ST. VINCENT and the GRENADINES
1. A. RECENT ECONOMIC PERFORMANCE Overview The rate of GDP growth in St. Vincent and the Grenadines (SVG) was estimated at about 4.5% in 2006, up from the 2.2% growth rate of 2005. Construction sector activity, mainly related to tourism, continued to be the main driver of activity and growth during the year.. The agriculture sector continued to face various challenges, with the result that sector activity declined during the year. The expansion in economic activity led to an improvement in the fiscal position of the Central Government; at the same time, the external current account balance deteriorated as increased activity resulted in a rise in imports. Though unemployment data are unavailable, there is some likelihood that the improved economic activity contributed to some reduction in the rate of unemployment. Inflation, as measured by the consumer prices index, rose slightly, primarily on account of increased energy costs. B. Sectoral Performance Agriculture Indications are that activity in the agriculture sector in 2006 was slightly below the level achieved in the previous year. Unusually high levels of rainfall continued to negatively affect overall sector output, with the banana sub-sector, in particular, having faced additional challenges resulting from the Fairtrade requirement of limited use of fertiliser and weedicides. Additionally, the persistent problem of labour scarcity, reflecting the level of wages in the industry, reduced harvesting and, as a consequence, exports of bananas amounted to 14,077 tonnes during the ten months to October, down from 15,594 tonnes during the corresponding period in 2005. At the same time, earnings fell to $7.24 mn from $7.77 mn. Notwithstanding the lower earnings, the average price per tonne exported increased to $514 from $498 as a result of selling under the ‘Fairtrade’ label. 84
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Non-banana agriculture continued to respond positively to increasing demand in both domestic and external markets during the year. There was a noticeable increase in the volume of mangoes, avocadoes and plantains shipped to Barbados, while exports of dasheen, sweet potatoes, hot peppers and eddoes remained steady in their traditional markets. Initial shipments of yams and avocadoes to Martinique were favourably received as the Eastern Caribbean Trading Agricultural Development Organisation continued its market penetration initiatives. Interest in animal husbandry and alternative livelihood activities for communities near the forest reserve also continued to rise as the Ministry expanded its various outreach programmes. Tourism Total visitor arrivals increased by 19.7% during the year, with the increase being primarily driven by a surge in cruiseship arrivals. The number of visitors increased to 306,578, up from 256,075 for the previous year. Long-stay arrivals increased by 2%, with the number of visitors from the US (which accounted for 29.4% of that category) rising by 5.3% over the 2005 level. The absence of a promotional campaign in the Caribbean market probably affected arrivals, with the number of visitors from this source declining by 4.3%. Visitor arrivals by sea increased by 48,469 (or by 32%) over the review period, following a 22.7% decline in the previous year. Cruiseship arrivals surged by 52.6% to reach 106,474, up from the 69,753 arrivals in 2005. This sharp increase was largely attributed to negotiations between the Government and the cruiseship agents which were now beginning to yield positive results. The yachting sub-sector reversed its performance of earlier years, with the number of visitors increasing by 14.3% during the year to reach 93,638, up from 81,890 in 2005. The implementation of initiatives to stamp out problems of harassment within the sub-sector started to yield the desired results.
St. Vincent and the Grenadines
Construction During 2006, construction sector activity continued to be the main driver of economic growth. Ongoing work at the Arnos Vale sports complex ahead of CWC 2007, Government’s road rehabilitation programme, and the continuing strong demand for residential properties were the predominant factors influencing activity in the sector. The large number of ongoing projects and resultant strong demand for cement, resulted in intermittent shortages of that product during the review period. However, as an item under price control, and reflecting regional supply arrangements, its price did not rise in response to the strong demand. Social Services The work of the Family Services Division continued to focus on vulnerable groups and individuals, and during the year the Division provided over 5,000 persons with financial assistance in addition to providing school uniforms and supplies to over 2,500 students, home-care services to approximately 400 elderly persons, and arranging foster care for a number of abused and/or abandoned children. The provision of electricity- and water-rate subsidies to the elderly poor, and the payment of fees to underprivileged students taking CXC examinations also formed part of the work programme during 2006. Government’s policy on social development over the medium term is expected to be comprehensively articulated when a report on building social capital and strengthening social protection is completed and published during 2007. Health The major thrust of activities in the health sector during 2006 was towards implementation of the fiveyear (2006-10) National Strategic Health Plan. This plan has an overall aim of “… providing equitable, quality, sustainable, comprehensive primary, secondary and tertiary health care, health promotion, nutrition and health education services to all citizens…” Programmes . during the year included immunisation, the provision of maternal and child health care, and expansion of both the school health and dental health services. In addition, the national eye screening programme continued to examine persons for various forms of eye disease, and a large number of those diagnosed as needing surgical care were treated in Cuba, under a programme that that country has extended to the Caribbean region. Many persons have also received glasses as a result of the programme. Education Implementation of a programme to provide free universal access to primary and secondary
St. Vincent and the Grenadines
education gained momentum during the year as part of the Government’s overall poverty reduction strategy. Following the achievement of universal secondary education in 2005 (there was already universal primary education), expansion of the early childhood, and technical and vocational aspects of the free programme commenced during the year. Financing has already been secured for a project to build new and rehabilitate or replace old schools in order to improve the quality of the learning environment; and construction is expected to commence in 2007. The intake of students in the nursing school has been increased as part of the effort to address ongoing emigration of trained nurses. C. Prices, Wages and Employment Based on the consumer prices index, the point-topoint rate of inflation in the 12 months to November 2006 was 4.4%, up slightly from the 3.7% for the corresponding period ending November 2005. The main groups showing increases during the period were Transport and Communication (11.5%), Fuel and Light (9.7%), Food (5.2%) and Education (5%). The upward price movements in the various categories were direct results of increases in the price of imported fuel The Household Furniture and Supplies group exhibited no change over the reference period, while the sub-index for Clothing and Footwear declined marginally (-0.7%). D. External Sector Merchandise imports for the period January to June 2006 increased by 24.1% to $140.9 mn, up from $113.6 mn in the corresponding period of 2005. The increase in imports was largely driven by stronger demand for manufactured goods and for machinery and transport equipment to facilitate activity in the manufacturing and construction sectors, and for consumption. Over the same period, the value of exports rose more slowly (by 4.9%), moving to $22.1 mn from $21.1 mn in 2005. The faster rate of growth in imports led to an increase in the merchandise trade deficit to - $118.7 mn from $92.4 mn during the corresponding 2005 period. Estimated visitor expenditure increased by 13.4% during the first half of the year to reach $63.6 mn, up from $56.1 mn during the corresponding 2005 period. E. Financial Sector Financial sector supervision is provided jointly between the authorities in St. Vincent and the Grenadines (through the Finance Intelligence Unit (FIU)) and the ECCB. The FIU, which was established in May, 2002, has supervisory oversight for offshore institutions, while the
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responsibility for domestic banking sector oversight and regulation lies with the ECCB. The process of bringing non-bank financial institutions under a single regulatory unit was underway at year-end. An amendment to the Anti-Money Laundering Act in 2005 strengthened the regulatory powers of the FIU, and during 2006 the unit continued its oversight as mandated. The FIU also signed several Memoranda of Understanding with various countries aimed primarily at facilitating the process of information exchange. A total of 52 suspicious transactions and suspicious activity reports (STRs/SARs) generated from financial institutions and regulated businesses were collected and analysed in 2006. In addition, nine Production Orders (requiring the release of particular information) and ten Detention Orders (restricting transactions in real or personal property) were obtained from the High Court to assist with investigations. The FIU was involved in three successful prosecutions for money laundering during the year. Domestic The general characteristics exhibited by the banking system in 2005 prevailed throughout the first half of 2006. These characteristics included a high level of system liquidity, little net movement in credit (credit to the private sector rose by 3.2%), and no change in interest rates. Offshore Growth in the offshore sector continued to be positive during 2006. In the year to November, the rate of renewals of international business corporations increased by 17%, with 5,915 entities renewing their licences as opposed to 5,039 during 2005. At the same time, the number of new registrations declined by 5% to 1,266 from 1,330 in the previous year. At the end of November, the total number of licensed IBCs had increased by 12.4% from 6,389 at the end of 2005 to 7,181. In addition to the IBCs, there were 133 international trusts, 6 offshore banks and 10 companies dealing with international insurance registered to conduct business with external entities from within the jurisdiction. In the year to September, income earned by the International Financial Services Authority (IFSA) amounted to $1 mn, some 23% below the target of $1.3 mn and 7% below the $1.09 mn earned during the same period in 2005. At the same time, expenditure by the Authority in 2006 was $0.61 mn as opposed to $0.68 mn in 2005. Hence net earnings declined by 12% for the period, with the decline being attributed to less than expected buoyancy in IBCs registration. 86
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F. Fiscal Policy and Debt Obligations Fiscal performance improved substantially in 2006. Buoyancy in economic activity resulted in strong increases in both tax and non-tax receipts, with the result that recurrent revenue increased by 17.9% to $145.7 mn from $123.6 mn. Recurrent expenditure, on the other hand, increased at a slower rate, and as a result the recurrent surplus rose to $14.1 mn in 2006 from $3.1 mn in 2005. Capital spending expanded during the year to $38 mn, an increase of 6.1% on the $35.8 mn spent in 2005. Despite the small rise in capital expenditure, the overall deficit (after grants) declined to $20.6 mn from $26.9 mn in 2005. The disbursed and outstanding public debt was estimated at $393.3 mn at the end of September, 2006, an increase of 7.8% over the outstanding balance of $364.8 mn at the end of December, 2005. This increase ($28.5 mn) resulted primarily from disbursements associated with the Lowmans Bay Power Plant, the Windward Highway Rehabilitation, the Special Road Programme and a $14.8 mn bond issue on the Regional Government Securities Market to finance the Arnos Vale Sporting Complex, the Correctional Facility and the Secondary School Expansion Programme. At the end of September, outstanding public debt was approximately equal to 85% of GDP.
2. MAJOR DEVELOPMENT ISSUES A. Long-Term Development The economy of St. Vincent and the Grenadines is externally driven, with employment and incomes being mainly dependent on tourism and tourism-derived activity, export agriculture, and offshore business services. In addition, both tourism and agriculture are themselves dependent on conservation of the natural environment, although the country is subject to hazards which range from rain- and wind-storms through earthquakes, volcanic activity, beach and marine contamination from inadequately treated wastes, oil and other spills, through to the effects of climate change. In addition there are hazards to social stability and economic activity which reflect the absence of full social inclusion, and those which result from the operation of market and other economic forces outside of the control of the domestic authorities. In recognition of this situation the authorities in St. Vincent and the Grenadines have, over the years, tried to address the issues through a range of initiatives. As
St. Vincent and the Grenadines
indicated earlier, there are ongoing programmes, under continuing review, which seek to address poverty and social exclusion issues directly, through assistance and support to the poor and vulnerable to satisfy current needs; and less directly, through human capacity development by the provision of health services, education and training, and team sports, and through the provision of a facilitating macro- social and economic environment that is encouraging to and supportive of investment and private business activity. External economic issues have been approached both on an individual country basis, where bilateral arrangements have appeared to offer more appropriate solutions, and on a sub-regional or regional basis, where common cause with like-minded and like-affected entities have seemed to present greater opportunity. Environmental issues have been approached utilising both sets of options, in addition to action having a purely domestic focus and content. What has been clear is that the authorities have been aware of the issues, and have sought solutions which both satisfy objectives and which have appeared to offer the strongest likelihood of long-term sustainability. At the present time, St Vincent and the Grenadines are participating simultaneously in two integration movements: one at the sub-regional OECS level, where coordination and cooperation are substantially advanced, and where services in a range of areas are already currently being shared; the other at the broader CARICOM level, where the level of integration has much further to go, but which offers, partly because of the size, spread, and endowments of the individual units, a greater potential for helping individual members to achieve their development objectives, objectives which exhibit a high degree of commonality. The integration processes will not be smooth, in either of the movements; however, all members have expressed strong commitment to the objectives, and all have demonstrated both the capacity and the willingness to address problems and issues as they arise.
(i)
pursuing economic diversification through expansion of non-banana agriculture and of export services (tourism, informatics, offshore finance); increasing public sector savings in support of public sector investment;
(ii)
(iii) promoting HRD in support of general economic activity and poverty-reduction initiatives; and (iv) improving environmental management while strengthening the country’s capacity for disaster management. The capital investment programme for FY 2007 is budgeted at $24.6 mn, a 5.9% increase over the 2006 approved estimate of $23.3 mn. More specifically, the investment programme for FY 2007 is intended to: (i) stimulate growth in the main economic activity areas of agriculture, tourism, transport and construction; provide the physical and institutional infrastructure critical to the modernisation and development of the country;
(ii)
(iii) stimulate private sector activity by providing the supporting infrastructure to facilitate investment and business growth; and (iv) improve the quality of life of the citizenry by strategically investing in the areas of poverty reduction, health, education, security and community services. B. Composition of the PSIP In support of its development objectives, the Government approved $24.6 mn for the FY 2007 capital programme. Of the total, $6.6 mn (26.7%) is to provide for road repair and rehabilitation programmes in the transportation sector and for the construction of new ones. Additionally, $1.2 mn (4.8%) is geared toward other economic activities including airport improvement and rehabilitation (Canouan, Union Island and E.T Joshua) and private sector development. An allocation of $4.9 mn (19.9%) to education is intended to support a second phase of the basic education project which seeks to enhance the learning environment and strengthen institutional capacity.
3. PUBLIC SECTOR INVESTMENT PROGRAMME A. Development Objectives Government’s development objective is to attain high levels of balanced and sustained growth with low unemployment and zero incidence of poverty. Thus, over the medium term, policy actions and programmes in support of this objective will be geared towards:
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The issue of security has grown beyond national borders and substantial sums now have to be expended to maintain compliance with international agreements. Border security is one such area that has been elevated in terms of priority for small states if they are to continue to,participate fully in the global environment. An allocation of $5.9 mn (8.9% of capital budget) has been made for security in FY 2007. Other allocations in the Budget are to Health and Sanitation ($4 mn, or 6%); Agriculture ($3 mn, or 4.5%) and Recreation and Culture ($4.5 mn, or 6.7%) in support of the various sectoral programmes. C. Financing of the PSIP Of the $24.6 mn of capital expenditure budgeted for FY 2007, $16.3 mn (45.2%) is expected to be sourced from abroad, comprising grants of $11 mn (17.2%) and loans of $5.3 mn (28%). The high proportion of grant funding is intended to cushion the impact of additional borrowing on the public debt. The current account surplus, along with domestic financing (loans and bonds) of $8.3 mn, is expected to fully cover the capital financing requirements. D. Implementation Issues Implementation issues are not expected to feature prominently during FY 2007, despite the inputs constraints that were experienced during 2006.
4. MEDIUM-TERM ECONOMIC PROSPECTS The medium-term growth outlook for the economy of St. Vincent and the Grenadines is reasonably favourable, with GDP growth expected within a range of 3% to 4% per annum. The continued diversification efforts within the agriculture sector, geared towards greater agro-processing, are expected to reduce output volatility as experienced in the past. At the same time, ongoing investment in the tourism sector are aimed at diversifying the product and increasing its overall contribution to the development of the country. The prospects also hinge upon continued growth in both tourism-related and residential construction. Fiscal performance is expected to strengthen, with the recurrent savings level being maintained at between 2% and 3% of GDP. Some challenges could arise from acceptance of all recommendations resulting from a recent public service restructuring exercise, as implementation of some changes would require significant increases in remuneration for certain categories of staff. However, savings derived from the streamlining of government operations (including improved budgetary management and the introduction of a VAT) should facilitate the restructuring process without significantly eroding the current savings level. Some tempering of the capital expenditure program is expected as the current major projects become fully implemented. This should result in some reigning in of the overall fiscal deficit from its 2005 level of 5.5% of GDP and should also lead to a slower rate of growth of the public debt.
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St. Vincent and the Grenadines