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Caribbean Islands-Foreign Trade and Balance of Payments





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St. Kitts and Nevis' trading patterns were well established by the 1980s, but this did not guarantee the stability of trade or the balance of payments. Although relationships with major trading partners such as the United States, Britain, and Caricom had existed for a long time, St. Kitts and Nevis' export earnings were hard to predict because of the volatility of demand for its tourist services, agricultural (sugar) products, and manufactured goods.

Raw and processed sugar products continued to lead export earnings in the 1980s, but to a lesser degree than before because of steady growth in the manufacturing and tourist sectors. Export earnings from sugar had accounted for 77 percent of the total in 1978, but they fell to 60 percent in the mid-1980s as clothing, shoes, and electronic components sold abroad in greater quantities. In spite of improved earnings from nonagricultural trade, the trade deficit continued into the 1980s. Only the growing tourist sector kept the current account deficit from being even worse.

St. Kitts and Nevis imported goods at a constant rate through the 1980s, the most significant of which were manufactured products, food, and machinery. They accounted for about 21 percent, 20 percent, and 19 percent, respectively, of total imported goods in the mid-1980s. Fuel and chemicals combined for a total of 20 percent of imports; the remaining 20 percent comprising numerous miscellaneous items. Over 55 percent of imports originated in Britain, the United States, and Puerto Rico. Trinidad and Tobago, Canada, and other countries accounted for approximately 12 percent, 6 percent, and 27 percent of imports, respectively.

Because St. Kitts and Nevis was forced to import basic necessities such as food and many manufactured products, the danger of a large current account deficit was ever present. Should sugar, light manufacturing, and tourism all perform poorly at the same time, a large deficit in the current account would be unavoidable. As of 1987, this situation had not occurred only because the tourist market had been very buoyant. Sugar output fell in the mid1980s , while production of manufactured goods, such as garments and footwear, fluctuated with the trade restrictions characteristic of the Caricom market. This fluctuation often compounded the trade deficit.

Despite these uncertainties and the large deficit in the trade balance, St. Kitts and Nevis ran a relatively small current account deficit for 1985 of US$6.8 million. Three items helped minimize the negative trade balance: a strong positive services account composed almost entirely of tourist revenues, unrequited private remittances, and official government transfers.

The overall balance of payments for 1985 was a surplus US$1.7 million. A capital account surplus of US$8.5 million, composed predominantly of private sector investment in tourism and communications but also bolstered by public sector loans, more than offset the current account deficit. Growing public sector loan commitments caused the World Bank to express concern over the potential for a long-term external debt obligation. But the World Bank suggested that continued growth of the tourism sector would do much to minimize St. Kitts and Nevis' debt service burden; there would be even less probability of a serious problem should sugar and manufacturing markets stabilize in the future.

Data as of November 1987



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