An aerial view of Kingstown, the capital of St Vincent and the Grenadines. (File photo)

St Vincent and the Grenadines first country to benefit under IMF new facility

An aerial view of Kingstown, the capital of St Vincent and the Grenadines. (File photo)

The International Monetary Fund (IMF) has approved US$11.6 million for St Vincent and the Grenadines following its request under the Large Natural Disaster Window (LNDW) of the Rapid Credit Facility (RCF).

It said that the RCF will help cover the island’s balance of payment and fiscal needs stemming from the explosive eruption of the La Soufrière volcano that began on April 9, this year.

Smoke and ash leave La Soufriere volcano in northern St Vincent after its eruption last Thursday, April 8, 2021.
(Photo: Caribbean Development Bank)

The Washington-based financial institution said that the request is the first of its kind under the LNDW.

According to the IMF, the explosive volcanic eruption is hitting St Vincent and the Grenadines hard, creating an urgent balance of payments need and a humanitarian crisis while the country continues to deal with the fallout from the global pandemic.

“The economy is estimated to have contracted in 2020 by 3.8 per cent as tourism activity fell 70 per cent. While considerable uncertainty about the evolution of the eruption remains, IMF staff estimate the infrastructure damage to exceed 20 per cent of GDP (gross domestic product) and for the economy to contract by 6.1 per cent in 2021, with agriculture and related sectors severely affected,” the IMF said in a statement.

The International Monetary Fund building in Washington, DC, USA, estimates that St Vincent and the Grenadines’ gross domestic product fell by 3.8 per cent due to a falloff in tourism activities. (File photo)

It said that a drop in fiscal revenues, combined with additional social, clean up and reconstruction expenditures, will increase the fiscal deficit and financing needs.

The IMF said its support will help cover some of these needs and allow the Government to ease the impact on the population.

“The ongoing eruption of the La Soufriere volcano has compounded the economic and social impact from the COVID-19 pandemic, creating humanitarian challenges and immediate fiscal and balance of payments needs. The eruption has destroyed livelihoods and a significant part of agricultural crops, and has caused structural damage to public infrastructure,” said IMF deputy managing director, Tao Zhang.

International Monetary Fund Deputy Managing Director and Acting Chair Tao Zhang (File photo)

He said that the authorities responded to the emergency swiftly.

“A fiscal package includes humanitarian support, income support for affected sectors and displaced workers, and cleanup and reconstruction spending. Large rebuilding expenses will be required given the magnitude of the damages.

“The authorities remain committed to meeting the debt target set by the Eastern Caribbean Central Bank (ECCB). Once the eruption subsides, the authorities intend to undertake measures to ensure debt sustainability and rebuild fiscal buffers, including replenishing the Contingencies Fund and adhering to the Fiscal Sustainability Framework,” Zhang said.

The International Monetary Fund is working the Government of St Vincent and Grenadines to meet the debt targets set by the Eastern Caribbean Central Bank in Basseterre, St Kitts-Nevis (File photo)

He said the ECCB and the Financial Services Authority (FSA) are collaborating to safeguard financial stability and that efforts to strengthen crisis management plans and enhance the AML/CFT framework will help contain financial risks.

“IMF emergency support under the Large Natural Disaster window of the Rapid Credit Facility will help fill St. Vincent and the Grenadines’ balance of payments needs. This represents the first time the window is used. Fund financing is expected to help catalyze additional donor support.

“The authorities remain committed to ensuring transparency and good governance in the use of humanitarian and crisis-related spending,” the IMF official said.