The International Monetary Fund (IMF) says while the economic growth outlook for St. Vincent and the Grenadines “is positive” the island is also 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.
It is predicting five percent economic growth for 2022, increasing to six percent the following year.
An IMF delegation has ended a two-week mission for the 2022 Article IV consultation discussions on economic developments and macroeconomic policies.
The mission, led by economist, Nan Geng, noted that the island is recovering from multiple shocks and the authorities’ decisive policy responses, supported by two IMF Rapid Credit Facility (RCF) disbursements and financing from other international financial institutions, have helped protect lives and livelihood and contain economic scars.
“The outlook is positive but 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.
“Policies need to be calibrated to support a resilient and inclusive recovery, while safeguarding debt sustainability and financial sector stability. Near-term priorities are health and reconstruction spending and time-bound targeted fiscal support while maintaining fiscal prudence,” Geng said.
She said once the recovery takes hold, fiscal buffers should be rebuilt, including by fully operationalizing the fiscal responsibility framework (FRF), to withstand shocks and reinforce fiscal sustainability.
The IMF mission chief said continued supply-side reforms to improve productivity and competitiveness and building resilience to natural disasters and climate change remain key for sustainable growth, which is critical to public debt sustainability.
She said the pandemic and 2021 volcanic eruptions, compounded by the impact of the war in Ukraine highlighted St. Vincent’s vulnerability to external shocks and natural disasters.
“The shocks wielded a major blow to agriculture and tourism, two main sectors. The proactive policy responses mitigated the socio-economic impact of the shocks and helped contain economic scars.’
The gross domestic product (GDP) is estimated to have increased by 0.5 percent in 2021, after shrinking by 5.3 percent in 2020.
“Despite authorities’ strong efforts to mobilize revenue and contain non-priority spending, critical fiscal responses to address the humanitarian and healthcare crises, coupled with weaker economic activity, raised public debt to about 88 percent of GDP in 2021.”
She said tourism recovery has been slow, with first quarter stayover arrivals reaching 45 percent of the pre-pandemic levels. The war in Ukraine has compounded the 2020-21 shocks through a spike in import prices.
The IMF said 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 five percent this year.
“Growth is projected to strengthen to six 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 percent in 2002.
CMC
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