inflationary pressures, which remained subdued in 2009, have begun to intensify towards the end of 2010, as a result of oil and food price increases.




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