St. Kitts and Nevis: Fifth and Sixth Reviews Under the Stand-By Arrangement, Request for Waiver of Nonobservance of Performance Criterion and Request for Waiver of Applicability; Staff Report; Press Release

EXECUTIVE SUMMARY Stand-By Arrangement (SBA). On July 27, 2011, the Executive Board approved a 36-month SBA for St. Kitts and Nevis for SDR 52.51 million (590 percent of quota) to support the authorities' program (Country Report No. 11/270). The first review was completed on January 25, 2012, the second review was completed on May 21, 2012, the third review was completed on August 3, 2012 and the fourth review was completed on November 30, 2012. A tranche of SDR 4.266 million will be made available upon completion of the fifth and sixth reviews. Context. A pick-up in tourism and construction activity presages a recovery in 2013, with growth projected at 2 percent, up from a four-year contraction through 2012. In addition to an expected pickup in FDI and construction, supportive policies include programs subsidizing employment and loans to home buyers and entrepreneurs. Risks include the pace of the economic recovery in the United States and policy indecisiveness stemming from political developments in St. Kitts and Nevis, which may impact investment and slow down the adoption of reforms. Program performance. All fiscal program targets were met through end-March 2013, partly due to strong receipts from the Citizenship by Investment program. However, the continuous performance criterion on the non accumulation of government and guaranteed external arrears was missed by a minor amount due to temporary delays in payments. Three structural benchmarks were met at end-December 2012 and end- March 2013 while two benchmarks were met with delay. The structural benchmark on drafting a proposal for a comprehensive pension reform, scheduled for end-June 2013, has been delayed to allow for further deliberations. Review. The authorities continue to demonstrate their sustained commitment to their home-grown program, including with their 2013 budget and ongoing progress in the restructuring of their public debt. Staff supports the authorities' request for the completion of the fifth and sixth reviews under the SBA and the waiver of applicability based on the absence of data available to assess whether the end-June 2013 PC-the governing PC under the SBA-were met, and the lack of evidence that end-June PC will not be met.