IMF Executive Board Concludes 2023 Article IV Consultation with St. Lucia

IMF News, March 7, 2024

Source details

Canonical URL: IMF Executive Board Concludes 2023 Article IV Consultation with St. Lucia

St. Lucia’s tourist-dependent economy rebounded strongly after the Covid-19 pandemic and the commodity import price shock due to Russia’s war in Ukraine.
Output is currently near the pre-pandemic level; higher government revenue has narrowed the fiscal deficit.
Current account deficit declined from the pandemic peak of 16 percent of GDP in 2020 to an estimated 2 percent of GDP in 2022.
Public debt, though declining, remains much higher than before the pandemic.
The banking sector has adequate liquidity and is profitable, but NPLs are elevated and loan portfolio performance has worsened.
Risks to the outlook are tilted to the downside and include global economic slowdown, commodity price volatility, and additional global financial tightening.
Natural disasters are a recurrent threat.

GDP growth:
- 2022: GDP grew by an estimated 15.7 percent.
- 2023 projection: 3.2 percent; lower than 2022 as tourism demand continues recovery and the economy approaches existing production capacity.
- Medium-term projection: gradually decline towards a potential rate of 1.5 percent.
Inflation:
- 2022: 6.5 percent (period average).
- 2023 projection: 4.3 percent.
- Medium-term: projected to decline to around 2 percent.
Current account:
- 2020 peak: 16 percent of GDP (noted in overview) / Executive Board cites peak of 15.2 percent of GDP in 2020.
- 2022: narrowed to 2.3 percent of GDP (Executive Board assessment).
- 2023 projection: 0.8 percent of GDP and expected to close over the medium term driven by continued recovery in tourism.
Output gap:
- 2019: -19.3 percent of potential GDP
- 2020: -11.3 percent
- 2021: 1.0 percent
- 2022: 2.2 percent
- 2023: 2.5 percent

Public debt:
- Central government debt: near 75 percent of GDP (text); table shows:
- 2019: 58.5
- 2020: 89.1
- 2021: 77.8
- 2022: 69.5
- 2023: 67.6
- 2024: 67.4
- Total public sector debt:
- 2019: 61.9
- 2020: 94.2
- 2021: 82.9
- 2022: 74.1
- 2023: 73.7
- 2024: 75.0
On current policies, public debt is projected to stabilize around 75 percent of GDP in the medium term, significantly above the regional ceiling of 60 percent of GDP by 2035.
Short maturity profile of domestic (regional) debt keeps financing needs elevated, implying refinancing risk.
Fiscal outcomes:
- Fiscal balance improvements in FY2022: estimated fiscal balance improved by 4.1 percentage point to a deficit of 1.4 percent of GDP due to strong tax revenue collection and CIP revenue.
- Central government revenue and expenditure (percent of GDP):
- Revenue: 2019: 21.5; 2020: 21.6; 2021: 21.2; 2022: 21.8; 2023: 21.3; 2024: 21.0
- Expenditure: 2019: 25.0; 2020: 33.0; 2021: 26.7; 2022: 23.2; 2023: 23.5; 2024: 23.4
- Overall balance, incl. ND cost (percent of GDP): 2019: -3.5; 2020: -11.5; 2021: -5.5; 2022: -1.4; 2023: -2.8; 2024: -3.0

Fiscal consolidation:
- Recommend targeting a fiscal consolidation of at least 2½ percent of GDP to reach the regional debt ceiling.
- An additional 1 percent of GDP of fiscal consolidation could be used to increase public investment resilient to natural disasters.
Revenue and tax policy:
- Strengthen tax compliance.
- Streamline tax exemptions.
- Adopt a fuel price pass-through framework.
- Make the value added tax more efficient.
Fiscal architecture and risk management:
- Support public debt sustainability with a well-designed fiscal rule.
- Self-finance initiatives to strengthen the social safety net.
- Increase capacity to access climate finance.
- Save CIP revenue in a fund for self-insurance against natural disasters, debt service, and public investment.
Pension and social spending:
- Implement draft pension fund reforms to increase longevity.
- More internationally diversify the pension fund’s investment portfolio.

Banking sector:
- Improve classification of NPLs in the post-moratorium and restructured portfolios.
- Raise provisions to the regulatory minimum.
- Strengthen risk management of foreign investments.
- Use government representation at the ECCB to strengthen enforcement of provisioning requirements and speed up disposals of NPLs.
Legal and regulatory reforms:
- Modernize foreclosure legislation for commercial loans and residential property.
- Pass bankruptcy and insolvency law to expand credit access and lower loan interest rates.
- Ensure effective implementation of international AML/CFT standards to protect correspondent banking relationships and mitigate cross-border financial flow risks.
Credit unions:
- Pass the draft bill with stronger regulatory standards to improve compliance with provisioning and capital requirements.
- Monitor rapid credit growth and address weaker credit standards, generally high NPLs, and low capital buffers in some institutions.

High unemployment, particularly among the youth, requires targeted policies and a review of education programs.
Recommendations:
- Review education programs to strengthen employability.
- Increase enrollment in technical and vocational education and training to address skill mismatches.
- Reduce transport cost.
- Review allocation of government scholarships to skills in high demand, in consultation with employers.
- Expand capacity of child and elderly care to improve labor participation of females and youth.
- Complement the Youth Economy Agency’s training and entrepreneurship support with social programs that tackle non-economic barriers to employment.
Note: Youth from households with young children and the elderly are more likely to be NEET.

Real GDP (at market prices):
- 2019: -0.2
- 2020: -23.6
- 2021: 11.3
- 2022: 15.7
- 2023: 3.2
- 2024: 2.3
Consumer prices, period average:
- 2019: 0.5
- 2020: -1.8
- 2021: 2.4
- 2022: 6.5
- 2023: 4.3
- 2024: 2.1
Unemployment rate (% annual average):
- 2019: 16.8
- 2020: 21.7
- 2021: 21.9
Nominal GDP (EC$ millions):
- 2019: 5,677
- 2020: 4,112
- 2021: 4,994
- 2022: 6,201
- 2023: 6,709
- 2024: 7,044
Broad money (M2) end of period (annual percent change):
- 2019: -6.6
- 2020: 14.9
- 2021: 3.8
- 2022: 3.4
Credit to private sector (real):
- 2019: -2.4
- 2020: 4.5
- 2021: -4.6
- 2022: -0.3
- 2023: 0.9
Current account balance (percent of GDP):
- 2019: 5.5
- 2020: -15.2
- 2021: -7.0
- 2022: -0.8
- 2023: -0.4
Exports of goods and services (percent of GDP):
- 2019: 57.5
- 2020: 38.4
- 2021: 52.6
- 2022: 54.4
- 2023: 54.8
Imports of goods and services (percent of GDP):
- 2019: -46.2
- 2020: -43.8
- 2021: -44.1
- 2022: -51.3
- 2023: -51.4
External debt (gross) (percent of GDP):
- 2019: 61.4
- 2020: 78.1
- 2021: 70.8
- 2022: 63.8
- 2023: 63.2
- 2024: 63.9
Net imputed international reserves:
- Months of imports of goods and services:
- 2019: 3.3
- 2020: 3.6
- 2021: 2.9
- 2022: 3.9
- 2023: 5.0
- Percentage of demand liabilities:
- 2019: 88.7
- 2020: 88.3
- 2021: 92.3
- 2022: 91.4
- 2023: 93.6
- 2024: 94.9

Press Release No. 24/73 — IMF Executive Board Concludes 2023 Article IV Consultation with St. Lucia (March 7, 2024).