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International Monetary Fund. Western Hemisphere Dept.

Context: Before Covid-19 1. St. Kitts and Nevis is a small and relatively rich two-island economy . Its GDP per capita of US$19,000 is among the highest in Latin America and the Caribbean and it scores relatively well in governance indicators. Tourism is the main source of revenue, but it also has light manufacturing and receives considerable CBI revenues. 1 Like other small islands and Caribbean countries, St. Kitts and Nevis is highly exposed to external shocks, global economic cycles, and natural disasters. Americas and Europe: Governance and GDP

International Monetary Fund. Western Hemisphere Dept.
Dominica has been hit hard by the Covid-19 pandemic, with an estimated decline in GDP of 11 percent in 2020 underpinned by a sharp reduction in tourism receipts that affected connected sectors and by lockdown measures to limit virus contagion. The output decline was contained by health spending, social transfers, and public investment resilient to natural disasters which increased significantly, leading to an increase in public debt to 106 percent of GDP despite record-high Citizenship-by-Investment (CBI) revenue. The financial sector remained stable and liquid, but vulnerability continue to be significant in the under-capitalized non-bank sector.
International Monetary Fund. Western Hemisphere Dept.
St. Kitts and Nevis entered the Covid-19 pandemic from a position of fiscal strength following nearly a decade of budget surpluses. A significant part of the large CBI revenues was prudently saved, reducing public debt below the regional debt target of 60 percent of GDP and supporting accumulation of large government deposits.
International Monetary Fund. Western Hemisphere Dept.

have contracted by 11 percent in 2020 and is expected to recover modestly to 3.7 percent in 2021. The output decline, driven by a sharp reduction in tourism and related sectors, was contained by strong growth in the construction sector stemming from the large public investment program through 2020–21, financed by exceptionally high revenue from the Citizenship by Investment (CBI) program. Despite record CBI revenue, the sharp decline in tax revenue and increase in health spending and social transfers led to large fiscal deficits in 2020 and 2021 and caused public

International Monetary Fund. Western Hemisphere Dept.

on the budget. Though strong CBI revenues provided significant financing for the reconstruction efforts, large and persistent primary deficits led to an increase in the public debt level from an average of 72 percent of GDP in 2012–15 to 94 percent of GDP by 2019. The onset of the pandemic further exacerbated debt dynamics, with an output contraction of 4.1 percent in FY 2020–21 resulting in the debt-to-GDP ratio reaching 106 percent, even as resurgent CBI revenues contained the fiscal deficit. Text Figure 1. Gross Public Debt (Percent of GDP) Sources

International Monetary Fund. Western Hemisphere Dept.

and domestic activity. Other risks include financial sector uncertainties, natural disasters, and lower-than-expected CBI receipts. Once the recovery is firmly established, the government should resume its policy of saving part of the CBI revenues to build fiscal buffers . As a small, natural disaster-susceptible country dependent on tourism and historically volatile CBI revenues, St. Kitts and Nevis needs significant buffers. Higher buffers would also provide more fiscal space to mitigate contingent and long-term fiscal pressures, including possible further

International Monetary Fund. Western Hemisphere Dept.

revenue after the hurricane led to a sharp deterioration in fiscal performance, partially offset by a surge in grants and buoyant CBI revenues . Excluding CBI revenue, the FY2016/17 deficit was 17.7 percent of GDP. After the hurricane, tax revenue declined by 23 percent while expenditure increased by 18 percent, mainly due to rehabilitation costs, public investment, and wage advances to public employees. With the revenue collapse, drawdown of large government deposits helped meet financing needs. 2 As of December 2017, the authorities had deposits in the banking system

International Monetary Fund. Western Hemisphere Dept.
This paper elaborates 2014 Article IV Consultation, Seventh and Eight Reviews Under the Stand-By Arrangement (SBA), and Request for Waivers of Applicability and Non-Observance of Performance Criterion for St. Kitts and Nevis. The discussions focus on strategies to secure sustainable growth through enhancing tourism, developing cost-effective energy sources, and improving the business environment. It states that the authorities’ commitment to their program is reflected in the 2014 budget, and their plans to save the bulk of the Citizenship by Investment (CBI) application fees.