## cr1776

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---

### Context and key vulnerabilities
- St. Lucia is a small island developing state, the largest economy in the Eastern Caribbean Currency Union (ECCU), with a narrow production base, strong dependence on imported fossil fuel, and high exposure to natural disasters.
- Long-standing weaknesses: low productivity, high public debt, high bank NPLs, rigid labor market, and high costs of doing business.
- Natural disasters impose significant economic costs in terms of investment, GDP, unemployment, poverty, and fiscal revenues.

### Recent macro-fiscal outcomes and government measures (selected exact figures)
- GDP growth: 0.8 percent in 2016 (down from 1.8 percent in 2015).
- Projected GDP growth: 0.5 percent in 2017; baseline reversion to 1.5 percent in 2018 under no significant policy change.
- Unemployment: 20 percent in Q3 2016; youth unemployment: 41 percent (Table 6).
- Current account deficit: estimated 6.7 percent of GDP in 2016.
- Headline inflation: negative over the last 12 months (core inflation moved closer to zero).
- Public debt: rose to almost 83 percent of GDP (FY 2016/17).
- Overall fiscal deficit: increased from 2.6 percent of GDP in FY 2015/16 to 4.4 percent of GDP in FY 2016/17.
- Bank credit growth: negative; banks reallocating toward mortgage and vehicle loans amid high NPLs.

Government package (exact figures)
- VAT rate cut from 15 to 12.5 percent — effective February 1, 2017.
- Increases in transfers totaling 1¾ percent of GDP.
- Increase in airport taxes from US$25 to US$98; staff expects this measure to yield revenues of 0.6 percent of GDP.
- Net impact of the total fiscal package: -1.2 percent of GDP.
- Detailed amounts (EC$ millions and percent of GDP):
  - Total new government measures: -45.7 EC$ mill; -1.18 percent of GDP.
  - Expenditure items: -1.0 EC$ mill; -0.03 percent of GDP.
    - Transfers/grants and contributions: -1.0 EC$ mill; -0.03 percent of GDP.
    - School transportation subsidy: -0.7 EC$ mill; -0.02 percent of GDP.
    - School meal subsidy: -0.3 EC$ mill; -0.01 percent of GDP.
  - Revenue items: -44.7 EC$ mill; -1.15 percent of GDP.
    - Reduction in VAT rate: -59.8 EC$ mill; -1.54 percent of GDP.
    - Three year exemption from the residential property tax: -6.0 EC$ mill; -0.15 percent of GDP.
    - Reduction in vehicle license fees: -2.2 EC$ mill; -0.06 percent of GDP.
    - Increase in airport taxes and fees: 23.4 EC$ mill; 0.60 percent of GDP.
  - Note: 40 percent of additional airport tax revenues will be assigned to the budget of the central government.

### Natural disaster fiscal planning and Box 1 estimates
- Based on EM-DAT data for the period 1950-2014 and World Bank PDNAs for small island states.
- Average annual impact of natural disasters in St. Lucia: 1.5 percent of GDP.
- Using PDNA private-share values, the annual cost to the government would be 0.8 percent of GDP, but it could be as high as 1.4 percent of GDP.
- Recommendation for fiscal planning: assume an annual government cost of 1 percent of GDP for St. Lucia (described as "slightly higher than the average value").
- Independent confirmation: Guerson (2016) estimates a necessary annual budget saving for St. Lucia of 1.05 percent of GDP.
- Policy implication: In the absence of insurance and other financing, budget provisions should cover the average annual fiscal cost; a cautious budgeting assumption of 1 percent of GDP is supported by historical data and simulation-based estimates.
- Annual budget provision recommended for direct fiscal costs of natural disasters: 1 percent of GDP per year.

### Fiscal sustainability, targets, and recommended adjustment (exact figures)
- ECCU debt target: 60 percent of GDP by 2030 is the recommended anchor.
- Net fiscal adjustment required to reach target: 4.4 percent of GDP (in net terms), extendable over six years through 2022 to attain the 60 percent target by 2030.
- Staff recommended adjustment scenario aims to:
  - Broaden the tax base; eliminate selected VAT exemptions and non-targeted subsidies to yield 1.5 percent of GDP (of which 0.5 percent of GDP could be used to reverse part of the airport tax increase).
  - Consider reducing import duties by 25 percent, to be fully financed by reducing concessions by half.
  - Control the wage bill and reduce other non-interest expenditures to produce savings of 3.7 percent of GDP.
    - Anchoring wage growth to CPI inflation would yield 1.5 percent of GDP in savings.
    - Other measures (attrition, pay review in education, payroll audits, benchmarking, performance-based pay) could yield 0.7 percent of GDP.
  - Build a targeted social safety net costing 0.5 percent of GDP.
  - Use concessional finance, improved bond market access, and a lower debt level to achieve interest payment savings of 2.9 percent of GDP.
  - Higher capital spending and structural reforms under the adjustment scenario would lead to higher medium-term growth of 2 percent.

### Scenario projections (both scenarios incorporate annualized natural disaster cost; fiscal year April–March; selected series in percent of GDP)
Passive (no policy adjustment) scenario (selected rows)
- Real GDP growth: 2017: 0.5; 2018: 1.5; 2019: 1.5; 2020: 1.5; 2021: 1.5; 2022: 1.5; 2030: 1.5
- Interest payments: 2017: 5.0; 2018: 5.3; 2019: 5.7; 2020: 6.2; 2021: 6.6; 2022: 7.1; 2030: 10.9
- Primary balance: 2017: 0.1; 2018: -0.9; 2019: -0.9; 2020: -0.8; 2021: -0.8; 2022: -0.8
- Public sector debt: 2017: 85.6; 2018: 88.6; 2019: 92.7; 2020: 97.0; 2021: 101.7; 2022: 106.8; 2030: 157.6

Adjustment scenario (selected rows)
- Real GDP growth: 2017: 1.3; 2018: 2.0; 2019: 2.0; 2020: 2.0; 2021: 2.0; 2022: 2.0; 2030: 2.2
- Interest payments: 2017: 4.7; 2018: 4.7; 2019: 4.6; 2020: 4.5; 2021: 4.4; 2022: 4.2; 2030: 3.3
- Primary balance: 2017: 2.1; 2018: 2.2; 2019: 2.6; 2020: 3.0; 2021: 3.3; 2022: 3.6; 2030: 3.6
- Public sector debt: 2017: 83.3; 2018: 83.4; 2019: 82.7; 2020: 81.5; 2021: 79.9; 2022: 77.8; 2030: 60.0
- Adjustment measures (in percent of GDP): 2017: 2.0; 2018: 3.2; 2019: 3.5; 2020: 3.8; 2021: 4.1; 2022: 4.4
  - Non-interest expenditure items: 2017: 1.4; 2018: 1.9; 2019: 2.3; 2020: 2.6; 2021: 2.9; 2022: 3.2
    - Compensation items: 2017: 0.3; 2018: 0.7; 2019: 1.1; 2020: 1.5; 2021: 1.9; 2022: 2.2
    - Social benefits: 2017: 0.0; 2018: -0.1; 2019: -0.2; 2020: -0.3; 2021: -0.4; 2022: -0.5
    - Other expenses: 2017: 0.9; 2018: 0.9; 2019: 0.9; 2020: 1.0; 2021: 1.0; 2022: 1.0
      - Make public events financially viable: 0.1 each year
      - Offset increase in funding to Tourism Authority: 0.3 each year
      - Phase out temporary work programs: 0.6 each year
    - Goods and services: 2017: 0.2; 2018: 0.4; 2019: 0.4; 2020: 0.4; 2021: 0.5; 2022: 0.5
  - Revenue items: 2017: 0.6; 2018: 1.2; 2019: 1.2; 2020: 1.2; 2021: 1.2; 2022: 1.2
    - Broader VAT base: 2017: 0.6; 2018: 1.3; 2019: 1.3; 2020: 1.3; 2021: 1.3; 2022: 1.3
    - Eliminate non-targeted LPG subsidy: 0.2 each year
    - Reduce airport taxes to regional average: -0.5 each year (offsetting prior increase)

### Debt sustainability and external sector (selected exact figures)
- Historical: public debt rose from 28 to 79 percent of GDP between FY1996/97 and FY2014/15.
- Staff baseline projection: public debt reaching 95.6 percent of GDP by FY 2021/22 and 112.8 percent of GDP by FY2030/31 under no adjustment.
- Staff adjustment: public debt declining to 60 percent of GDP by 2030 under recommended measures.
- External debt baseline (percent of GDP):
  - 2016: 83.0; 2017: 83.8; 2018: 85.3; 2019: 86.6; 2020: 87.8; 2021: 89.0
- External sector key ratios:
  - External debt-to-exports ratio (percent): 2016: 186.7; 2017: 192.9; 2018: 197.9; 2019: 198.8; 2020: 200.4; 2021: 202.1
  - Gross external financing need (percent of GDP): 2016: 10.6; 2017: 11.3; 2018: 11.1; 2019: 11.3; 2020: 11.4; 2021: 11.4
  - Current account balance (percent of GDP) series 2013–2022: -11.1, -8.9, -2.6, -6.7, -8.8, -9.3, -8.9, -8.9, -8.9, -9.2
  - GDP (US$ millions) series 2013–2022: 1,318; 1,386; 1,431; 1,385; 1,428; 1,459; 1,504; 1,549; 1,595; 1,644

### Financial sector: NPLs, provisioning, and recommended actions
- Banking indicators (selected exact figures):
  - Total assets (EC$ millions) 2010–2016: 165.9, 163.5, 167.1, 158.8, 150.7, 148.4, 157.7
  - Gross loans and o/w NPLs (2016M11): Gross loans 97.0; o/w NPLs 16.3
  - NPL ratio series (percent): 12.4, 13.2, 15.3, 20.6, 17.6, 18.2, 18.1
  - Provisions/NPL (percent) series: 23.2, 36.2, 36.2, 37.9, 42.5, 45.1, 48.2
  - Capital Adequacy (CAR) series: 20.0, 18.5, 17.0, 12.8, 12.6, 12.0, 12.5
  - ROAE series: 1.5, -1.1, 2.3, -2.3, 1.8, -2.9, 1.9
- Recommended actions:
  - Renewed priority to establish the regional asset management company (ECAMC).
  - Enact new insolvency legislation to facilitate foreclosures and debt restructuring.
  - Increase provisions for impaired assets by banks’ shareholders to facilitate NPL sales.
  - Continue implementation of international standards on AML/CFT and tax cooperation.

### Structural reform priorities for long-term growth (selected)
- Address skills mismatches and improve labor productivity by revising the national curriculum and providing better training opportunities.
- Align wages with productivity by gradually introducing performance-based pay in the public sector.
- Remove obstacles preventing more widespread adoption of solar energy or the passing of savings to final users.
- Reduce costs to trade, including port operations and import duties.
- Improve business climate, foreclosure and insolvency procedures to enhance access to credit.

### Labor market and social protection (selected exact figures)
- Unemployment rate (%) series 2010–2015: 20.6, 21.2, 21.4, 23.3, 24.4, 24.1
- Youth unemployment rate (%) series 2010–2015: 33.6, 35.3, 33.9, 39.6, 41.8, 41.0
- Labor force participation rate (%) series 2010–2015: 67.9, 69.1, 71.0, 71.0, 71.9, 72.2
- Wages (EC$, annual average) examples: 18,275; 18,621; 19,538; 20,084; 20,853; 21,281
- Social spending gaps: health expenditure per capita is relatively low; government spending is comparatively high in secondary education and low in tertiary education; social assistance and old-age protection are limited.

### Risk Assessment Matrix — key risks and policy responses
- Global/external risks:
  - Persistent U.S. dollar strength (Likelihood: HighMedium/Low) — policy: public sector wage restraint, lower energy prices, address bottlenecks.
  - Fall in tourism inflows (Likelihood: High/Medium; Impact: High) — policy: diversify economy, address cost and structural competitiveness.
  - Stronger tourism-related FDI (Likelihood: MediumHigh) — policy: use additional revenues to offset fiscal impacts of tax cuts.
- Domestic risks:
  - Disorderly fiscal adjustment (Likelihood: Low; Impact: High) — policy: promptly implement adequate fiscal adjustment.
  - Financial sector instability (Likelihood: Medium; Impact: High) — policy: implement ECCU strategy elements.
  - Natural disasters (Likelihood: Medium; Impact: High) — policy: build buffers and optimize insurance policies, with World Bank assistance.
- Note: Likelihood definitions — “low” < 10 percent, “medium” 10–30 percent, “high” 30–50 percent.

### Implementation of previous staff advice (selected actions and outcomes)
- Renewable energy and energy efficiency: government partnered with World Bank and Clinton Initiative.
- Port operations and customs modernization: some progress; framework agreed with trade unions on flexible working hours.
- Business climate reforms: program under Caribbean Growth Forum; Doing Business ranking declined eight positions in 2017.
- Wage bill: projected decline by 0.3 percentage points by 2016 amidst tight wage control; other recommended measures largely not implemented.
- Disaster recovery in fiscal planning: new draft PFM bill requires a fiscal statement, including fiscal risks, to be submitted to parliament.
- Financial sector reforms: new Banking Act and ECAMC approved by St. Lucia and ECCU jurisdictions; new insolvency law being prepared; progress on risk-based supervision and Basel II in progress.

### Concluding policy recommendations (concise, exact emphases)
- Implement a medium-term fiscal framework anchored to the ECCU debt target of 60 percent of GDP by 2030.
- Frontload measures to broaden the VAT base and eliminate non-targeted subsidies to yield 1.5 percent of GDP.
- Control the public sector wage bill via anchoring wage growth to CPI inflation and complementary measures (attrition, pay review, payroll audits, benchmarking, performance pay) to yield 1.5 percent + 0.7 percent of GDP.
- Phase out costly temporary work programs (0.6 percent of GDP) and make public events financially viable.
- Use part of the revenue gains (0.5 percent of GDP) to reverse regressive elements of prior measures (e.g., reduce airport tax to regional average).
- Build an annual fiscal buffer for natural disasters of 1 percent of GDP, and complement with contingent financing and insurance.
- Pursue structural reforms to improve competitiveness and raise medium-term growth to about 2 percent.
- Prioritize resolution of NPLs, complete ECAMC establishment, enact insolvency legislation, and strengthen PFM and fiscal transparency (enshrine a fiscal rule tied to the 60 percent debt target).

*Source: IMF staff report for St. Lucia (chapter: Estimating the Cost of Natural Disasters).*

### 1. Estimating the Cost of Natural Disasters _______________________________________________________  11

### 1. Estimating the Cost of Natural Disasters

### Context and key vulnerabilities
- St. Lucia is a small island developing state, the largest economy in the Eastern Caribbean Currency Union (ECCU), with a narrow production base, strong dependence on imported fossil fuel, and high exposure to natural disasters.
- Long-standing weaknesses: low productivity, high public debt, high bank NPLs, rigid labor market, and high costs of doing business.
- Natural disasters impose significant economic costs in terms of investment, GDP, unemployment, poverty, and fiscal revenues.

### Recent macro-fiscal outcomes and policy actions (selected exact figures)
- GDP growth: 0.8 percent in 2016 (down from 1.8 percent in 2015).
- Projected GDP growth: 0.5 percent in 2017; baseline reversion to 1.5 percent in 2018 under no significant policy change.
- Unemployment: 20 percent in Q3 2016; youth unemployment: 41 percent (Table 6).
- Current account deficit: estimated 6.7 percent of GDP in 2016.
- Headline inflation: negative over the last 12 months (core inflation moved closer to zero).
- Public debt: rose to almost 83 percent of GDP (FY 2016/17).
- Overall fiscal deficit: increased from 2.6 percent of GDP in FY 2015/16 to 4.4 percent of GDP in FY 2016/17.
- Bank credit growth: negative; banks reallocating toward mortgage and vehicle loans amid high NPLs.

### Recent government measures and fiscal impact (exact figures from government package)
- VAT rate cut from 15 to 12.5 percent — effective February 1, 2017.
- Increases in transfers totaling 1¾ percent of GDP.
- Increase in airport taxes from US$25 to US$98; staff expects this measure to yield revenues of 0.6 percent of GDP.
- Net impact of the total fiscal package: -1.2 percent of GDP.
- Detailed amounts (EC$ millions and percent of GDP):
  - Total new government measures: -45.7 EC$ mill; -1.18 percent of GDP.
  - Expenditure items: -1.0 EC$ mill; -0.03 percent of GDP.
    - Transfers/grants and contributions: -1.0 EC$ mill; -0.03 percent of GDP.
    - School transportation subsidy: -0.7 EC$ mill; -0.02 percent of GDP.
    - School meal subsidy: -0.3 EC$ mill; -0.01 percent of GDP.
  - Revenue items: -44.7 EC$ mill; -1.15 percent of GDP.
    - Reduction in VAT rate: -59.8 EC$ mill; -1.54 percent of GDP.
    - Three year exemption from the residential property tax: -6.0 EC$ mill; -0.15 percent of GDP.
    - Reduction in vehicle license fees: -2.2 EC$ mill; -0.06 percent of GDP.
    - Increase in airport taxes and fees: 23.4 EC$ mill; 0.60 percent of GDP.
  - Note: 40 percent of additional airport tax revenues will be assigned to the budget of the central government.

### Fiscal sustainability, targets, and recommended adjustment
- ECCU debt target: 60 percent of GDP by 2030 is the recommended anchor.
- Net fiscal adjustment required to reach target: 4.4 percent of GDP (in net terms), extendable over six years through 2022 to attain the 60 percent target by 2030.
- Staff recommended adjustment scenario aims to:
  - Broaden the tax base; eliminate selected VAT exemptions and non-targeted subsidies to yield 1.5 percent of GDP (of which 0.5 percent of GDP could be used to reverse part of the airport tax increase).
  - Consider reducing import duties by 25 percent, to be fully financed by reducing concessions by half.
  - Control the wage bill and reduce other non-interest expenditures to produce savings of 3.7 percent of GDP.
    - Anchoring wage growth to CPI inflation would yield 1.5 percent of GDP in savings.
    - Other measures (attrition, pay review in education, payroll audits, benchmarking, performance-based pay) could yield 0.7 percent of GDP.
  - Build a targeted social safety net costing 0.5 percent of GDP.
  - Use concessional finance, improved bond market access, and a lower debt level to achieve interest payment savings of 2.9 percent of GDP.
  - Higher capital spending and structural reforms under the adjustment scenario would lead to higher medium-term growth of 2 percent.

### Natural disaster fiscal planning and recommended provisions (exact figures)
- Annual budget provision recommended for direct fiscal costs of natural disasters: 1 percent of GDP per year.
- Rationale: natural disasters are frequent and entail significant direct fiscal costs; a mix of fiscal buffers, contingent financing plans, and insurance is optimal, but annual budget provisions of 1 percent of GDP are likely needed to address direct fiscal costs.

### Scenario projections (both scenarios incorporate annualized natural disaster cost described in Box 1; fiscal year April–March; selected series, in percent of GDP unless otherwise noted)
Passive (no policy adjustment) scenario (selected rows):
- Real GDP growth: 2017: 0.5; 2018: 1.5; 2019: 1.5; 2020: 1.5; 2021: 1.5; 2022: 1.5; 2030: 1.5
- Interest payments: 2017: 5.0; 2018: 5.3; 2019: 5.7; 2020: 6.2; 2021: 6.6; 2022: 7.1; 2030: 10.9
- Primary balance: 2017: 0.1; 2018: -0.9; 2019: -0.9; 2020: -0.8; 2021: -0.8; 2022: -0.8
- Public sector debt: 2017: 85.6; 2018: 88.6; 2019: 92.7; 2020: 97.0; 2021: 101.7; 2022: 106.8; 2030: 157.6

Adjustment scenario (selected rows):
- Real GDP growth: 2017: 1.3; 2018: 2.0; 2019: 2.0; 2020: 2.0; 2021: 2.0; 2022: 2.0; 2030: 2.2
- Interest payments: 2017: 4.7; 2018: 4.7; 2019: 4.6; 2020: 4.5; 2021: 4.4; 2022: 4.2; 2030: 3.3
- Primary balance: 2017: 2.1; 2018: 2.2; 2019: 2.6; 2020: 3.0; 2021: 3.3; 2022: 3.6; 2030: 3.6
- Public sector debt: 2017: 83.3; 2018: 83.4; 2019: 82.7; 2020: 81.5; 2021: 79.9; 2022: 77.8; 2030: 60.0
- Adjustment measures (in percent of GDP): 2017: 2.0; 2018: 3.2; 2019: 3.5; 2020: 3.8; 2021: 4.1; 2022: 4.4
  - Non-interest expenditure items: 2017: 1.4; 2018: 1.9; 2019: 2.3; 2020: 2.6; 2021: 2.9; 2022: 3.2
    - Compensation items: 2017: 0.3; 2018: 0.7; 2019: 1.1; 2020: 1.5; 2021: 1.9; 2022: 2.2
    - Social benefits: 2017: 0.0; 2018: -0.1; 2019: -0.2; 2020: -0.3; 2021: -0.4; 2022: -0.5
    - Other expenses: 2017: 0.9; 2018: 0.9; 2019: 0.9; 2020: 1.0; 2021: 1.0; 2022: 1.0
      - Make public events financially viable: 0.1 each year
      - Offset increase in funding to Tourism Authority: 0.3 each year
      - Phase out temporary work programs: 0.6 each year
    - Goods and services: 2017: 0.2; 2018: 0.4; 2019: 0.4; 2020: 0.4; 2021: 0.5; 2022: 0.5
  - Revenue items: 2017: 0.6; 2018: 1.2; 2019: 1.2; 2020: 1.2; 2021: 1.2; 2022: 1.2
    - Broader VAT base: 2017: 0.6; 2018: 1.3; 2019: 1.3; 2020: 1.3; 2021: 1.3; 2022: 1.3
    - Eliminate non-targeted LPG subsidy: 0.2 each year
    - Reduce airport taxes to regional average: -0.5 each year (offsetting prior increase)

### Policy recommendations (concise, exact emphases)
- Implement a medium-term fiscal framework anchored to the ECCU debt target of 60 percent of GDP by 2030.
- Frontload measures to broaden the VAT base and eliminate non-targeted subsidies to yield 1.5 percent of GDP.
- Control the public sector wage bill via anchoring wage growth to CPI inflation and complementary measures (attrition, pay review, payroll audits, benchmarking, performance pay) to yield 1.5 percent + 0.7 percent of GDP.
- Phase out costly temporary work programs (0.6 percent of GDP) and make public events financially viable.
- Use part of the revenue gains (0.5 percent of GDP) to reverse regressive elements of prior measures (e.g., reduce airport tax to regional average).
- Build an annual fiscal buffer for natural disasters of 1 percent of GDP, and complement with contingent financing and insurance.
- Pursue structural reforms to improve competitiveness and raise medium-term growth to about 2 percent.

*Source: IMF staff report for St. Lucia (chapter: Estimating the Cost of Natural Disasters).*

### Box 1. Estimating the Cost of Natural Disasters

### Box 1. Estimating the Cost of Natural Disasters

### Data and method
- Based on EM-DAT data for the period 1950-2014.
- World Bank’s Post Disaster Needs Assessments (PDNAs) for small island states indicate private costs average 45 percent of total damages and losses, with a range between 8 and 83 percent.
- Guerson (2016) used Monte Carlo simulations to assess the appropriate size of a government savings fund to insure against natural disasters.

### Estimated fiscal cost for St. Lucia
- Average annual impact of natural disasters in St. Lucia: 1.5 percent of GDP.
- Using PDNA private-share values, the annual cost to the government would be 0.8 percent of GDP, but it could be as high as 1.4 percent of GDP.
- Recommendation for fiscal planning: assume an annual government cost of 1 percent of GDP for St. Lucia (described as "slightly higher than the average value").
- Independent confirmation: Guerson (2016) estimates a necessary annual budget saving for St. Lucia of 1.05 percent of GDP.

### Policy implication
- In the absence of insurance and other financing, budget provisions should cover the average annual fiscal cost of natural disasters.
- A cautious budgeting assumption of 1 percent of GDP for St. Lucia is supported by historical data and simulation-based estimates.

*Source: IMF country report text: Box 1. Estimating the Cost of Natural Disasters.*

### 35.      Corrective measures should be supported by a multi-year consolidation plan to attain

### 35.      Corrective measures should be supported by a multi-year consolidation plan to attain

### Fiscal consolidation and debt target
- Aim: attain the 2030 debt target of 60 percent of GDP.
- Consolidation plan should:
  - Address the need to prepare for the inevitable recurrence of natural disasters.
  - Be consistent with the authorities’ intention to reform the tax system and reduce tax burdens.
  - Focus adjustment on broadening the tax base, controlling expenditure, and improving financing terms.
  - Reconsider the planned increase in the airport tax if its negative growth effects do materialize.
  - Target a reduction in the wage bill through continued wage restraint and attrition.
  - Preserve social spending and reorient it from temporary work programs and non-targeted subsidies to targeted social assistance.
  - Use concessional lending, rather than costly bond issuance, to finance investment in infrastructure, renewable energy, and natural disaster resilience.
  - Use partnerships with the private sector when feasible.
  - If enough fiscal space can be created, consider reducing high taxes and duties on imports, which harm external competitiveness.

### Fiscal institutions and rules
- Observation: The PFM bill contains welcome steps to strengthen the budget process and move toward a medium-term fiscal framework.
- Shortcoming: The PFM bill is not adequately tied to the debt target of 60 percent of GDP by 2030.
- Recommendation: Enshrine a fiscal rule in fiscal responsibility legislation to ensure appropriate institutional arrangements for enhanced fiscal transparency and accountability.

### Citizenship program (CIP) and sovereign wealth fund governance
- The recent changes to the CIP could provide a welcome boost to fiscal revenues.
- Characteristics and risks:
  - CIP revenues are very volatile.
  - Authorities’ decision to collect these funds in a sovereign wealth fund reduces the risk of fiscal dependence.
  - CIP entails significant reputational and financial integrity risks.
- Recommendations:
  - Minimize risks through strict adherence to the highest standards for due diligence, governance, and transparency.
  - Apply the same principles to the sovereign wealth fund and follow transparent criteria in its operations.
  - Address remaining weaknesses in public investment management to ensure selection of only high-yield projects.
  - Given high public debt, priority should be given to its reduction.

### Financial sector: NPLs, insolvency, and regional asset management
- Priority: Resolution of NPLs is critical to revive credit and support economic growth.
- Actions recommended:
  - Renewed priority should be given to the establishment of the regional asset management company (ECAMC).
  - New insolvency legislation will be important to facilitate foreclosures and debt restructuring.
  - Final steps to establish the ECAMC should be completed promptly by all jurisdictions.
  - Increased provisions for impaired assets by banks’ shareholders would facilitate the sale of NPLs.
  - Continued efforts to implement international standards on AML/CFT and tax cooperation will be required to mitigate the risk of loss of CBRs.

### Structural reform priorities for long-term growth
- Priorities include:
  - Address skills mismatches and improve labor productivity by revising the national curriculum to match market demands and providing better training opportunities across sectors.
  - Align wages with productivity by gradually introducing performance-based pay in the public sector.
  - Remove obstacles preventing more widespread adoption of solar energy or the passing of savings to final users.
  - Reduce costs to trade, including costs of port operations and import duties.
  - Address bank weaknesses to facilitate access to credit.

### Statistics and data quality
- Assessment: Statistics are adequate for surveillance, but lack of resources is hampering quality in several areas.
- Issues:
  - Data are subject to large revisions, often reflecting pre-existing weaknesses as methodological improvements are introduced.
- Recommendation: Provide adequate resources to the Central Statistics Office for data collection and compilation and improve the timeliness of data provision by government agencies.

### ECCB governance and safeguards
- Finding from the 2016 update safeguards assessment:
  - The ECCB continues to maintain a governance framework that provides for independent oversight.
  - Transparency in financial reporting has been maintained and the external audit mechanism is sound.
  - The ECCB is taking steps to restructure the internal audit and risk management functions to align them with leading international practices.

*Source: IMF staff report excerpt (cr1776).*

### 42.      Staff recommends that the next Article IV Consultation for St. Lucia take place on the

### 42.      Staff recommends that the next Article IV Consultation for St. Lucia take place on the standard 12-month cycle.

### Recommendation
- Staff recommends that the next Article IV Consultation for St. Lucia take place on the standard 12-month cycle.

### Mixed macroeconomic outcomes
- Advanced Economies: Real GDP growth and unemployment shown for 2007–2016 (proj.). Source: WEO.
- Real GDP growth (lhs) and Unemployment rate (rhs) plotted for 2007–2016 (proj.) indicating mixed outcomes despite favorable global conditions.
- Key observations:
  - Tourist arrivals received only a small boost despite declining unemployment in Advanced Economies.
  - Recent weak performance in tourist-related activity partly explains recent low economic growth and contributes to persistently high unemployment.
  - Inflation has fallen on the back of lower oil and food prices, contributing to a narrowing current account deficit.

### Sectoral growth and tourism contributions
- Real GDP Contribution (Percent) by sector for 2007–2016 (proj.): Key tourism-related industries, Real Estate and construction, Other sectors.
- Unemployment Rates (Percent) series: 24.09 and 41.02 highlighted in the unemployment and youth unemployment chart for 2000–2015.

### Financial sector: strengthening but risks persist
- Banks continue to deleverage, weighed down by high nonperforming loans (NPLs).
- Provisioning:
  - Provisions to NPLs remain low despite recent increases, creating uncertainty about true bank capitalization.
- Profitability:
  - Profitability continues to deteriorate, although the recent decision to lower the deposit rate floor has improved funding costs.
- Credit growth contributions by category (Percent YOY MA (3)) show varying dynamics across Personal, Tourism, Other Services, Trade, Other.
- Key indicators (selected from charts and tables):
  - NPLs (In percent of total loans) series for commercial banks, indigenous, foreign across 2009–2016Q3.
  - Provisions to NPLs (In percent, provisions to loan losses to non-performing loans) series for commercial banks, indigenous, foreign across 2009–2016Q3.
  - Capital Adequacy (In percent, total capital/risk-weighted assets) series for commercial banks, indigenous across 2009–2016Q3.
  - Return on Average Assets (In percent) series for commercial banks, indigenous, foreign across 2009–2016Q3.
  - Interest Rates (Percent) 2007–2016: U.S. Bank Prime Rate, Weighted Avg. Lending Rate, Deposit Rate, Interbank Rate (ECCB), Policy Rate (ECCB).

### Social spending and protection gaps
- Health:
  - Health expenditure per capita is relatively low in St. Lucia and the system demands high out-of-pocket expenditure.
- Education:
  - Government spending is comparatively high in secondary education and low in tertiary education.
- Social assistance and old-age protection:
  - St. Lucians receive substantially less social assistance from the government and are relatively unprotected in old age.

### Fiscal scenarios and debt outlook
- Scenarios presented: Baseline, Passive, and Adjustment.
- Proposed adjustment centerpieces:
  - Containing expenditure while keeping capital expenditures constant.
  - Reversing recent revenue losses.
  - Delivering primary surplus.
  - Improved debt management to lead to overall fiscal surpluses compatible with the 2030 debt target.
- Table 1 (Selected Social and Economic Indicators, 2013–2022) highlights projections and fiscal dynamics:
  - Real GDP (at market prices) series 2013–2022: 0.1, 0.4, 1.8, 0.8, 0.5, 1.5, 1.5, 1.5, 1.5, 1.5
  - Consumer prices, end of period series including -0.7, 3.7, -2.6, 0.6, 0.7, 1.1, 1.5, 1.5, 1.5, 1.5
  - Central government debt (incl. guaranteed) series (percent of GDP) 2013–2022: 77.2, 78.1, 77.8, 82.9, 85.6, 88.6, 90.9, 93.3, 95.6, 97.7
  - Current account balance (percent of GDP) 2013–2022: -11.1, -8.9, -2.6, -6.7, -8.8, -9.3, -8.9, -8.9, -8.9, -9.2

### Central government finances (high-level)
- From Table 2a (Statement of Operations of the Central Government, In millions of EC dollars):
  - Revenue series 2013–2022: 922.5, 968.7, 1,035.6, 1,045.1, 1,166.3, 1,055.0, 1,080.3, 1,114.1, 1,151.8, 1,186.2, 1,222.2
  - Taxes series 2013–2022: 820.1, 872.8, 935.3, 954.2, 953.8, 935.4, 957.9, 987.9, 1,021.9, 1,052.3, 1,084.2
  - Grants and grant-financed capital expenditure around: Grants 55.6 (2013), 53.3 (2014), 51.6 (2015), 50.0 (2016); Grant-financed capital expenditure 55.6 (2013), 53.3 (2014), 51.6 (2015), 1.6 (2016) in Table 2a context.
  - Expenditure series 2013–2022: 1,139.6, 1,109.3, 1,135.8, 1,211.9, 1,293.2, 1,244.8, 1,275.2, 1,273.6, 1,316.1, 1,355.4, 1,396.6
  - Interest payments series (millions EC$) 2013–2022: 140.0, 145.0, 157.6, 179.3, 170.5, 192.0, 210.9, 232.9, 254.5, 276.9, 299.2
  - Net lending/borrowing (overall balance, excl. ND cost) series: -217.2, -140.6, -100.2, -166.9, -142.0, -189.9, -194.8, -159.5, -164.3, -169.2, -174.4
  - Central government debt (incl. guaranteed) levels (In millions of EC$) 2013–2022: 2,782, 2,946, 2,980, 3,125, ..., 3,318, 3,515, 3,719, 3,929, 4,145, 4,368
- Fiscal ratios (Table 2b, percent of GDP) mirror amounts:
  - Revenue as percent of GDP series 2013–2022: 25.6, 25.7, 27.0, 27.7, 30.1, 27.2, 27.2, 27.2, 27.3, 27.3, 27.3
  - Expenditure as percent of GDP series 2013–2022: 31.6, 29.4, 29.6, 32.2, 33.4, 32.1, 32.1, 31.1, 31.2, 31.2, 31.2
  - Net lending/borrowing (overall balance, excl. ND cost) as percent of GDP: -6.0, -3.7, -2.6, -4.4, -3.7, -4.9, -4.9, -3.9, -3.9, -3.9, -3.9
  - Primary balance (excl. ND) percent of GDP 2013–2022: -2.1, 0.1, 1.5, 0.3, 0.7, 0.1, 0.4, 1.8, 2.1, 2.5, 2.8

### Balance of payments and external sector
- Table 3 (Balance of Payments Summary, 2013–2022) key figures (In millions of US dollars and percent of GDP):
  - Current account balance series (US$ millions) 2013–2022: -146.6, -123.0, -36.8, -93.4, -125.1, -135.3, -134.2, -137.9, -142.2, -150.5
  - Exports of goods and services (US$ millions) 2013–2022: 607.8, 632.1, 662.0, 615.4, 620.6, 629.2, 655.0, 678.6, 702.3, 724.8
  - Imports of goods and services (US$ millions) 2013–2022: 736.2, 743.1, 687.8, 689.4, 722.8, 736.8, 757.2, 779.9, 803.3, 829.5
  - Net Income, o.w. (US$ millions) series: -22.9, -22.7, -22.0, -30.7, -35.0, -40.3, -45.3, -50.3, -55.6, -60.9
  - Foreign direct investment (US$ millions): 92.0, 90.6, 92.5, 94.8, 97.2, 101.8, 106.2, 110.3, 114.6, 105.0
  - Net imputed international reserves (Millions of US dollars, end of period) series 2013–2022: 168.5, 235.3, 308.7, 353.6, 379.6, 397.1, 415.3, 432.4, 449.5, 467.7
  - Gross external debt (percent of GDP) series 2013–2022: 93.6, 90.2, 82.5, 83.0, 83.8, 85.3, 86.6, 87.8, 89.0, 89.9
  - GDP (in US$ millions) series 2013–2022: 1,318, 1,386, 1,431, 1,385, 1,428, 1,459, 1,504, 1,549, 1,595, 1,644

### Monetary and banking system indicators
- Monetary Survey (Table 4, selected):
  - Net foreign assets (EC$ millions) 2013–2017: -646.2, -305.2, 268.4, 452.6, 474.6
  - Broad money (M2, EC$ millions end period) 2013–2017: 2,853.2, 2,887.9, 3,054.7, 3,051.0, 3,146.0
  - Broad money (M2) 12-month percent change series 2013–2017: 2.0, 1.2, 5.8, -0.1, 3.1
  - ECCB policy rate (end-of-period) 6.50 percent for 2013–2015 (Table 4).
- Banking System Summary (Table 5, selected):
  - Total assets (EC$ millions) 2010–2016: 165.9, 163.5, 167.1, 158.8, 150.7, 148.4, 157.7
  - Gross loans and o/w NPLs (EC$ millions) in 2016M11: Gross loans 97.0; o/w NPLs 16.3
  - Provisions for NPLs series: 3.4, 5.6, 7.3, 10.9, 8.7, 8.7, 9.1 (2010–2016)
  - Capital Adequacy (CAR) series: 20.0, 18.5, 17.0, 12.8, 12.6, 12.0, 12.5
  - NPL ratio series (percent): 12.4, 13.2, 15.3, 20.6, 17.6, 18.2, 18.1
  - Provisions/NPL (percent) series: 23.2, 36.2, 36.2, 37.9, 42.5, 45.1, 48.2
  - ROAE and ROAA show weak/volatile profitability with ROAE series: 1.5, -1.1, 2.3, -2.3, 1.8, -2.9, 1.9

### Structural reform priorities to drive growth
- Key constraints identified:
  - Low labor productivity (Labor Productivity Index 2000 base = 100 tracked 2000–2015; index values shown rising from 90 to around 115 over period).
  - Weak business climate.
  - Electricity costs, although among the lowest in the Caribbean, remain high.
  - High costs at St. Lucia’s ports by regional standards.
- Reform priorities suggested implicitly by charting:
  - Improve labor productivity and address skills mismatches.
  - Improve business environment and reduce bottlenecks in logistics and utilities.

### Labor market and unemployment
- Unemployment (Table 6 and Figure 6):
  - Unemployment rate (%) series 2010–2015: 20.6, 21.2, 21.4, 23.3, 24.4, 24.1
  - Youth unemployment rate (%) series 2010–2015: 33.6, 35.3, 33.9, 39.6, 41.8, 41.0
  - Labor force participation rate (%) series 2010–2015: 67.9, 69.1, 71.0, 71.0, 71.9, 72.2
  - Wages (EC$, annual average) level examples include: 18,275; 18,621; 19,538; 20,084; 20,853; 21,281 across listed years.
- Distributional patterns:
  - Higher unemployment for youth, women, and less educated (charts show unemployment rates by education, gender, and age groups).
  - Most unemployment is structural, possibly due to skills mismatches and strong unions.
  - Upward pressure on public sector wages, and by demonstration effects on private sector wages, with wage increases unmatched by productivity increases, weighing on external competitiveness.

*Source: IMF staff estimates and St. Lucia authorities as presented in the document.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Global/External risks
- Persistent U.S. dollar strength (↓)
  - The dollar may rise more than expected, reflecting improving U.S. economic prospects. This would lead to real effective appreciation in St. Lucia, undermining competitiveness.
  - Likelihood: HighMedium/Low
  - Impact: (not separately enumerated in source table)
  - Policy response:
    - Address cost competitiveness by public sector wage restraint, which may signal to the private sector; lower energy prices; and mitigate other bottlenecks that weigh on businesses.

- Fall in tourism inflows (↓)
  - Policy uncertainty in the U.S. and Europe could lead to rising global imbalances and exacerbate exchange rate and capital flow volatility, with a negative impact on global tourism flows.
  - Structurally weak growth in key AEs and EMs may reduce tourist demand in the medium term.
  - Likelihood: High/Medium
  - Impact: High
  - Policy response:
    - Increase efforts to diversify the economy and reduce its dependence on tourism.
    - Take action to address cost and structural competitiveness disadvantages; work with the private sector to foster diversified tourism markets.

- Stronger tourism-related FDI (↑)
  - More-than-expected projects in the pipeline may materialize.
  - Likelihood: MediumHigh
  - Policy response:
    - Use the additional revenues generated by higher growth to offset the impact of tax cuts on the fiscal balance and to ensure debt sustainability.

### Domestic risks
- Design and implementation of appropriate macroeconomic and structural policies (↑)
  - Appropriately designed policies are successful in addressing fiscal and external vulnerabilities and enhancing growth potential.
  - Likelihood: Medium
  - Impact: High

- Disorderly fiscal adjustment (↓)
  - In the absence of adequate fiscal correction, tightening financial conditions can force an abrupt fiscal adjustment.
  - Likelihood: Low
  - Impact: High
  - Policy response:
    - Promptly implement adequate fiscal adjustment to offset the impact of tax cuts on the fiscal balance and to ensure debt sustainability.

- Financial sector instability (↓)
  - Commercial banks continue to report high NPLs and weak earnings.
  - Likelihood: Medium
  - Impact: High
  - Policy response:
    - Promptly implement remaining elements of the ECCU strategy to strengthen indigenous banks.

- Natural disasters (↓)
  - Larger or more frequent events than the historical average hit St. Lucia.
  - Likelihood: Medium
  - Impact: High
  - Policy response:
    - Build buffers and optimize insurance policies, with the assistance of the World Bank.

- Explanatory notes from the RAM:
  - The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
  - Likelihood definitions: “low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent.
  - The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
  - Non-mutually exclusive risks may interact and materialize jointly.
  - “Short term” and “medium term” indicate that the risk could materialize within 1 year and 3 years, respectively.

### Key takeaways from Risk Assessment Matrix
- Emphasis on addressing competitiveness (wages, energy, structural bottlenecks) to mitigate external shocks.
- Diversification away from tourism is a repeated policy recommendation.
- Financial sector reforms and disaster risk financing/insurance are highlighted as domestic priorities.

---

### Annex II. Implementation of Previous Staff Advice

### Growth Agenda — Recommendations and Policy Actions
- Prompt implementation of the renewable energy initiatives, improve energy efficiency, revisit allowable rate of return to electricity supplier.
  - Policy action: The government has partnered with the World Bank and Clinton Initiative towards this objective.
- Continued modernization of port operations and customs, fully automating registration system and implementing more flexible schedule for port operations.
  - Policy action: Some progress in customs operations and framework agreed with trade unions on more flexible working hours.
- Lower the cost of doing business, especially the difficulties in obtaining credit and registering property by reforming foreclosure legislation, bankruptcy procedures, and property registration.
  - Policy action: St. Lucia has started a program of reforms to improve the business climate under the Caribbean Growth Forum.
  - Outcome: It declined eight positions in the 2017 Doing Business Ranking, mainly reflecting a major decline in Getting Electricity, but also due to declines in Getting Credit and Resolving Insolvency.
- Strengthen and expand tertiary education by: (i) effective technical and vocational training; (ii) expanding training component of employment programs; (iii) increasing provisions for tertiary and continuing education; (iv) improving performance measurement; and (v) monitoring labor market needs.
  - Policy action: Implemented a system to monitor labor market demand.

### Fiscal Policy — Recommendations and Policy Actions
- Introduce a four-year adjustment equivalent to 3.3 percentage points of GDP based on reducing in customs tax expenditures, anchoring wage growth to CPI inflation, attrition, reduction in non-essential transfers and subsidies, and reprioritizing capital projects.
  - Policy action/outcome: The wage bill is projected to decline by 0.3 percentage points by 2016 amidst tight wage control. Other recommended adjustment measures were not implemented.
- Incorporate disaster recovery in fiscal planning.
  - Policy action: The new draft PFM bill requires a fiscal statement, including fiscal risks, to be submitted to parliament.

### Financial Sector — Recommendations and Policy Actions
- Implement remaining elements of the regional strategy for bank resolution, including the legislation on the asset management corporation (ECAMC).
  - Policy action: St. Lucia and all ECCU jurisdictions have approved a new Banking Act and the ECAMC.
- Continue with the regional strategy to strengthen the ECCU banking system.
  - Policy action: ECCB intervened three insolvent banks in Anguilla and Antigua and Barbuda.
- Expediently reform foreclosure and insolvency legislation.
  - Policy action: A new insolvency law is being prepared.
- Adoption of the regionally harmonized credit union legislation.
  - Policy action: Not implemented.
- Development of new insurance framework to improve regulation and mitigate risk in the insurance sector.
  - Policy action: Work on the new legislation has started, but lack of political support is causing delays.
- Continue efforts to implement risk-based supervision and Basel II regulation for banks and non-banking financial institutions.
  - Policy action: In progress.
- Remove savings deposit floor.
  - Policy action: Not implemented.

---

### Annex III. Debt Sustainability Analysis (DSA) — Summary Findings

### Background
- Historical context:
  - Between FY1996/97 and FY2014/15, public debt rose from 28 to 79 percent of GDP.
  - Public debt as a share of GDP declined slightly in FY 2015/16 as a result of improved fiscal performance.
- Composition and financing:
  - Central government obligations are the largest component of public debt and include market-based securities, commercial bank bonds and loans, bilateral and multilateral debt, loans from the national insurance scheme (NIC), overdraft facilities, and outstanding payables.
  - Public debt also includes government-guaranteed loans from domestic commercial banks and multilateral institutions to statutory enterprises.
  - Bilateral and multilateral debt amounts to one quarter of total public debt, with the Caribbean Development Bank as the largest creditor.
  - The remaining three-quarters of St. Lucia’s debt instruments have been issued on commercial terms, of which 35 percent through the ECCU Regional Government Securities Market (RGSM).
  - Central government debt composition by creditor (end-December 2016): domestic 52 percent and external 48 percent.
  - Within domestic debt, non-bank financial institutions (including the NIC) and commercial banks hold the largest shares.

### Baseline projection and sustainability
- Staff’s baseline scenario projects an unsustainable debt burden:
  - Public debt would continue to rise, reaching 95.6 percent of GDP by FY 2021/22 and 112.8 percent of GDP by FY2030/31, thus missing the 2030 debt target of 60 percent of GDP.
  - The staff-proposed adjustment would result in a continued decline in public debt, reaching 60 percent of GDP by 2030 as intended by the authorities.
- Market access:
  - Market access for long-term financing has recently improved, but this could easily change in the absence of stronger policies.

### Adverse shock scenarios (DSA)
- Growth shock (one standard deviation adverse shock to real GDP growth over 2016-17):
  - Public debt reaches 103.3 percent of GDP by FY2021/22 (most severe single shock scenario).
- Exchange rate shock:
  - The risk posed by an exchange rate shock is mitigated by the near-currency-board arrangement for the Eastern Caribbean dollar.
- Combined macro-fiscal shock:
  - Public debt would reach 112.4 percent of GDP by FY2020/21.
- Alternative scenario with staff’s recommended adjustment policies:
  - Would gradually reduce financing needs and the debt-to-GDP ratio.

*Source: cr1776 - Annex I. Risk Assessment Matrix.*

### 7.      Under the baseline scenario, external debt is projected to increase gradually reflecting

### 7.      Under the baseline scenario, external debt is projected to increase gradually reflecting

### External debt projections and stress-test outcomes
- Baseline projection:
  - External debt is projected to reach 89 percent of GDP by 2021, up from 83 percent in 2016.
- Historical-average scenario:
  - Were key variables to remain at the historical levels seen in the aftermath of the Global Financial Crisis, external debt would reach 146 percent of GDP by 2021.
- Adverse shock scenarios:
  - Under the growth, interest rate, current account, and combined shock scenarios, external debt rises throughout the forecast period.
  - Real exchange rate depreciation scenario:
    - Would result in a step increase in external debt to around 124 percent of GDP in the year of the shock and reaching 132 percent by 2021.
  - The vulnerability suggested by the real exchange rate depreciation scenario is mitigated by the regional central bank’s near-currency board-arrangement.

### Key numbers from the external debt sustainability framework (selected)
- Baseline external debt (percent of GDP):
  - 2016: 83.0
  - 2017: 83.8
  - 2018: 85.3
  - 2019: 86.6
  - 2020: 87.8
  - 2021: 89.0
- Change in external debt (year-on-year, percent of GDP):
  - 2016: 0.4
  - 2017: 0.9
  - 2018: 1.5
  - 2019: 1.2
  - 2020: 1.2
  - 2021: 1.2
- Identified external debt-creating flows (in percent of GDP):
  - 2016: 12.9
  - 2017: 15.2
  - 2018: 15.0
  - 2019: 14.7
  - 2020: 14.8
  - 2021: 14.8
- Current account deficit, excluding interest payments (in percent of GDP):
  - 2016: 4.9
  - 2017: 6.9
  - 2018: 7.2
  - 2019: 6.7
  - 2020: 6.5
  - 2021: 6.4
- External debt-to-exports ratio (in percent):
  - 2016: 186.7
  - 2017: 192.9
  - 2018: 197.9
  - 2019: 198.8
  - 2020: 200.4
  - 2021: 202.1
- Gross external financing need (in percent of GDP):
  - 2016: 10.6
  - 2017: 11.3
  - 2018: 11.1
  - 2019: 11.3
  - 2020: 11.4
  - 2021: 11.4
- Debt-stabilizing non-interest current account (percent of GDP): 7.2

### Public debt dynamics and baseline fiscal projections (selected from Public DSA)
- Nominal gross public debt (in percent of GDP) — selected years:
  - 2016: 77.8
  - 2017: 82.9
  - 2018: 85.6
  - 2019: 88.6
  - 2020: 90.9
  - 2021: 93.3
- Public gross financing needs (in percent of GDP) — selected years:
  - 2016: 2.2
  - 2017: 5.3
  - 2018: 2.9
  - 2019: 8.5
  - 2020: 3.1
  - 2021: 4.5
- Real GDP growth (in percent) — projections:
  - 2017: 0.7
  - 2018: 1.5
  - 2019: 1.5
  - 2020: 1.5
  - 2021: 1.5
- Primary balance (percent of GDP) — selected years:
  - 2016: -1.5
  - 2017: -0.8
  - 2018: -0.1
  - 2019: 0.6
  - 2020: -0.8
  - 2021: -1.1
- Change in gross public sector debt (cumulative to 2021): 17.8 (percent of GDP)

### External sector assessment and competitiveness
- Current account:
  - 2015 CA estimate: -2.6 percent of GDP (revised upward owing to tourist arrivals and smaller goods trade deficit).
  - Staff estimate for 2016 CA: -6.7 percent of GDP (due to underperforming exports and a 5 percent drop in tourist expenditures).
- EBA-lite results (2016):
  - CA norm: -5.4 percent of GDP.
  - CA gap: -1.4 percent of GDP.
  - REER overvaluation: about 5 percent.
- REER dynamics:
  - After appreciation since 2011, the REER weakened since mid-2015 due to the inflation differential.
  - Depreciation effects likely limited by a very narrow export base and low price elasticity of tourism.
- Tourism and structural notes:
  - Tourism is St. Lucia’s most important export sector; share of about 32 percent of total stay-over arrivals in the ECCU.
  - 2016: tourism underperformed; no growth in stay-over arrivals, a large drop in cruise-ship visitors, and a large drop in tourist expenditures.
  - Policy considerations cited: improve business environment, remove labor market rigidities, diversify the export base to boost income and resilience to natural disasters.

*Source: IMF staff (cr1776 — Public DSA and External Sector Assessment excerpts).*

### 5.      Due to structural weaknesses, the CA deficit is expected to widen gradually over time.

### 5.      Due to structural weaknesses, the CA deficit is expected to widen gradually over time.

### Medium-term projection and drivers
- The current account deficit is projected to return to double digits over the medium term.
- Main contributing factors:
  - gradually rising commodity and fuel prices;
  - higher FDI-related import growth;
  - structural weaknesses constraining productivity, export growth, and diversification potential.
- Being a small island economy, St. Lucia suffers economies of scale disadvantages that make attempts to diversify the production base challenging.
- A more diversified export base could help boost income and protect the country from fluctuations caused by external shocks, natural disasters, and the seasonal nature of tourism.

### Competitiveness and structural weaknesses
- Key constraints identified:
  - high export and import costs (highlighted by the World Bank Doing Business Indicators);
  - high energy and transport costs;
  - limited access to credit;
  - high unit labor costs and a marked disconnect between wages and productivity.
- Labor market structure factors weighing on external competitiveness:
  - large share of public sector employment;
  - strong unions influencing wage setting.

### International rankings and indicators
- World Bank Doing Business Indicators: St. Lucia’s overall ranking has dropped from 78 to 86 in 2017.
- The Doing Business report specifically highlighted high export and import costs as a notable weakness for St. Lucia.

### Implications
- Structural constraints and the identified cost and labor issues are central to the expectation that the current account deficit will widen to double digits in the medium term.
- Addressing these structural weaknesses is necessary to increase competitiveness, promote export diversification, and reduce vulnerability to external and seasonal shocks.

*Source: IMF staff analysis (section titled "Due to structural weaknesses, the CA deficit is expected to widen gradually over time.").*

### 7.      Determined policy actions are needed to reduce high unemployment in ECCU

### 7.      Determined policy actions are needed to reduce high unemployment in ECCU

### Key findings on unemployment and wages
- High unemployment in ECCU countries requires determined policy actions.
- Efforts should be made to better align wage and productivity growth.
- Figure notes: Wages and Productivity Growth (In percent). Sources: World Bank, WDI and National Authorities; National Insurance Services (NIS). 1/ Change between 2007-08 and 2012-13. 1/ Female divided by Male Unemployment Rate. Female to Male Unemployment Ratio (2014).
- Particular attention should be given to understanding the reason for the large gap between male and female unemployment.

### Policy recommendations to boost productivity and reduce unemployment
- Increase economies of scale through:
  - International and intraregional integration.
- Improve the investment climate.
- Lower the cost of energy through investment in renewable sources.
- Set up labor training programs and an education system in tune with labor market demand.
- Control public sector wage growth.
- Increase wage-setting flexibility while protecting basic workers’ rights.
- Pay particular attention to understanding and addressing the large gap between male and female unemployment.

### Supporting context from broader staff report (selected data points and institutional context)
- Exchange rate arrangement: currency board; the Eastern Caribbean dollar is pegged to the U.S. dollar under a currency board arrangement at EC$2.70 per U.S. dollar.
- ECB/Statistics and TA: CARTAC and other IMF departments provided technical assistance on macroeconomic programming, national accounts, tax administration, PFM, and financial sector reforms (multiple missions listed, including support for quarterly GDP compilation with preliminary quarterly GDP figures projected to be released in March 2017).
- Data and statistics: weaknesses noted in coverage, frequency, quality, and timeliness—particularly national accounts, public sector beyond central government, and balance of payments. No official quarterly GDP estimates were being disseminated at the time; a pilot project with CARTAC was underway.
- Gender and labor market: the staff report highlights low growth and high unemployment—especially for youth and women—as characteristic regional challenges.

*Prepared by Western Hemisphere Department (in consultation with other departments and the Caribbean Regional Technical Assistance Center, CARTAC).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr1776.pdf_