St Vincent and the Grenadines - Introduction
The country outline for St Vincent and the Grenadines (GOSVG) is aimed to offer a general overview of the GOVSG's social and economic situation. It was prepared using inputs from the Caribbean Development Bank Annual Economic Report for the year 2003-2004, the CIA fact-book, IMF and World Bank Discussion Papers available online.
Section I. presents social indicators; section II analyzes the economic situation. Finally section III presents major policy issues prioritized by the government and the budget communication.
I. Social Indicators and Social Services
a. Health
A significant setback in the social sector has been the continuing delay in the establishment of the National Health Insurance Scheme which is now not expected to be on stream before the start of 2005.
Resources must increasingly be channelled to the fight against HIV/AIDS. In 2002, an important development was the establishment in the Ministry of Health of the HIV/AIDS. Unit, tasked with implementation of policies intended to arrest the spread of the disease and staffed with personnel to provide counseling and other support to those infected. In 2003, GOSVG intensified action in the HIV/AID programme by increasing its commitment, attention and funding.
In the water and sewerage sector, GOSVG furthered implementation of the Solid Waste Management Improvement Project, funded by the World Bank, CDB and the Global Environmental Facility (GEF). The project seeks to improve waste management through the establishment upgrading of landfills, the provision of equipment and the strengthening of the legal framework. In addition, work commenced on the Windward Water Supply Project which is aimed at improving the quality of water supplied to the Windward Coast and the south-eastern part of island of St. Vincent.
b. Education
Consistent with the objectives of providing every citizen with quality education as set out in the MTESP 2002- 04[1], an Education Sector Development Plan was launched in January 2003. GOSVG places high priority on institutional development, reform of education management, improvements in the quality of education delivered and greater access to education by students at all ages. There are also components for tertiary, adult and continuing education included in the Plan.
GOSVG has already initiated discussions with CDB and other funding agencies to seek financing for the Plan. Meanwhile, GOSVG neared completion of the Basic Education Phase I project (teacher training, curriculum development, school construction) funded by CDB, and continued implementation of the EU-funded Post Secondary II project.
Two important social initiatives in 2003 have been the creation of a Social Investment Fund (SIF) as a precursor to halving the level of poverty in SVG by 2015 in accordance with one of the Millennium Development Goals and the re-appointment of a National Youth Commission to coordinate the work of the various youth programmes and to ensure their integration into the overall development plan of government.
II. Economic Situation analysis
a. Overview of the Recent Economic Performance
Against the backdrop of a weak global economy and the continuing erosion of preferential trade access for its main export crop, bananas, the economy of St. Vincent and the Grenadines grew by 3.6% in 2003. This strong growth represented a substantial improvement on the 1.4% rate of growth achieved in 2002, after economic activity slowed in 1999 and 2000 before contracting marginally in 2001.
The improved out-turn in 2003 was largely as a result of expansionary fiscal policy in the preceding year, including large public sector investments, and by an improved performance in both tourism[2] and telecommunications. In contrast, banana output declined in the aftermath of a tropical storm followed by a period of drought conditions. Growth in construction sector activity is estimated to have accelerated to 6% following a contraction of 3% in 2002. Activity in the sector was largely private sector-driven and centred on the construction of commercial office space. Manufacturing sector activity contracted again in 2003, the fourth time in the last five years.
Central Government savings improved as a result of better revenue collection, generally tight expenditure controls and the rescheduling of payment terms on part of the external debt. Indications are that the improvement in economic activity helped to reduce the rate of unemployment while the rate of inflation remained low.
b. Prices and Employment
Inflation during the year remained low at 0.3%. Contributors to the low inflation rate were the decline in prices for Fuel and Light (0.3%) and Alcohol Beverages and Tobacco (1.8%). Household Furniture and Supplies, Food, Transport and Communication and Miscellaneous rose moderately.
The continuing sluggishness in economic activity, especially in manufacturing, tourism and the distributive trades, coupled with the ongoing difficulties in bananas' agriculture, contributed to some stagnation in the levels of employment. Interventions aimed at poverty eradication included the granting of relief to the elderly poor through concessionary rates on water and electricity consumption, public assistance grants to the elderly and disadvantaged, and assistance strategies targeted at children and youth. These efforts are being supplemented by the work of NGOs in several areas.
c. Financial Sector
During the year, a joint IMF/World Bank team reviewed the financial sector (as part of an Eastern Caribbean Currency Union (ECCU) programme)[3] in order to determine potential vulnerabilities of financial institutions to macroeconomic shocks. The exercise identified several weaknesses with respect to the regulatory and supervisory framework and GOSVG has already begun to implement initiatives aimed at reducing/eliminating the deficiencies.
d. Fiscal Policy and Debt Obligations
Within the context of marginal real income growth, Central Government was able to raise fiscal savings to 4.7% of GDP, up from 1.4% of GDP in 2001 and 3.1% of GDP in 2002, as a result of improved performance in the telecommunications sector resulting from its partial liberalization and the implementation of several revenue-enhancing measures in the 2003 Budget.
Recurrent revenue grew by 9.4% over the corresponding period in 2002 while recurrent expenditure grew by only 2%.
Central Government savings increased from $29.7 mn in 2002 to $40.9 mn in 2003 which facilitated increased spending on the capital programme.
This expansion in capital spending along with a reduction in grants during the year, led to a widening of the overall deficit from 1.6% of GDP in 2002 to 3.0% of GDP.
III. Major Policy Issues
a. Overview
Economic Diversification. In recognition of the continuing difficulties in the banana industry which it is attempting to strengthen through various measures, GOSVG has continued to focus on economic diversification and has declared its intention to support agricultural diversification. However, given that measures in the area will take some time to be implemented and to become fully operational, high priority is being placed on the development of service exports and the offshore financial sector.
b. Fiscal Performance and Public Debt
Current budgetary management suggests that in the medium to long term fiscal performance will continue to be fair, but there are several issues which GOSVG will have to confront:
The heavy reliance on border taxes (close to 45% of current revenues derives from border taxes) in an environment that is seeking to liberalise international trade.
The continued volatility in banana prices and the continued declining import prices have the ability to negatively affect revenue growth.
The uncertainties which still surround the offshore financial sector, especially in relation to the EU tax initiative, have the ability to impair revenue growth.
GOSVD needs to ensure that the rate of growth of its wages and salaries bill does not compromise its ability to adequately meet its other current responsibilities.
The expansion in public sector investment over time, combined with borrowings, has led to a high level of public debt.
c. Public Sector Investment Programme
Government's development objective as outlined in its Medium-term Economic Strategy (2002-2004) paper is to attain high levels of balanced and sustained growth and reduce unemployment and poverty. It is envisaged that this objective can be achieved over the medium term through activities geared towards:
- Pursuing economic diversification through production of non-banana agriculture and of export services (tourism, informatics, offshore finance);
- Increasing public sector savings in support of public sector investment;
- Promoting human resource development in support of general economic activity and poverty reduction
- Initiatives, and improving environmental management while strengthening the country's capacity for disaster management.
Composition of the PSIP. The PSIP of 2002 to 2004 proposes expenditure of $426.6 mn, with an estimated $148.4 mn to be spent in the first year and an estimated $169.1 mn and $109.1 mn to be spent in the second and third years respectively. The thrust of the Government during 2002-04 will be on the provision of adequate socio-economic infrastructure and poverty-eradication programmes[4].
An allocation of $15.8 mn (3.7% of total PSIP) has been targeted for health. This is in fact the smallest allocation for the social sector and is characterised by very limited donor involvement. Donor funding is estimated at $3.4 mn or 21.5 % of projected expenditure. The EU is the major donor with one project ' Improvement to Primary Health Care ($3.2 mn) for the rehabilitation and refurbishment of several health centres. The other donor-funded project is the PAHO/WHO project that seeks to strengthen environmental management, build operational capacity in the sector and assist in the development of public health policies.
Financing of the PSIP. Of the $426.6 mn of capital expenditure projected for the period, it is estimated that $241.9 mn (56.7%) will be externally funded, comprising grants of $115.4 mn (47.7%), loans of $61.7 mn (25.5%) and a financing gap of $64.8 mn (26.8%). Most of the loans emanate from the EU under its Stabex, NIP (National Indicative Programme) and SSA (Special System of Assistance) transfers. GOSVG intends to get the remainder of its funding mostly from its own resources. It is estimated that $79.4 mn (18.6%) of PSIP funding will be obtained from Central Government savings and $105.3 mn (24.7%) from domestic borrowing.
Implementation issues: The project implementation presents some weaknesses:
- The absence of proper project analysis especially in the case of locally-financed projects because of the insufficient skills.
- Inadequate institutional capacity. There is notably some concern about the capabilities of the Ministry of Transport, Works and Housing which is involved in the implementation of a substantial portion of public sector investment.
- There is also some weakness in the monitoring of projects because of personnel shortages in executing agencies. In theory, every project has a reporting officer assigned to it in the implementing Ministry. [5]
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[1] A draft is available from: http://www.caribbeanschools.co.uk/InYourCountry/StVincent/DraftRep.doc
[2] Total visitor arrivals in 2003 declined by 2.3% to 241,748 from 247,458 in 2002. The number of stay-over and same-day visitors increased by 1,538, or 1.6%, while yacht and cruise ship visitors fell by 5.710 or 2.3% during the year.
[3] More details on the (ECCU) programme are available from: http://www.imf.org/external/np/sec/pn/2003/pn0340.htm
[4] Of the total amount, 54.9% is designated for economic infrastructure projects with the two largest categories being energy (18.8%) and transport and communication (20.1%). Amongst the social services (28.3% of total) spending on education is projected at 10.9% while that on Community Services is 13.7%.
[5] Recently, the EU promised some institutional strengthening to the Ministry in the form of two quantity surveyors and three civil engineers to be attached for a minimum period of two years together with the provision of equipment (computers, plotters). In addition to this, however, GOSVG has expressed an interest in receiving funding from CDB for the establishment of a project implementation unit.
