By LK Hewlett From Caribbean News Now

BASSETERRE, St Kitts (WINN) — The International Monetary Fund has once again warned St. Kitts and Nevis against relying on revenue from its citizenship by investment (CBI) program.

A team from the IMF, led by Inci Otker, visited St Kitts and Nevis during April 20 to May 3 to conduct the 2016 Article IV Consultation.

Otker said the outlook for 2016 is positive, but remains dominated by developments in CBI inflows.

Coming off an estimated 5 percent economic growth in 2015, the IMF is forecasting a moderate 3.5 percent growth in 2016 and a 3 percent growth over the medium term. Potential spillovers from weak growth prospects in key tourism source markets, de-risking trends, delays in regional financial sector resolution, and exposure to natural disasters pose additional downside risks to the outlook.

Otker said the downward trajectory of the growth prediction is reflective of a tapering of construction activity associated with a potential slowdown in the pace of new CBI applications, given the increased competition from new CBI programs.

“Safeguarding fiscal sustainability requires a prudent medium-term fiscal framework that reduces reliance on CBI inflows and the Sugar Industry Diversification Foundation (SIDF) grants,” she said.

According to the IMF report, although the impact of the VAT and import duty exemptions were largely offset by stronger income tax collection and higher-than-expected outturn of other taxes on international trade, lower CBI budgetary receipts, delays in external grants, and temporary financing of SIDF spending, weakened the fiscal position, compared to previous years.

Otker said, “A prudent framework would help build resilience to a sudden stop in CBI inflows, and facilitate the accumulation of fiscal buffers necessary to address natural disaster shocks and absorb unforeseen financing needs if tax performance disappoints after a slowdown in CBI inflows. Implementing such a framework will require additional fiscal effort to attain a balanced budget target net of CBI receipts and SIDF grants, with the adjustment paced over the medium-term.”

The IMF advised it would be important to broaden the tax base, including by streamlining tax incentives and further improving tax administration and compliance, especially at the local Nevis government level (NIA). The Fund also advised the authorities to contain recurrent spending, in particular on goods and services and the wage bill.

The IMF reiterated its suggestion that the revenue from the CBI and SIDF be preserved in a ‘Growth and Resilience Fund’ that can provide a contingency buffer for future shocks, such as costly natural disasters.

IMAGE: harris_otker.jpg
Prime Minister Dr Timothy Harris (L) and IMF mission head Inci Otker

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