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IMF recommends increasing government revenue to keep social assistance programs alive in SKN

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by Kevon Browne

St. Kitts and Nevis (WINN): Is there a possibility that certain subsidised commodities and reduced taxes could hit the people’s pockets if the current administration follows the recommendation of the International Monetary Fund (IMF)?

 

To maintain the social assistance programs the government offers, the IMF say the government needs to increase its revenues.

 

A recent official staff mission from the IMF to the Federation led to a report suggesting that the economic outlook of St. Kitts and Nevis is positive. However, there is room for improvement in enhancing the labour market, encouraging economic diversification, and strengthening the financial system.

 

According to the IMF, external factors (civil unrest, inflation, interest rate hikes, and other health crises) could still affect growth projected at 4.5 percent for 2023.

 

Additionally, despite receiving record-high CBI revenues, the government incurred the most significant primary deficit in two decades.

 

“We suffered the worst deficit in 2022, and we saw a lot of that money spent just before the election. And so we know partly, and I would say, what that was used for,” said Prime Minister Hon. Dr Terrance Drew during a special interview with the Press on February 3.

 

On the bright side, a strong recovery in tourism and other service sectors would help keep certain risks at bay.

 

The IMF says dependence on Citizenship By Investment (CBI) revenue is a significant source of vulnerability; thus, the report suggests that a holistic overhaul of the taxation framework would be needed to reduce dependency on CBI.

 

Additionally, reforming the property tax to support the housing market and home ownership and reintroducing personal income tax could strengthen fiscal sustainability, improve fairness and equity, and achieve inclusive growth.

 

Recommendations from the IMF:

 

  • In the near term, phasing out crisis-related measures will be essential to safeguard fiscal prudence and entrench debt sustainability.

 

  • In the medium term, a holistic overhaul of the taxation framework will be of the essence to reduce dependency on CBI and maintain fiscal space.

 

  • The use of budget resources should be geared towards increasing sustainability.

 

  • Enhancing natural disaster preparedness will require resolute policy implementation over the coming decades.

 

  • Continued structural policy efforts are needed to strengthen competitiveness by enhancing the labour market and encouraging economic diversification.

 

  • Strengthening the Financial System – the business model of the systematically important bank should be strengthened with an emphasis on de-risking, while public sector deposits should be better safeguarded.

 

Dr Drew implied the possibility of the Federation complying with certain recommendations to help St. Kitts and Nevis recover from what he described as the worst deficit the country has gone through at the end of 2022.

 

“We are now coming out, and if we look at the IMF report and see what the IMF is suggesting that the government’s revenues need to go up if we are able to sustain all these social programs. So we know we had taken down the corporate tax; it had come down to about 25%. We also know that we have been subsidising electricity for a very long time, the fuel variation charge, we have been paying for that. That is one of the things we are subsidising to the tune of about $9 million per month. And so we know that the government’s revenues are affected that way, and we are being asked to really increase the revenue collection.”

 

Prime Minister Drew said there will be more collaboration and consultation with the private sector to increase the survivability and viability of businesses, especially small businesses, to reduce some of the strain on the government.

 

“We have to find other meaningful ways in which people can do well, and business is one such area. And so we will meet with the Chamber of Commerce and Industry. We will put the numbers to them we will work together because, at the same time, they want to be in an environment and a social situation where their business can thrive. So there’s always a social responsibility to every business, and I think every business should have that as a matter of practice.”

 

Whether corporate taxes increase or certain subsidies continue or not is left to be seen, but what is clear is that the government has to find ways and means to increase revenues.

 

See IMF report here: https://www.imf.org/en/News/Articles/2023/01/31/cs13123-st-kitts-and-nevis-staff-concluding-statement-of-the-2023-article-iv-mission.

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