IMF: Growth expected to recover in 2012

An International Monetary Fund (IMF) mission, led by Ms. Nita Thacker, visited St. Vincent and the Grenadines during August 10–19 for the annual Article IV discussions on economic developments and macroeconomic policies.{{more}} The mission met with the Honorable Prime Minister and Minister of Finance Dr. Ralph Gonsalves, the Director General of the Ministry of Finance Mr. Maurice Edwards, other senior government officials, as well as members of the opposition, headed by Hon. Arnhim Eustace. The mission also met with representatives of the private sector and labour unions. At the end of the mission, Ms. Thacker issued the following statement dated August 25, 2011:

“St. Vincent and the Grenadines has been facing a challenging year. In addition to the continued impact of the global slowdown, the country was severely affected by two recent natural disasters: Hurricane Tomas in October 2010, and torrential rains and floods in April 2011. Economic activity contracted by 1.8 percent last year, and is expected to remain subdued this year, despite some pickup in reconstruction activity. Growth is expected to recover in 2012 and reach its potential level of 3.5 percent over the medium-term, provided recovery in advanced economies does not stall. High world commodity prices are expected to put temporary pressure on inflation and the balance of payments in 2011, but these will subside over the medium-term.

“These developments have also put pressure on the government’s fiscal position as revenues have not kept pace with the increased demand for spending. The ensuing deficits have been financed by borrowing, mainly external, leading to an increase in the public sector debt-to-Gross Domestic Product (GDP) ratio. The authorities recognize the need to ensure medium-term fiscal and debt sustainability, and the need to build financial buffers, given the vulnerability to shocks. In this context, they are committed to generate primary surpluses in the range of 2 percent of GDP over the medium-term.

“Structural reforms aimed at improving the business climate and making the country more competitive, such as improving access to credit, enhancing labor skills, and customs administration reforms will help to ensure strong and sustained growth over the medium term.

“With respect to the financial sector, continued close monitoring and decisive action to ensure that all financial institutions meet the prudential requirements will be key to safeguarding the stability of this sector. In this context, the mission emphasized the importance of setting up the planned Single Regulatory Unit to strengthen financial sector supervision.

“Upon its return to Washington, the mission will prepare a report, to be discussed by the IMF’s Executive Board, tentatively scheduled for early October 2011. The mission thanks the authorities for their warm hospitality and close cooperation.”