St. Kitts and Nevis Economy and Currency
Sugar was the traditional mainstay of the Saint Kitts economy until the 1970s when activities such as tourism, export-oriented manufacturing, and offshore banking began to assume larger roles in the economy. As tourism revenues are now the chief source of the islands’ foreign exchange, a decline in stopover tourist arrivals following the September 11, 2001 terrorist attacks eroded government finances. The opening of a 1,000+ bed Marriott hotel in February 2003 is helping to reverse the situation.
Despite the closure of the sugar industry, economic growth accelerated in 2006, fiscal imbalances have improved significantly and monetary aggregates have continued to grow in line with economic growth, according to the IMF. While predicting lower economic growth in the Caribbean in 2007 and 2008, the IMF has said that St. Kitts and Nevis will be among the best performers in the region with growth expected to be 6% in 2007.
However, In June 2009, the IMF said that after several years of robust growth, the economy of St. Kitts and Nevis had weakened markedly. Still, the IMF believes that, while the global downturn and heavy debt burden are likely to weigh heavily on near-term growth, the economy is well placed to achieve strong growth over the medium term provided that appropriate policies and reforms are implemented. The IMF said that after growing by 3.2% in 2008, St. Kitts and Nevis’s real output is projected to contract by 1.2% in 2009. Higher food and fuel prices led to a pick-up in inflation in the first ten months of 2008, peaking in October 2008 at 8.3% before moderating to 7.6% at the end of 2008. Inflation is projected to ease further in 2009 on the back of lower oil prices.
GDP per capita at purchasing power parity is USD19,700 (2008 est), on the low side for the region. Agriculture represents just 3.5% of the economy, with industry contributing 25.8% and services 70.7%. Tourism revenues are now the chief source of the islands’ foreign exchange; about 341,800 tourists visited Nevis in 2005. Additional tourist facilities, including a second cruise ship pier, hotels, and golf courses are under construction.
The current account deficit narrowed to $236.4 million or 21.3 percent of GDP in 2004 from $312.5 million or 31.3 percent of GDP in 2003 due mainly to higher tourism receipts, which grew by 39 percent to reach $282.9 million in 2004.
With a debt ratio at more than 175% of GDP by end-2008, debt service consumes nearly a quarter of government revenues, leaving no space for fiscal policy to respond to the adverse shocks.
The Federation’s currency is the East Caribbean dollar, pegged at 2.7 to the US dollar. The currency is controlled by the Central Caribbean Reserve Bank, situated in St Kitts. However, the US Dollar is generally considered to be a second currency and is freely accepted and interchangeable throughout the Island.