Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review ST KITTS AND NEVIS

concomitant increases in the demand for related imports.

increasing the government’s operational expenditure while exacerbating the size of trade deficits on the external accounts. Another downside risk, relates to physical damage by hurricanes and floods combined with the debilitating effects of adverse drought conditions on agricultural output. On the upside, the global economic outlook appears broadly optimistic, a development that should augur well for the export of tourism services and the receipt of investment inflows. Further strengthening of the USA and UK economies could have concomitant positive impacts on visitor arrivals and FDI inflows. Additionally, the recent resurgence in the CBI programme, if sustained, could auger well for the fiscal and developmental prospects in the near to medium-term.

There are a number of downside risks that could negatively impact the outlook and result in a slowdown in the forecasted rate of growth. If inflows from the CBI programmes are lower than budgeted, this could pose a significant risk to the fiscal outturn, given its contributions to both the revenue and spending activities of the government. The CBI programme remains a major catalyst to tourism-related foreign investment in the Federation. Consequently, any diminution in the attractiveness of the programme will threaten the sustainability of on-going and planned FDI construction projects and other programmes which it funds. Another risk to the outlook is the issue of crime and violence. Unprecedented efforts (community outreach and law enforcement) are underway by the authorities to address it. Other potential headwinds include increased global uncertainty associated with latent trade tensions between the USA and China and its potential to reduce global trade and consumer optimism both in export markets and on the domestic front. If commodity prices increase, especially for oil and related products, this could undermine recent fiscal gains by

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