Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review ST VINCENT AND THE GRENADINES

T he outlook for 2019 is however subject to some notable downside risks. As far as external developments are concerned, the IMF’s WEO (April 2019) report notes that global economic growth is projected to weaken slightly in 2019. Global economic activity is forecasted to be 3.3 per cent in 2019, below its initial projections. The slowdown emanated from ongoing trade tensions, challenges with reaching a Brexit agreement and a slowdown in China. The slowdown has been evident in many advanced economies including many in Europe, and could adversely affect foreign demand for tourism services and investment in the regional economies. Meanwhile, growth in the United States of America is projected to be favourable with growth of 3.1 per cent in 2018. The pace may nevertheless decelerate amid continuing trade tensions and a slowdown in global growth. If these risks materialise, it may undermine global economic growth and weigh on the economic performance of the ECCU member states, including St Vincent and the Grenadines. Although initial projections suggest an increase in stayover arrivals from the ongoing operations of the international airport, this expansion may not materialise as the sector

activity would include new investments in tourism properties, such as developments at Glossy Bay in Canouan and at Mt Wynne/St Peter’s Hope. These initiatives are expected to be complemented by public sector investment through the construction and rehabilitation of the road network and continued infrastructural works for the geothermal project. However, to fully capitalize on these benefits, the rate of implementation for infrastructural projects must be accelerated in 2019. Government balances are likely to deteriorate in light of a number of initiatives announced in the 2019 budget. A significant increase in expenditure is projected for 2019, associated with higher allocations for salaries and wages as well as greater investment in infrastructure. Particularly, recurrent spending is expected to expand further, driven in part by salary increases totalling 4.5 per cent to public sector workers, including retroactive pay. The rise in government spending may however be compounded by the impact from the first full year of a number of the fiscal incentives announced in 2018, including reductions in the rates of corporate and income tax. Measures to improve the efficiency in tax administration and higher economic growth may help to mitigate this adverse impact.

______________________________________________________________________________ 119 Eastern Caribbean Central Bank