IMF Releases Report on the Economy of Saint Kitts and Nevis

The International Monetary Fund (IMF) has released its 2025 Article IV report on the economy of St. Kitts and Nevis, painting a picture of moderate growth, persistent fiscal challenges, and both downside risks and upside potential. The report projects a modest economic expansion of 2% in 2025, up from 1.5% in 2024, driven primarily by the tourism sector. Inflation is expected to remain stable at around 2%. However, the country’s Current Account Deficit (CAD) widened to 15% of GDP in 2024, a significant increase from 12% in 2023 and considerably higher than pre-pandemic levels. This widening CAD is attributed to a decline in revenues from the Citizenship by Investment (CBI) program and persistent fiscal deficits, with projections suggesting it will remain around 12% of GDP in the medium term.

The IMF report highlights the continuing challenge of large fiscal deficits, which are projected to contribute to a rise in public debt. The 2024 fiscal deficit is estimated at 11% of GDP, primarily due to a sharp decline in CBI revenues. This dependence on CBI revenues underscores the vulnerability of the fiscal position to fluctuations in this income stream. While the authorities have made efforts to contain the deficit, the IMF emphasizes the need for more proactive fiscal consolidation measures to ensure debt sustainability and maintain it below the regional ceiling of 60% of GDP.

The financial sector in St. Kitts and Nevis is experiencing rapid credit growth, particularly in mortgages and consumer loans, reaching 11%. However, this growth comes with underlying vulnerabilities, including high levels of Non-Performing Loans (NPLs) and low capital buffers. Increased competition among banks further complicates the financial landscape. This combination of rapid credit expansion and existing vulnerabilities requires careful monitoring and potentially regulatory interventions to mitigate risks.

The IMF report identifies significant near-term risks, predominantly tilted to the downside. The volatility of CBI revenues represents a substantial two-sided risk. A further decline in CBI inflows could exacerbate fiscal pressures, while a potential rebound could provide some relief. However, the overreliance on this revenue source highlights the need for diversification. On a more positive note, investments in renewable energy projects offer potential upside over the medium term, potentially contributing to economic growth and generating additional fiscal revenue.

The IMF’s primary recommendation for St. Kitts and Nevis is the implementation of prompt and sustained fiscal consolidation measures to ensure public debt remains manageable. While acknowledging the government’s efforts to contain the fiscal deficit, the report stresses the importance of more aggressive tax reforms. These reforms, according to the IMF, could boost tax revenue by 2.5 percentage points of GDP and are well within reach. The report also suggests focusing on managing current expenditure to further improve the fiscal position.

In summary, the IMF’s assessment of St. Kitts and Nevis’ economy reveals a mixed outlook. While moderate growth is projected, fueled by tourism, the country faces significant fiscal challenges stemming from declining CBI revenues and persistent deficits. The financial sector exhibits rapid credit growth, but underlying vulnerabilities necessitate cautious management. Near-term risks are predominantly on the downside, primarily related to CBI revenue volatility. However, the potential of renewable energy projects offers a glimmer of hope for medium-term growth and fiscal improvement. The IMF strongly recommends decisive fiscal consolidation measures, particularly through tax reforms and expenditure management, as the key to addressing the country’s economic challenges and ensuring long-term sustainability.