Prime Minister of St. Kitts-Nevis, Dr. Denzil Douglas, and CWC 2007 Corporate Communications Director, Marvia Roach at a cocktail function hosted by St. Kitts Minister of Sports, Ricky Skerritt. The IMF predicts good prospects for the twin-island's economy based on a combination of ongoing construction projects and activity related to the Cricket World Cup.

The International Monetary Fund (IMF) says despite the lockdown of the sugar industry in St. Kitts-Nevis, economic growth in the twin-island federation has accelerated.

The St. Kitts economy recorded its third consecutive year of strong growth in 2006, said the Washington-based agency, projecting that the small economy would climb 4.5 per cent.

After completion of consultation with government officials in January, the IMF projected "good prospects for 2007 due to the combination of ongoing construction projects and activity related to the Cricket World Cup."

The IMF said while the current account deficit remains large, at 25 per cent of the Gross Domestic Product (GDP) in 2005, it has been mainly financed by foreign direct investment.

"And competitiveness appears to be improving, partly owing to the depreciation of the U.S. dollar against major currencies," said the multilateral.

Temporary spike

Large adjustments in the regulated prices for petroleum and electricity prices, in response to the higher global oil prices, created a 'temporary spike' in inflation during 2005-06.

But government finances improved during the year, with the IMF projecting a primary surplus of six per cent of GDP in 2006, saying it was a "significant turnaround" from the small primary deficit recorded in 2004.

The improvements were linked to increased revenues from administrative reforms that "enhanced compliance and contained non-interest expenditures".

But despite the fiscal adjustment, the international lending agency said public sector debt in St. Kitts and Nevis remains at a "very high level".

"While the central government accounts have strengthened significantly, public enterprises are contracting significant debt," it said, indicating that the large gross financing needs of the government have been met by increased reliance on domestic financing sources.

Private credit rebounded

However, the IMF said monetary aggregates have continued to grow in line with economic growth, noting that private credit has rebounded, rising by about eight per cent in 2005, and is projected to increase by more than 10 per cent in 2006.

It said the approval of the revisions to the uniform Banking Act has strengthened the regulatory basis for the banking system and that progress has been made in improving supervision and oversight of money laundering and terrorism financing.

In order to develop more sustainable sources of growth, the IMF has recommended strengthening the business and investment climate and improving competitiveness, including enhancing the efficiency and reliability of public utilities.

"The authorities' ambitious fiscal consolidation programme has already resulted in the central government achieving a strong primary surplus.

Improvement needed

"Nevertheless, greater efforts to prioritise and control government expenditure are needed to sustain the fiscal adjustment," it added, stating that the transparency, accountability, monitoring, and oversight of public enterprises need to be improved, to ensure that the central government's fiscal consolidation is "not undermined by the poor financial performance of public entities".

The IMF also welcomed the Denzil Douglas government's commitment to reform the tax system in order to improve its efficiency, but they stressed that for the reform to be successful it must be supported by improvements in administrative capacity.

"Even with full implementation of the authorities' consolidation strategy, the public debt stock will remain very high for many years."

The IMF has also emphasised the importance of exploring options for a more rapid reduction of the debt-to-GDP ratio, including acceleration of the pace of asset sales and strengthening of debt management.

It said that a "social consensus" in favour of fiscal consolidation needs to be "nurtured and strengthened".

- CMC