July 2, 2021
The IMF Executive Board approved the request by St. Vincent and the Grenadines for emergency financing assistance of about US$11.6 million under the Large Natural Disaster Window (LNDW) of the Rapid Credit Facility (RCF). The RCF will help address the urgent balance of payment needs associated with the explosive eruption of the La Soufrière volcano.
The ongoing eruption is hitting St. Vincent and the Grenadines hard, compounding the economic and social/humanitarian impact of the pandemic and by IMF staff’s estimates, may result in economic losses amounting to around 30 percent of GDP as infrastructure, housing and crops are damaged.
This will be the first request under the LNDW of the RCF. A member may qualify for the LNDW when urgent balance of payments needs stem from a natural disaster that results in damages of at least 20 percent of the member’s GDP.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved today a disbursement to St. Vincent and the Grenadines following its request under the Large Natural Disaster Window (LNDW) of the Rapid Credit Facility (RCF) for SDR 8,172,450 (US$11.6 million). The RCF will help cover its balance of payment and fiscal needs stemming from the explosive eruption of the La Soufrière volcano that began on April 9, 2021. This request is the first of its kind under the LNDW.
St. Vincent and the Grenadines is a small state, vulnerable to external shocks, including large natural disasters. The explosive volcanic eruption is hitting St. Vincent and the Grenadines hard, creating an urgent balance of payments need and a humanitarian crisis while the country continues to deal with the fallout from the global pandemic. The economy is estimated to have contracted in 2020 by 3.8 percent as tourism activity fell 70 percent. While considerable uncertainty about the evolution of the eruption remains, IMF staff estimate the infrastructure damage to exceed 20 percent of GDP and for the economy to contract by 6.1 percent in 2021, with agriculture and related sectors severely affected. A drop in fiscal revenues, combined with additional social, clean-up and reconstruction expenditures, will increase the fiscal deficit and financing needs. IMF support will help cover some of these needs and allow the government to ease the impact on the population.
Following the Executive Board discussion of the requests, Mr. Tao Zhang, Deputy Managing Director and acting Chair, made the following statement:
“The ongoing eruption of the La Soufriere volcano has compounded the economic and social impact from the COVID-19 pandemic, creating humanitarian challenges and immediate fiscal and balance of payments needs. The eruption has destroyed livelihoods and a significant part of agricultural crops, and has caused structural damage to public infrastructure.
“The authorities responded to the emergency swiftly. A fiscal package includes humanitarian support, income support for affected sectors and displaced workers, and clean-up and reconstruction spending. Large rebuilding expenses will be required given the magnitude of the damages.
“The authorities remain committed to meeting the debt target set by the Eastern Caribbean Central Bank (ECCB). Once the eruption subsides, the authorities intend to undertake measures to ensure debt sustainability and rebuild fiscal buffers, including replenishing the Contingencies Fund and adhering to the Fiscal Sustainability Framework.
“The ECCB and the Financial Services Authority (FSA) are collaborating to safeguard financial stability. Efforts to strengthen crisis management plans and enhance the AML/CFT framework will help contain financial risks.
“IMF emergency support under the Large Natural Disaster window of the Rapid Credit Facility will help fill St. Vincent and the Grenadines’ balance of payments needs. This represents the first time the window is used. Fund financing is expected to help catalyse additional donor support. The authorities remain committed to ensuring transparency and good governance in the use of humanitarian and crisis-related spending. ”