Additional fiscal measures are needed in St. Vincent and the Grenadines in 2018 and over the medium-term to pay arrears and put public debt on a clear downward path, mitigate debt distress, and achieve the regional debt target.
The call from the International Monetary Fund (IMF) on Monday after its Article IV Consultation with SVG comes as Minister of Finance, Camillo Gonsalves, prepares to present his first Budget, in January.
The IMF said that under current policies, public debt is projected to continue to rise from its already high level.
“In this context, the authorities should implement measures yielding 1.8 per cent of GDP over the next two years, which would provide the needed savings to a contingency fund to address natural disasters,” the IMF said.
The projection comes even as the Washington-based organization says that public debt will resume rising although some debt relief from a bilateral creditor, is expected to see the public sector debt decline, but remain elevated at 77.5 per cent of GDP in 2017
The IMF said that containing the wage bill and curbing the growth of public pensions should be key pillars of the fiscal consolidation strategy.
The Unity Labour Party administration has grappled for years with the nation’s pension system that sees some pensioners receiving two pensions from the government.
On the revenue side, there is ample scope for broadening the tax base by streamlining tax concessions and exemptions, and for collecting tax arrears, where practical, the IMF said, adding that this would limit the need for further increasing tax rates.
The hint at the need to increase taxes comes at a time when Vincentians are complaining about being overtaxed.
In 2016, the government introduced a series of new and increased taxes, including a 2 per cent on mobile telephone calls, increases in property tax on commercial buildings, driver’s licenses, gun licenses, and the introduction of Value-Added Tax on a number of items, including chicken, lentils, salt, butter, yeast and baking powder.
The IMF further said that structural fiscal reforms need to accelerate to mobilise additional revenue and strengthen overall public financial management.
“Preparing and implementing legislation on tax administration procedures, with a provision for assigning a tax identification number (TIN) to each taxpayer, is critical.
“Improving the efficiency of public expenditure and cash management practices is critical to stop the accumulation of budgetary arrears,” the IMF said, adding that fiscal reporting should be expanded to capture the widest possible fiscal perimeter beyond the focus on the central government budget, and present fiscal risks explicitly,” IMF said.