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
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
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
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
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