Basseterre, St. Kitts – Nevis
December 11. 2007 (CUOPM)
Despite the closure of the centuries old sugar industry in 2005, the Federation of St. Kitts and Nevis registered a four percent economic growth in 2006.
Prime Minster and Minister of Finance, Hon. Dr. Denzil L. Douglas in his three hour and fifteen minutes Budget Address in the St. Kitts and Nevis National Assembly on Tuesday also disclosed that although the Current Account deficit widened, an overall Balance of Payments surplus of EC$46 million was recorded.
“Although, my Government had achieved considerable progress in diversifying our economy and reducing our reliance on sugar production, we still looked to 2006 with some anxiety and trepidation,” said Prime Minister Douglas, who noted that when his St. Kitts – Nevis Labour Government assumed office in 1995, it was determined to protect the livelihood of the sugar workers for as long as possible, by forestalling any attempt to close the sugar industry prematurely.
“However, we also knew that we could have been overtaken by events and circumstances beyond our control. We were aware that, notwithstanding our most valiant efforts, the global phenomenon of trade liberalisation could have pushed us out of sugar production,” said Dr. Douglas.
In reviewing the domestic economy, Prime Minister Douglas noted that his government took up the challenge of preparing for the eventual closure by constructing a solid foundation to support a new, well diversified, service-based economy.
“But that foundation was going to be tested for the first time in 2006. We understood that unless that foundation was well constructed, the closure of the sugar industry could have resulted in social and economic collapse and could have sent our economy reeling down a slippery slope of economic recession, mass poverty and social disarray,” said Prime Minister Douglas, who “with a great sense of pride and joy” reported “to date, that foundation has stood firm, and the economy in St Kitts and Nevis has continued on its path of economic growth and expansion. Specifically, the rate of growth in real GDP for the economy of St. Kitts and Nevis is estimated at 4 percent for 2006.”
He said that the closure of the sugar industry directly reduced GDP by some 1.9 percent when the contribution of sugar cane and sugar manufacturing sub-sectors are taken into account.
“The indirect impact of the closure of the sugar industry on GDP is much greater because the money earned in the sugar industry was spent to procure various goods and services throughout the economy and therefore produced a significant multiplier effect” said Prime Minister Douglas, who added that the unfavourable impact of the closure of the sugar industry was negated by significant growth in other sectors including the Construction, Distributive trade, Transportation, Communications, and Financial Services sectors.
Construction activity he said was particularly buoyant in 2006 when the output of this sector increased by 9 percent.
A significant portion of the increase in the Construction Industry was the result of several major projects including Sunrise Villas ““ Half Moon Bay, the West Basseterre Bypass Road, Robert L. Bradshaw International Airport expansion, Warner Park Cricket Stadium and the Old Road Fisheries Complex.
The Prime Minister and Minister of Finance said that the buoyancy of the sector was not just concentrated in the large projects as it was quite widespread and impacted the entire sector.
Dr. Douglas said that as more and more people responded to the Government’s empowerment strategy through home ownership, overall building permit applications increased by 26.9 percent from 379 in 2005 to 481 in 2006 and new housing starts rose significantly by 74.9 percent from 223 in 2005 to 390 in 2006.
Construction-related imports such as cement and lumber increased by 11.1 percent and 14 percent respectively in 2006 when compared to 2005.
“The growth of our economy has been accompanied by a significant increase in inflation. The consumer price index, on a period average basis, rose by 8.5 percent in 2006, from 3.6 percent in the previous year. This higher rate of inflation can be generally attributed to spiralling fuel prices and the consequent increase in the price of food. We understand that much of this inflation is generated outside of the Federation, and that countries all over the world are affected in a similar way. However, this is no excuse for us to sit idly and fold our arms while the disposable income of our people is being eroded,” said Prime Minister Douglas.
He said that the Balance of Payments statistics which records the inflows and outflows of funds arising from transactions between the Federation of St. Kitts and Nevis and the rest of the world, show that the Current Account deficit widened to EC$256.6 million or 23.8 percent of GDP in 2006 from EC$192.5 million or 19.7 percent of GDP in 2005.
“However, this widening was, in large measure, due to increased outflows on the Current Account in respect of the importation of large quantities of construction material to facilitate the upsurge in construction activity during the year under review,” said Dr. Douglas.
He disclosed that the Current Account was affected positively by tourism receipts which increased in 2006 to EC$315.4 million or 29.2 percent of GDP from EC$309.4 million or 31.7 percent of GDP in 2005 but this was not enough to offset the outflow of funds in the Current Account and produce surplus on this account.
Prime Minister Douglas said that the Capital and Financial Account as a whole recorded an increased surplus in 2006 with the major contributor to this increase being the rise in the level of foreign direct investment, which grew by EC$47 million or 18.7 percent from EC$251.1 million in 2005 to EC$298.1 million in 2006.
“This increase in Foreign Direct Investment is particularly noteworthy because it highlights the fact that our heavy investment in our people and in our infrastructure continues to bear fruit and to enhance the appeal and attractiveness of our Federation to investors,” said Dr. Douglas.
He said that the surplus on the Capital and Financial Account, arising mainly from Foreign Direct Investment, was more than enough to compensate for the deficit on the Current Account.
“Consequently, during 2006 our Federation achieved an overall Balance of Payments surplus of $46.3 million or 4.3 percent of GDP,” said the Prime Minister and Minister of Finance.