The Executive Board of the International Monetary Fund IMF concluded the Article IV Consultation with St. Vincent and the Grenadines, on Monday November 14, 2022.
The IMF says the 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.
The report says that the authorities’ decisive policy responses to the COVID-19 pandemic and the volcanic eruptions —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.
Output decline in 2020 was the lowest in the 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 as of end-2021.
The financial system has weathered the shocks relatively well so far with adequate capital and liquidity buffers.
External inflation pressures are expected to raise the annual inflation to 5.8 percent in 2022.
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.
The authorities seek to rebuild fiscal buffers over the medium term and are balancing the need to support the vulnerable, building resilience, and maintaining fiscal prudence. 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.
They also remain committed to reaching the regional debt ceiling and the medium-term fiscal strategy set out in the 2021 RCF.
The IMF Executive Directors commended the authorities’ proactive responses to the pandemic and volcanic eruptions that reduced economic scarring and contributed to a small positive growth in 2021.
They noted 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.
Directors agreed that near-term priorities continue to be health and reconstruction spending and supporting the vulnerable, while maintaining fiscal prudence.