The economy of St. Vincent and the
The fiscal deficit is expected to narrow by about one percentage point compared to last year to about 2z percent of GDP, as lower-than-projected revenues were offset by cuts in capital expenditure due to financing constraints. That said, spending on wages and salaries is expected to be somewhat higher given the recent announcement of a retroactive wage increase of 1dz percent for civil service workers for 2011 and 2012. Earlier in the year, the government issued a EC$40 million 10-year bond on the
Weak growth performance has taken a toll on the financial sector. NPLs at banks remain in the 7-7dz percent range, almost twice their pre-crisis level, with considerable variation across banks. Similarly, bank profitability has declined significantly since 2009. While capital adequacy ratios at around 20 percent are relatively high, inadequate provisioning against NPLs (less than 30 percent) calls for caution in interpreting these ratios.
Non-bank financial institutions endure low profitability and their balance sheets continue to come under stress with average NPLs at credit unions broadly similar to those at banks. Available data on NPLs at the Building and
Regional efforts to resolve the fallout from the BAICO/CLICO failure are underway. In addition to the establishment of the
Growth is expected to improve over the medium term, albeit gradually, on the back of projected improvements in economic activity in advanced economies and the expected completion of the international airport, which is expected to boost tourism.
Executive Board Assessment2
Executive Directors noted that the St. Vincent and the
Directors welcomed the authorities' commitment to fiscal consolidation and to the realization of primary surpluses in the medium term. They emphasized that ensuring fiscal and debt sustainability, making room for growth-enhancing capital expenditures, and building buffers against potential future shocks will require further efforts to increase revenues and reduce current expenditure. To this end, Directors encouraged steps to contain the wage bill, limit transfers to state-owned enterprises, and reform of public pensions system. They also called for elimination of discretionary exemptions, strengthening administrative capacity, and improving tax compliance. While recognizing the need for commercial borrowing for the international airport project, Directors urged the authorities to continue to pursue a prudent debt policy to safeguard fiscal and debt sustainability.
Directors underscored the need to monitor the bank and the non-bank financial sectors and to address the vulnerabilities by strengthening supervisory and regulatory standards. In this context, they welcomed the recently established
TNS 30BautistaJude 140822-4836216 30BautistaJude
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