Despite the severe impact of the coronavirus pandemic on economies across the globe, the small nation of St Kitts and Nevis has weathered the economic storm thanks to revenues from its Citizenship by Investment programme.
In its recent review of the Eastern Caribbean country’s fiscal management, the International Monetary Fund (IMF) commended the St Kitts and Nevis Government for using revenues from the programme as a buffer for the shortfall in income from tourism.
“St Kitts and Nevis entered the COVID-19 pandemic from a position of fiscal strength following nearly a decade of budget surpluses. A significant part of the large CBI revenues were prudently saved, reducing public debt to below the regional debt target of 60 per cent of GDP (gross domestic product) and supporting [the] accumulation of large government deposits,” the IMF wrote in its staff concluding statement of 2021 dated July 6.
At the beginning of the pandemic in March last year, the Government placed restrictions on inbound travel, introduced safety protocols including a month-long national lockdown, and procured protective and medical equipment. As a result, the complete halt in cruise ship arrivals and very few stayover tourists since the first quarter of 2020 intensified the pandemic’s disruption of domestic activity.
In response to the impact of the lockdown, the St Kitts and Nevis Government introduced tax waivers, deferrals and incentives; and, along with the Social Security Board, provided unemployment benefits to affected workers.
By the end-October 2020, the authorities reopened the borders under strict safety protocols, despite having had the lowest per capita case count in the Western Hemisphere and no mortalities in 2020.
Now, as the institution anticipates a recovery in the global economy due to a rebound in tourism, it has encouraged the authorities in the federation to resume saving “part of the Citizenship by Investment (CBI) revenues” while preparing the financial system to transition from using temporary support measures and implementing structural reforms to support productivity, economic competitiveness, and human capital.
According to the IMF, the rebound in tourism receipts will result in a “strong recovery”, beginning in 2020, but it advises caution given the structural risks.
“We project a small further decline in GDP of one per cent in 2021, followed by 10 per cent growth in 2022. The pre-pandemic GDP level is expected to be reached in 2024. However, the recovery path could be derailed should the pandemic impose sustained disruptions on the anticipated pace of tourism inflows and domestic activity. Other risks include financial sector uncertainties, natural disasters, and lower-than-expected CBI receipts,” the staff concluding statement outlined.
In addition, the IMF noted that savings from the CBI could continue to serve as a buffer against other tourism-related disruptions, including shocks from natural disasters. To this end, the institution further advised that the country maintains “an overall budget surplus of at least two per cent of GDP” to strengthen the emergency fund.
“Assuming annual CBI revenues of nine per cent of GDP, the savings would allow reducing public debt to around 40 per cent of GDP and rebuilding deposits to close to a quarter of GDP by the end of the decade, which would provide a significant buffer against both macro-economic and natural disaster shocks,” the IMF pointed out.
In so doing, the St Kitts and Nevis Government would have enough fiscal space to invest approximately three per cent of GDP annually while, possibly, reducing the government wage bill, reforming tax incentives, and strenghtening public investment efficiency, the IMF said.