WASHINGTON, USA – The executive board of the International Monetary Fund (IMF) completed the Article IV Consultation for St Kitts and Nevis. The authorities have consented to the publication of the staff report prepared for this consultation.
Following the post-pandemic rebound, the economy is facing challenges. Real GDP growth moderated to 1.5 percent in 2024, reflecting lower contributions from tourism and government services, while inflation eased to 1 percent. The fiscal deficit increased to 11 percent of GDP in 2024, mainly driven by a sharp decline in Citizenship-by-Investment (CBI) revenue amid recent reforms aimed at strengthening the CBI program. The current account deficit widened due to lower CBI inflows. Meanwhile, credit growth accelerated on the back of pent-up demand, especially in mortgage loans, amid increasing competition. Groundwork is ongoing for a potentially transformative geothermal project.
In 2025, economic growth is projected to strengthen to 2 percent supported by expanding tourism, while inflation is expected to remain stable. In the medium term, growth is forecast to rise to 2½ percent, benefiting from large energy projects. Nonetheless, fiscal deficits are forecasted to remain high in the medium term, driven by expectations of structurally lower CBI revenue, resulting in public debt exceeding 70 percent of GDP by 2030.
Near-term risks to growth are tilted to the downside, but progress in fostering renewable energy provides upside potential over the medium term. The uncertainty and volatility of CBI revenue pose a significant two-sided risk, but a further decline in CBI revenue would pressure fiscal accounts. Downside risks include a slowdown in key source markets for tourism, global financial instability, and commodity price volatility. The economy is highly exposed to natural disasters. On the other hand, the energy projects could foster growth and fiscal revenue in the medium term.
Executive board assessment
Executive directors welcomed the authorities’ commitment to prudent policy reforms and stressed that the significant challenges the economy is facing require a multipronged approach to address low growth and fiscal sustainability, while safeguarding financial stability and the external position.
Directors encouraged the authorities to implement a prompt and decisive fiscal consolidation to keep public debt below the regional debt ceiling and reduce reliance on the Citizenship‑by‑Investment Program (CBI). This would create space for capital expenditure, resilience against natural disasters, and contingent liabilities. Directors stressed that fiscal consolidation should be driven by tax revenue mobilization and reductions in current expenditures, anchored by fiscal rules. Greater diversification of funding sources would also help to lengthen debt maturities and lower financing costs. Directors supported the authorities’ plan to establish a Sovereign Wealth Fund to absorb upsides in CBI revenue and called for continuing improvements in the CBI framework, including its transparency. They also welcomed the authorities’ initiatives to implement reforms to improve the sustainability of the Social Security Fund.
Directors underscored that further progress is needed to strengthen the financial sector, including to reduce NPLs and meet the ECCB’s prudential requirements. They emphasised the importance of continuing to strengthen the balance sheet of the systemic bank and to revitalise its business model. Directors also called for reforms of the Development Bank, building on the authorities’ work in this area. They stressed the need to monitor rapid credit growth and further strengthen the regulation and oversight of credit unions. It will also be important to make additional progress in strengthening the AML/CFT framework.
Directors emphasised that structural reforms and improved preparedness for natural disasters are crucial to boost potential growth. They stressed that reforms are necessary to enhance the efficiency of government services, improve credit access, and better align labor skills with market demands. Directors noted that accelerating the energy transition would help increase competitiveness. Finally, they underscored the need to enhance the investment and the multi-layered insurance frameworks to strengthen natural disaster preparedness.
IMF Communications Department
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