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

_IMF News, March 7, 2024_

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## Bibliographic details
- Published: March 7, 2024

---

### Overview and Key Findings
- 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.

### Economic Outlook and Projections
- 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

### Fiscal Position and Public Debt
- 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

### Policy Recommendations for Fiscal Sustainability
- 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.

### Financial Sector Priorities and Reforms
- 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.

### Labor Market, Social Policy, and Human Capital
- 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.

### Selected Economic Indicators (2019–24, annual percent change or percent of GDP unless otherwise specified)
- 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).*

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## References

- [St. Lucia and the IMF](http://www.imf.org/external/country/LCA/index.htm)
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_Source: https://www.imf.org/en/news/articles/2024/03/07/pr2473-imf-concludes-2023-article-iv-consultation-with-st-lucia_