INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND ST. VINCENT AND THE GRENADINES Joint Bank-Fund Debt Sustainability Analysis – 2018 Update Prepared by the staffs of the International Development Association and the International Monetary Fund Cleared by Paloma Anos-Casero (IDA) and Patricia Alonso-Gamo, Johannes Wiegand (IMF) The overall assessment is broadly unchanged from the 2017 Article IV Staff Report. After peaking at 83 percent of GDP in 2016, total public debt fell to 74 percent of GDP in 2017. Public and publicly guaranteed external debt fell from 57 percent in 2016 to 47 percent of GDP in 2017. This reflects improvements in the fiscal position in the last two years and two rounds of debt forgiveness with a bilateral creditor in 2017. Nonetheless, the risk of external and public debt distress remains high.1 Public external debt is projected to decline over the medium-term, but its present value (PV) is projected to stay above the indicative threshold (40 percent of GDP) until 2020 under the baseline scenario (Figure 1). The PV of total public debt is projected to stay above the indicative threshold (55 percent of GDP) until 2030 (Figure 2). The DSA results highlight key risks to debt dynamics stemming from weaker-than-expected growth and more severe natural disaster hazards due to climate change. The authorities could consider additional fiscal measures to guard against adverse events and to firmly put public debt on a downward path toward the Eastern Caribbean Currency Union’s (ECCU) regional target of 60 percent of GDP. 1 St. Vincent and the Grenadines’ score on the LIC-DSF Composite Indicator is 2.98, pointing to the country’s debt carrying capacity as medium. The classification determines the corresponding debt and debt service thresholds for the external public and publicly-guaranteed external debt and for total public debt. 1 BACKGROUND ON PUBLIC SECTOR DEBT 1. There are no data gaps in public sector debt coverage (Text Table 1). Public sector debt includes central government debt and state-owned enterprises (SOEs) debt.2 As of end-2017, the outstanding stock of public debt was EC$1.6 billion (74.2 percent of GDP), of which central government debt was EC$1.3 billion (62.4 percent of GDP), and SOEs debt was EC$0.2 billion (11.8 percent of GDP). 2F3 Text Table 1. Coverage of Public Sector Debt Subsectors of the public sector Sub-sectors covered 1 Central government X 2 State and local government 3 Other elements in the general government 4 o/w: Social security fund 5 o/w: Extra budgetary funds (EBFs) 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 7 Central bank (borrowed on behalf of the government) 8 Non-guaranteed SOE debt 2. The stock of public debt has declined as a percent of GDP, reflecting progress with fiscal consolidation and debt forgiveness. Public debt fell from 82.8 percent of GDP in 2016 to 74.2 percent of GDP in 2017 reflecting a primary surplus position and two rounds of debt forgiveness with Venezuela (US$85 million in June 2017 and US$81 million in September 2017 equal to 7¾ percent of GDP). 3. The composition of public debt is dominated by external debt (Text Figure 1). As of end 2017, the stock of external debt accounted for Text Figure 1. Public Sector Debt (Percent of GDP) around 64 percent of total public debt, while External Domestic domestic debt accounted for 36 percent of total 100 100 public debt, in the form of treasury bills and 90 80 80 government bonds (53 percent of total domestic 70 60 60 debt); loans in local currency (38 percent); and 50 40 40 accounts payable (about 9 percent).4 Most of the 30 government securities are held by the buy-and- 20 20 10 hold national pension system. Additionally, the 0 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 government has in place a sinking fund (about 1.5 Sources: St. Vincent and the Grenadines' authorities and IMF staff calculations. 2 Note that there are no local governments. In addition, all of SOEs’ external debt is guaranteed by the central government. 3 There is an EC$300 million limit on SOEs’ total debt. 4 Debt classification is based on a residency basis, treating local currency-denominated debt issued in the local debt market and held by non-residents as external debt. 2 percent of GDP) for the repayment of government securities and to reduce potential rollover risks. 4. External public debt fell from 56.7 percent of GDP in 2016 to 47.4 percent of GDP in 2017. The decline in external debt was due to improvements in the fiscal position over the last two years and two rounds of debt forgiveness with Venezuela. Most public external debt is with multilateral and bilateral donors (47.6 percent and 38.6 percent of total, respectively) on concessional terms. The remaining 13 percent is on commercial terms (Text Fig 2 and Text Tab 2). Text Table 2. Public Sector External Debt, 2017 Text Figure 2. Public and Publicly Guaranteed External Debt (Percent of total and percent of GDP) (percent of total) Total 100.0 Multilateral Institutions 47.6 World Bank 9.0 Caribbean Development Bank 33.8 IMF 2.9 Others 1.9 Bilateral Creditors 38.6 USAID 0.7 France 0.4 Venezuela 24.9 Others 12.6 Private Creditors 1 13.8 Source: Ministry of Finance, St. Vincent and the Grenadines. Multilateral Bilateral Private 1 Includes commercial banks, insurance companies, pension funds, among others. Sources: St. Vincent and the Grenadines' authorities and IMF staff calculations. CHANGES IN THE MACROECONOMIC FORECAST VIS-A-VIS PREVIOUS DSA 5. The macroeconomic assumptions underlying the baseline scenario are consistent with the macroeconomic framework discussed in the Staff Report. Main revisions since the 2017 Article IV consultation are as following (Text Table 3). • The near-term growth outlook is largely unchanged, with real GDP growth (based on market prices) expected to rebound from 0.9 percent in 2017 to 2.0 percent in 2018, supported by higher stay-over tourism arrivals and tourism-related activities. However, medium- to long- term growth projections have been revised down, from the 2.8-3 percent growth assumed in the 2017 Article IV Staff Report to around 2.3 percent, reflecting more moderate and realistic growth rates of public capital spending and net FDI inflows • Growth of the GDP deflator is estimated at 3.2 percent in 2018 reflecting increases in oil and food prices (up from 2.1 percent in the 2017 Article IV Staff Report) but is projected to moderate to 2 percent in 2020-30 broadly in line with the U.S. inflation.5 • The current account deficit is projected to narrow over the medium-term from 16 percent of GDP in 2018 to about 12 percent of GDP in 2022, similar to the path assumed in the 2017 5 St. Vincent and the Grenadines is a member of the Eastern Caribbean Currency Union, and the exchange rate peg against the U.S. dollar provides an anchor for inflation. 3 Staff Report. This reflects improvements in the trade balance driven by rising exports of goods and services associated with the increase in tourism activity and non-traditional exports and lower dependence on imported fuels once the new geothermal project comes on stream. • FDI is projected to remain steady over the medium-term at around 12.5 percent of GDP reflecting the construction and expansion of hotels. FDI will remain the main source of financing of the current account deficit. • The average primary balance for the public sector is assumed at a surplus of 1.1 percent of GDP for the projection horizon. This is slightly higher than the DSA scenario in the 2017 report, reflecting the government’s positive track record in containing recurrent spending (including the wage bill and transfers and subsidies in recent years). • Long-term external and domestic financing mix. About one third of the deficit is assumed to be financed by external sources and the remaining two thirds by domestic sources. External loan disbursements include those from existing loan contracts (US$170 million) and new loans (US$100 million). Most of the new financing is expected to come from multilateral and bilateral donors, including budget support and projects (e.g., geothermal power plant, new port and ferry, coastal protection, and agribusiness). These reflect the increase in IDA resources, which will contribute to raise the grant element of new disbursements to an average of 38.5 percent over the projection period compared to 22.4 percent in 2018. 4 Text Table 3. St. Vincent and the Grenadines: Selected Macroeconomic Indicators, Assumptions 2017 2018 2019 2020 2021 2022 2017 DSA Nominal GDP (EC$, millions) 2,164 2,255 2,353 2,454 2,566 2,679 Real GDP growth, (percent change), factor cost 1.0 2.1 2.5 2.8 3.0 3.0 Real GDP growth, (percent change), market price 1.1 2.0 2.4 2.6 2.8 2.8 Inflation (GDP deflator, percent change) 3.1 2.1 1.8 1.5 1.5 1.3 Current account balance (percent of GDP) -14.3 -13.6 -13.3 -12.5 -11.6 -10.9 Central government primary balance (percent of GDP) 0.2 0.5 0.6 0.7 0.7 0.7 Central government fiscal balance (percent of GDP) -2.4 0.0 -2.0 0.0 -1.9 0.0 -1.8 0.0 -1.8 0.0 -1.7 0.0 Public sector, primary balance (percent of GDP) 0.3 0.4 0.4 0.5 0.5 0.5 Public sector, fiscal balance (percent of GDP) -1.7 -2.6 -2.6 -2.4 -2.4 -2.3 Total public debt (percent of GDP) 77.5 78.5 78.6 78.4 77.9 77.7 Current DSA Nominal GDP (EC$, millions) 2,120 2,231 2,334 2,438 2,544 2,655 Real GDP growth, (percent change), factor cost 0.7 2.0 2.3 2.4 2.3 2.3 Real GDP growth, (percent change), market price 0.9 2.0 2.3 2.4 2.3 2.3 Inflation (GDP deflator, percent change) 2.2 3.2 2.3 2.0 2.0 2.0 Current account balance (percent of GDP) -17.2 -15.9 -15.0 -14.0 -13.2 -12.4 Central government primary balance (percent of GDP) 1.9 0.6 0.8 1.0 1.0 1.1 Central government fiscal balance (percent of GDP) -0.5 -2.0 -1.7 -1.5 -1.4 -1.3 Public sector, primary balance (percent of GDP) 1.9 0.6 0.8 1.0 1.0 1.1 Public sector, fiscal balance (percent of GDP) -0.5 -2.0 -1.9 -1.7 -1.7 -1.6 Total public debt (percent of GDP) 74.2 73.0 71.3 69.6 68.0 66.6 Source: St. Vincent and the Grenadines Ministry of Finance and IMF Staff calculations and projections. REALISM OF THE MACROFRAMEWORK 6. Debt dynamics (Figure 3). Over the next five years, the expected increase in direct flights would boost tourism receipts (contributing to smaller current account deficits) and private investment (contributing to steady net FDI inflows), which would help to contain an increase in the external debt-to-GDP ratio. The projected improvement in the primary balance and higher growth would contribute to reduce the public debt-to-GDP ratio. Public debt is projected to fall faster than assumed in the 2017 report, mainly because the primary surplus is higher than previously assumed. 7. Staff considers the baseline scenario as realistic (Figure 4). The projected fiscal adjustment could exert some drag on growth in 2019. However, the expected increase in tourist arrivals would boost tourism-related activities such as hotels, restaurants, and retail trade, supporting private-sector led growth. The fiscal adjustment over the medium-term is also assumed to be moderate. The primary balance is projected to improve from 0.6 percent of GDP in 2018 to 0.8 percent of GDP in 2019, and gradually to 1.1 percent of GDP by 2022 by restraining recurrent spending. The contribution of public capital to real GDP growth is projected to be slightly negative mainly because the growth rate of public capital spending in 2018 is negative. Excluding 2018, the contribution to real GDP growth is neutral. 5 Text Table 4. Debt-Carrying Capacity Under the Composite Indicator Index Components Coefficients (A) 10-year average CI Score components Contribution of values (B) (A*B) = (C) components CPIA 0.385 3.600 1.38 46% Real growth rate (in percent) 2.719 1.669 0.05 2% Import coverage of reserves (in percent) 4.052 39.316 1.59 53% Import coverage of reserves^2 (in percent) -3.990 15.457 -0.62 -21% Remittances (in percent) 2.022 4.375 0.09 3% World economic growth (in percent) 13.520 3.579 0.48 16% CI Score 2.98 100% CI rating Medium Text Table 5. Composite Indicator Index: Thresholds External debt Weak Medium Strong PV of external in percent of: Exports 140 180 240 GDP 30 40 55 Debt service in percent of: Exports 10 15 21 Revenue 14 18 23 Total debt: PV of total public debt 35 55 70 in percent of GDP COUNTRY CLASSIFICATION 8. St. Vincent’s debt-carrying capacity is medium (Text Table 4). St. Vincent’s Composite Indicator (CI) index (which determines the indicative thresholds to assess a country’s debt sustainability) is calculated as 2.98, corresponding to a “medium” rating.5F6 St. Vincent’s debt carrying capacity is unchanged compared to the rating under the previous Country Policy and Institutional Assessment (CPIA) methodology.6F7 The corresponding scores for the CI index determine the relevant thresholds for St. Vincent and the Grenadines for both external and total public debt (Text Table 5). 9. The combined contingent liability stress test is aligned to St. Vincent’s specific risks (Text Table 6). The stress test includes the potential impact from existing Public-private partnerships (PPPs) and risks pertaining to financial markets. SOEs’ debt is excluded from the stress test, as SOEs’ debt is already included in total public debt.8 6 The CI index captures the impact of the weighted average of the World Bank’s CPIA score, the country’s real economic growth, remittances, international reserves, and world growth. The CI calculation is based on 10-year averages of the variables including 5 years of historical data and 5 years of projections. The index was calculated using the October 2018 WEO data and the 2017 CPIA. 7 Countries are rated based on a set of 16 backward-looking criteria grouped into four areas including economic management, structural policies, policies on social inclusion and equity, and public-sector management and institutions. 8 Potential contingent liabilities from the pension system are not included. Parametric reforms introduced in 2014 improved the sustainability of the National Insurance System (NIS), but only temporary, as its reserves are projected (continued) 6 DEBT SUSTAINABILITY ANALYSIS A. Baseline scenario Baseline natural disaster assumptions 10. The impact of natural disasters is estimated based on St. Vincent and the Grenadines’ historical experience (Text table 7). The Text Table 7. St. Vincent and the Grenadines: Major Weather-related Disasters since 1980 average of total natural disaster damage is Year Type Total damage Est. fiscal costs People affected (% GDP) (% GDP) Number % population estimated at 1.5 percent of GDP for the period 1980-2017, at 2 percent for the last 1980 Hurricane Allen 19.8 20,500 20.9 1987 Floods 2.8 1,000 1.0 15 years, and 3.9 percent for the last 5 1987 Hurricane Emily 3.0 208 0.2 1999 Hurricane Lenny 0.5 100 0.1 years. Staff assumes that under the baseline 2002 2004 Hurricane Lili Hurricane Ivan 2.4 1.0 NA 1,004 NA 0.9 2005 Hurricane Emily 1.5 530 0.5 scenario, natural disasters would occur at 2010 Hurricane Tomas 3.7 6,100 5.6 2011 Floods 3.8 275 0.3 the magnitude and frequency of the past 2013 Floods 15.0 17,422 15.8 2016 Floods 4.7 25,000 22.7 15 years, and about 70-75 percent of total Annual average damage would be borne by the public Full sample (1980-2017) 1.5 1.1 Last 20 years (1998-2017) 1.6 1.2 sector (i.e., annual fiscal costs of 1.4 Last 15 years (2003-2017) Last 10 years (2008-2017) 2.0 2.7 1.4 2.0 Last 5 years (2013-2017) 3.9 2.9 percent of GDP a year). The baseline also Sources: Acevedo, S., 2016, "Gone with the Wind : Estimating Hurricane and Climate Change Costs in assumes that 0.7 percent of GDP of the the Caribbean," IMF WP 16/199; EM-DAT database; and the St. Vincent authorities. fiscal costs could be covered by the contingency fund and the remaining 0.7 percent of GDP by expenditure reserves included in the annual budget envelope. Text Table 6. Combined Contingent Liability Shock 1 The country's coverage of public debt The central government, government-guaranteed debt Used for the Default analysis Reasons for deviations from the default settings 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.0 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 0.0 4 PPP 35 percent of PPP stock 13.7 5 Financial market (the default value of 5 percent of GDP is the minimum value) 5 percent of GDP 5.0 Total (2+3+4+5) (in percent of GDP) 18.7 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. There are no local governments in St. Vincent and the Grenadines. 100 percent of current SOEs’ external debt is guaranteed by the central government. to be depleted by around 2033. Currently, the government is assessing options to further strengthen NIS’s financial position and to reduce the burden from the public service pension system. 7 External Debt Sustainability Analysis 11. St. Vincent and the Grenadines’ risk of external debt distress is high. Under the baseline scenario, the PV of debt-to-GDP ratio would fall below the indicative threshold of 40 percent of GDP in 2021 (Figure 1 and Table 1). However, it breaches the threshold for an extended period under stress test scenarios, including due to shocks to growth, exports, and a hypothetical one-time 30 percent depreciation (Tables 3 and 4). The shock that generates the largest impact on the PV of debt-to-GDP ratio is the shock to exports. In this case, it breaches the threshold for an extended period until 2028, longer than in the baseline scenario. 12. Furthermore, the PV of debt-to-exports ratio and the debt service-to-exports thresholds are breached under standardized stress test scenarios. A shock to exports pushes the debt service-to-exports ratio above the 15 percent threshold for five years (2019-2023). The shock to exports temporarily pushes the ratio for the PV of debt-to-exports ratio above its indicative threshold. 13. The other indicator of external public debt sustainability remains below its indicative threshold. The debt service-to-revenue ratio remains at comfortable levels in the baseline and shock scenarios. (Figure 1). Public Debt Sustainability Analysis 14. The ECCU debt target of 60 percent of GDP can be achieved by around 2030, but the overall risk of debt distress is high (Figure 2 and Table 2). The PV of public debt is estimated at 74 percent of GDP in 2018, well above the indicative threshold of 55 percent of GDP. Under the “most extreme stress scenario,” which assumes real GDP growth equal to its historical average (10 years) minus one standard deviation for 2019 and 2020, public debt becomes unsustainable, and its PV would reach 100 percent of GDP by 2024. Under other alternative scenarios including a shock to exports, a hypothetical 30 percent depreciation, or the tailored test of “one-time natural disaster” (see below), the PV of public debt (in percent of GDP) would stay constantly above the 55 percent threshold. B. Alternative scenarios 15. Two alternative scenarios are considered consistent with St. Vincent and the Grenadines’ characteristics and recent experience. These scenarios reflect downside risks to the medium-term growth outlook and natural disaster risks. 8 Low growth scenario 16. The growth recovery would not be sustained, if global growth slows, dampening tourist arrivals and tourism-related activities. Medium-term output growth is assumed to stay at around 1.4 percent (the average growth rate for 2013-2017) (Text Figure 3 and Text Table 8). Despite lower growth rates, it is assumed that the authorities remain committed to meeting the ECCU’s debt target and thus would maintain the primary balance position at a surplus of around 1 percent of GDP on average (unchanged from the baseline scenario). 17. Due to lower GDP growth, the pace of debt reduction would be much slower. St. Vincent and the Grenadines would not be able to meet the ECCU’s 60 percent debt target by 2030. Natural disasters scenarios 18. Two natural disaster scenarios are conducted which reflect the country’s exposure to natural disasters: (i) a one-time very severe natural disaster occurring in 2019; and (ii) recurrent severe natural disasters (less severe but more frequent events than the one-time natural disaster scenario, but more severe than the baseline scenario). • One-time natural disaster in 2019. The fiscal costs due to the damages from this severe disaster are assumed to be 10 percent of GDP, in addition to the 1.4 percent of GDP assumed in the baseline scenario. The total fiscal cost of 11.4 percent of GDP is similar to the 2013 natural disaster experience—total damages and losses were estimated at 15 percent of GDP, of which about 12 percent of GDP were borne by the government. Under this scenario, real GDP growth is assumed to fall to 0.5 percent in 2019 compared to 2.3 percent in the baseline scenario, but it rebounds in 2020 reflecting the reconstruction efforts. The government is assumed to finance the fiscal costs through new debt. The results show that the PV of public debt would jump from 74 percent in 2018 to 86 percent of GDP in 2019 and remain high over the long-term (Top chart, Figure 2). • Recurrent more severe natural disasters (less severe than the one-time natural disasters) (Text Figure 3 and Text Table 8). This scenario assumes that natural disasters hit the country at the frequency and magnitude of the last 10 years (i.e., annual total damages and annual fiscal costs of 2.7 percent and 2 percent of GDP, respectively). This implies additional annual fiscal costs of 0.6 percent of GDP compared to the baseline scenario. Under this scenario, real GDP growth slows down to 1.4 percent over the projection period reflecting the recurrent nature of the disasters. It is also assumed that the additional fiscal costs are financed through debt. Under this scenario, public debt would hover around 72-74 percent of GDP. 9 Text Figure 3. Public Debt: Baseline Policy Text Table 8. Baseline Policy Scenario Scenario Text Figure 3. Public Debt: Baseline Policy Scenarios 1 (Percent of GDP) (Percent (Percent of of GDP) GDP) Baseline Policy Scenarios 100 100 Baseline, ND at Low growth, NDs at Low growth, Baseline: NDs at historical levels historical level historical level severe ND Low growth, unchanged PB, NDs at historical levels 80 Low growth, severe ND 80 Real GDP growth (in percent) 2.3 1.4 1.4 Primary balance (percent of GDP) 1.1 1.1 0.6 Public sector debt (percent of GDP) 59 67 74 60 60 (60 percent target) Natural disaster cost estimates Gross fiscal costs 1.4 1.4 2.0 Withdrawal from Contingencies Fund/CCRIF 0.7 0.7 0.7 40 40 Use of budget reserves 0.7 0.7 0.7 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Net fiscal costs 0.0 0.0 0.6 Source: IMF staff estimates and calculations. 1 Baseline: natural disasters occur occur at historical levels (1.4 percent of GDP), growth 2.3 percent, PB 1.1 percent of GDP. Source: IMF staff estimates and calculations. Low growth and unchanged PB: real growth 1. 4 percent, NDs at historical level (1.4 percent of GDP), PB 1.1 percent of GDP. Low growth, severe NDs: 2013-17 (fiscal cost 2.0 percent of GDP). Real growth 1.4 percent, PB 0.6 percent of GDP. Active policy scenario 19. The authorities could aim at a higher primary balance target to ensure debt sustainability even under the above adverse scenarios (Text Figure 4 and Text Table 9).8F9 If the authorities raise the primary balance to a surplus of 1.6 percent of GDP by 2020, public debt would fall below 60 percent of GDP by around 2030 even if GDP growth would remain persistently low at 1.4 percent.9F10 The higher level of the primary balance would also ensure that public debt would stabilize at the current level even if the economy is hit by more severe recurrent natural disasters and growth is persistently low. Text Figure 4. Public Debt: Active Policy Text Table 9. Active Policy Scenario Scenario (Percent of GDP) Text Figure 4. Public Debt: Active Policy Scenarios 1 (Percent of (percent of GDP) GDP) Active Policy Scenarios Baseline growth 90 90 & ND at Low growth, NDs at Low growth, historical level historical level severe ND 80 80 Real GDP growth (in percent) 2.3 1.4 1.4 70 70 Primary balance (percent of GDP) 1.1 1.6 0.9 60 60 Public sector debt (percent of GDP) 59 60 70 Active, low growth, severe ND 50 Active: 1.6 percent of GDP PB target, NDs at historical level, 50 Natural disaster cost estimates growth 2.3 Low growth, active 1.6 percent of GDP PB target, severe ND Gross fiscal costs 1.4 1.4 2.0 40 40 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Withdrawal from Contingencies Fund/CCRIF 0.7 0.7 0.7 Use of budget reserves 0.7 0.7 0.7 Source: IMF staff estimates. 1 Active policy: PB target at 1.6 percent of GDP. Real growht at 1.4 percent; NDs at historical level (1.4 percent of GDP) Net fiscal costs 0.0 0.0 0.6 Active policy: PB target at 1.6 percent of GDP. Real growht at 2.3 percent; NDs at historical level (1.4 percent of GDP) Active policy and severe ND: Fiscal cost (2.0 percent of GDP) growth 1.4 percent, PB 0.9 percent of GDP. Source: IMF staff estimates and calculations. 9 There is a broad set of tax and expenditure measures that can be explored. These include reducing tax exemptions and streamlining zero-rated goods, containing the growth of the wage bill, and reforming the pension system (see Paragraph 20 of the Staff Report). 10 Fiscal multipliers are likely small because St. Vincent and the Grenadines is a small and open economy, with imports accounting for nearly 40 percent of GDP. In addition, many proposed fiscal measures (see Staff Report Paragraph 20) would not most likely affect households with liquidity constraints (e.g., pension reform or containing wage bill growth). Furthermore, fiscal consolidation efforts would improve investors’ confidence and private sector activities. Accordingly, these active policy scenarios do not take account of adverse multiplier effects on growth. 10 RISK RATING AND VULNERABILITIES 20. The risk of external and public debt distress is “high,” unchanged from the assessment in the 2017 Article IV DSA. While the public and publicly guaranteed external debt and total public debt are projected to decline over the medium-term on the back of the improved fiscal position, the risk of external and public debt distress is expected to remain high. 21. The stress tests and alternative scenarios tailored to St. Vincent and the Grenadines’ idiosyncratic characteristics and recent growth experience highlight the benefits of taking more active fiscal policies. The low growth and natural disasters scenarios reflect various downside risks to the baseline scenario. The results underscore the merits of building fiscal buffers more actively, in case growth falters or the country suffers more severe natural disasters, to ensure public debt sustainability. The low growth scenario also underlines the need to address the country’s binding constraints to growth, including competitiveness and connectivity issues to be able to sustain growth at around 2.3 percent over the medium-to-long-term. AUTHORITIES’ VIEWS 22. The authorities agreed with the debt sustainability assessment under the new framework and welcomed the tailored stress test on natural disaster. They were encouraged by their prudent fiscal policies over the last two years, which helped lower the debt-to-GDP ratio to 74 percent in 2017 for the first time since 2013. The authorities, however, recognized the risks that low growth and natural disasters pose to debt dynamics but reiterated their commitment to put debt on a sustainable downward path to reach the ECCU’s debt target of 60 percent of GDP by 2030 by implementing fiscal consolidation measures. They agreed that additional fiscal reforms would be needed to create fiscal space to support their capital spending program and, especially if the country suffers more severe natural disasters, to ensure public debt sustainability. 11 Figure 1. St. Vincent & the Grenadines: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2018-2028 PV of debt-to GDP ratio PV of debt-to-exports ratio 100 250 90 80 200 70 60 150 50 40 100 30 20 50 10 Most extreme shock is Exports Most extreme shock is Exports 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Debt service-to-exports ratio Debt service-to-revenue ratio 20 20 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 Most extreme shock is Exports Most extreme shock is One-time depreciation 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Baseline Historical scenario Most extreme shock 1/ Threshold Customization of Default Settings Borrowing Assumptions for Stress Tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Tests Terms of marginal debt Combined CLs Yes Avg. nominal interest rate on new borrowing in USD 2.1% 2.1% Natural Disasters Yes Yes USD Discount rate 5.0% 5.0% Commodity Prices 2/ n.a. n.a. Avg. maturity (incl. grace period) 31 32 Market Financing n.a. n.a. Avg. grace period 7 7 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests are assumed interactions of the default settings for the stress tests. to be covered by PPG external MLT debt in the external DSA. Default terms of marginal debt are "n.a." indicates that the stress test does not apply. based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2028. Stress tests with one-off breaches are also presented (if any), while these one-off breaches are deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 12 Figure 2. St. Vincent & the Grenadines: Indicators of Public Debt Under Alternative Scenarios, 2018-2028 PV of Debt-to-GDP Ratio 120 100 80 60 40 Most extreme shock is Growth 20 0 2018 2020 2022 2024 2026 2028 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 300 40 35 250 30 200 25 150 20 15 100 10 50 Most extreme shock is Growth 5 Most extreme shock is Growth 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Baseline Most extreme shock 1/ Public debt benchmark Historical scenario One-time natural disasters shock Borrowing Assumptions for Stress Tests* Default User defined Shares of marginal debt External PPG medium and long-term 45% 45% Domestic medium and long-term 49% 49% Domestic short-term 5% 5% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.1% 2.1% Avg. maturity (incl. grace period) 31 32 Avg. grace period 7 7 Domestic MLT debt Avg. real interest rate on new borrowing 5.5% 4.0% Avg. maturity (incl. grace period) 10 10 Avg. grace period 5 5 Domestic short-term debt Avg. real interest rate 1% 2% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2028. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 13 Figure 3. St. Vincent & the Grenadines: Drivers of Debt Dynamics - Baseline Scenario External Debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 30 80 Residual 150 Previous DSA proj. 20 70 DSA-2013 Interquartile Price and 100 range (25-75) 60 exchange 10 rate 50 Real GDP 50 growth 0 Change in PPG 40 debt 3/ 0 Nominal -10 30 interest rate 20 -5 0 Median Current -20 10 account + FDI -100 -30 0 Change in Contribution of 5-year 5-year Distribution across LICs 2/ 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PPG debt 3/ unexpected historical projected -150 changes change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 20 Current DSA 20 Previous DSA proj. DSA-2013 Other debt Interquartile 90 creating flows range (25-75) 10 15 80 Real 70 Exchange rate 10 60 depreciation 0 Real GDP 50 growth Change in debt 5 40 Real interest 30 rate -10 0 20 Primary deficit 10 -20 -5 Median 0 Change in debt 5-year 5-year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Distribution across LICs 2/ historical projected Contribution of change change -10 unexpected Sources: Country authorities; and staff estimates and projections. 1/ Difference betw een anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for w hich LIC DSAs w ere produced. 3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 14 Figure 4. St. Vincent & The Grenadines: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) Distribution 1/ 2.5 1.0 14 Projected 3-yr 12 adjustment 2.0 3-year PB adjustment greater than In percentage points of GDP 2.5 percentage points of GDP in 10 approx. top quartile 0.0 1.5 In percent 8 6 1.0 -1.0 4 0.5 2 0 0.0 -2.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 More 2012 2013 2014 2015 2016 2017 2018 2019 Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. The size of 3-year adjustment from program 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and inception is found on the horizontal axis; the percent of sample is found on the lines show possible real GDP growth paths under different fiscal multipliers (left- vertical axis. hand side scale). Public Investment Rates Contribution to Real GDP growth (% of GDP) (percent, 5-year average) 10 3.0 2.5 8 2.0 6 1.5 1.0 4 0.5 2 0.0 Historical Projected (2017 DSA) Projected (2018 DSA) 0 -0.5 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Gov. Invest. - Prev. DSA Gov. Invest. - Current DSA Contribution of other factors Contribution of government capital Sources: Country authorities; and staff estimates and projections. 15 Table 1. St. Vincent & the Grenadines: External Debt Sustainability Framework, Baseline Scenario, 2015-2038 (In percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2015 2016 2017 2018 2019 2020 2021 2022 2023 2028 2029 2030 2038 External debt (nominal) 1/ 46.4 56.7 47.4 44.8 45.0 43.9 41.5 39.1 36.9 32.2 31.9 31.7 29.6 42.4 38.0 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 46.4 56.7 47.4 44.8 45.0 43.9 41.5 39.1 36.9 32.2 31.9 31.7 29.6 42.4 38.0 Is there a material difference between the two Yes criteria? Change in external debt 0.9 10.2 -9.3 -2.5 0.2 -1.2 -2.4 -2.4 -2.2 -0.4 -0.3 -0.2 -0.2 Identified net debt-creating flows 6.3 -6.8 3.1 2.5 1.6 0.6 -0.2 -0.9 -1.8 -1.6 -1.6 -1.6 -1.6 8.5 -0.6 Non-interest current account deficit 13.6 14.3 16.1 14.5 14.2 13.0 12.3 11.5 10.6 10.9 10.9 10.9 10.9 23.5 11.8 Deficit in balance of goods and services 17.1 17.8 18.3 17.8 16.1 14.6 13.6 12.7 11.7 11.5 11.5 11.5 11.5 26.2 13.1 Exports 37.4 37.9 36.0 37.2 37.9 38.7 39.5 40.4 41.4 41.6 41.6 41.6 41.6 Imports 54.5 55.7 54.3 55.0 54.0 53.4 53.1 53.1 53.1 53.2 53.2 53.2 53.2 Debt Accumulation 5.0 60 Net current transfers (negative = inflow) -4.6 -5.4 -4.6 -4.3 -4.0 -3.9 -3.7 -3.6 -3.5 0.0 0.0 0.0 0.0 -3.0 -2.4 of which: official -1.5 -0.8 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 -1.4 4.0 50 Other current account flows (negative = net inflow) 1.1 1.9 2.5 1.0 2.1 2.2 2.4 2.4 2.4 -0.7 -0.7 -0.7 -0.7 0.4 1.1 Net FDI (negative = inflow) -6.6 -21.1 -13.1 -12.5 -12.5 -12.5 -12.5 -12.4 -12.4 -12.4 -12.4 -12.4 -12.4 -16.1 -12.5 3.0 Endogenous debt dynamics 2/ -0.7 -0.1 0.1 0.6 -0.1 0.0 0.0 0.0 0.0 -0.1 -0.1 -0.1 0.0 40 Contribution from nominal interest rate 1.0 0.8 1.1 1.5 0.9 1.1 0.9 0.9 0.9 0.7 0.6 0.6 0.6 2.0 Contribution from real GDP growth -0.6 -0.9 -0.5 -0.9 -1.0 -1.1 -1.0 -0.9 -0.9 -0.7 -0.7 -0.7 -0.7 30 Contribution from price and exchange rate changes -1.1 0.0 -0.6 … … … … … … … … … … 1.0 Residual 3/ -5.4 17.0 -12.4 -5.1 -1.4 -1.7 -2.2 -1.5 -0.5 1.3 1.3 1.4 1.4 -6.5 -0.8 of which: exceptional financing 0.0 5.4 -7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 0.0 Sustainability indicators 10 -1.0 PV of PPG external debt-to-GDP ratio ... ... 48.4 45.9 44.2 42.1 39.6 37.0 34.4 28.0 27.4 26.8 22.9 PV of PPG external debt-to-exports ratio ... ... 134.4 123.3 116.8 108.6 100.1 91.4 83.1 67.2 65.8 64.5 55.1 -2.0 0 PPG debt service-to-exports ratio 10.3 27.5 12.1 13.9 13.8 12.9 12.2 12.3 11.3 6.7 6.2 6.0 5.0 3 2018 2020 2022 2024 2026 2028 PPG debt service-to-revenue ratio 8.4 22.7 9.5 11.8 11.8 11.2 10.8 11.2 10.5 6.2 5.8 5.6 4.6 Gross external financing need (Million of U.S. dollars) 82.0 28.6 58.0 58.9 59.4 49.7 44.0 39.7 29.3 15.0 13.2 12.7 9.5 Rate of Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 1.3 2.0 0.9 2.0 2.3 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 0.9 2.3 GDP deflator in US dollar terms (change in percent) 2.4 0.1 1.0 3.2 2.3 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.0 2.3 Effective interest rate (percent) 4/ 2.2 1.9 2.0 3.3 2.1 2.5 2.2 2.3 2.4 2.1 2.1 2.1 2.3 5.2 2.5 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 10.3 3.6 -3.3 8.7 6.5 6.9 6.5 6.7 7.0 4.3 4.4 4.3 4.3 3.7 7.0 of which: Private of which: public and publicly guaranteed (PPG) Growth of imports of G&S (US dollar terms, in percent) -7.5 4.3 -0.7 6.6 2.7 3.3 3.8 4.4 4.4 4.3 4.4 4.3 4.3 0.8 4.2 50 Grant element of new public sector borrowing (in percent) ... ... ... 22.4 47.8 44.5 39.4 37.9 39.1 41.1 39.1 40.1 42.6 ... 38.5 45 Government revenues (excluding grants, in percent of GDP) 45.6 46.0 45.7 43.8 44.3 44.5 44.5 44.5 44.5 44.4 44.4 44.4 44.5 43.5 44.4 Aid flows (in Million of US dollars) 5/ 343.6 332.5 337.2 13.8 44.9 34.3 25.5 25.5 26.8 35.4 33.9 36.6 41.7 40 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 2.2 4.5 3.5 2.7 2.7 2.6 2.7 2.6 2.6 2.0 ... 3.0 35 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 44.4 57.0 57.3 57.2 56.1 57.8 59.4 58.7 59.3 59.2 ... 55.0 30 Nominal GDP (Million of US dollars) 755 771 785 826 864 903 942 983 1,026 1,272 1,327 1,385 1,950 Nominal dollar GDP growth 3.8 2.0 1.9 5.2 4.6 4.5 4.3 4.4 4.4 4.3 4.4 4.3 4.3 1.9 4.6 25 20 Memorandum items: 15 PV of external debt 7/ ... ... 48.4 45.9 44.2 42.1 39.6 37.0 34.4 28.0 27.4 26.8 22.9 In percent of exports ... ... 134.4 123.3 116.8 108.6 100.1 91.4 83.1 67.2 65.8 64.5 55.1 10 Total external debt service-to-exports ratio 10.3 27.5 12.1 13.9 13.8 12.9 12.2 12.3 11.3 6.7 6.2 6.0 5.0 5 PV of PPG external debt (in Million of US dollars) 380.2 379.1 382.4 380.0 372.9 363.4 353.5 355.9 363.4 371.7 447.2 0 (PVt-PVt-1)/GDPt-1 (in percent) -0.1 0.4 -0.3 -0.8 -1.0 -1.0 0.5 0.6 0.6 0.7 2018 2020 2022 2024 2026 2028 Non-interest current account deficit that stabilizes debt ratio 12.6 4.1 25.4 17.0 13.9 14.2 14.7 13.9 12.9 11.2 11.2 11.1 11.1 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. Table 2. St. Vincent & the Grenadines: Public Sector Debt Sustainability Framework, Baseline Scenario, 2015-2038 (In percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2028 2029 2030 2038 Historical Projections Public sector debt 1/ 79.4 82.8 74.2 73.1 71.4 69.7 68.1 66.7 65.6 60.8 59.9 59.1 51.8 71.8 66.2 Definition of external/domestic of which: external debt 46.4 56.7 47.4 44.8 45.0 43.9 41.5 39.1 36.9 32.2 31.9 31.7 29.6 42.4 38.0 Residency-based debt of which: local-currency denominated Change in public sector debt -0.1 3.5 -8.7 -1.1 -1.7 -1.7 -1.6 -1.4 -1.2 -0.9 -0.9 -0.9 -0.9 Is there a material difference Identified debt-creating flows -2.6 2.9 -7.1 -1.6 -1.6 -1.8 -1.7 -1.5 -1.4 -1.0 -1.0 -1.0 -1.0 1.1 -1.4 Yes between the two criteria? Primary deficit -2.6 -3.3 -1.9 -0.6 -0.8 -1.0 -1.0 -1.1 -1.2 -1.3 -1.3 -1.3 -1.3 -0.8 -1.1 Revenue and grants 47.7 47.3 47.8 45.2 45.7 45.9 45.9 45.9 45.9 45.8 45.8 45.8 45.5 47.6 45.8 of which: grants 2.0 1.2 2.1 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.0 Public sector debt 1/ Primary (noninterest) expenditure 45.1 44.0 45.9 44.6 44.9 44.9 44.9 44.8 44.7 44.5 44.5 44.5 44.2 46.8 44.7 Automatic debt dynamics -0.1 0.8 1.0 -1.0 -0.9 -0.7 -0.6 -0.4 -0.2 0.3 0.3 0.3 0.3 of which: local-currency denominated Contribution from interest rate/growth differential 0.5 0.3 0.5 -0.6 -0.8 -0.7 -0.6 -0.4 -0.1 0.3 0.3 0.3 0.3 of which: foreign-currency denominated of which: contribution from average real interest rate 1.6 1.9 1.2 0.9 0.8 1.0 1.0 1.2 1.4 1.7 1.7 1.6 1.4 of which: contribution from real GDP growth -1.1 -1.5 -0.7 -1.4 -1.6 -1.7 -1.6 -1.5 -1.5 -1.4 -1.4 -1.3 -1.2 80 Contribution from real exchange rate depreciation -0.6 0.5 0.5 ... ... ... ... ... ... ... ... ... ... 70 Other identified debt-creating flows 0.0 5.4 -6.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.4 0.0 60 Privatization receipts (negative) 0.0 0.0 1.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Debt relief (HIPC and other) 0.0 5.4 -7.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 Other debt creating or reducing flow (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual 2.6 0.5 -1.6 0.1 -0.1 0.0 0.0 0.1 0.2 0.1 0.1 0.1 0.1 3.5 0.1 20 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 75.2 74.1 70.6 67.9 66.2 64.6 63.2 56.6 55.5 54.3 45.1 2018 2020 2022 2024 2026 2028 PV of public debt-to-revenue and grants ratio … … 157.4 163.8 154.5 147.9 144.1 140.7 137.6 123.6 121.0 118.4 99.1 Debt service-to-revenue and grants ratio 3/ 15.4 28.8 14.7 18.5 20.9 24.4 23.4 22.2 19.8 16.6 17.0 17.4 14.0 3 Gross financing need 4/ 2.0 7.9 5.2 7.7 8.8 10.2 9.7 9.1 7.9 6.3 6.5 6.7 5.1 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 80 Real GDP growth (in percent) 1.3 2.0 0.9 2.0 2.3 2.4 2.3 2.3 2.3 2.3 2.3 2.3 2.3 0.9 2.3 70 Average nominal interest rate on external debt (in percent) 2.2 1.9 2.0 3.3 2.1 2.5 2.2 2.3 2.4 2.1 2.1 2.1 2.3 5.2 2.3 60 Average real interest rate on domestic debt (in percent) 3.2 4.8 4.3 1.7 3.0 2.9 3.3 4.0 4.6 5.6 5.6 5.7 5.8 6.0 4.1 50 Real exchange rate depreciation (in percent, + indicates depreciation) -1.3 1.0 0.9 … ... ... ... ... ... ... ... ... ... 0.6 ... 40 Inflation rate (GDP deflator, in percent) 2.4 0.1 1.0 3.2 2.3 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 1.0 2.1 30 Growth of real primary spending (deflated by GDP deflator, in percent) -4.1 -0.6 5.3 -1.0 3.0 2.3 2.3 2.1 2.2 2.2 2.4 2.3 2.2 1.2 2.0 20 Primary deficit that stabilizes the debt-to-GDP ratio 5/ -2.5 -6.7 6.8 0.5 0.9 0.7 0.5 0.2 0.0 -0.4 -0.4 -0.4 -0.4 -0.8 0.1 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10 0 2018 2020 2022 2024 2026 2028 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, government-guaranteed debt. Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. Table 3. St. Vincent & the Grenadines: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2018-2028 (In percent) Projections 1/ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PV of debt-to GDP ratio Baseline 46 44 42 40 37 34 32 31 30 29 28 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 46 49 53 56 60 65 70 75 82 88 94 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 46 47 48 45 42 39 37 35 34 33 32 B2. Primary balance 46 45 43 41 38 36 34 32 31 30 30 B3. Exports 46 50 57 54 51 48 46 44 43 42 41 B4. Other flows 3/ 46 49 52 49 47 44 42 40 39 38 37 B5. Depreciation 46 56 49 45 42 39 37 35 33 32 31 B6. Combination of B1-B5 46 55 56 53 50 47 45 43 42 40 39 C. Tailored Tests C1. Combined contingent liabilities 46 50 48 46 43 41 39 38 37 37 36 C2. Natural disaster 46 48 46 44 42 40 38 37 36 36 36 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 123 117 109 100 91 83 78 74 71 69 67 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 123 130 136 142 148 156 168 181 196 211 226 0 123 121 118 115 111 107 107 107 107 107 106 B. Bound Tests B1. Real GDP growth 123 117 109 100 91 83 78 74 71 69 67 B2. Primary balance 123 118 112 103 95 86 81 78 75 73 71 B3. Exports 123 151 195 182 169 156 149 143 139 135 130 B4. Other flows 3/ 123 130 134 124 115 106 101 97 94 91 88 B5. Depreciation 123 117 100 91 83 75 70 66 63 61 60 B6. Combination of B1-B5 123 145 127 144 133 122 116 111 107 104 101 C. Tailored Tests C1. Combined contingent liabilities 123 131 124 115 106 98 93 90 89 88 87 C2. Natural disaster 123 129 122 114 105 97 93 90 88 88 87 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 14 14 13 12 12 11 10 9 8 7 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 14 14 14 14 15 14 13 12 12 12 13 0 14 13 13 12 12 12 11 10 9 9 9 B. Bound Tests B1. Real GDP growth 14 14 13 12 12 11 10 9 8 7 7 B2. Primary balance 14 14 13 12 12 11 10 9 8 7 7 B3. Exports 14 16 19 19 19 17 15 13 12 12 12 B4. Other flows 3/ 14 14 13 13 13 12 10 9 8 8 8 B5. Depreciation 14 14 13 12 12 11 10 8 8 7 6 B6. Combination of B1-B5 14 15 16 16 16 14 13 11 10 10 10 C. Tailored Tests C1. Combined contingent liabilities 14 14 13 13 13 12 10 9 8 7 7 C2. Natural disaster 14 14 14 13 13 12 10 9 8 8 7 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 12 12 11 11 11 10 9 8 7 7 6 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 12 12 12 12 13 13 12 12 11 12 12 0 12 11 11 11 11 11 10 9 8 8 8 B. Bound Tests B1. Real GDP growth 12 13 13 12 13 12 10 9 8 7 7 B2. Primary balance 12 12 11 11 11 11 9 8 7 7 6 B3. Exports 12 12 12 12 13 12 11 9 8 8 8 B4. Other flows 3/ 12 12 12 11 12 11 10 9 8 8 8 B5. Depreciation 12 15 14 13 14 13 11 10 9 8 7 B6. Combination of B1-B5 12 13 13 13 13 12 11 10 9 9 8 C. Tailored Tests C1. Combined contingent liabilities 12 12 12 11 12 11 10 8 8 7 7 C2. Natural disaster 12 12 11 11 11 11 9 8 8 7 7 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 18 18 18 18 18 18 18 18 18 18 18 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 19 Table 4. St. Vincent & the Grenadines: Sensitivity Analysis for Key Indicators of Public Debt, 2018-2028 Projections 1/ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 PV of Debt-to-GDP Ratio Baseline 74 71 68 66 65 63 62 61 59 58 57 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 74 72 72 72 72 73 73 74 75 75 76 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 74 78 85 88 92 95 99 103 106 110 113 B2. Primary balance 74 72 71 69 68 67 65 64 63 61 60 B3. Exports 74 74 79 77 76 74 73 72 70 69 67 B4. Other flows 3/ 74 75 78 76 74 73 71 70 69 67 65 B5. Depreciation 74 80 73 69 64 60 56 52 48 45 41 B6. Combination of B1-B5 74 70 70 67 66 65 64 63 62 61 60 C. Tailored Tests C1. Combined contingent liabilities 74 86 83 82 80 79 78 76 75 73 72 C2. Natural disaster 74 81 79 78 77 76 75 75 74 73 72 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 8.219178082 Public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 164 154 148 144 141 138 135 132 129 126 124 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 164 158 156 156 156 157 159 160 162 163 164 0 18 21 25 24 23 21 20 19 19 19 19 B. Bound Tests B1. Real GDP growth 164 170 185 191 199 207 215 223 231 239 246 B2. Primary balance 164 158 155 151 148 145 142 140 137 134 131 B3. Exports 164 163 172 169 165 162 159 156 153 150 146 B4. Other flows 3/ 164 165 169 165 162 158 155 153 150 146 143 B5. Depreciation 164 175 160 150 140 131 122 114 106 98 90 B6. Combination of B1-B5 164 154 152 147 144 142 139 137 135 132 130 C. Tailored Tests C1. Combined contingent liabilities 164 189 182 178 175 172 169 166 163 160 156 C2. Natural disaster 164 177 171 169 167 166 164 163 161 159 158 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 18 21 24 23 22 20 19 17 17 16 17 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 2/ 18 21 26 25 24 22 22 21 21 20 21 0 18 21 25 24 23 21 20 19 19 19 19 B. Bound Tests B1. Real GDP growth 18 22 28 28 27 25 25 24 25 26 28 B2. Primary balance 18 21 25 24 23 20 19 18 18 17 18 B3. Exports 18 21 25 24 23 20 20 18 18 17 18 B4. Other flows 3/ 18 21 25 24 23 20 20 18 18 17 18 B5. Depreciation 18 21 27 25 24 22 20 18 17 16 16 B6. Combination of B1-B5 18 21 25 24 23 20 19 18 17 17 17 C. Tailored Tests C1. Combined contingent liabilities 18 21 28 25 24 21 21 22 22 21 21 C2. Natural disaster 18 21 27 25 24 21 21 21 21 20 21 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 20