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St. Vincent and the Grenadines has achieved a robust recovery from the pandemic and 2021 volcanic eruptions, supported by large-scale investment projects and robust growth in tourism. Growth is projected at 4.9 percent in 2024, with economic activity surpassing the pre-pandemic trend forecast. Employment has returned to the pre-pandemic level except for young men, and female labor force participation remains relatively low. Inflation has subsided from its peak. The financial system remains sound. The outlook is favorable but is subject to downside risks mainly stemming from the uncertain external environment. In addition, the economy is facing significant challenges from a rapidly ageing population and natural disasters and climate change, amid the still high public debt. Recognizing the challenges, the authorities are implementing a broad array of reforms in line with past Fund advice.
St. Vincent and the Grenadines is recovering from the pandemic and 2021 volcanic eruptions. Despite the authorities’ strong efforts to contain deficits, critical fiscal responses to these shocks pushed up public debt, which—while assessed as sustainable—remains at high risk of distress should future shocks materialize. The economy is projected to grow by 5 percent in 2022, supported by large-scale investment projects and recoveries in tourism and agriculture. Surging commodity prices, fueled by Russia’s war in Ukraine, are expected to raise inflation sharply to 5.8 percent in 2022, adding to fiscal and external pressures and weighing on the recovery. So far, the financial system has weathered the shocks relatively well. The outlook is subject to significant downside risks primarily from an abrupt slowdown in trading partners’ growth, potential delays in investment projects including due to supply chain disruptions, and the ever-present threat of frequent natural disasters.
This 2001 Article IV Consultation highlights that in recent years, economy of St. Vincent and the Grenadines has diversified from bananas into services, mainly tourism, telephone and Internet-based marketing, and offshore financial services. However, the rate of economic growth declined sharply to 2 percent in 2000. The external current account deficit is estimated to have doubled to about 161⁄2 percent of GDP in 2001 largely owing to a decline in banana export volumes, higher imports, and a slowdown in tourism receipts and remittances.
This consultation paper explains that in addition to the adverse impact of the global slowdown and higher commodity prices, St. Vincent and the Grenadines has been hit by two successive natural disasters in the last 12 months. As a result, real GDP has been contracted by a cumulative 4.7 percent since 2007 and is expected to remain slightly negative this year. Growth is expected to improve gradually toward its potential, but significant downside risks remain, largely related to developments in the global economy.
As required under Article IV of its Articles of Agreement, the International Monetary Fund (IMF) conducts periodic consultations with its member countries. This IMF Staff Report for the 2000 Article IV consultation with St. Vincent and the Grenadines reports that in the mid 1990s, the government had launched an economic diversification programme and strengthened measures to deal with the decline in the banana trade. This initiative was supported by major public investments and the introduction of a wide range of fiscal incentives. Real GDP growth surged to 5 per cent a year during 1998-99. Inflation has been between a half and 2 per cent in the last 3 years. Unemployment remains substantial, estimated as high as 35 per cent. The external current account deficit was 20 per cent. Fund staff and the authorities agreed on the need to be vigilant in enforcing current laws and adhering to international best practices for the offshore sector. The authorities nevertheless expressed their concern that the recent naming of St Vincent and the Grenadines as a tax haven with a weak supervisory framework for offshore activities would be unhelpful in the efforts to diversify the economy towards greater reliance on services.