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    RNM/OECS COUNTRY STUDIES

    TO INFORM TRADE NEGOTIATIONS:ST. VINCENT AND THE GRENADINES

    Prepared by

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    TABLE OF CONTENTS

    INTRODUCTION..............................................................................................................................1

    RECENT ECONOMIC PERFORMANCE...........................................................................................1RECENT FISCAL PERFORMANCE................................................................................................. .3

    Structure of Revenues................................ ........................................................ .............................4Recent Tax Changes ..................................................... ....................................................... ...........6

    MEDIUM TERM PROSPECTS.......................................................... ................................................7Fiscal Prospects.............................................................................. ................................................7Medium Term Policy Objectives ..................................................... .............................................. 10

    SECTORAL STRATEGIES.......................................................................... .................................... 11

    Economic Infrastructure.................................................................. .............................................. 12Social Infrastructure...................................................... ....................................................... .........13The Environment ................................................ ........................................................ ..................13

    AGRICULTURE SECTOR........................................................................... .................................... 14Contribution and Performance................................................ ....................................................... 14Policies and Prospects................................................................................................. ..................17

    Bananas...................................................................................................................................17Non-Banana Agriculture .................................................... ....................................................... 18Livestock.................................................................................................................................19

    Forestry...................................................................................................................................20Fisheries ............................................... ........................................................ ...........................20Land Reform..................................................................... ....................................................... 20

    MANUFACTURING.......................................................................................................................20Constraints to the Development of Manufacturing ............................ ............................ ..................22Policies and Prospects................................................................................................. ..................24

    TOURISM.......................................................................................................................................25Contribution to GDP.............................................................. ....................................................... 26

    Role of Foreign Direct Investment................................................... .............................................. 26CONSTRUCTION................................................. ........................................................ ..................26Recent Economic Developments...................................................... .............................................. 26

    TRANSPORTATION.......................................................................................................................27COMMUNICATIONS 27

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    St Vincent and The Grenadines

    ST. VINCENT AND THE GRENADINES

    INTRODUCTION

    St. Vincent and The Grenadines has traditionally been regarded as an agricultural economy withthat sector accounting for as much as 21% of GDP in 1977. However, like most of the OECS

    economies, in recent time the economy has become more diversified and the agricultural sectornow accounts for about 12% of GDP. St. Vincent's agricultural sector has been rather more

    diversified than Dominica and St. Lucia and hence would not be as severely affected by the

    World Trade Organisation (WTO) ruling on bananas. Regional agricultural exports have alwaysbeen a big outlet for St. Vincent's agricultural production. Government services (16%),

    Wholesale and retail (15%), Transport (15%) and Construction round out the top five majoractivities in the country. Communications like in the rest of the OECS countries has been a

    rapidly expanding sector.

    The manufacturing sector has never really taken hold in St. Vincent and The Grenadines.

    Manufacturing contribution to GDP peaked at 10.9% in 1990 but since then has declined steadilyto 7.3% in 1998. Efforts at diversification have focussed on the tourism sector and although

    there has been some growth, the sector still contributes less than 3% of GDP.

    RECENT ECONOMIC PERFORMANCE

    The economy of St. Vincent and The Grenadines grew at an average rate of 5.7% per annum

    over the period 1986-1998. However this average masks a variety of performances which can bedivided into three distinct periods. The period 1986-1989 was a period of high growth, during

    which the average growth rate exceeded 6% annually. The second period, which lastedfrom1990-94 was a period of slower and sometimes negative growth. The period 1995-1998

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    St Vincent and The Grenadines

    growth in the economy was broad-based as all sectors of the economy expanded, except forgovernment services and real estate and housing which grew at a rate less than 3%.

    During this period the deficit on the current account of the balance of payments widened from

    9.1% of GDP in 1986 to 19.8% in 1989. Exports grew at an annual rate of 8.1% while importsgrew at 13.3%. Except for 1987 the overall balance of payments recorded an overall surplusduring the other years. Capital transfers amounting to 7% of GDP and Foreign Direct

    Investment averaging 5.1% of GDP were able to offset the widening current account balance.

    The rapid pace of growth was interrupted during the period 1990-1994 as the economy stalled.

    After growing at 6.7% in 1990, marginal growth (0.5%) was achieved in 1991. A 54% increasein the value added in bananas led to a 9% growth in the economy in 1992 but negative growth

    rate of -0.7 and -3.0% were experienced in 1993 and 1994 respectively, as the value added inbananas tumbled by -24.2 and -48.1% respectively. The price shock created by the withdrawal

    of the pound sterling from the European exchange rate mechanism (ERM) and the increaseduncertainty in the industry was responsible for this decline. The construction, distributive andtourism sectors continued to grow at the rates achieved earlier but the growth rate of the

    communications sector slowed to less than 2% after achieving growth rates in excess of 20% in

    1990 and 1991.

    This period saw further deterioration of the current account of the balance of payments. Itwidened from 13.8% of GDP to 29.5%. The negative growth rate in banana production coupled

    with the fall in the domestic currency price of bananas consequent on the exit of the poundsterling from the ERM resulted in an almost EC$100m reduction in earnings from merchandise

    exports. Merchandise export earnings declined from EC$352.3m in 1990 to EC$255.5 in 1994.Not surprisingly, the overall balance of payments recorded deficits in all other years except 1993.This occurred in spite of FDI flows amounting to 9.5% of GDP and tourism receipts averaging

    EC$87.38 during that five year period.

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    regional market for flour and beverages have also contributed to the decline in merchandiseexports. The growth in imports was related to the inflow of foreign direct investment for the

    construction of a major hotel and the implementation of a number of large projects in the PublicSector Investment Programme (PSIP). Although capital transfers fell to EC$14.5m and

    EC$13.8m in 1995 and 1996 they improved significantly during the remaining years due tosignificant inflows of STABEX funds to assist with the rehabilitation of the banana industry.Capital Transfers were EC$57.9m, equivalent to 8% of GDP in 1998. Meanwhile FDI flows

    continued to increase averaging 11% of GDP during the period 1995-98.

    RECENT FISCAL PERFORMANCE

    Fiscal performance in St. Vincent and The Grenadines has been characterised by moderate taxratios and strong growth in central government operations. Over the past five years government

    has maintained current account savings at cl