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International Monetary Fund. Western Hemisphere Dept.
This 2016 Article IV Consultation highlights that economy of St. Kitts and Nevis continued its strong growth at about 5 percent, recording the strongest growth in the region during 2013–15. Strong growth has been underpinned by construction and tourism sector activity and their favorable spillovers on the rest of the economy, supported by surging inflows from its Citizenship-by-Investment (CBI) program. Large CBI inflows continued in 2015, albeit at a slower pace. The medium-term outlook is positive, but remains dependent on developments in CBI inflows. Growth is expected to moderate to 3.5 percent in 2016 and 3 percent, on average, over the medium term.
International Monetary Fund. Western Hemisphere Dept.

lower grants in 2014, including from the SIDF, generated a decline in the headline central government surplus to 9.5 percent of GDP from 12.1 percent in 2013. Netting the impact of grants, CBI flows and SIDF budgetary support, the central government registered an improvement of 1.5 percent of GDP in 2014. 3 , 4 Debt declined faster than anticipated, reflecting higher GDP growth and advance debt repayments, to 79 percent of GDP at end-2014 compared to a projected 86.2 percent, and 100.8 percent at end-2013. In 2015Q1, the fiscal result remained strong. Fiscal

International Monetary Fund. Western Hemisphere Dept.

favorable terms (i.e. a deeper NPV reduction in the debt to Grenada’s benefit) than the Paris Club rescheduling agreement on the two outstanding debts contracted in 2005 and 2013. On domestic debt, the authorities are negotiating with domestic commercial creditors to restructure the majority of outstanding debt on terms comparable to those of the U.S. dollar 2025 bonds restructuring, excluding the sharing of any CBI flows. To reduce rollover risks, the authorities are also planning to convert most of the T-bills issued through private placement into new instruments with

International Monetary Fund. Western Hemisphere Dept.

benchmark by 2030 will be challenging for most countries. The outlook is clouded by downside risks, including a possible intensification of natural disasters and financial sector weaknesses. Larger well-managed CBI flows may be a source of an upside risk. Main Policy Recommendations : While reinforcing the importance of advancing national fiscal policies that incorporate resilience-building to natural disasters and accelerating actions to safeguard financial stability, staff recommended to leverage the following steps toward regional integration for better policy

International Monetary Fund. Western Hemisphere Dept.

in the medium term under the current policies and conservative assumptions about future CBI flows. The projected slowdown in construction linked to lower CBI inflows is expected to be offset by public infrastructure investment and higher tourism growth as source market growth accelerates and new tourism facilities come on stream through 2019. Inflation is projected to rise with the expected rise in fuel prices, remaining around 2 percent in the medium term. The current account deficit should remain large with CBI inflows tapering off. Key risks to the outlook

International Monetary Fund. Western Hemisphere Dept.

financial sector weaknesses. Larger well-managed CBI flows may be a source of an upside risk. Executive Board Assessment 2 While welcoming the ECCU’s improved growth performance and public debt reduction in recent years, Executive Directors noted that growth is expected to moderate going forward. In this context, achieving debt sustainability while building resilience to natural disasters would remain challenging for most ECCU countries. To help ensure strong and resilient growth and anchor sustainability in the region, Directors called for further fiscal

International Monetary Fund. Western Hemisphere Dept.

progress. Ensure consistency of CBI flows with BPM6 A survey form prepared for BPM6 is administered in each country for the compilation of the BOP, which entities use to report on receipts and payments of CBI flows. Annex II. Risk Assessment Matrix 1 Source and direction of risks Relative Likelihood Impact/Time Horizon Policy response Rising protectionism and security risks (↓) . Uncertainty and financial market volatility increases in the short term, with negative consequences on investment. Security risks

International Monetary Fund. Western Hemisphere Dept.

with a zero primary balance target, net of CBI receipts and Sugar Industry Diversification Foundation (SIDF) grants, would help safeguard fiscal sustainability, with the adjustment paced over the medium-term. The framework would help build resilience to negative surprises in future CBI inflows, and facilitate accumulation of fiscal buffers to address external shocks and absorb unforeseen financing needs if tax performance disappoints after CBI flows decline. Implementing this framework requires broadening the tax base, including by streamlining tax incentives and

International Monetary Fund. Middle East and Central Asia Dept.

demand for foreign currency (the rate of transformation of the DFI reserves into CBI foreign assets) is estimated by staff at about 40-50 percent of domestic government spending assuming that (a) a large share of goods consumed by households is imported, (b) durable consumption goods and real estate are paid in dollars, and (c) most savings, except for small working balances, are converted into dollars or directly transferred abroad given the lack of confidence in the banking system and the limited investment opportunities. 2 DFI and CBI: Flows and Stocks of Iraq

International Monetary Fund. Western Hemisphere Dept.

.9 10.3 9.5 8.6 Provisioning/NPLs 29.8 37.3 50.5 54.6 52.4 Liquid Assets/Total Assets 52.9 54.2 58.0 51.9 45.5 Return on Assets 0.2 1.0 0.8 1.1 1.0 Source: ECCB Note: The decline in CAR reflects the reduction in the size of the loan portfolio due to the debt-land swap. Outlook and Risks 5. Economic growth is projected to fluctuate around its current level over the medium term under the baseline with current policies and cautious assumptions on future CBI flows . Growth is projected to be 2