KINGSTOWN, St. Vincent – The International Monetary Fund (IMF) says that the local economy has been adversely affected by two natural disasters in the past year, in addition to the impacts of the global slowdown and higher commodity prices.
“As a result, real GDP has contracted and public sector debt has risen,” the IFM Executive Board said in an assessment of the local economy this week.
The international body is therefore projecting that the local economy will register negative growth for a fourth year of consecutive year, a projection that contradict the 0.4 per cent growth forecast by the Eastern Caribbean Central Bank (ECCB) and the 0.8 per cent the government expects.
“After a contraction of 1.8 per cent in 2010, growth in 2011 is expected to remain negative, albeit to [minus] 0.4 per cent, moderated by reconstruction activity after Hurricane Tomas,” the IMF said.
St. Vincent registered significant damage to housing, infrastructure, and agriculture during the passage of Hurricane Tomas last year October while flash floods and mudslides also caused significant damage to infrastructure on the north-eastern corridor.
The IMF further said that inflation has picked up, reflecting higher international commodity prices. Higher food and fuel prices resulted in inflation accelerating to about 2.8 per cent by June this year — compared to the same period of 2010, and 0.5 per cent at the end of last year.
“At the same time, core inflation remained unchanged at 0.6 per cent compared to December last year,” the IMF said.
It further stated that the fiscal deficit is expected to be smaller than last year, mainly reflecting cuts in capital spending to offset shortfalls in revenues and delayed disbursement of external loans.
But current expenditure has been rising, in part, to mitigate the impact of the adverse shocks on the poor and vulnerable.
“Over the medium-term, the authorities remain committed to generating a primary surplus averaging about 2 per cent of Gross Domestic Product (GDP). A more ambitious fiscal consolidation path would allow for a faster reduction in debt and room to build a cushion against future exogenous shocks,” the IMF said.
It further stated that monetary aggregates remain flat, with the year-on-year growth in real private sector credit and broad money supply nearly flat as of June 2011, reflecting banks wariness to make new loans in an uncertain environment.
“With regard to the financial sector, non-performing loans (NPLs) at commercial banks in the country decreased somewhat from 8.5 per cent at end-December 2010 to 7.5 per cent at end-June 2011, but bank profitability has also been declining.
“NPLs remain elevated in the non-banking financial sector, although efforts are ongoing to improve performance. In order to improve supervision in the non-bank sector, the government is planning to establish the Single Regulatory Unit by year-end,” according to the IMF.
It noted that efforts continue to help resolve the fallout from the failure of British American Insurance and CLICO.
Prime Minister Dr. Ralph Gonsalves told Parliament this week that seven companies are interested in buying BAICO’s life insurance policy portfolio.