IMF statement: how CBI supported the economy of St. Kitts and Nevis
CitizenshipTemporary Residence Saint Kitts and Nevis

IMF statement: The way CBI has supported the economy of St. Kitts and Nevis

19 July 2021
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The Government of St. Kitts and Nevis has published its final statement on the results of the last Article IV mission. The IMF noted the importance of the CBI budget fund (investment citizenship programs). These savings helped prevent economic decline in the country. The IMF also urged the government to do everything possible to attract financial resources from CBI.

The IMF adds: the epidemiological situation in the country over the past year and a half has been much better in comparison to other states. For example, the federation had the lowest rates of covid in the entire Western Hemisphere in 2020 and no deaths related to the coronavirus.

Despite health care success, the economic industry of St. Kitts and Nevis has suffered losses due to the pandemic. Tourists did not visit the islands for a long time because the local ports were closed to cruise ships. GDP declined by 12.5%, as a consequence. According to expectations of the IMF, this figure will decrease by another 1 % this year, but next year it will grow by 10 %. Estimates may change only due to unforeseen circumstances related to COVID-19.

The economy of St. Kitts and Nevis would have suffered more without the implementation of the investment citizenship program. The International Monetary Fund said in a statement that the country entered the pandemic economically sound thanks to a nearly 10-year budget surplus. The CBI managed to retain a substantial amount of large revenues. As a result, national debt declined to the value of 60% of GDP, and deposits rose.

IMF Recommendations for Improving GDP Figures

The budget surplus from CBI revenues provided a cushion for costs, allowing St. Kitts and Nevis to reduce the adverse impact on the economy. The government took appropriate measures for this purpose: attracting public investment, withholding loans, tax exemptions, unemployment benefits.

On the other hand, the use of CBI savings reduced the state’s costs cushion and caused the first budget deficit in a decade – 4.7% of GDP. Due to this fact, the IMF urged the local authorities to return to saving tactics as soon as the gross foreign exchange product figures begin to recover.

The IMF mentions that once the GDP has stabilized, it is recommended that St. Kitts and Nevis authorities return to a policy of saving a portion of the CBI revenues in order to create a fiscal environment. The Monetary Fund insists on this step because the island state has a limited territory, is prone to natural disasters, depends on the tourism industry and the dynamics of CBI revenues, which has low stability.

The fund proposes that the federation take proactive measures to maintain an annual budget surplus within 2% of GDP. The recommended rate of CBI revenues is 9% of GDP. According to IMF calculations, such a strategy would reduce the national debt to 40% of GDP and restore deposit growth to almost ¼ of GDP by 2029. As a result, the country will be able to provide a substantial budget reserve in case of macroeconomic fluctuations and natural disasters.

The IMF insists on using a more effective strategy to bring in potential investors, including close cooperation with the CBI. The next step is to strengthen the anti-money laundering system and provide oversight of the CBI program. The above-mentioned actions will help reduce risks in contractual relations between correspondent banks.

The IMF commented on the correlation between the high level of investments in the country and their low performance. The Fund assumes that the reforms would improve the productivity and competitiveness of exports. One such innovation could leverage the CBI to bring in investments beyond the tourism sector.

Source: IMIdaily

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