After years of weak economic growth St Vincent is poised for a modest recovery, with real GDP forecast to grow 2% on average until 2018. St Vincent, like most other Caribbean nations, is highly dependent on tourism, which represents almost 25% of economic activity, either directly or indirectly. Most tourism is from the US and with the recent economic recovery in the US, growth has also picked up in St Vincent. Last year stay-over tourist arrivals rose 6.6% relative to 2014, compared with an average increase of only 0.1% since 2010.
Further growth may result from the opening of a new international airport. In construction since 2008, lack of necessary funding has delayed the start of operations of Argyle international Airport. Since currently there are no direct flights to the capital city of Kingstown from North America or Europe, the new airport will likely lead to an increased flow of tourists, a development we anticipate will have a multiplier effect on the economy.
Economic growth should help limit the increase in the debt burden, which remains on par with peers but has been rising in recent years. Debt to GDP will end at 72% this year, compared to 60% in 2012. Low interest funding from developments banks has helped keep interest payments stable, despite the increase in debt. We estimate interest payments will represent 9% of revenues in 2016, a similar percentage as in 2012, and lower than the B-rated median of 10%.
The stable outlook reflects our expectation that the fiscal deficit will remain moderate over the next two years limiting the increase in the debt burden. Fiscal deficits averaged 3.5% of GDP since 2011 but that should fall to 2.5% in 2016, on the heels of increased tax compliance efforts and faster growth. The government aims to reach fiscal results close to balance by 2018, an ambitious target which we anticipate will be extremely hard to reach given historical performance.
WHAT COULD MOVE THE RATING UP/DOWN
We see limited potential for upward rating changes in the immediate future. Faster growth driven by the completion of Argyle International Airport and the expected associated increase in FDI in the tourism sector would be credit positive and supportive of the rating. A significant strengthening of the government’s balance sheet through a marked reduction in debt metrics or diversification of funding sources would place upward pressure on the sovereign’s rating. A significant reduction in external vulnerabilities, particularly a drop of the current account deficit which reached almost 30% of GDP last year, would also create upward pressure.
A further deterioration of the government balance sheet, the assumption of contingent liabilities coming from state owned companies, or increased commercial borrowing to finance potential cost overruns related to the Argyle airport would be credit negative. Downward pressure on the rating would also arise if access to grants and concessional finance were to deteriorate, or if a large external shock – such as a major hurricane – were to jeopardize balance of payments sustainability.
GDP per capita (PPP basis, US$): 11,009 (2014 Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.6% (2015 Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.5% (2015 Actual)
Gen. Gov. Financial Balance/GDP: -2.8% (2015 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -29.6% (2015 Actual) (also known as External Balance)
External debt/GDP: 46.8% (2015 Actual)
Level of economic development: Low level of economic resilience
Default history: No default events (on bonds or loans) have been recorded since 1983.
On 17 May 2016, a rating committee was called to discuss the rating of the St. Vincent and the Grenadines, Gov-t of. The main points raised during the discussion were: The issuer’s economic fundamentals, including its economic strength, have materially increased. The issuer’s governance and/or management, have decreased. The issuer’s fiscal or financial strength, including its debt profile, has not materially changed.