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The global economic crisis has impacted tourism in St. Vincent and the Grenadines. (File photo by Jamali Jack)

ST. VINCENT: St. Vincent and the Grenadines has been severely affected by the spillovers of the global crisis on tourism, remittances, and foreign direct investments, the International Monetary Fund (IMF) says.

Economic activity contracted 0.6 percent in 2008 and 1 percent in 2009, after an average increase of about 8 percent in 2006-2007.

The balances of the central government worsened in 2009 while the overall deficit doubled to 3.3 percent of the gross domestic product (GDP) – the total value of all goods and services produced in a country within a given year.

In 2009, the Dr. Ralph Gonsalves administration in Kingstown financed the deficit largely through issuance of Treasury bonds, leading to an increase in the total public sector debt to 75 percent of GDP, a jump of 7 percentage points from 2008.

“The fiscal deficit is expected to widen further this year, reflecting in part spending on some one-off items, including the bridge loan to the airport authority and resources for the financial sector,” said Nita Thacker, who led and an IMF team on a 10-day mission to SVG.

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She said the government planned to reduce the deficit through a mix of revenue and expenditure measures to ensure that the debt-to-GDP ratio declines in line with the Eastern Caribbean Central Bank (ECCB) recommended target of 60 percent by 2020.

Further, the primary surplus of 2008 disappeared to leave a near-zero deficit in 2009.

However, inflation declined to 0.4 percent in 2009 from 10 percent in 2008, reflecting the decline in international food and fuel prices, and the IMF said it was expecting growth to recover gradually over the medium term.

It said this would reflect the projected slow recovery in employment and consumer spending in tourism source economies.

The IMF further said the banking sector required close monitoring, “as soundness indicators deteriorated in 2009”.

Additionally, uncertainty in the nonbank financial sector remained high, reflecting the fallout from the collapse of the CL Financial Group, of which British Insurance Company is a part. (Go to the homepage to subscribe to I Witness-News)

The IMF team said it welcomed the authorities commitment to a regional strategy for resolving the issues related to this sector.

It further said progress is also being made on establishing a Single Regulatory Unit to strengthen the supervision of the nonbank financial institutions.

The visit of the IMF mission to SVG was for the annual Article IV discussions on economic developments and macroeconomic policies.

The mission met with Prime Minister and Minister of Finance, Dr. Ralph Gonsalves, Acting Prime Minister Mike Browne, members of the Cabinet, Director General of the Ministry of Finance Maurice Edwards, other senior government officials, as well as members of the opposition New Democratic Party, headed by Arnhim Eustace. The mission also met with representatives of the private sector and labor unions.