## ST. LUCIA: STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION (excerpt) ## Source details **Canonical URL:** [ST. LUCIA: STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION (excerpt)](https://www.imf.org/-/media/files/publications/cr/2026/english/1lcaea2026001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1lcaea2026001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1lcaea2026001-source-pdf.pdf.json) --- ### Outlook and Risks - Real GDP growth: - 2024: 4.7 percent - 2025: 1.7 percent (projected) - 2026: 2.3 percent (projected rebound) - Medium term: converge to potential rate of 1.5 percent - Inflation (consumer prices, period average): - 2024: -0.5 - 2025: 0.8 - 2026–2030: 1.5, 1.9, 2.0, 2.0, 2.0 (annual percent change) - Current account balance (percent of GDP): - 2024: -2.5 - 2025: -3.6 - 2026–2030: -2.6, -2.1, -1.6, -1.4, -1.1 - External risks (tilted to the downside): - Geopolitical tensions, escalating trade measures, prolonged policy uncertainty - Potential weakening of tourism and FDI, higher import costs - Domestic risks: - Weaker-than-expected performance in tourism and construction - Natural disasters and climate change - Upside risks: - Stronger-than-expected growth in tourism, construction, and public investment - External shock sensitivities: - A one percentage point decline in U.S. growth is estimated to lower St. Lucia’s growth rate by about 0.6 percentage points (mainly through the tourism channel) ### Fiscal Outlook and Policy Recommendations - Fiscal balances and debt (central government / public sector): - Overall balance excluding ND cost (central government, percent of GDP): 2024: -1.8; 2025: -2.9; 2026: -2.5; 2027: -2.7; 2028: -2.6; 2029: -2.5; 2030: -2.3 - Overall balance including ND cost: 2024: -1.8; 2025: -2.9; 2026: -3.2; 2027: -3.3; 2028: -3.2; 2029: -3.2; 2030: -3.0 - Total public sector debt (percent of GDP): 2024: 76.7; 2025: 77.2; 2026–2030: 77.2, 77.2, 77.1, 77.1, 77.0 - Central government debt (percent of GDP): 2024: 72.4; 2025: 73.1; 2026–2030: 73.2, 73.4, 73.5, 73.6, 73.6 - Current primary expenditure (percent of GDP): 2024: 17.9; 2025: 18.6; 2026–2030: 18.4, 18.3, 18.2, 18.1, 18.0 - Interest payments (percent of GDP): 2024: 3.3; 2025: 3.2; 2026–2030: 3.3, 3.5, 3.6, 3.8, 3.9 - Gross financing needs average 14.9 percent of GDP over the medium term, compared to 14.8 percent of GDP in FY2024/25 - Overarching fiscal priority: - Reduce public debt and create room for capital spending through revenue-based measures - Three-pillar fiscal strategy (staff recommendation): 1. A comprehensive tax reform and enhanced tax administration—starting now and implemented gradually over the medium term 2. Improved control and targeting of current expenditures 3. Adoption of a sound fiscal rule within a fiscal responsibility framework - Illustrative adjustment scenario: - An adjustment of about 2½ percent of GDP implemented gradually, including revenue increases of about 3½ percent of GDP and a 1 percent of GDP increase in spending on investment and other priority areas, would reduce public debt to the regional target by 2035 - Fiscal governance recommendations: - Publish a medium-term fiscal framework (MTFF) prior to the annual budget with at least three years’ projections, a fiscal risk statement, a debt sustainability analysis, and policy scenarios - Examine establishment of operational fiscal rules - Continue to improve Citizenship Investment Program (CIP) governance and transparency ### Staff-recommended Tax Reform and Administration Measures - Tax reform options (listed as possible measures): - Rationalizing corporate income tax incentives - Broadening the VAT base (including digital services) with targeted support to vulnerable households - Improving personal income tax progressivity - Shortening property exemptions - Reforming fuel taxes - Increasing excises on alcohol and tobacco; introduce excises on sugar-sweetened beverages - Tax administration priorities: - Strengthening audit and inspection - Accelerating digitalization of processes (including full implementation of InfoCloud Suite supporting electronic invoicing and vendor payments) - Enhancing compliance and improving transparency - Phase out tax amnesties; the current extension could incentivize non-compliance and should not be renewed further - Digitalization and public accounts: - Use unified company ID for IRD and Customs; implement electronic invoicing for large taxpayers; promote electronic payments - Timely prepare financial statements, comply with Public Finance Management Act deadlines, apply IPSAS ### Recent Actions, Social Measures, and Revenue/Expenditure Measures - Social and policy actions: - Minimum monthly pension for government pensioners increased to EC$725 - Minimum wage implemented on October 1, 2024 at EC$6.52 per hour or EC$1,131 per month - Expanded Universal Health Care program - Ministry for Persons with Disabilities established (added to Ministry of Home Affairs and Crime Prevention portfolio) - Announced plan to establish an unemployment insurance program - Disaster Risk Financing Strategy approved - Co-operative Societies Act enacted for credit union sector - Selected revenue and expenditure measures (implemented, permanent, and temporary): - Removal of import duties and service charges on all price-controlled food items effective June 1st, 2025 - Removal of VAT on several food items, and change the status of exempt food items to zero-rated - Increased income tax allowances from January 1st, 2025 from EC$30,000 to EC$40,000; specific increases in child allowance, dependent relatives allowance, mortgage, university education, credit union shares and savings, and investment instruments - Exempt income derived from pensions from all taxes from January 2025 - Three one-off payments of about EC$600 made to central government pensioners; an additional one-off payment of about EC$600 to be made in November 2025 - Extensions of tax amnesty program (now till May 1, 2026) - Tax deductibles up to ES$50,000 to businesses investing in cybersecurity, AI tools, and approved ICT training (announced but not yet implemented as of November 21, 2025) - All non-established government employees who are daily paid or classified as wage earners to be given permanent employment after two years; about 1000 workers became permanent in August 2025 - Temporary 50 percent reduction of the Airport Service Charge for all regional flights effective June 1 to December 31, 2025 - Fuel price cap at $16.00 per gallon effective May 1st until January 1st, 2026 ### Recent Macroeconomic Developments and Key Projections - Recent performance: - Real GDP expanded by 4.7 percent in 2024, driven by robust tourism flows from the U.S. and construction activity - Stayover tourist arrivals declined by 3.2 percent y/y during January-September 2025 - Unemployment rate: 10.8 percent in 2024; 13.4 percent in Q2 2025 - Headline CPI: fell by 0.5 percent in 2024; increased by 0.5 percent in H1 2025 - Current account deficit: 2.5 percent of GDP in 2024 (from 1.6 percent in 2023); expected to be -3.6 percent of GDP in 2025 and narrow to -1.1 percent of GDP by 2030 - REER has depreciated over the past two years - Fiscal balance: overall fiscal deficit declined to 1.8 percent of GDP in FY2024/25 from 3.2 percent of GDP in FY2023/24 - Public debt: rose from 75.2 percent of GDP in FY2023/24 to 76.7 percent of GDP in FY2024/25 - Overdrafts and payables: rose to 3.0 percent of GDP at end-FY2024/25, dropped to 1.6 percent of GDP by September 2025 - Financing of FY2024/25 deficit: largely through loans (favourable multi-lateral terms) and bond and note proceeds; maturing debt almost completely rolled over - Outlook highlights: - Growth expected to moderate to potential rate of 1.5 percent as tourism stabilizes and construction projects complete - 12-month moving-average inflation projected to increase by 1.3 percentage points to 0.8 percent in 2025, and gradually converge to 2 percent over the medium-term - Public debt (including penciled-in natural disaster costs) projected to stabilize at around 77 percent of GDP in the medium term ### Financial Sector, Insurance, and AML/CFT - Banking sector: - Well-capitalized and highly liquid; risk-weighted capital ratio: 16.5 percent as of Q2 2025 - Nearly half of total assets are liquid - NPLs remain elevated despite recent improvements; policy priority to ensure full compliance with the ECCB’s 60 percent provisioning requirement for NPLs and avoid excessive reliance on general reserves - CRE lending: CRE loans accounted for 7.4 percent of total loans as of Q1 2025; rapid CRE lending increase notable and warrants review of lending standards and stress testing - Non-bank financial institutions and credit unions: - Co-operative Societies Act came into effect in January 2025; FSRA designated primary regulator - Recommendation to strengthen credit union regulation and supervision, develop and enforce prudential standards, streamline provisioning rules, and extend Asset Quality Reviews and stress testing - Insurance sector: - Rising reinsurance costs and low property retention ratios constrain profitability and coverage - Need for a more integrated regional supervisory framework to strengthen oversight, narrow protection gap, and support affordability - AML/CFT: - Ongoing 2025 National Risk Assessment (NRA) to improve understanding of ML/FT risks; further progress needed to ensure effective risk-based supervision and increased entity transparency ### Pensions, Long-Term Risks, and Medium-/Long-Term Risk Analysis - Pension fiscal risks and reform options: - IMF (2024) projects the National Insurance Corporation’s (NIC) expenditures will exceed total income by 2035, leading to reserve depletion by 2051 - Recent pension benefit increases and rapid aging worsen funding gap; restoring actuarial balance requires parametric or structural reforms (higher contribution rates and/or lower replacement rates; increasing retirement age; gradually eliminating early retirement options; introducing pension caps; voluntary options for high earners) - Authority’s study: without reforms, reserves depleted around 2051; underfunding gap around 165 percent of GDP in 60 years; would require annual fiscal outlays of about 3 percent of GDP - NIC proposals: gradual increases in contribution rates and early retirement age would postpone fund depletion from 2051 to 2080 - Long-term risk assessment and scenarios: - Long-term debt risks assessed to be high due to large upcoming amortization needs and sustained high GFNs - Pension financing needs (pp of GDP per year): 30 years: 0.2%; 50 years: 1.8%; Until 2100: 2.8% - Health-related demographic pressures: increases in healthcare costs could raise debt-to-GDP by 11 p.p. by 2054; an additional 0.6 p.p. healthcare cost growth could raise debt-to-GDP by 15 p.p. more - Climate adaptation customized scenario (adaptation cost of 1.3 percent of GDP, 0.7 p.p. already included in baseline): debt-to-GDP could increase by 21 p.p. by 2054 - Medium-term risk signals: - Debt fanchart width65.81.0 (percent of GDP); Probability of debt non-stabilizaiton (percent): 48.00.4; Debt fanchart index (DFI)2.2; Risk signal: 3/High - Average baseline GFN14.95.1 (percent of GDP); GFN financeability index (GFI)10.4; Risk signal: 4/Moderate - Medium-term final assessment: Moderate (mechanical) / High (overall) - Probabilities for 2025–2030: Prob. of missed crisis if stress not predicted: 27.3 pct.; Prob. of false alarms if stress predicted: 20.5 pct. ### Structural and Supply-Side Policies - Key bottlenecks: - High financing costs, limited credit access, regulatory burdens, weak productivity, high informality - Policy priorities to raise long-run growth and lower living costs: - Address infrastructure gaps and improve digitalization (expand internet access, improve digital literacy) - Foster innovation and human capital-intensive services (e.g., digital and professional services) - Improve access to credit and reduce frictions; review foreclosure/legal frameworks to encourage lending - Labor market reforms and targeted social protection improvements; careful monitoring of minimum wage to support vulnerable groups without harming employment or competitiveness - Continued focus on climate adaptation, energy transition, and climate insurance - Trade, connectivity, and regional cooperation: - Streamline customs procedures, reduce freight costs and shipping fees, and enhance market competition - Tourism and export broadening over time, expanding into new source markets - Proactive engagement with OECS and CARICOM partners while recognizing constraints from small economy size ### Climate Insurance Protection Gaps - Climate insurance protection gaps and recent action: - Authorities introduced a parametric insurance mechanism for banana and plantain farmers in partnership with a private insurer - Implementation caveats: address basis risk; maintain affordable premiums via targeted subsidies; improve climate data systems - Staff recommendation: - Address protection gaps to reduce reliance on post-disaster government compensation and improve affordability and coverage via regional coordination and targeted subsidies ### Data, Technical Assistance, and Institutional Recommendations - Data adequacy: - The data provided to the Fund are adequate for surveillance; Data Adequacy Assessment Rating: B - Key data weaknesses: real GDP compilation delays and methods, CPI weights based on 2016 HES (base Jan. 2018), deficiencies in general government and public sector statistics, low response rate to balance of payments surveys (~45 percent), capital stock and real estate market data gaps, limited CIP Unit data sharing - Technical assistance (selected recent missions): - CARTAC and IMF TA across macro-fiscal frameworks, national accounts, CPI/PPI, external statistics, tax administration, PFM reforms, and financial sector supervision (multiple missions listed for 2019–2025) - Institutional recommendation: - Staff recommend the next Article IV consultation be held on the standard 12-month cycle *Source: Chapter/section content from the provided IMF PDF excerpt.* ### 0.8 percent in 2025 due to, amongst other factors, higher import costs from tariffs imposed ### ST. LUCIA: STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION ### Outlook and Risks - Real GDP growth: - 2024: 4.7 percent - 2025: 1.7 percent (projected) - 2026: 2.3 percent (projected rebound) - Medium term: converge to potential rate of 1.5 percent - Inflation (consumer prices, period average): - 2024: -0.5 - 2025: 0.8 - 2026–2030: 1.5, 1.9, 2.0, 2.0, 2.0 (annual percent change) - Current account balance (percent of GDP): - 2024: -2.5 - 2025: -3.6 - 2026–2030: -2.6, -2.1, -1.6, -1.4, -1.1 - External risks (tilted to the downside): - Geopolitical tensions, escalating trade measures, prolonged policy uncertainty - Potential weakening of tourism and FDI, higher import costs - Domestic risks: - Weaker-than-expected performance in tourism and construction - Natural disasters and climate change - Upside risks: - Stronger-than-expected growth in tourism, construction, and public investment ### Fiscal Outlook and Policy Recommendations - Fiscal balances and debt: - Overall fiscal deficit excluding natural disaster (ND) costs expected to narrow to 2.3 percent of GDP by FY2030/31 - Overall balance excluding ND cost (central government, percent of GDP): 2024: -1.8; 2025: -2.9; 2026: -2.5; 2027: -2.7; 2028: -2.6; 2029: -2.5; 2030: -2.3 - Overall balance including ND cost: 2024: -1.8; 2025: -2.9; 2026: -3.2; 2027: -3.3; 2028: -3.2; 2029: -3.2; 2030: -3.0 - Total public sector debt (percent of GDP): 2024: 76.7; 2025: 77.2; 2026–2030: 77.2, 77.2, 77.1, 77.1, 77.0 - Central government debt (percent of GDP): 2024: 72.4; 2025: 73.1; 2026–2030: 73.2, 73.4, 73.5, 73.6, 73.6 - Current primary expenditure (percent of GDP): 2024: 17.9; 2025: 18.6; 2026–2030: 18.4, 18.3, 18.2, 18.1, 18.0 - Interest payments (percent of GDP): 2024: 3.3; 2025: 3.2; 2026–2030: 3.3, 3.5, 3.6, 3.8, 3.9 - Overarching fiscal priority: - Reduce public debt and create room for capital spending through revenue-based measures - Proposed three-pillar fiscal strategy: 1. A comprehensive tax reform and enhanced tax administration—starting now and implemented gradually over the medium term 2. Improved control and targeting of current expenditures 3. Adoption of a sound fiscal rule within a fiscal responsibility framework - Tax reform measures (listed as potential measures in the report): - Rationalizing corporate income tax incentives - Broadening the VAT base (including digital services) with targeted support to vulnerable households - Improving personal income tax progressivity - Shortening property exemptions - Reforming fuel taxes - Increasing excises on alcohol and tobacco - Tax administration priorities: - Strengthening audit and inspection - Accelerating digitalization of processes - Enhancing compliance and improving transparency - Additional fiscal governance recommendations: - Publish a medium-term fiscal framework (MTFF) prior to the annual budget with at least three years’ projections, a fiscal risk statement, a debt sustainability analysis, and policy scenarios - Examine establishment of operational fiscal rules - Continue to improve Citizenship Investment Program (CIP) governance and transparency ### Financial Sector and Insurance - Banking sector: - Well-capitalized and highly liquid - NPLs remain elevated despite recent improvements - Policy priorities: - Ensure full compliance with the ECCB’s 60 percent provisioning requirement for NPLs and avoid excessive reliance on general reserves - Close legislative gaps related to foreclosures and asset recoveries to encourage lending - Consider foreclosure legislation balancing market efficiency and borrower protections to secure real estate mortgages - Non-bank financial institutions: - Strengthen resilience of credit unions and other nonbank institutions - Build on the new Co-operative Societies Act with steps to: - Strengthen credit union regulation and supervision - Develop and enforce prudential standards - Streamline provisioning rules to align with ECCB practices - Progressively extend Asset Quality Reviews and stress testing to all credit unions - Insurance sector: - Rising reinsurance costs and low property retention ratios among local insurers constrain profitability and coverage - Need for a more integrated regional supervisory framework to strengthen oversight, narrow the protection gap, and support affordability - Anti–money laundering and countering financing of terrorism (ML/FT): - Continue efforts to mitigate ML/FT risks ### Structural and Supply-Side Policies - Key structural bottlenecks: - High financing costs, limited credit access, regulatory burdens, weak productivity, high informality - Policy priorities to raise long-run growth and lower living costs: - Address infrastructure gaps and improve digitalization (expand internet access, improve digital literacy) - Foster innovation and human capital-intensive services (e.g., digital and professional services) - Improve access to credit and reduce frictions - Labor market reforms and targeted social protection improvements - Careful monitoring of the minimum wage to support vulnerable groups without harming employment or competitiveness - Continued focus on climate adaptation, energy transition, and climate insurance - Trade, connectivity, and regional cooperation: - Streamline customs procedures, reduce freight costs and shipping fees, and enhance market competition - Tourism and export broadening over time, expanding into new source markets - Proactive engagement in new and existing trade opportunities in collaboration with OECS and CARICOM partners - Acknowledge constraints to source-reorientation given the size of the economy ### Selected Key Indicators (from tables and memorandum) - Population and social indicators: - Area (sq. km): 616 - Total population (thousands, 2024, UN): 179.7 - Population density (per sq. km., 2024): 291.8 - Human Development Index ranking (of 189 countries, 2023): 103 - Infant mortality (per thous. live births, 2023): 14.3 - Secondary education enrollment (percent, 2023): 90.41 - Life expectancy at birth (years, 2024): 72.8 - GDP and external sector memoranda: - Gross Domestic Product (2024): (millions of US dollars) 2,574; (millions of EC dollars) 6,951; (US$ per capita) 14,323 - Nominal GDP (EC$ millions): 2024: 6,951; 2025: 7,158; 2026: 7,466; 2027: 7,805; 2028: 8,156; 2029: 8,515; 2030: 8,866 - Exports of goods and services (percent of GDP): 2024: 62.1; 2025: 60.1; 2026–2030: 61.5, 62.3, 62.8, 63.1, 62.9 - Imports of goods and services (percent of GDP): 2024: -56.2; 2025: -55.2; 2026–2030: -56.1, -57.0, -57.7, -58.4, -58.3 - External debt (gross, percent of GDP): 2024: 68.7; 2025: 69.1; 2026–2030: 68.3, 67.5, 66.7, 65.9, 65.0 - Net imputed international reserves (months of imports of goods and services): 2024: 3.4; 2025: 3.5; 2026–2030: 3.6, 3.6, 3.6, 3.7, 3.7 - Money and credit (end of period, annual percent change): - Broad money (M2): 2024: 4.6; 2025: 3.0; 2026–2030: 4.3, 4.5, 4.5, 4.4, 4.1 - Credit to private sector (nominal): 2024: 5.1; 2025: 5.1; 2026–2030: 4.6, 4.3, 4.0, 3.8, 3.4 - Credit to private sector (real): 2024: 5.6; 2025: 4.2; 2026–2030: 3.1, 2.4, 2.0, 1.8, 1.4 *Sources: St. Lucia authorities; ECCB; UNDP HDI; and Fund staff estimates and projections.* ### 3. The government has taken important actions to address some of these shortcomings. ### 3. The government has taken important actions to address some of these shortcomings. ### Recent actions and social measures - Increased pensions and minimum pensions; increased the minimum monthly pension to EC$725 for government pensioners. - Implemented a minimum wage on October 1, 2024 (EC$6.52 per hour or EC$1,131 per month) for all workers. - Expanded the Universal Health Care program. - Established a Ministry for Persons with Disabilities (added to a portfolio of the Ministry of Home Affairs and Crime Prevention). - Announced a plan to establish an unemployment insurance program. - Implemented measures strengthening regulatory framework and financial preparedness for natural disasters (e.g., an approved Disaster Risk Financing Strategy). - Advanced renewable energy prospects (e.g., proposed Electricity Supply Bill). - Enacted a Co-operative Societies Act for the credit union sector. ### Selected revenue and expenditure measures (implemented, permanent, and temporary) - Removal of import duties and service charges on all price-controlled food items effective June 1st, 2025. - Removal of VAT on several food items, and change the status of exempt food items to zero-rated. - Increased income tax allowances from January 1st, 2025 from EC$30,000 to EC$40,000, with specific increases in child allowance, dependent relatives allowance, mortgage, university education, credit union shares and savings, and investment instruments. - Exempt income derived from pensions from all taxes from January 2025. - Three one-off payments of about EC$600 were made to central government pensioners. - An additional one-off payment of about EC$600 will be made to central government pensioners in November 2025. - Extensions of tax amnesty program (now till May 1, 2026), including fines and penalties for late corporate filings at the Companies Registry. - Tax deductibles up to ES$50,000 to businesses investing in cybersecurity, artificial intelligence tools, and approved ICT training for staff. (This measure has been announced, but not yet implemented as of November 21, 2025.) - All non-established government employees who are daily paid or classified as wage earners will be given permanent employment after two years. In August 2025, about 1000 workers became permanent. - Temporary 50 percent reduction of the Airport Service Charge for all regional flights effective from June 1 to December 31, 2025. - Bakers will receive a rebate on the bulk gas purchased. - Effective May 1st, the price of fuel will be capped at $16.00 per gallon until January 1st, 2026. - Tuition support to nursing students. - Temporary teachers will now receive full salaries for the month of August, starting in August 2025. - Increased hiring: An additional 131 new police officers were hired. - Source of measures: The Prime Minister’s 2025/26 Budget Address. - Note: Measures marked 1/ have been announced but not yet implemented as of November 21, 2025. ### Recent developments and macroeconomic performance - Political: Prime Minister Phillip J. Pierre re-elected for a second term in December 2025; St. Lucia Labour Party holds 14 of the 17 seats in the House of Assembly. - Real GDP expanded by 4.7 percent in 2024, driven by robust tourism flows from the U.S. and construction activity. - Stayover tourist arrivals declined by 3.2 percent y/y during January-September 2025. - Unemployment rate: reached 10.8 percent in 2024, then inched up to 13.4 percent in Q2 2025. - Headline CPI: fell by 0.5 percent in 2024; increased by 0.5 percent in H1 2025. - Current account deficit: increased to 2.5 percent of GDP in 2024 from 1.6 percent of GDP in 2023 (driven by a widening net income deficit). - Current account deficit expected to close at 3.6 percent of GDP in 2025. - Real effective exchange rate (REER) has depreciated over the past two years. - Fiscal balance: overall fiscal deficit declined to 1.8 percent of GDP in FY2024/25 from 3.2 percent of GDP in FY2023/24. - Public debt: rose from 75.2 percent of GDP in FY2023/24 to 76.7 percent of GDP in FY2024/25. - Overdrafts and payables: rose to 3.0 percent of GDP at end-FY2024/25, dropped to 1.6 percent of GDP by September 2025. - Financing of FY2024/25 deficit: largely through loans (favourable multi-lateral terms) and bond and note proceeds; maturing debt almost completely rolled over. ### Banking sector and credit - Risk-weighted capital ratio: 16.5 percent as of Q2 2025. - Nearly half of total assets are liquid. - Real credit to the private sector rebounded by 5.6 percent in 2024 (the highest in fifteen years), primarily driven by commercial real estate lending. - Credit unions: continued to expand lending; many have yet to comply with regulatory requirements. - Non-performing loans remain elevated despite recent improvements. ### Outlook and key projections - Growth: expected to moderate to its potential rate of 1.5 percent as tourism flows stabilize and planned construction projects are completed. - Inflation: 12-month moving-average inflation projected to increase by 1.3 percentage points to 0.8 percent in 2025, and gradually converge to 2 percent over the medium-term. - Current account: expected to narrow to 1.1 percent of GDP by 2030 as planned construction is completed. - Medium-term fiscal outlook: - Overall fiscal deficit excluding natural disaster costs expected to narrow to 2.3 percent of GDP by FY2030/31. - Public debt (including penciled-in natural disaster costs) projected to stabilize at around 77 percent of GDP in the medium term. - Gross financing needs average 14.9 percent of GDP over the medium term, compared to 14.8 percent of GDP in FY2024/25. - External sensitivity: a one percentage point decline in U.S. growth is estimated to lower St. Lucia’s growth rate by about 0.6 percentage points (mainly through the tourism channel). ### Risks to the outlook - Downside risks: - Geopolitical tensions, escalating trade measures, prolonged policy uncertainty. - Weaker tourism and FDI flows, higher import costs. - Higher-than-expected deterioration of tourism flows and larger recognition of non-performing loans depressing credit growth. - Low-likelihood but high-impact risk: weakening fiscal position and tightening financial conditions leading to disorderly fiscal adjustment. - Natural disasters and climate change risks. - Upside risks: - Stronger-than-expected growth in tourism, construction, and public investment. - External shock scenario: - A global slowdown triggered by escalating trade measures would weigh heavily on St. Lucia given dependence on tourism and reliance on imports; inflation exposed to U.S. inflation due to goods import dependence. - Some cushioning possible from lower oil import costs and weaker domestic demand for construction-related imports. ### Authorities’ views - Authorities expect stronger growth than staff’s projections in 2025 and the medium term, citing robust construction activity offsetting tourism decline. - Authorities broadly agreed with staff’s risk assessment and expressed concern about potential shifts in global trade policies pushing up import prices. ### Policy discussion — Rebuilding fiscal buffers and creating space for spending priorities - Overarching fiscal priority: reduce public debt and create room for capital spending through revenue-based consolidation. - Without policy action, public debt will not meet the regional debt target of 60 percent by 2035. - Three-pillared approach recommended: 1. A comprehensive tax reform and enhanced tax administration—starting now and implemented gradually over the medium term. 2. Improved control and targeting of current expenditures. 3. Adoption of a sound fiscal rule within a fiscal responsibility framework. - Illustrative adjustment scenario: an adjustment of about 2½ percent of GDP implemented gradually, including revenue increases of about 3½ percent of GDP and a 1 percent of GDP increase in spending on investment and other priority areas, would reduce public debt to the regional target by 2035. - Complementary reforms: labor, social, and financial sector reforms to improve medium-term potential growth and equity via public investment and productivity gains. ### Staff-recommended tax reform and administration measures - Tax measures (options): - Rationalize corporate income tax incentives, particularly in the profitable hospitality sector. - VAT reform: broaden the tax base, lower threshold, limit zero-rated items including increasing the fuel VAT rate to the statutory rate, introduce VAT on digital services—accompanied with targeted support to vulnerable households. - Personal income tax improvement: replace extensive allowances, deductions, and exemptions with tax credits for low-income earners. - Property tax changes: shorten three-year exemption for new commercial properties; phase out residential property exemption and consider progressive rates. - Increase excises on alcohol and tobacco; introduce excises on sugar-sweetened beverages. - Tax administration measures: - Improve auditing and inspection capabilities, digitalize tax processes (including full implementation of InfoCloud Suite supporting electronic invoicing and vendor payments), enhance public account transparency through timely financial statements. - Phase out tax amnesties; the tax amnesty extension could incentivize non-compliance and should not be renewed further. - Digitalization of tax processes: - Use unified company ID for IRD and Customs, apply tax intelligence to identify audits, implement electronic invoicing for large taxpayers, promote electronic payments. - Public accounts transparency: - Timely prepare financial statements, comply with Public Finance Management Act deadlines, apply International Public Sector Accounting Standards (IPSAS). - Priorities and timing (abbreviations used in source): - ST (short-term), MT (medium-term), LT (longer-term) — examples from table: - CIT: eliminate widespread tax exemptions and holidays (ST-MT); lower CIT rate from 30 to 25 percent after broadening base (MT). - VAT: broaden the base, lower threshold, apply statutory rates to tourism, consider digital VAT (ST); minimize zero-rated items including fuel (MT). - PIT: eliminate regressive tax breaks, replace pre-tax breaks with flat tax credits (ST-MT); introduce a fourth income bracket (MT). - Property taxes: phase out residential property exemption, lower transaction taxes (ST); update/expand cadaster (MT). - Excise taxes: raise excises on alcohol and tobacco (ST); introduce excises on sugar-sweetened beverages (ST-MT). - Tax administration and digitalization: MT. ### Efficiency, spending rebalancing, and public investment - St. Lucia spends more on public sector wages, goods and services, and debt interest than the Latin America and Caribbean (LAC) average, while investing less in capital. - Recommendations: - Rebalance spending toward capital and social spending. - Control compensation of employees (projected to increase over medium term). - Strengthen PPP framework using international best practices (transparent contract reviews, fully understand budgetary implications, institutional structures to manage fiscal risks). - Use digital solutions to target social transfers by income, vulnerability, or demographic criteria. - Invest in capacity development, digital infrastructure, and public services to improve data integration across government agencies, reduce administrative costs and leakages, expand access, and boost social spending effectiveness. *International Monetary Fund — ST. LUCIA (excerpt).* ### 19. The recent increase in pension ### 19. The recent increase in pension ### Pension fiscal risks and reform options - IMF (2024) projects that the National Insurance Corporation’s (NIC) expenditures will exceed total income by 2035, leading to reserve depletion by 2051. - The recent increase in pension benefits, combined with a rapidly aging population, creates longer-term fiscal risks and worsens the funding gap. - Restoring the pension system’s actuarial balance will require parametric (i.e., rule-based) or structural reforms, including: - higher contribution rates and/or lower replacement rates; - increasing the retirement age; - gradually eliminating early retirement options; - introducing pension caps; - offering voluntary investment options for high earners. - The recent increases in benefits are likely to worsen the funding gap, making comprehensive reforms more urgent. ### Medium-term fiscal framework (MTFF), fiscal rules, and CIP governance - Introduction of an MTFF and formal fiscal rules, and strengthening of the Citizenship by Investment Program (CIP) could instill fiscal planning, prudence, and discipline. - Recent legislation has strengthened procurement and debt management practices, including implementation of a medium-term debt strategy (MTDS). - Key fiscal priorities include: - Publication of an MTFF prior to the annual budget containing at least three years’ projections beyond the next budget year, a fiscal risk statement, a debt sustainability analysis, and policy scenarios to align revenue and expenditure projections with fiscal targets and policy objectives. - Operational fiscal rules could include a legal floor on the primary balance and a ceiling on current expenditures, with narrowly defined escape clauses for natural disasters and external shocks. - Interaction between fiscal rules and MTFF would strengthen fiscal accountability and improve monitoring. - CIP governance and transparency improvements suggested: - Simplification of fund transfers to the Treasury and saving of the proceeds in a separate fund for planned public investment and self-insurance against natural disasters. - Creation of the first sovereign wealth fund financed by CIP proceeds to reportedly support sustainable economic development and climate resilience. - Regionally coordinated steps to strengthen investor screening and CIP integrity through a new regulatory body with powers to set common standards and conduct oversight. - Strengthen data transparency and CIP project monitoring to ensure expected economic benefits are delivered. ### Authorities’ views on fiscal policy and revenue administration - Authorities highlighted a solid track record of three consecutive years of primary balance surpluses and intend to maintain budget discipline. - The Inland Revenue Department is working to improve relationships with taxpayers and exploring options to enhance software to improve efficiency. - The Customs and Excises Department (CED) appointed a risk management champion and engaged CARICAD to support modernization and develop strategic and communication plans. - Operationalization of the regional memorandum on CIP has helped establish standardized due diligence and improve cooperation with international enforcement partners. - Authorities emphasized prudent liquidity and debt management to secure government financing and manage risks by reducing rollover, improving debt composition, and extending maturity. ### Social security adjustments under consideration - The NIC plans to update the actuarial review and is contemplating the recommended increase in contribution rates (from both employees and employers) and gradually eliminating early retirement options. ### Financial system resilience — summary findings - Systemic risks in the financial sector remain contained and broadly unchanged since the last consultation. - Banking sector resilience supported by ample liquidity—driven by robust deposit growth—and solid capital buffers. - Banks’ appetite for holding foreign risky securities over bonds may be susceptible to potential asset price corrections. - Credit unions (CUs) are expanding rapidly, partly due to regulatory arbitrage; relatively small size and limited interlinkages with the banking sector imply limited systemic risk spillovers. - Persistently high levels of NPLs and the presence of some fragile CUs operating under weak regulatory oversight are areas of potential vulnerability. ### Commercial real estate (CRE) lending - CRE loans accounted for just 7.4 percent of total loans as of Q12025. - The rapid pace and scale of the increase in CRE lending are notable, in contrast to persistently sluggish overall credit growth. - If the trend persists, it could pose financial stability risks, especially if financial conditions deteriorate. - Recommendations: carefully review lending standards and employ stress testing to assess institutional resilience under adverse shocks. ### Banking sector policy priorities and NPL management - Policy priorities include safeguarding banks by ensuring full compliance with the ECCB’s 60 percent provisioning requirement for NPLs and avoiding excessive reliance on general reserves in place of adequate loan-loss provisioning. - For persistently high NPLs, prudential oversight should be reinforced to promote timely write-offs or restructuring of impaired assets, supported by stronger supervisory enforcement and targeted incentives such as capital charges or time limits. - Strengthening market infrastructure would help resolve distressed assets; recommended measures include greater capitalization of the ECAMC and establishment of a property cadaster to facilitate asset disposal and revive the secondary real estate market. - Banks should pursue prudent foreign investment strategies focused on high-grade securities. ### Foreclosure legislation recommendations - The absence of foreclosure legislation leaves real estate mortgages effectively unsecured, discourages banks from lending, increases the cost of credit, and constrains market development. - A foreclosure framework should: - give lenders a predictable and efficient mechanism for recovering collateral while reducing reliance on lengthy, court-driven processes; - mandate pre-foreclosure negotiations; - impose a legal duty on creditors to secure fair market value and align fully with the Insolvency Act to create a coherent creditor-debtor regime; - embed borrower safeguards through strict and transparent notice requirements, a statutory right to cure arrears before sale, a fair process for returning surplus funds, and access to judicial review in cases of error or abuse. ### Credit unions (CUs) and supervisory measures - The Co-operative Societies Act came into effect in January 2025, designating the Financial Services Regulatory Authority (FSRA) as the primary regulator of CUs and introducing stricter capital and liquidity requirements. - Next steps could include: - developing and enforcing prudential standards to safeguard stability; - streamlining provisioning rules—such as removing collateral from provision calculations given valuation uncertainty—and aligning them with ECCB practices; - progressively extending Asset Quality Review processes to other credit unions, complemented by regular stress testing. - On deposit insurance, the immediate focus should be on creating a regionally coordinated system for banks within the ECCU, then gradually broadening its scope to include CUs. - The Insolvency Act moved into full implementation as the Office of the Supervisor of Insolvency launched on November 12, 2025. - FSRA highlighted that the new Co-operative Societies Act, effective from 2026, will allow imposing moratoriums on dividend distributions, prohibiting such distributions when credit unions fall below specified thresholds, and replacing management teams when necessary. ### Insurance sector resilience - Insurance companies in St. Lucia exhibit lower property reinsurance retention ratios and premium levels compared to other ECCU peers, which reduces direct exposure to property damage but constrains profitability. - A more integrated regional supervisory framework is recommended to strengthen oversight and resilience across jurisdictions, narrow the insurance protection gap by lowering reinsurance costs, support affordability, and reduce fiscal burden of disaster recovery. ### AML/CFT and NRA progress - Ongoing 2025 National Risk Assessment (NRA) process is expected to improve understanding of ML/FT risks and help develop targeted measures, including those associated with the CIP scheme. - Further progress is needed to ensure financial institutions apply appropriate AML/CFT measures through effective risk-based supervision to mitigate cross-border illicit financial flows. - Continued efforts should address remaining AML/CFT gaps, including increasing entity transparency and strengthening oversight of higher-risk designated non-financial businesses and professions, such as real estate agents and lawyers. - 2025 NRA also includes an assessment of Proliferation Financing (PF) and Trade-Based Money Laundering (TBML). ### ECCB safeguards and exchange system - The ECCB has taken steps to address most recommendations from the previous safeguards assessment; the remaining recommendation concerns further strengthening the ECCB’s operational autonomy and aligning its Agreement Act with leading practices. - The next periodic safeguards assessment of the ECCB is scheduled for early 2027. - St. Lucia has not introduced changes in the foreign exchange system that: (i) may give rise to exchange restrictions or MCPs pertaining to obligations under Article VIII; or (ii) could be designed to limit capital flows and may need assessment under the revised Institutional View. - St. Lucia accepted the obligations of Article VIII, Sections 2, 3, and 4, in 1980, and maintains an exchange system free of restrictions on payments and transfers for current international transactions and multiple currency practices. ### Enhancing growth and resilience — supply-side and structural reforms - Addressing supply-side bottlenecks will increase long-run growth and reduce cost of living. Identified bottlenecks: high finance costs and limited access to credit, inadequate workforce education, and difficulties complying with tax and customs regulations. - Tackling these obstacles could improve productivity and growth (IMF 2024 Staff Report, St. Lucia). Implementation should be sequenced, leveraging regional coordination and aligning with initiatives in digitalization, climate adaptation, and energy transition. - St. Lucia’s overall cost of living—based on the FAO’s Cost of a Healthy Diet—is lower than in peer countries but still high by global standards. Households incur higher expenses than many ECCU peers for items like family rent and food. - Strengthening labor market institutions remains essential for inclusive growth: - The government's proposed unemployment insurance scheme would strengthen social protection and labor market resilience given persistently high youth unemployment and skill mismatches despite an overall decline in unemployment. - The recent introduction of a minimum wage provides important safeguards for low-income workers; careful monitoring and continued calibration may be warranted to avoid restricting employment or undermining competitiveness. - Digitalization: - Authorities’ efforts to accelerate digitalization should be sustained to expand internet connectivity, strengthen digital literacy, encourage innovation, and support job creation and economic diversification. - Trade, connectivity, and diversification: - St. Lucia is significantly more open than other country groups, with international trade comprising more than 100 percent of its GDP, mainly from exports of services (tourism) and imports of goods. - The country is heavily reliant on selected trade partners, with 40 percent of its goods being imported and 57 percent of tourists coming from the U.S. in 2024. - Import concentration is associated with increased living costs; policy efforts should prioritize streamlining customs procedures, reducing freight costs and shipping fees, and enhancing market competition. - Tourism and export broadening: pursue development of touristic appeal in established and new source markets, broaden the economic base beyond tourism, and implement export diversification via fostering innovation, skill upgrading, competitiveness improvements, and enhanced infrastructure and connectivity. - Trade policies and regional coordination: proactively seek trade opportunities through existing and new trading relationships in cooperation with OECS and CARICOM partners to support sustainable reorientation of St. Lucia’s trade network. - Climate adaptation and energy transition: - Continued efforts should be anchored in risk-informed physical planning, improved public asset management, and strengthened financial preparedness. - Recent reforms include revision of land-use regulations (Development Control Authority updates in November 2024), adoption of a Disaster Risk Financing Strategy, and establishment of a contingent credit line through the World Bank’s CAT DDO. - In April 2025, the World Bank approved a US$20 million Disaster Risk Management Development Policy Financing project, which includes a Catastrophe Deferred Drawdown Option (Cat DDO). - The Electricity Supply Bill under discussion aims to open the electricity market to independent renewable energy producers. - The geothermal initiative’s exploratory drilling is expected to commence in 2025 and could reduce electricity costs and oil dependence while supporting long-run growth. *Source: Chapter/section content from the provided IMF PDF excerpt.* ### 38. Climate insurance protection gaps should be addressed, as low affordability ### 38. Climate insurance protection gaps should be addressed, as low affordability contributes to widespread non- and under-insurance ### Climate insurance protection gaps and recent policy action - Vulnerability to natural disasters poses significant risks to the economy and could result in substantial fiscal burden. - To reduce reliance on post-disaster government compensation, the authorities recently introduced a parametric insurance mechanism for banana and plantain farmers, in partnership with a private insurance company. - A similar insurance scheme was introduced in Dominica and Grenada to protect MSMEs and farmers.18 - Implementation caveats for the scheme: - Address basis risk. - Maintain affordable premiums via targeted subsidies. - Improve climate data systems to ensure effective execution. ### Authorities’ views - The authorities broadly agreed with staff’s recommendations. - Emphasized that the youth unemployment rate has declined significantly in recent years. - Expressed confidence that the Youth Economy Agency will create opportunities for young people to establish businesses, fostering entrepreneurship and supporting economic growth. - Concurred with recommendations on: - Addressing logistics bottlenecks. - Leveraging existing trade agreements. - Deepening regional integration in both goods and services. - Welcomed staff’s work on trade and export diversification opportunities and noted: - Ongoing policy efforts to explore additional trading partners. - Challenges posed by the economy’s small size. ### Staff appraisal — recent macroeconomic performance - The St. Lucian economy has staged a robust performance in recent years. - After one of the largest declines in the region in 2020, economic growth rebounded sharply, buoyed by increased tourism services. - Following a strong expansion in 2024, growth is expected to fall in 2025 from weaker tourism amid temporary hotel closures and reduced airlift but rebound in 2026 as tourism picks up. - The external position in 2024 was assessed as broadly consistent with fundamentals and desirable policies. - Fiscal performance has strengthened, supported by three consecutive years of primary surpluses. - Long-standing challenges remain: - Income per capita diverging from the US in the past decades. - Weak productivity. - High public debt stock. - Ever-present risk of natural disasters. ### Fiscal policy priorities and recommendations - Overarching fiscal priority: reduce public debt and create room for capital spending through revenue-based measures. - Under current policies, public debt will fall short of the regional target of 60 percent of GDP by 2035. - Risks of inaction: - Development resources may shrink. - Debt and borrowing costs could increase further during shocks. - Recommended growth-friendly and feasible fiscal adjustment built on three pillars: 1. A comprehensive tax reform and enhanced tax administration—starting now and implemented gradually over the medium term. 2. Improved control and targeting of current expenditures. 3. Adoption of a sound fiscal rule within a fiscal responsibility framework. - Tax reform measures could include: - Rationalizing corporate income tax incentives. - Broadening the VAT base (including digital services) with targeted support to vulnerable households. - Improving personal income tax progressivity. - Shortening property exemptions. - Reforming fuel taxes. - Increasing excises on alcohol and tobacco. - Tax administration priorities: - Strengthening audit and inspection. - Accelerating digitalization of processes. - Enhancing compliance. - Improving transparency. ### Expenditure efficiency, fiscal frameworks, and CIP - Higher efficiency and spending rebalancing should create space for growth- and equity-enhancing expenditures. - Social protection initiatives should be well-targeted and budgeted. - Strengthening the public-private partnerships (PPPs) framework through transparent reviews and sound institutional structures to support infrastructure development without undermining fiscal discipline. - The recent increase in pension benefits, amid a rapidly aging population, creates longer-term fiscal risks and requires forward-looking reforms. - Recommended fiscal planning enhancements: - Publish a medium-term fiscal framework (MTFF) prior to the annual budget, with at least three years’ projections, a fiscal risk statement, a debt sustainability analysis, and policy scenarios. - Examine the potential establishment of operational fiscal rules. - Continue to improve Citizenship Investment Program (CIP) governance and transparency. ### Financial sector resilience and supervision - Banking sector: well-capitalized and highly liquid, but NPLs remain elevated despite recent improvements. - Policy priorities: - Ensure full compliance with the ECCB’s 60 percent provisioning requirement for NPLs. - Avoid excessive reliance on general reserves. - Legal and regulatory milestones: - Recent enactment of legislation strengthening debtor rights and streamlining movable asset financing. - Next step could be introducing foreclosure legislation that balances market efficiency with strong borrower protections to effectively secure real estate mortgages. - Non-bank financial institutions: - Need to strengthen credit union regulation and supervision, building on the new Co-operative Societies Act. - Steps include developing and enforcing prudential standards, streamlining provisioning rules to align with ECCB practices, and progressively extending Asset Quality Reviews and stress testing to all credit unions. - Insurance sector constraints: - Rising reinsurance costs and low property retention ratios among local insurers constrain profitability and coverage. - Need for a more integrated regional supervisory framework to strengthen oversight, narrow the protection gap, and support affordability. - Continued efforts to mitigate ML/FT risks should continue. ### Structural reforms and supply-side measures - Address supply-side bottlenecks to increase long-run growth and reduce the cost of living. - Key bottlenecks: high financing costs, limited credit access, and regulatory burdens. - Minimum wage: - Recent introduction provides an important safeguard for low-income workers. - Careful monitoring required to ensure it supports vulnerable groups without hampering employment opportunities or competitiveness. - Digitalization: - Continue efforts to expand internet access, improve digital literacy, and foster innovation to create jobs and attract investment. - Continued efforts on climate adaptation, energy transition, and climate insurance are essential. ### External sector, trade diversification, and regional cooperation - Expanding trade relationships, improving connectivity, and strengthening regional cooperation are key to enhancing resilience and affordability. - Economy characteristics and risks: - Highly open, driven by tourism services and imports of goods. - Import concentration increases living costs and external vulnerability. - Policy suggestions: - Streamline customs procedures. - Help reduce freight costs and shipping fees. - Enhance market competition. - Constraints on source-reorientation and diversification stem from the economy’s small size. - Suggested diversification paths: - Continue tourism and export broadening, including expanding into new source markets. - Broaden economic base beyond tourism (e.g., developing human capital-intensive service sectors such as digital and professional services). - Proactive engagement in trade opportunities in collaboration with OECS and CARICOM partners. ### Institutional recommendation - Staff recommend that the next Article IV consultation be held on the standard 12-month cycle. *Source: IMF staff report excerpts (St. Lucia), section titled "38. Climate insurance protection gaps should be addressed, as low affordability contributes to widespread non- and under-insurance."* ### Annex I. External Shocks ### Annex I. External Shocks ### A. The Impact of U.S. Growth Shocks - St. Lucia’s economic growth is significantly influenced by the U.S. GDP growth, primarily through the tourism channel. - VAR estimates indicate that a positive U.S. GDP shock leads to an immediate and statistically significant increase in tourism revenues, as reflected in travel receipts in the current account. - A one percentage point increase in U.S GDP growth increases the tourism revenue growth rate by 4.8 percentage points in the same year. - While the direct effect on aggregate GDP is modest, the tourism channel is statistically significant and economically meaningful. - A complementary specification using U.S. consumption growth—more closely tied to household travel and discretionary spending—confirms this relationship: - Positive consumption shocks sharply increase tourism inflows and, with a short lag, significantly increase growth, highlighting strong exposure to U.S. household demand conditions. - Model and data notes: - The analysis employed a Vector Autoregression (VAR) estimation method, utilizing annual data on GDP and travel receipts, as well as quarterly price indices spanning from 2000 to 2024. - The model also controlled for global food and fuel prices to account for global external shocks. ### B. The Impact of U.S. Inflation Shocks - St. Lucia’s inflation is exposed to price developments in the U.S. due to dependence on imported goods. - Staff analysis shows that a higher U.S. PPI—reflecting the cost of tradable goods—directly increases St. Lucia’s import prices and subsequently consumer inflation. - The model controls for global food and fuel prices, isolating the effect of U.S. tradable goods prices beyond commodity shocks. - A positive U.S. PPI shock significantly increases St. Lucia’s import price inflation within one quarter. - The pass-through to consumer prices is immediate and measurable, adding about 0.2 percentage points to CPI inflation in the short term. - While the effect dissipates within a few quarters, results demonstrate exposure to cost-push pressures originating in U.S. export prices, particularly for manufactured goods and fuel products priced in U.S. dollars. - Results are robust to an alternative specification using the U.S. CPI rather than U.S. PPI. *Annex prepared by Junghwan Mok (WHD); analysis employed VAR with controls for global food and fuel prices and annual data covering 2000–2024.* ### Annex V. Risk Assessment Matrix ### Annex V. Risk Assessment Matrix ### Conjunctural Risks - Geopolitical Tensions. - Likelihood: High - Impact: Medium - Policy Response: Provide targeted transfers to the vulnerable. Monitor financial risks to FDI. Monitor the banking sector development in coordination with ECCB. Diversify source markets and exports over time and pursue structural measures to increase competitiveness and boost growth. - Escalating Trade Measures and Prolonged Uncertainty. - Likelihood: High - Impact: Medium - Policy Response: Explore opportunities to reorient towards cheaper source markets. Provide targeted transfers to the vulnerable. Increase value added of tourism and diversify exports over time through skill upgrade, innovation, and improved infrastructure. Monitor financial risks and banking sector developments. - Commodity Price Volatility. - Likelihood: High - Impact: Medium - Policy Response: Provide temporary and targeted transfers to the vulnerable. Allow a gradual pass-through of international prices and phase out generalized subsidies. Accelerate transition to renewable energy sources. - Financial Market Volatility and Correction. - Likelihood: High - Impact: Medium - Policy Response: Monitor asset quality and ensure adequate loan loss provisioning. Vigilantly monitor the financial sector development in coordination with ECCB. Maintain liquidity buffers, enhance oversight of leveraged non-bank and ensure continued adequacy of loss-absorbing financial system buffers. - Fiscal Vulnerabilities and Higher Long-Term Interest Rates. - Likelihood: High - Impact: Medium - Policy Response: Start gradual fiscal consolidation through tax reforms, provide a credible medium-term fiscal consolidation, and pursue structural reforms to maintain investor confidence, reduce debt and sovereign risk. Strengthen fiscal frameworks and public financial management to improve transparency. - Decline in International Aid. - Likelihood: High - Impact: Low - Policy Response: Mobilize domestic revenues, reprioritize spending toward essential services, and strengthen multilateral and private partnerships to offset reduced aid flows and protect vulnerable populations. - Rising Social Discontent. - Likelihood: Medium - Impact: Medium - Policy Response: Provide temporary and targeted transfers to the vulnerable. Strengthen the labor market and provide more diversified and higher-quality job opportunities. Pursue structural reforms to increase growth prospects. Strengthen the fiscal position to build up sufficient buffers. - New Trade Agreements. - Likelihood: Low - Impact: Low - Policy Response: Capitalize on new trade agreements to reduce uncertainty, explore trading with new partners, boost investment, improve connectivity, and support productivity-enhancing reforms. Pursue structural reforms to increase competitiveness, skill upgrading, reduce labor market mismatches, increase labor training to diversify exports. ### Structural Risks - Cyberthreats. - Likelihood: High - Impact: Medium - Policy Response: Enhance digital security in public and private platforms. - Climate Change. - Likelihood: Medium - Impact: High - Policy Response: Invest in resilient infrastructure and implement a multi-layered insurance framework against NDs. Proceed with energy transition initiatives, including geothermal. ### Domestic Risks - Sharp Tourism Slowdown. - Likelihood: Low - Impact: High - Policy Response: Provide targeted support to the vulnerable population. Actively seek new markets and opportunities. Pursue structural measures to increase competitiveness, skill upgrade, training; with the aim of diversifying exports over time. - Disorderly Fiscal Adjustment. - Likelihood: Low - Impact: High - Policy Response: Announce a credible medium-term plan of gradual fiscal consolidation through tax reforms, start the adjustment process, and pursue structural reforms to maintain investor confidence and reduce debt and sovereign risks. Enhance fiscal frameworks and public financial management to improve transparency. - Financial Sector Weakness. - Likelihood: Medium - Impact: High - Policy Response: Monitor asset quality and ensure adequate loan loss provisioning. *This annex was prepared by Junghwan Mok and Entian Zhang (both WHD). The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline. Likelihood reflects staff’s subjective assessment: “low” (below 10 percent), “medium” (10-30 percent), and “high” (30-50 percent). The RAM captures staff views on the source of risks and overall concern as of the time of discussions with the authorities. Risks may interact and materialize jointly. The conjunctural shocks reflect shorter-term risks (12-18 months) while structural risks are more persistent.* ### Annex VI. Table 6. St. Lucia: Medium-Term Risk Analysis ### Annex VI. Table 6. St. Lucia: Medium-Term Risk Analysis ### Medium-term risk summary and signals - Debt fanchart module: - Fanchart width65.81.0 (percent of GDP) - Probability of debt non-stabilizaiton (percent): 48.00.4 - Terminal debt-to-GDP x: 41.00.9 - institutions index: (value shown as) x - Debt fanchart index (DFI)2.2 - Risk signal: 3/High - Gross Financing Needs (Percent of GDP): - Average baseline GFN14.95.1 (percent of GDP) - Initial Banks' claims on the gen. govt (pct bank assets)3.81.2 - Chg. In banks' claims in stress (pct banks' assets)12.34.1 - GFN financeability index (GFI)10.4 - Risk signal: 4/Moderate - Medium-term index: - Debt fanchart index 2.2 - GFN finaceability index 10.4 - Medium-term index (value shown as) 0.4 - Final assessment: Moderate (mechanical) / High (overall) - Probabilities for 2025–2030: - Prob. of missed crisis, 2025-2030, if stress not predicted: 27.3 pct. - Prob. of false alarms, 2025-2030, if stress predicted: 20.5 pct. ### Key drivers and interpretation - Overall assessment: Medium-term risks are assessed as high against a moderate overall mechanical signal. - Drivers cited: - High debt fanchart signal reflecting a history of volatility and a high terminal debt. - Vulnerability in the financial sector displayed by high NPLs and low provisions. - GFN financeability index moderate: high average GFNs offset by low bank claims on government. - Natural disaster stress test indicates risk of higher GFNs and public debt accumulation if disasters materialize. - Triggered stress tests: (graphic indicators present; stress tests not activated in gray). _Source: IMF staff estimates and projections._ ### Annex VI. Table 7. St. Lucia: Long-Term Risk Analysis ### Long-term risk assessment — overview and scenarios - Triggered Modules: Pensions, Health - Long-Term Risk Assessment: Large Amortization Incl. Custom Scenario - Projection variables and risk indication include GFN-to-GDP ratio and Amortization-to-GDP ratio across scenarios: Medium-term extrapolation; Amortization; Historical average assumptions; Custom Scenario. - Baseline macro assumptions shown for 2030 and 2034 to 2038 average and Custom Scenario: - Real GDP growth1.5% 1.5% 1.5% - Primary Balance-to-GDP ratio0.9% 0.9% -0.4% - Real depreciation-2.6% -2.6% -2.6% - Inflation (GDP deflator)2.7% 2.7% 2.7% - Selected baseline: custom scenario assuming primary balance permanently equal to its pre-pandemic 10-year average of -0.4 percent of GDP. - Overall conclusion: Long-term debt risks assessed to be high due to large upcoming amortization needs and GFNs that will be relatively stable at a high level. ### Long-run projections and indicators (selected) - GFN-to-GDP and Total Public Debt-to-GDP Ratio projected under: - Long run projection, Projection, Baseline with t+5, Baseline with t+5 and DSPB, Historical 10-year average, Custom. - Large amortizations flagged as a key long-term risk driver. ### Demographics: Pensions - Time horizons and pension impact (per source visuals/text): - Permanent adjustment needed in the pension system to keep pension assets positive for: (chart axis from 0.0% to 7.0% shown) - Pension financing needs (pp of GDP per year): - 30 years: 0.2% - 50 years: 1.8% - Until 2100: 2.8% - Authority’s study projection: - In absence of reforms, pension fund’s reserves would be depleted by around 2051. - Resulting underfunding gap of around 165 percent of GDP in 60 years. - Would require annual fiscal outlays of about 3 percent of GDP. - Policy implication: Permanent adjustment of contribution rates/parameters required to sustain pension assets (the report notes gradual increases in contribution rates and early retirement age proposed, see Annex VII). ### Demographics: Health - Health module findings: - With increases in healthcare costs related to demographic change, debt-to-GDP ratio could increase by 11 p.p. by 2054 over the custom baseline scenario. - With additional 0.6 pp of growth in healthcare costs, debt-to-GDP ratio could increase by 15 p.p. more. ### Climate change: Adaptation - Customized scenario (adaptation cost of 1.3 percent of GDP, 0.7 p.p. already included in baseline): - Debt-to-GDP could increase by 21 p.p. by 2054 under the customized adaptation scenario. _Source: IMF staff estimates and projections._ ### Annex VII. Past Policy Advice (selected recommendations and status) ### Fiscal policies (recommendations and status) - Implement medium-term adjustment to reach the regional debt target and increase public investment. - Status: Overall fiscal deficit declined to 1.8 percent of GDP in FY2024/25 from 3.2 percent of GDP in the previous fiscal year. The recommended tax measures have not been implemented yet. - Strengthen tax administration and discontinue the tax amnesty program. - Status: Progress made, but further efforts critical. The tax amnesty was extended. - Adopt fiscal rules within a fiscal responsibility framework. - Status: Authorities committed to fiscal prudence but currently prefer flexibility with fiscal rules. - Ensure sustainability of the National Insurance Corporation through parametric and complementary reforms. - Status: National pension fund proposed gradual increases in contribution rates and the early retirement age, which would postpone fund depletion from 2051 to 2080. - Strengthen debt management and improve governance of the Citizenship-by-Investment Program (CIP). - Status: Progress made; government approved creation of first sovereign wealth fund financed by CIP proceeds. Regionally coordinated steps to strengthen investor screening and CIP integrity. ### Financial sector recommendations (recommendations and status) - Reduce non-performing loans and strengthen bank provisioning. - Status: Banks reduced NPLs in aggregate, increased provisions, and made progress with NPL disposals, but legacy NPL stock remains high. - Close legislative gaps, including foreclosure laws, to improve credit access; enhance credit infrastructure and support distressed asset resolution. - Status: Regional credit bureau operational; Bankruptcy and Insolvency Bill passed in September 2024; Office of the Supervisor of Insolvency launched in November 2025. - Advance credit union regulation and supervision. - Status: Asset quality reviews for two CUs completed in 2025; Co-operative Societies Act passed in October 2024 to take effect January 2026. ### Structural and climate-related recommendations (recommendations and status) - Invest in infrastructure, education, and digitalization to raise productivity. - Status: Initiatives for TVET skills development, national skill registry planning, Youth Economy Agency facilitating small-scale credit; Technical Agreement with Taiwan Province of China for $1.2 million grant to support youth training. - Advance climate resilience through disaster preparedness and energy transition. - Status: Revision of land-use regulations, adoption of a Disaster Risk Financing Strategy, establishment of contingent credit line through the World Bank’s CAT DDO. _Source: IMF staff._ ### Annex VIII. Data Adequacy and Issues ### Data adequacy assessment (summary) - Overall statement: The data provided to the Fund are adequate for surveillance (concluding sentence: "The data provided to the Fund are adequate for surveillance."). - Data Adequacy Assessment Rating (median rating shown as): B - Sectoral notes and ratings (heatmap descriptors present; specific cell values in source): - National Accounts: CBBCBBB - Prices: Coverage BBCBB - Government Finance Statistics: CBBB - External Sector Statistics: BB - Monetary and Financial Statistics: Consistency BCB - Inter-sectoral Consistency: Frequency and Timeliness CBCCB - Granularity: (top/bottom cell comments present) - Key data weaknesses and recommendations: - Real GDP: Nominal GDP compiled annually via production and expenditure; quarterly nominal GDP published; experimental expenditure-based quarterly estimates for internal use only; real GDP compiled only using production approach with significant delays. - CPI: Timely, but CPI basket weights based on 2016 Household Expenditure Survey (base Jan. 2018); recommendation to update weights every five years. - Fiscal: Deficiencies in compilation of general government and public sector statistics; frequent and substantial revisions; need for improved accounting for capital expenditure and grant-financed projects; rest of public sector data not readily available. - External: Large historical revisions; low response rate to balance of payments surveys (about 45 percent); regional central bank (ECCB) provides sufficiently detailed BOP information for surveillance despite national gaps; revision example: net errors and omissions (NEOs) went from negative EC$1 million to negative EC$68 million after mission revisions. - Monetary and Financial: ECCB reports all core and 10 additional FSIs for commercial banks; FSRA compiles FSIs for credit unions and insurance companies quarterly, with some lag. - Other data gaps: capital stock data (particularly real estate market data) would aid climate-risk assessment; enhanced supervisory data on credit unions, insurance companies, reinsurance, and other soundness indicators would strengthen non-bank financial sector risk assessment. - CIP Unit: Does not share data on flows and stocks of the foreign escrow accounts and land sales to nonresidents. ### Recent capacity development and corrective actions - CARTAC TA mission on external sector statistics to CSO in October 2024 focused on CIP data collection and improvements to trade in goods, travel exports, and direct investment estimates. - Tourism Authority incorporated valid surveys for estimating total visitor expenditure; new estimates incorporated in December 2023. Recommendation for Tourist Board to shift from email-based to in-person surveys to improve expenditure estimates, particularly for yacht and cruise visitors. - CARTAC TA mission on Price Statistics Accounts to CSO in September 2024 to develop new producer price indices (PPIs) for mining, manufacturing, utilities, and construction; follow-up TA scheduled for March 2025. _Source: IMF staff._ ### Annex VIII. Table 3. St. Lucia: Table of Common Indicators Required for Surveillance ### Annex VIII. Table 3. St. Lucia: Table of Common Indicators Required for Surveillance (As of December 2025) ### Data dissemination and e-GDDS participation - St. Lucia participates in the Enhanced General Data Dissemination System (e-GDDS) and first posted its metadata in September 2000 but is yet to disseminate the data recommended under the e-GDDS. - Entries in the table indicate a mix of frequencies, timeliness, and recent observation/receipt dates (examples as shown in source): - Fixed Rate: NA NA NA D......1 - Exchange Rates: Sep-25 Dec-25 M M M ...1 M... - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Sep-25 Dec-25 M M M 302 M 42 - Reserve/Base Money: Sep-25 Dec-25 M M M 301 Q 42 - Broad Money: Sep-25 Dec-25 M M M 302 M 42 - Central Bank Balance Sheet: Sep-25 Dec-25 M M M 301 Q 42 - Consolidated Balance Sheet of the Banking System: Sep-25 Dec-25 M M M 30... 42 - Interest Rates: Jul-25 Sep-25 M M M 302 M 14 - Consumer Price Index: Jun-25 Sep-25 NA NA A ...3 Q ... - Revenue, Expenditure, Balance and Composition of Financing—General Government: Jun-25 Sep-25 M M Q 301 Q 90 - Revenue, Expenditure, Balance and Composition of Financing—Central Government: Mar-25 May-25 Q A Q 365 2 Q 90 - International Investment Position: 2024 Jun-25 A A Q 365 1 Q 240 - Stocks of Central Government and Central Government-Guaranteed Debt: 2024 Jun-25 A A M 301 2 W 42 - External Current Account Balance: 2024 May-25 Q A Q 365 1 Q 60 - Exports and Imports of Goods and Services: NA NA NA Q ...2 Q ... - GDP/GNP: 2024 Jun-25 A A A ...3 Q ... - Gross External Debt: (entries reflect DSBB-derived reporting status) - Notes from table: - Frequency and timeliness codes: “D” daily; “W” weekly; “M” monthly; “Q” quarterly; “A” annual; "SA" semiannual; "I" irregular; "NA" not available or not applicable; and "NLT" not later than. - 1/ Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions. - 2/ Interest rates include both market-based and officially determined rates. - 3/ Financing includes foreign, domestic bank, and domestic nonbank financing. - 4/ General government consists of the central government and state and local governments. - 7/ Encouraged frequency and timeliness under the e-GDDS and required frequency under the SDDS/SDDS Plus; flexibility options or transition plans under SDDS/SDDS Plus are not reflected. - 8/ Based on information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board. ### Fund relations and financial position (As of Oct 31, 2025) - Membership: - Joined: November 15, 1979; Article VIII. - General Resources Account (SDR Million and Percent of Quota): - Quota: 21.40 100.00 - Fund holdings of currency: 19.87 92.85 - Reserve Tranche Position: 1.53 7.16 - SDR Department: - Net cumulative allocation: 35.08 100.00 - Holdings: 20.12 57.35 - Outstanding Purchases and Loans: - RCF Loans: 19.26 90.00 - Latest Financial Arrangements (Outright Loans): - RCF: Date of Commitment April 28, 2020; Date Drawn/Expired April 30, 2020; Amount approved (SDR million) 21.40; Amount drawn (SDR million) 21.40 ### Overdue obligations and projected payments to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs) - Forthcoming: - 2025: Principal — 4.28; Charges/Interest — 0.09; Total — 0.09 - 2026: Principal — 4.28; Charges/Interest — 0.41; Total — 4.69 - 2027: Principal — 4.28; Charges/Interest — 0.41; Total — 4.69 - 2028: Principal — 4.28; Charges/Interest — 0.41; Total — 4.69 - 2029: Principal — 4.28; Charges/Interest — 0.41; Total — 4.69 - Implementation of HIPC Initiative: Not Applicable - Implementation of MDRI: Not Applicable - Implementation of Catastrophe Containment and Relief (CCR): Not Applicable ### Exchange rate arrangement and safeguards - Exchange Rate Arrangement: - De jure and de facto classification: a currency board. - St. Lucia participates in a currency union with seven other members of the ECCU and has no separate legal tender. - The Eastern Caribbean dollar is pegged to the U.S. dollar under a currency board arrangement at EC$2.70 per U.S. dollar. - St. Lucia has accepted the obligations of Article VIII, Sections 2, 3 and 4 of the IMF’s Articles of Agreement, and maintains an exchange system free of restrictions on payments and transfers for current international transactions and multiple currency practices. - Safeguards Assessment: - The Eastern Caribbean Central Bank (ECCB) is subject to periodic safeguards assessments. - An update assessment was completed in August 2021 and found the ECCB has maintained strong external audit and financial reporting practices aligned with international standards. - The ECCB has taken steps to address most of the 2021 assessment’s recommendations. - The pending recommendation is on further strengthening the ECCB’s operational autonomy and aligning its Agreement Act with leading practices. - The next periodic safeguards assessment of the ECCB is scheduled for early 2027. ### Article IV consultation and technical assistance overview - Article IV Consultation: - The last Article IV consultation was concluded by the Executive Board on February 7, 2025. - St. Lucia is on a 12-month cycle. - Technical Assistance: Substantial TA from CARTAC and the IMF covering multiple areas (listed with dates and focus) - Macroeconomic Programming and Analysis: - July 2024 (CARTAC): Building capacity in medium-term macro-fiscal frameworks - February 2022 (ICD and CARTAC): Customized workshop on public debt dynamics - October 2021 (ICD and CARTAC): Fiscal Frameworks Course - September 2019 (ICD and CARTAC): Customized workshop on public debt dynamics - September 2019 (CARTAC): Customized DSA/FP course - July 2019 (CARTAC): Macroeconomics Diagnostics Course - May/June 2019 (CARTAC): Workshop on MAC DSA framework - April 2016 (CARTAC): Updating the Macro Framework and drafting the medium-term fiscal framework - National Accounts: - September 2024 (CARTAC): Developing Expenditure-based GDP - February 2022 (CARTAC): Support for development of estimates of Gross Domestic Product expenditure components - January-February 2020 (CARTAC): Compile rebased GDP estimates and update SUT benchmark estimates - Multiple missions in 2016–2019 to assist with SUT compilation, quarterly GDP by activity estimates, and rebasing - Consumer Price Index: - May 2025 (CARTAC): PPC – PPI - September 2024 (CARTAC): Producer Price and Trade Price Statistics (PPT) - April 2024 (CARTAC): Real Sector - Prices-PPI - November 2022 (CARTAC): Updating CPI - External Sector Statistics: - October 2025 (CARTAC): Balance of payments and IIP—Source Data - October 2024 (CARTAC): Balance of payments and IIP – Source Data - October 2023 (CARTAC): Balance of payments and IIP – Source Data - August 2023 (CARTAC): External Sector Statistics - October 2022 (CARTAC): Balance of payments and IIP – Source Data - January 2022 (CARTAC): Size and evolution of net errors and omissions - March 2021 (CARTAC): Data collection continuity in the context of the COVID 19 pandemic - January 2020 (CARTAC): Backcasting for balance of payments data for 2000-2013 addressing BPM6 changes - Other missions in 2016–2019 to strengthen source data, nonresponse handling, and BPM6-based statistics - Tax Reforms and Revenue Administration: - October 2025 (CARTAC): Strengthening Taxpayer Relationship - September 2024 (CARTAC): Digital technologies and Data Cleansing (HYBRID) - September 2024 (CARTAC): Collection and Enforcement - May 2024 (CARTAC): Public Sector Accounting Standards (IPSAS) Support - May 2024 (CARTAC): Review of Ledger - November 2023 (CARTAC): Development of RFP for system acquisition - April 2023 (CARTAC): Strengthening management and Governance Arrangements – Annual Reporting - February–October 2022 and earlier: multiple TA activities on reform management, performance targets, customs KPIs, TADAT, dispute resolution, audit capacity, IT support, compliance management, and implementation of new tax administration IT systems - Historical work from 2016–2019 on audit capacity, VAT legislation capacity building, disaster preparedness planning for tax and customs, and ASYCUDA data extraction training - Expenditure Rationalization and PFM Reforms: - November 2024 (CARTAC): Implementing a revised and modern Chart of Accounts (CoA) - September 2024 (CARTAC): Implementing a revised and modern Chart of Accounts (CoA) - April 2022 (CARTAC): A Roadmap for Treasury Reform - January 2022 (CARTAC): Establishing a Centralized Internal Audit Function - July-August 2021 (CARTAC): Strengthening Budget Planning and Preparation - April 2018 (CARTAC): PFM Action Plan - September 2017 (CARTAC): Budget Workshop with MoF and all Ministries - July 2017 (CARTAC): PEFA Assessment; June 2017 (CARTAC): PEFA Workshop; January 2016 (CARTAC): Diagnostic Assessment of Internal Audit - Financial Sector: - January 2025 (CARTAC): Corporate Governance and Risk Management for insurance - September 2024 (CARTAC): Guidelines on Corporate governance and ERM - Insurance - May 2024 (CARTAC): RBS Implementation Credit Unions and IFRS 9 - October 2023 (CARTAC): Insurance Follow-up RBS insurance & review ORSA guideline - June 2023 (CARTAC): Insurance Training ORSA and Risk-Based Capital - February 2022 (CARTAC): Implement Risk-based supervision across credit unions and insurance companies - November 2020 (CARTAC): Follow-up TAs to enhance FSRA capacity for RBS across credit unions and insurance companies - FY18–FY20 (CARTAC): Regional Workshops on supervision of Credit Unions and Insurance companies and other topics including cyber risk and FinTech - October 2019 (CARTAC): Implementation of Risk-based supervision across non-bank financial institutions - October 2019 (CARTAC): Develop the Stress Testing Framework for the Credit Union Sector - February 2020 (MCM): Contingency Planning for Crisis Preparedness and Management - September 2018 (CARTAC): Review & analyze Life and General Insurance Actuarial Valuation reports - June 2018 (CARTAC): Stress Testing the Insurance Sector (joint mission for four ECCU countries) - September 2017 (CARTAC): Developing Financial Health and Stability Indicators for the Insurance Sector (joint mission for four ECCU countries) - April 2016 and February 2016 (CARTAC): Basel II Implementation - FSAP: - A joint IMF/World Bank assessment of ECCU member states’ financial sector in missions on September 1–19 and October 20–31, 2003. - The Financial System Stability Assessment (FSSA) was discussed by the Executive Board on May 5, 2004, and subsequently published, including the ROSC on Banking Supervision. ### Debt management and relations with other IFIs - Debt Management TA: - September 2025 (CARTAC): Investor Relations Assistance - February 2024 (CARTAC): Debt Management MTDS and Green Financing - August 2021 (CARTAC): Fiscal Financing Gaps and Debt Management (joint seminar for the ECCB and ECCU countries) - June 2021 (CARTAC): Debt Management strategy and Annual Borrowing Plan (joint workshop for the ECCB and ECCU countries) - January 2020: Preparation of an Annual Borrowing Plan - October 2019: Developing the Regional Government Securities Market (joint mission for the ECCB and ECCU countries) - Relations with other international financial institutions: - World Bank: WBG Finances - Country Details - St. Lucia (worldbank.org) - Caribbean Development Bank: https://www.caribank.org/countries-and-members/borrowing-members/saint-lucia *Annex VIII. Table 3. St. Lucia: Table of Common Indicators Required for Surveillance (As of December 2025) — Source PDF* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1lcaea2026001-source-pdf.pdf_