IMF Executive Board Concludes 2018 Article IV Consultation with St. Lucia
IMF News, June 20, 2018
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- Published: June 20, 2018
Economic growth and external sector
- GDP growth reached 3 percent in 2017, sustained by robust activity in several sectors.
- Tourism recovered strongly: stay-over arrivals rose by 11 percent, described as the fastest growth in the Caribbean.
- Favorable external conditions, hotel expansions, and addition of new flights drove the tourism recovery.
- Continued strong FDI and public investment supported activity in construction, wholesale and retail trade.
- Agriculture suffered lingering effects of Hurricane Matthew.
- Backed by strong tourism inflows, the current account balance strengthened.
- Exports of goods and services: 65.0 (2014), 64.1 (2015), 59.4 (2016), 63.6 (2017), 62.9 (2018 proj.), 62.8 (2019 proj.).
- Imports of goods and services: -55.9 (2014), -51.3 (2015), -54.5 (2016), -55.8 (2017), -58.1 (2018 proj.), -59.1 (2019 proj.).
- Net imputed international reserves (months of imports of goods and services): 3.3 (2014), 4.3 (2015), 3.9 (2016), 3.8 (2017), 4.1 (2018 proj.).
- Current account balance (percent of GDP): 6.9 (2014), 1.3 (2015), -2.5 (2016).
Labor market and inflation
- Unemployment declined from 21.3 percent in 2016 to 20.2 percent in 2017.
- Youth unemployment remained high at 38.5 percent.
- Labor force participation has fallen.
- Inflation turned positive again after two years of oil-price related deflation.
- Consumer prices, end of period: -2.6 (2014), -3.0 (2015), 2.2 (2016), 1.4 (2017), 1.5 (2018 proj.), (no 2019 figure provided).
Fiscal position and public debt
- Based on preliminary data, the fiscal stance deteriorated slightly in FY2017/18, reflecting additional spending.
- Overall fiscal deficit and public debt continued to rise.
- Authorities secured concessional financing from a bilateral creditor; terms not yet finalized.
- Central government (percent of GDP) — Revenue: 23.3 (2014), 23.6 (2015), 24.3 (2016), 24.9 (2017), 24.8 (2018 proj.), (2019 proj. not specified).
- Central government (percent of GDP) — Expenditure: 26.7 (2014), 26.3 (2015), 26.0 (2016), 27.1 (2017), 28.8 (2018 proj.), 29.9 (2019 proj.).
- Primary balance (percent of GDP): 0.2 (2014), 0.8 (2015), 0.6 (2016), -0.4 (2017), -1.5 (2018 proj.).
- Overall balance (percent of GDP): -3.4 (2014), -2.8 (2015), -1.7 (2016), -3.9 (2017), -5.1 (2018 proj.).
- Central government debt stock ($EC millions): 2,946 (2014), 2,980 (2015), 3,091 (2016), 3,258 (2017), 3,488 (2018 proj.), 3,789 (2019 proj.).
- Central government debt (In percent of GDP): 70.7 (2014), 67.8 (2015), 69.2 (2016), 72.2 (2017), 74.6 (2018 proj.).
- Nominal GDP (EC$ millions): 4,095 (2014), 4,381 (2015), 4,436 (2016), 4,553 (2017), 4,771 (2018 proj.), 5,024 (2019 proj.).
Financial sector
- Banks continued to underperform while the non-bank sector expanded further.
- Nonperforming loans are at 12.5 percent of total loans.
- Low profitability and contracting credit to the private sector since 2013.
- Credit unions expanded, with assets growing by 42 percent since 2014.
- Indigenous banks maintained corresponding bank relationships, albeit at higher costs.
- Money and credit (percent change) — Broad money (M2): 1.2 (2014), 5.8 (2015), 2.3 (2016), 4.8 (2017), 5.3 (2018 proj.).
- Credit to private sector (real): -9.9 (2014), -5.8 (2015), -4.8 (2016), -2.0 (2017), -1.6 (2018 proj.).
- Credit to private sector (nominal): -6.7 (2014), -6.8 (2015), -7.8 (2016), -1.9 (2017), 0.0 (2018 proj.).
- Months of imports coverage (percentage of demand liabilities): 89.2 (2014), 91.4 (2015), 90.7 (2016), 91.1 (2017), 91.6 (2018 proj.).
Short-term outlook and risks
- Short-term outlook is favorable: GDP growth expected to remain buoyant in the near term, supported by large infrastructure investment, tourism-related FDI, and continued tourist inflows driven by the global recovery and increased capacity.
- Over the medium term, growth is expected to decline gradually as pipeline projects are completed.
- Downside risks are prevalent.
- In the absence of corrective fiscal measures, public sector wage negotiations and rising interest rates will add to expenditure pressures and government debt.
- Structural bottlenecks will continue to limit growth.
Executive Board assessment and policy recommendations
- Directors welcomed sustained growth and improved short-term outlook, but flagged significant risks including rising public debt and recurrent natural disasters.
- Fiscal consolidation and structural reforms were emphasized to remove impediments to longer‑term growth, enhance productivity, and reduce high production costs.
- Directors noted the necessity of infrastructure investment to address constraints but warned the resulting increase in public debt heightens fiscal vulnerabilities.
- They stressed the need for an adjustment aimed at attaining the ECCU debt target of 60 percent of GDP by 2030.
- Possible fiscal adjustment measures highlighted:
- Streamlining tax exemptions.
- Controlling the government wage bill.
- Improving financing terms.
- Consideration of a fiscal rule, together with targeted social assistance, could support the fiscal effort while protecting the most vulnerable.
- Support for strengthening public financial management, including revising the PFM Act and reviving the Public‑Sector Investment Plan.
- Climate resilience: Directors welcomed the Climate Change Policy Assessment pilot and urged integration of mitigation and adaptation policies into the macroeconomic framework; donor grants and private investment seen as important.
- Financial sector recommendations:
- Swift completion of new legislation on foreclosure and insolvency.
- Operationalization of the Eastern Caribbean Asset Management Company.
- Stronger supervision and regulation of credit unions and microfinance companies.
- Strengthen the AML/CFT regime, reinforce due diligence under the Citizenship‑by‑Investment program, and address gaps in compliance with international tax rules.
- Structural reforms to improve growth and reduce external vulnerability:
- Enhance education and professional training.
- Attenuate labor market rigidities.
- Reduce costs of doing business, including energy and international trade costs.
- Strengthen tourism’s backward linkages and develop sectors where scale economies are less important to help diversify the economy.
Selected economic and financial indicators (2014–19)
- Real GDP (at market prices, percent change): 3.6 (2014), -0.9 (2015), 3.4 (2016), 3.0 (2017), 3.5 (2018 proj.), 3.7 (2019 proj.).
- Real GDP (at factor cost, percent change): 0.5 (2014), 1.8 (2015), 1.7 (2016), 2.5 (2017), 3.2 (2018 proj.).
- Consumer prices, end of period: -2.6 (2014), -3.0 (2015), 2.2 (2016), 1.4 (2017), 1.5 (2018 proj.).
- Central government revenue (percent of GDP): 23.3 (2014), 23.6 (2015), 24.3 (2016), 24.9 (2017), 24.8 (2018 proj.).
- Central government expenditure (percent of GDP): 26.7 (2014), 26.3 (2015), 26.0 (2016), 27.1 (2017), 28.8 (2018 proj.), 29.9 (2019 proj.).
- Primary balance (percent of GDP): 0.2 (2014), 0.8 (2015), 0.6 (2016), -0.4 (2017), -1.5 (2018 proj.).
- Overall balance (percent of GDP): -3.4 (2014), -2.8 (2015), -1.7 (2016), -3.9 (2017), -5.1 (2018 proj.).
- Broad money (M2, percent change): 1.2 (2014), 5.8 (2015), 2.3 (2016), 4.8 (2017), 5.3 (2018 proj.).
- Credit to private sector (real, percent change): -9.9 (2014), -5.8 (2015), -4.8 (2016), -2.0 (2017), -1.6 (2018 proj.).
- Credit to private sector (nominal, percent change): -6.7 (2014), -6.8 (2015), -7.8 (2016), -1.9 (2017), 0.0 (2018 proj.).
- FDI (percent of GDP): 4.6 (2014), 7.1 (2015), 8.4 (2016), 10.1 (2017), 7.2 (2018 proj.).
- Capital and financial account balance: -2.3 (2014), 2.8 (2015), 0.7 (2016).
- Capital grants: 0.9 (2014).
- Other (incl. errors and omissions): -1.4 (2014), -8.6 (2015), -8.0 (2016), -7.5 (2017).
- Nominal GDP (EC$ millions): 4,095 (2014), 4,381 (2015), 4,436 (2016), 4,553 (2017), 4,771 (2018 proj.), 5,024 (2019 proj.).
- Central government debt stock ($EC millions): 2,946 (2014), 2,980 (2015), 3,091 (2016), 3,258 (2017), 3,488 (2018 proj.), 3,789 (2019 proj.).
- Central government debt (percent of GDP): 70.7 (2014), 67.8 (2015), 69.2 (2016), 72.2 (2017), 74.6 (2018 proj.).
IMF Executive Board press release, June 20, 2018.
