At the time of project appraisal, the level of public indebtedness in SKN was high by international standards and significantly above the prudential limit of 60% of GDP as suggested by the Monetary Council of the Eastern Caribbean Currency Union (ECCU). Similarly, debt servicing ranked highest among members of the ECCU and exceeded the GOSKN combined spending on health and education. The difficult debt situation posed a real threat to the success of the country’s fiscal adjustment programme in maintaining macroeconomic stability and growth prospects for St. Kitts and Nevis. The constraints on policy flexibility and the fiscal vulnerabilities stemmed from St. Kitts and Nevis’ susceptibility to external shocks and its high levels of public indebtedness.