NATIONAL CONSULTATION ON THE ECONOMY Theme: “The Architecture of an Efficient and Sustainable Public Sector in Support of our Economic Growth Agenda” St Kitts Marriott Resort 8 th September 2011

Ministry of Finance SHORT TO MEDIUM TERM FISCAL STRATEGY

Overview of Presentation Recent Performance Historical Performance Short to Medium Term Fiscal Strategy Key Fiscal and Other Measures Fiscal Targets and Expected Outcomes 2010 to 2013 Selected Projections 2011 Other Options Risk Factors

Recent Performance Economic Developments: By the end of 2010 economic activity in St. Kitts and Nevis declined by 4.2% The Construction Sector contracted by 28% while the Manufacturing Sector declined by 15% GDP at market prices for 2010 is estimated at $1,821.76m The inflation rate was 0.7%

Recent Performance Fiscal Performance: Overall consolidated fiscal position of St. Kitts and Nevis deteriorated at the end of 2010 with an Overall Deficit of 6.6% of GDP compared with a deficit of 0.9% in 2009 Consolidated Primary Surplus of $7.5m (0.4% of GDP) compared with $108.5m (5.8% of GDP) in 2009 Central Government Overall Deficit of $88.8m recorded (4.9% of GDP) Central Government Primary Balance of $24.2m (1.3% of GDP)

Recent Fiscal Performance Central Government Fiscal Performance EC$m: Fiscal Indicator Jan – June 2011 (1) 2010 (1) Current Revenue Current Expenditure Current Account Balance(1.41)(45.44) Capital Revenue and Grants (incl. land sales) Capital Expenditure & Net Lending Overall Balance(13.63) (88.81) Primary Balance (1) Preliminary

Central Government Fiscal Performance in % of GDP Item Total Revenue and Grants Recurrent Revenue Recurrent Expenditure Recurrent Account Balance (1.67) (0.96) (2.49) Capital Expenditure & Net Lending Overall Balance (3.83) (2.34) (0.07) (0.58) 1.08 (4.87) Primary Balance Debt Service/Recurrent Revenue

Central Government Fiscal Performance – Recurrent Revenue

Central Government Fiscal Performance - Debt

Total Public Sector Debt to GDP

Medium Term Fiscal Strategy The medium term fiscal strategy of the Government is geared towards meeting the targets agreed to under the IMF Program. This includes: Minimizing budget deficits Improving revenue generating capacity Reducing expenditure levels Reducing debt level and large debt service payments

Fiscal Strategy Cont’d 1) The Government’s fiscal strategy is designed to support its wider economic growth objectives Stable, consistent, and predictable economic policies are essential to promote confidence and investments by the private sector: Releasing lands for development purposes Fostering partnerships with the private sector Privatization of entities that are suited for commercial activities

Fiscal Strategy Cont’d 2) Structuring Government Revenue More Efficiently and Equitably On the revenue side, the Government will continue to expand the tax base to improve equity and simplification of the tax system. Continue to implement Value Added Tax New Income Tax Act enacted Continue to implement new unincorporated business Tax Act Continued modernization of the Customs and Inland Revenue Department

Fiscal Strategy Cont’d 3) Reducing the Public Debt Retire high interest rate debt and replace with debt carrying lower interest rates. In particular restructure the debt based on the advise of Debt Advisors Possible medium term objectives towards the achievement of debt sustainability Define benchmark sustainable debt targets Set an interest to revenue target Set interim reasonable targets for Debt to GDP Ratio Ensure that these targets are achieved without detriment to domestic financial sector

Fiscal strategy Cont’d 4) Making Government Expenditure More Efficient and Effective Performance budgeting and evaluation Setting clear medium term targets for Government expenditure Active cash management Policy for reducing expenditure on personal emoluments Prioritization of the capital budget-projects which contribute to economic growth

Key Fiscal Measures - Revenue Tax Reform  Enforce VAT Regulations  Streamline Discretionary Tax Exemptions  Improve Regulation of Duty Free Shopping System

Key Fiscal Measures – Expenditure Wage and Hiring Freeze Contain Expenditure on Goods and Services Re-prioritize Capital Expenditure

Fiscal Targets and Expected Outcomes Central Government’s fiscal targets over the period 2010 to 2013 are:  Primary Surpluses in excess of 5% of GDP  A reduction in Central Government debt to 110% of GDP  Reduced Debt Servicing Ratios to sustainable levels

Fiscal Targets 2011 to 2014

Risk Factors In setting the above fiscal targets and expected outcomes the we have envisaged an environment that is conducive to economic growth. The forecast are also contingent upon growth projections for St Kitts and Nevis remaining unchanged in the short term. These forecasts are also dependent on economic and political stability in the domestic and international arenas. Additionally, substantive variations in oil prices or any natural disasters, such as hurricanes and floods, could have an adverse effect on these projections.

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