IMF says Saint Kitts and Nevis continues to benefit from PM Drew’s decision to open the country in 2022; growth expanded by 3.4 percent in 2023
The immediate re-opening of the Federation of St Kitts and Nevis 24 hours after his election as Prime Minister in August 2022 continues to reap economic benefits for the twin-island federation.
The International Monetary Fund (IMF) in its concluding statement on March 1, 2024 following its Article IV consultations in Basseterre during its February 15 – 26, 2024 visit said Saint Kitts and Nevis “continues to recover from the [Covid-19] pandemic and cost of living crisis” and that the Federal Government of Prime Minister and Minister of Finance, the Hon. Dr. Terrance Drew “has ended 2023 with a surplus, thanks to fiscal prudence and the outperformance of the citizenship-by-investment program (CBI).”
The IMF said the economic outlook for Saint Kitts and Nevis “is positive, particularly as large-scale renewable energy projects begin to be implemented” and predicted a five percent growth in GDP for 2024.
The IMF Report said: “A rebound in tourism has powered growth in the past two years. The economy expanded an estimated 3.4 percent in 2023 after a growth of 8.8 percent in 2022. GDP is expected to return to the pre-pandemic level this year. Higher commodity prices and shipping costs pushed average inflation to an estimated 3.6 percent in 2023 from 2.7 percent in 2022 despite fiscal measures to reduce the pass-through. The 2023 budget recorded a surplus of 1 percent of GDP, thanks to strong CBI performance and continued fiscal prudence.”
“While near-term risks are somewhat tilted to the downside, renewable energy projects are likely to provide further growth momentum in the medium term. Growth is projected to strengthen to 4.7 percent in 2024, supported by tourism, an acceleration of housing and public infrastructure project execution, and investment in renewable energy. Over the medium term, growth is expected to gradually moderate to 2.9 percent. Geopolitical risks and commodity price volatility, as well as a global slowdown weighing on tourism, represent key downside risks in the near term. CBI revenues pose a two-sided risk with significant uncertainty. Over a longer horizon, faster-than-expected implementation of solar and geothermal energy projects could boost near-term activity, turn the country into a net energy exporter, support economic diversification, and incentivize capital investments to utilize surplus energy,” said the IMF.
Pointing out that the Citizenship by Investment (CBI) has performed well in recent years, the IMF expressed the view that “there is scope to further improve the integrity of the program.”
The IMF credited the Drew administration for improving the governance of the program “by advancing CBI legislation and creating the CBI Board of Governors to improve oversight” and suggested the “transparency and accountability of the CBI program could be enhanced further by publishing an annual financial report on the CBI unit’s operations and key data on applications.”
It said the fiscal stance should be tightened to maintain a balanced budget over the medium term under conservative assumptions about future CBI inflows.
“While a broadly balanced budget is expected in 2024, achieving a balanced budget over the medium term will require a gradual tightening of the fiscal stance in response to the potential CBI revenue decline expected by IMF staff,” the IMF said and suggested that this could be achieved by foregoing further CBI dividends and other untargeted payments and by returning current expenditures to their pre-pandemic level as a share of GDP.
“This would require firm control of the wage bill and goods and services expenditures and the full phasing-out of electricity subsidies. Progress in these two areas would allow for an expansion of targeted social assistance and capital expenditures (particularly those that improve the resilience of physical infrastructure to natural disasters),” the IMF Report said.
