The economy is beginning to recover. Real GDP is projected to grow at about 2 percent in 2011, owing to an improvement in tourism and the start of large investment projects. Government revenue remains low. Substantial projected foreign direct investment (FDI)-related imports and higher oil prices will widen the external current account, but the reserves position will remain reasonably strong.
Policy challenges. The key policy priority is implementing a sustained fiscal consolidation. The public debt-to-GDP ratio is projected to reach 69 percent by end FY 2015/16, from 44 percent in FY 2008/09.
Fiscal consolidation. The deficit of the central government is projected to average about 4¼ percent of GDP during FY 2011/12–2015/16. Reforms to the tax system and in public finance management, containing expenditures, and strengthening of the financial position and transparency of public enterprises, are necessary to reverse the deterioration of the fiscal position.
Enhancing medium-term growth prospects. Sustaining high employment will require removing key impediments to growth. Efforts should focus on improving the business environment, enhancing the provision of government services, fostering linkages across sectors and among islands, and encouraging innovations in downstream value-added activities.
Strengthening regulatory and supervisory frameworks. Although bankingsector capital adequacy ratios remain high, the elevated level of non-performing loans and relatively limited provisioning calls for strong monitoring. The establishment of the proposed credit bureau, that will help assess creditworthiness, as well as reforms to strengthen the regulatory and supervisory frameworks for the non-banking system, including by bringing credit unions under the supervision of the central bank, are welcome.
Series: Country Report.No. 11/338.December 02, 2011.
