IMF Forecasts Improved Economic Growth for St. Kitts and Nevis

Economic Growth Expected to Reach 2% in 2025

The International Monetary Fund (IMF) has forecasted that St. Kitts and Nevis’ economic growth will improve to 2% in 2025, up from 1.5% in 2024, driven by a strong performance in the tourism sector. However, the country still faces fiscal challenges, including a widening current account deficit (CAD) and rising public debt.

Fiscal Challenges Persist

The IMF’s preliminary findings indicate that the CAD expanded to 15% of GDP in 2024, up from 12% in 2023, and remains significantly above pre-pandemic levels. This increase is attributed to declining Citizenship by Investment (CBI) inflows and growing fiscal deficits. The IMF projects that public debt will reach 61% of GDP in 2025, with the fiscal deficit expected to be around 9% of GDP this year, driven by reduced CBI revenue, a higher wage bill, and a temporary reduction in Value Added Tax (VAT).

Recommendations for Fiscal Consolidation

The IMF advises that immediate and steady fiscal consolidation is necessary to maintain public debt below the Eastern Caribbean Currency Union’s 60% ceiling. To achieve this, the IMF recommends:

* Tax reforms, including VAT harmonisation, increasing excise duties on alcohol, tobacco, and fossil fuels, and updating property tax assessments
* The establishment of a Sovereign Wealth Fund (SWF) to absorb surplus CBI revenue, reduce budget volatility, and build fiscal buffers
* Transparency in the CBI programme, including the publication of comprehensive annual reports, including external audit findings and statistics on applications and financial accounts

Progress in Renewable Energy Sector

The IMF noted that progress in the renewable energy sector offers a silver lining, with the geothermal project nearing the drilling phase with secured funding. This could bolster economic growth and fiscal stability in the medium term.

Conclusion

The IMF’s assessment provides a roadmap for the government as it navigates fiscal consolidation while pursuing sustainable economic growth and stability.

Frequently Asked Questions

Q: What is the IMF’s forecast for St. Kitts and Nevis’ economic growth in 2025?
A: The IMF expects economic growth to reach 2% in 2025, up from 1.5% in 2024.

Q: What are the main fiscal challenges facing St. Kitts and Nevis?
A: The country faces a widening current account deficit (CAD) and rising public debt.

Q: What are the IMF’s recommendations for fiscal consolidation?
A: The IMF advises immediate and steady fiscal consolidation, including tax reforms, the establishment of a Sovereign Wealth Fund, and increased transparency in the CBI programme.

Q: What is the outlook for the renewable energy sector?
A: The IMF notes that progress in the renewable energy sector, particularly the geothermal project, offers a silver lining and could bolster economic growth and fiscal stability in the medium term.