Five months after the New Democratic Party (NDP) took power in St. Vincent and the Grenadines (SVG) on a platform of tackling a nationwide cost-of-living crisis, the International Monetary Fund (IMF) has thrown a major wrench into one of the administration’s signature campaign pledges: a planned cut to the country’s standard value-added tax (VAT) rate.
Appearing at a joint press conference with SVG Prime Minister and Finance Minister Godwin Friday in Kingstown Tuesday, at the close of the IMF’s 2026 Article IV consultation, mission chief Sergei Antoshin made clear that the nation’s dire fiscal position leaves no room for the proposed reduction, which the NDP promised would cut VAT from 16% to 13% within 60 days of taking office. Instead, Antoshin argued, the country should align its discounted preferential VAT rate for the tourism sector with the full standard rate to boost much-needed revenue.
Antoshin emphasized that safeguarding existing tax revenues and strengthening tax administration are non-negotiable priorities for SVG, which has faced a steady cascade of economic shocks over the past six years that have sent public debt soaring and left persistent large fiscal deficits. He commended the NDP administration’s ongoing efforts to expand VAT coverage to digital and remote services, as well as its planned reform of real property taxation, noting that these reforms would lay the groundwork for a fairer, more growth-oriented tax system.
The IMF’s assessment lays bare the severity of SVG’s long-building fiscal crisis. Since 2019, the country’s debt-to-GDP ratio has jumped 45 percentage points, with half of that increase coming in just the last two years, pushing debt to 113% of GDP in 2025. SVG has been classified at high risk of debt distress since 2016, and its persistent exposure to catastrophic natural disasters has compounded its fragility. After the COVID-19 pandemic, two major hurricanes, and now the global oil price shock stemming from the Middle East conflict, the fiscal position has deteriorated steadily, hitting low-income and vulnerable households the hardest, Antoshin explained.
“SVG has shown remarkable economic resilience in the face of repeated blows, but significant fiscal vulnerabilities remain deeply entrenched,” Antoshin said. “Large ongoing deficits and a continuously rising debt load leave no question that decisive policy action is urgently required to reverse this trajectory.”
For 2026, the SVG government’s February budget projects a deficit equal to 19% of GDP. IMF analysts project a smaller but still unsustainable 12% deficit this year, based on historical trends of under-execution of capital spending. If current policies remain unchanged, Antoshin warned, the debt-to-GDP ratio will surge to 145% by 2031, with annual gross financing needs reaching 26% of GDP – a trajectory that would ultimately lead to a disorderly fiscal collapse without intervention.
To avoid that outcome, the IMF has put forward an “active policy scenario” designed to reverse the growth of debt within three years and bring it down to a sustainable 60% of GDP over the long term. The plan calls for ambitious urgent fiscal consolidation, requiring an 11 percentage point improvement in the primary balance (the fiscal balance excluding interest payments) between 2027 and 2029. That adjustment would put the country on track to reach a 3% primary surplus by 2029 – a level that is high by SVG’s historical standards, but one that has been achieved by peer nations in the Caribbean region, Antoshin noted.
Antoshin confirmed that the NDP administration and the IMF agree on the urgent need for consolidation, and that the government has already drafted a comprehensive strategic framework to put debt on a downward path. The next critical step, he said, is to identify and detail specific, concrete policy measures to hit the targets. To that end, the government has requested IMF technical support to conduct a full review of public spending, designed to identify opportunities to streamline outlays while protecting support for vulnerable households.
Key areas for spending adjustment include the public wage bill, which Antoshin said is high relative to both SVG’s own history and international benchmarks. He proposed gradual adjustments through natural attrition and wage moderation to bring the wage bill into line without sudden disruptions to public services. Antoshin added that while social protection for vulnerable populations must be preserved, the government can improve outcomes by digitizing assistance programs to better target beneficiaries and reduce wasteful leakage of funds.
The IMF also backed the government’s plans to review national investment policy and strengthen public investment management, urging SVG to prioritize spending on critical infrastructure and natural disaster resilience, while avoiding inefficient investments in marketable assets that can create harmful economic distortions.
For its part, the NDP government has already signaled it is stepping back from its original VAT campaign promise. When presenting the 2026 budget in February, Prime Minister Friday announced the administration would delay any decision on a VAT cut until later this year, leaving the campaign pledge in limbo amid the IMF’s stark warnings about fiscal sustainability.
