St Vincent Needs To Contain Its Wage Bill: IMF Report

The IMF recent mission to SVG welcomes the government’s commitment to bringing the debt-to-GDP ratio down to 60 percent by 2030.

To this end, under the mission’s baseline scenario, the primary surplus needs to be raised by ½ percentage points to around 1 percent of GDP.

This could be done by containing wage bill growth at 3.5 percent a year and setting capital expenditure at 3.9 percent of GDP.

The 2019 budget should demonstrate the government’s commitment to fiscal consolidation, by maintaining the primary surplus at around 0.7 percent of GDP, slightly above the 0.6 percent of GDP (the mission’s estimate) in 2018.

The mission recommends incorporating expected fiscal costs of natural disasters, equivalent to 1.4 percent of GDP a year (the average of the past 15 years), in the budget framework.

This could be partly covered by the contingency fund and insurance payouts (in total, 0.7 percent of GDP), with the balance covered through allocating expenditure reserves for emergency operations.

Consideration should be given to expanding the coverage of disaster insurance, especially against floods to achieve additional buffers.

The mission said if growth momentum falters or natural disasters intensify, the 60 percent target would not likely be achievable by 2030.

The government also plans to launch several large developmental projects in the tourism and transport sectors to enhance growth, but this could widen the deficit if they are not accompanied by new fiscal consolidation measures.