IMF projects growth, gives favourable outlook for St Vincent and the Grenadines

The International Monetary Fund has projected growth of five per cent in the gross domestic product (GDP) of St Vincent and the Grenadines (SVG) for 2022, with strengthening to six per cent in 2023.

In a report issued September 1, the International Monetary Fund (IMF) said although the outlook for SVG is positive, it is subject to “significant downside risks, primarily from the ever-present threat of natural disasters and intensified spillovers from Russia’s war in Ukraine resulting in higher commodity prices.”

The 2022 Article IV statement on SVG was issued following the IMF mission, led by Nan Geng which visited SVG between August 18 and 31, 2022, for discussions on economic developments and macroeconomic policies.

“The post-eruption rebuilding activity, continued recovery in tourism and agriculture, and the start of several large-scale investment projects would support real GDP growth of 5 percent this year. Growth is projected to strengthen to 6 percent in 2023 as major projects get into full swing.

“Higher import prices, in particular those for fuel and food, are projected to push inflation to 5.7 per cent in 2022. Nevertheless, core inflation is estimated to have remained below 2 per cent, reflecting the still negative output gap,” the statement said.

“Risks to the outlook are tilted to the downside, including from commodity price volatility as a result of a further escalation of the war in Ukraine or supply chain disruptions, sharper-than-expected slowdown in trading partners’ growth, Covid-19 outbreaks, potential delays in investment projects including due to supply chain disruptions , and ever-present threat of natural disasters. On the upside, a faster-than-projected recovery in tourism could improve growth.”

The Mission praised the Government’s decisive policy responses to multiple shocks which have helped protect lives and livelihood and contain economic scars.

“…The authorities have rightly prioritized spending to provide essential support to reconstruction and economic activity and plan to keep the fiscal relief to cushion the impact of rising living costs temporary. Additionally, the government rolled out temporary income support and other targeted programs to support households heavily affected by the volcanic eruptions.”

The IMF advised that these programs should be accompanied by further efforts to enhance coverage and targeting of social safety nets, “including through ongoing efforts to digitize beneficiary information and payment system.”

The mission said it welcomed the authorities’ continued commitment to reaching the regional debt ceiling and the medium-term fiscal strategy set out in the 2021 RCF.

“This includes further strengthening of tax administration, continued containment of wage and other current spending growth while safeguarding critical service delivery, and focusing public investment on reconstruction, resilience building, and essential infrastructure.

” Supported by the strategy, the primary balance would improve to a surplus of about 3 per cent of GDP once the large-scale projects are completed in 2026. The public debt is projected to peak in 2024 and steadily decline thereafter to fall below 60 per cent of GDP before the regional target date of 2035. Given the elevated macroeconomic uncertainty and high vulnerability to external shocks and natural disasters, the debt trajectory is, however, subject to significant risks,” the statement said.

The IMF said it “would be prudent to build additional buffers and prepare contingency plans to guard against external shocks and natural disasters.”

The mission welcomed continued building-up of the Contingencies Fund, and said a higher primary surplus target and a lower debt anchor would provide a safety margin that could be used in the presence of shocks.

The tourism sector is well positioned to support long-term growth, the statement said.

“The combination of attractive nature, the new airport, and the rich agricultural base, creates conditions for more value added and job opportunities. The ongoing expansion of room capacity is a move in the right direction and needs to be accompanied by strengthened air connectivity, including at the intra-regional level, and further enhancement of road infrastructure. Developing the linkages between tourism and agriculture/fisheries would create synergies for economic development.”