From January 16 to January 27, 2023, an IMF team headed by Mr. Alexandre Chailloux was in St. Kitts and Nevis for the 2023 Article IV consultation sessions on macroeconomic policies and economic developments. The mission team benefited from open and helpful exchanges with colleagues in the public and business sectors as well as other stakeholders. 

The COVID-19 pandemic had a significant negative impact on the economy, causing the GDP to decline by 14.5 percent in 2020 and 4.3 percent in 2021. Due to more stringent and persistent COVID regulations, the Caribbean region’s tourism recovery has lagged behind that of ECCU.

The worldwide challenges in 2022 slowed the growth catch-up. In 2022, the GDP is anticipated to have increased by 9%. The aggressive response of the authorities to inflation pressure resulted in an increase in the average rate of inflation of only 2.7 percent.

The former administration significantly reduced its deposits and contingent obligation by repurchasing land (7.6 percent of GDP) under the land-to-debt swap agreement (which now remains at 12 percent of GDP). In spite of record-high CBI revenues, these actions had an adverse effect on the public purse: the government experienced its biggest primary deficit in 20 years.

Growth this year is projected to be 4.5 percent, helped by a robust rebound in the tourist industry and other service-related industries. Short-term downside risks are more prevalent and are mostly caused by global headwinds affecting important tourism source markets and commodity price volatility.

A significant source of vulnerability is the rising reliance on erratic and unpredictable CBI revenue. Bank capital may be impacted if the global financial situation continues to deteriorate. The possibility of natural disasters is always present. On the other hand, medium-term projections for a faster switch to renewable energy sources and greater public sector investment in resilience could pose significant upside risks.