BASSETERRE, St. Kitts – The International Monetary Fund (IMF) says real gross domestic product (GDP) is estimated to have slowed to 1.5 per cent last year and is expected to pick up to 2.2 percent this year.
An IMF mission has ended a visit to St. Kitts and Nevis saying that the slowdown in 2025 reflects weaker-than-expected construction activity, despite a recovery in tourism, as well as headwinds from low Citizenship-by-Investment (CBI) inflows and fiscal consolidation.
It said that the projected acceleration in 2026 is expected to be supported by robust construction activity, agriculture, renewable energy projects, and a continued tourism recovery.
According to the IMF, over the medium term, growth is expected to strengthen to about 2.5 per cent, driven by renewable energy investments, construction and expanding tourism activity.
Inflation is estimated at 1.5 per cent at end-2025, supported by lower energy and food prices, and is projected to gradually increase to around 1.8 per cent in 2026.
The IMF said that as the CBI windfall in recent years, which led to higher primary spending, fades, fiscal deficits are expected to remain high, with public debt edging up further.
“The economy experienced another windfall from CBI revenue between 2021 and 2023, which prompted a significant increase in current spending. Following a sharp decline in CBI revenue since 2024, the authorities have been implementing reforms to streamline current expenditure and mobilize tax revenue.”
Under the CBI, foreign investors are given citizenship of the twin island Federation in return for making a substantial investment in the socio-economic development of the country.
The IMF said that the fiscal deficit in 2025 is estimated to be high at 11.7 per cent of GDP and that public debt picked up modestly to 58.4 per cent of GDP even as government deposits continued to decline.
“Persistently low CBI revenue is expected to keep fiscal deficits elevated in 2026 and over the medium term, with public debt projected to rise above the regional threshold this year to support development needs. Debt sustainability is maintained; however, contingent liabilities from public banks and the social security fund (SSF) pose considerable risks,” the IMF said.
It said against the backdrop of large fiscal deficits, the current account deficit also remains wide at 14.6 per cent of GDP in 2025, well above its pre-pandemic average.
“This reflects elevated non-fuel imports—partly driven by temporary VAT (value added tax) reductions—and lower CBI applications, despite moderating fuel imports, resilient tourism activity and stable remittances. The external position in 2025 is assessed as weaker than implied by medium-term fundamentals and desirable policies. International reserves remained stable.”
The IMF said that the banking system remains broadly stable, supported by strengthening capital positions and a continued decline in NPL ratios, although vulnerabilities persist. Credit growth in 2025 was strong, at 8.2 per cent, driven mainly by mortgages, construction, and tourism-related activities, while corporate lending remained subdued.
Credit risk remains the primary source of vulnerability, while market risk has eased somewhat following banks’ rebalancing of investment portfolios away from equities.
“Nonetheless, vulnerabilities remain elevated, reflecting large and concentrated NPLs, (non performing loans) weaknesses in provisioning quality, and still sizable and relatively risky investment portfolios.”
The IMF said that near-term risks to growth are tilted to the downside. It said external risks include heightened global policy uncertainty, including related to CBI programmes, geopolitical tensions, and volatility in commodity and financial markets, which could weigh on CBI inflows and tourism and adversely affect banks’ investment portfolios.
Domestically, financial-sector weaknesses and exposure to natural disasters (ND)could pose fiscal risks. On the upside, a successful energy transition could strengthen medium-term growth.
The IMF said fiscal consolidation, supported by a strong fiscal resilience framework, is critical to stabilise debt, restore buffers, and reduce vulnerability to shocks.
It said under a moderately frontloaded active policy scenario encompassing expenditure rationalisation (4.4 percentage points of GDP) and tax revenue mobilisation (2.7 percentage points of GDP), public debt would stabilise at the regional 60 per cent ceiling by 2031.
“This would allow government deposits to increase to 10 per cent of GDP, providing a buffer to hedge against potential declines in CBI revenues and strengthening resilience to NDs. Combined with structural reforms and a potential decline in the interest bill, this scenario would lift medium-term growth by creating space for higher capital investment.”
The IMF said that current expenditure requires further rationalisation.
“At about 34 per cent of GDP in 2025, it remains significantly above both the pre-pandemic average of 23 per cent and the Eastern Caribbean Currency Union (ECCU) regional average of 24 per cent.
“Streamlining should focus on continued rationalisation of goods and services, tighter control of wage bill growth, the phasing out of electricity and water subsidies alongside tariff reforms, and time-bound, better-targeted social programs.”
The IMF said beyond incremental expenditure rationalisation, a more strategic and holistic review of government functions would help identify activities that could be scaled back or discontinued—particularly those overlapping functions and programs—supporting a leaner, more focused and cost-effective public sector.
It said that tax revenue—below the ECCU average—has ample room to increase.
“Covid-era concessions should be rolled back, including those for unincorporated business taxes and duty exemptions for tourism operators. Suggested measures include introducing more progressive property-tax rates, broadening the VAT base, increasing excises on alcohol, tobacco, and fossil fuels, raising rates for top earners, and taxing non-labor income.
“Tax administration should be further strengthened through enhanced enforcement and compliance, continued digitalization, and improved auditing,” the IMF said, adding that formally adopting fiscal rules anchored in the adjusted primary balance is essential to reduce reliance on CBI revenue and strengthen the credibility of the fiscal consolidation path.
“While the stated objective of reaching the regional 60-per cent debt ceiling by 2035 signals commitment, this target is not legally binding, and St. Kitts and Nevis remains among the few ECCU countries without formal fiscal rules—contributing to fiscal procyclicality and limited buffers.”
The IMF said progress toward formalising fiscal rules could include adopting the ECCU debt ceiling as the overarching fiscal anchor, with clearly defined public-sector coverage and well-specified operational targets to help mitigate procyclicality and improve expenditure control.
It said that operational targets could include a floor on the adjusted primary balance, excluding CBI revenue and transfers to banks and a ceiling on primary current expenditure. Clearly defined escape clauses and correction mechanisms—including in the event of ND—and the support of independent oversight, would also be important.
The fiscal rules could incorporate post-disaster financing instruments, such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF), as well as a Sovereign Wealth and Resilience Fund (SWRF), which the authorities plan to establish the IMF said.
