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Caribbean Islands-Role of Government





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The government played both direct and indirect roles in the national economy. Although it allowed the private sector to control most of the country's economic assets, it found itself having to assume management of the sugar industry in the 1970s, a situation that remained unchanged as of 1987. The government, however, considered its primary role as one of facilitating economic development by exercising fiscal and monetary options, managing public sector investment, and creating an attractive environment for both public and private foreign capital.

Following independence in 1983, St. Kitts and Nevis attempted to maintain a balance of revenues and expenses. By the mid-1980s, however, current expenditures and capital investment exceeded revenues. Large increases in public salaries, 45 percent in 1981 and 25 percent in 1986, were partially responsible for the growing deficit; tax receipts, however, did not realistically reflect fiscal requirements. To offset the resulting budget deficit, which reached 5 percent of GDP in 1984, the government cut capital expenditures, borrowed from domestic and foreign banks, and developed new revenue sources. Although the personal income tax was abolished in 1980, increased revenue was realized from two new taxes created in 1986, the Social Services Levy and the Employment Protection Levy. These new financial measures, in addition to import duties and utilities fees that had previously formed the basis of government revenue, allowed St. Kitts and Nevis to reverse its operational deficit and actually realize a small surplus by 1987. This was a critical development for maintaining the country's international credit rating and access to foreign loans.

Because it was a member of a regional monetary authority, St. Kitts and Nevis had a limited ability to exercise control over the economy by manipulating money supply and interest rates. The nation's primary goals of growth and stability, however, were in accordance with those of other regional economies, and balanced growth of the money supply, which was managed by the ECCB, assisted the government in financing deficits and providing funds for public sector investment. The Social Security Scheme provided local public funds for budget and public investment loans.

The government coordinated growth through a program of public sector investment, which managed foreign and domestic capital expenditures used for national development. The primary goal was to expand the country's economic base by moving away from sugar and toward tourism, manufacturing, and nonsugar agriculture. Public investment managers allocated funds to three major areas: directly productive sectors such as agriculture, industry, and tourism; economic infrastructure projects, including transportation, communications, and utilities; and social infrastructure, such as health, education, and housing. In the early 1980s, construction of economic infrastructure was emphasized to accommodate future growth in both manufacturing and tourism. Thirty percent of total expenditures were allocated to transportation. This resulted in the completion of a 250-kilometer road system, the Golden Rock International Airport, and a deep-water port in Basseterre.

Communications were also upgraded in the 1980s and were considered good on both islands. A modern telephone system consisting of more than 2,400 telephones provided excellent international service by means of radio-relay links to both Antigua and St. Martin. St. Kitts had two AM stations: the government-owned Radio ZIZ on 555 kilohertz and the religious Radio Paradise with a powerful transmitter on 825 kilohertz. Channel 5, near Basseterre, was the principal television transmitter, and programs were rebroadcast through repeaters from the northern tip of St. Kitts on Channel 9 and Nevis on Channel 13.

Other major projects in the early 1980s included construction of new schools, diversification of agriculture, and development of a manufacturing industry. Total allocation for these areas was about 39 percent of the budget; the remaining 61 percent was split among small projects in all three major areas.

After 1984, with the completion of large portions of the supporting infrastructure, public sector investment was focused more intently on the productive sectors of the economy. Tourism received approximately 32 percent of total funds allocated through 1987; agriculture and industry followed with 12 percent and 14 percent, respectively. Economic and social infrastructure each received about 21 percent of total funding, with emphasis placed on developing new energy sources and upgrading educational facilities.

Data as of November 1987



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