St. Lucia: Staff Concluding Statement of the 2025 Article IV Mission
IMF News, December 4, 2025
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- Published: December 4, 2025
Mission overview and macroeconomic outlook
- IMF staff mission led by Ms. Swarnali Ahmed Hannan concluded discussions in Castries on November 3-14, 2025.
- St. Lucia staged a robust recovery following the Covid-19 pandemic.
- Growth projections and drivers:
- Real GDP growth: 4.7 percent in 2024; projected 1.7 percent in 2025; rebound to 2.3 percent in 2026; then gradual decline toward potential of 1.5 percent.
- Drivers in 2025: moderation in tourism due to temporary hotel closures and reduced airlift, largely offset by strong construction activities, domestic demand, and credit expansion.
- Medium-term dynamics: tourism pickup in 2026 and completion of planned infrastructure and tourism-related projects contribute to rebound then gradual stabilization.
- Inflation and external sector:
- Consumer price index (average): -0.5 percent in 2024; projected 0.8 percent in 2025; 1.9 percent in 2026; 2.0 percent in 2027.
- Despite improved net exports, current account deficit increased in 2024 from widening net income balances but is expected to decline over the medium term.
- Staff assesses the external position in 2024 as broadly in line with the level implied by fundamentals and desirable policies.
Risks to the outlook
- Downside risks:
- Geopolitical tensions, escalating trade measures and prolonged policy uncertainty could dampen global activity, weaken tourism and FDI flows, and increase import costs.
- Domestic risks include weaker-than-expected tourism and construction performance, and increased recognized NPLs that could depress credit growth.
- A global slowdown triggered by escalating trade measures and prolonged uncertainty would weigh heavily on St. Lucia due to dependence on tourism and reliance on imports; weaker demand from key tourism markets would dampen growth and fiscal revenues with negative spillovers.
- Upside risks:
- Stronger-than-expected growth in tourism, construction, and public investment.
Fiscal outlook and priority reforms
- Fiscal and debt projections:
- The fiscal balance improved in FY2024/25 mainly from lower capital expenditure.
- Overall fiscal deficit (excl. natural disaster costs) is expected to narrow to 2.3 percent of GDP by FY2030/31.
- Public debt projected to stabilize at around 77 percent of GDP in the medium term (projection pencils in natural disaster costs).
- Gross financing needs will remain elevated implying continued high rollover risks.
- Overarching fiscal priority:
- Reduce public debt and create room for capital spending through revenue-based measures.
- Current policies keep public debt stable but fall short of regional debt target of 60 percent by 2035.
- Recommended three-pillared adjustment approach:
- (i) Comprehensive tax reform and enhanced tax administration—starting now and implemented gradually over the medium term.
- (ii) Improved control and targeting of current expenditures.
- (iii) Adoption of a sound fiscal rule within a fiscal responsibility framework.
- Tax reform specifics:
- Tax measures: (i) rationalizing corporate income tax incentives, particularly in the hospitality sector; (ii) broadening the VAT base, lowering thresholds, limiting zero-rated items, and introduction of VAT on digital services—accompanied with targeted support to vulnerable households; (iii) improving personal income tax progressivity; (iv) shortening property exemptions; and (v) reforming fuel taxes and increasing excises on alcohol and tobacco.
- Tax administration measures: strengthening audit and inspection; accelerating digitalization of processes; enhancing compliance and improving transparency. The tax amnesty should not be renewed further.
- Spending efficiency and rebalancing:
- St. Lucia spends more on public sector wages, goods and services, and debt interest than the Latin America and Caribbean average, but less on capital.
- Shift focus to capital and social spending, control compensation of employees, and increase resources through revenue measures.
- Strengthen PPPs framework through transparent reviews and sound institutional structures.
- Use digital technologies to modernize public administration, improve service delivery, enhance targeting of transfers, and promote inclusive growth.
- Pensions and NIC projections:
- NIC expenditures projected to exceed income by 2035, with reserve depletion by 2051.
- Restoring actuarial balance will require parametric or structural reforms, including higher contribution rates, lower replacement rates, increasing the retirement age, introducing pension caps, and/or voluntary investment options.
- Medium-term fiscal framework and CIP:
- Publish an MTFF prior to the annual budget with at least three years’ projections, a fiscal risk statement, a debt sustainability analysis, and policy scenarios.
- Examine operational fiscal rules, such as a legal floor on the primary balance and a ceiling on current expenditures, with narrowly defined escape clauses for natural disasters and external shocks.
- Improve CIP governance and transparency: simplify fund transfers to the Treasury and save proceeds in a separate fund for planned public investment and self-insurance against natural disasters.
- Note: Government has approved creation of the first sovereign wealth fund financed by CIP proceeds to support sustainable economic development and climate resilience; authorities are taking regionally coordinated steps to strengthen investor screening and CIP integrity, including a new regulatory body.
Financial sector resilience and supervisory priorities
- Banking sector fundamentals:
- The banking sector is well-capitalized and highly liquid, but NPLs remain elevated despite recent improvements.
- 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 continue to expand lending, but many have yet to comply with regulatory capital requirements.
- Commercial real estate (CRE) lending:
- CRE loans accounted for 7.4 percent of total loans as of Q1 2025; rapid pace and scale of increase warrant close monitoring.
- Recommendation: review lending standards and employ stress testing to assess institutional resilience to adverse shocks.
- Supervisory and regulatory priorities:
- Ensure full compliance with ECCB 60 percent provisioning requirement for NPLs and avoid excessive reliance on general reserves.
- For persistently high NPLs, reinforce oversight to promote timely write-offs or restructuring, supported by stronger supervisory enforcement and targeted incentives.
- Strengthen market infrastructure: capitalize the Eastern Caribbean Asset Management Corporation (ECAMC) and establish 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 and credit markets:
- Complementary foreclosure legislation recommended to secure real estate mortgages while embedding borrower protections (pre-foreclosure negotiations, fair market value safeguards, access to judicial review).
- Recent legislation strengthened debtor rights and movable asset financing; introducing foreclosure legislation would promote bank lending, reduce cost of credit, and foster market development.
- Credit unions and deposit insurance:
- Build on the new Co-operative Societies Act to develop and enforce prudential standards, streamline provisioning rules, and align with ECCB practices.
- Extend asset quality reviews and stress testing progressively to other credit unions.
- Priority: establish a regionally coordinated deposit insurance system for banks within the ECCU and gradually include credit unions.
- Insurance sector and disaster risk:
- Strengthening insurance sector resilience is critical given exposure to natural disasters and climate-related risks.
- Local insurers exhibit lower property reinsurance retention ratios and premium levels compared to ECCU peers, limiting profitability amid rising reinsurance rates.
- Recommendation: pursue a more integrated regional supervisory framework to enhance oversight, narrow insurance protection gap, and support affordability.
- AML/CFT and CIP-related risks:
- Continue efforts to mitigate Money Laundering/Terrorism Financing (ML/FT) risks; 2025 National Risk Assessment process expected to improve understanding and help develop targeted measures, including associated with the CIP scheme.
- Progress needed to ensure financial institutions apply appropriate AML/CFT measures through effective risk-based supervision.
- Address remaining gaps: increase entity transparency and strengthen oversight of higher risk designated non-financial businesses and professions, such as real estate agents and lawyers.
Structural reforms to boost growth and resilience
- Supply-side bottlenecks and policy sequencing:
- Key constraints: high finance costs and limited access to credit, inadequate workforce education, difficulties complying with tax and customs regulations.
- Tackling these obstacles could improve productivity and potential growth; implementation should be sequenced and leverage regional coordination and ongoing initiatives in digitalization, climate adaptation, and energy transition.
- Labor market and social protection:
- Strengthen labor market institutions; the proposed unemployment insurance scheme is an important step to strengthen social protection and labor market resilience.
- Recent introduction of a minimum wage provides a safeguard for low-income workers but requires careful monitoring to support vulnerable groups without hampering employment or competitiveness.
- Digitalization and human capital:
- Sustain digitalization to unlock long-term growth: expand internet connectivity, strengthen digital literacy, encourage innovation, and advance education in digital technologies to support job creation, economic diversification, and foreign investment.
- External connectivity, trade, and diversification:
- St. Lucia is significantly open with international trade comprising more than 100 percent of GDP, mainly exports of services (tourism) and imports of goods.
- Import concentration increases living costs and external vulnerability.
- Policy measures: streamline customs procedures, reduce freight and shipping costs, and enhance market competition.
- Tourism and export broadening: expand into new source markets and broaden economic base beyond tourism.
- Proactively seek trade opportunities in cooperation with OECS and CARICOM partners to support sustainable reorientation of trade networks.
- Climate adaptation, energy transition, and insurance:
- Continue climate adaptation and energy transition efforts; recent reforms include revision of land-use regulations, adoption of a Disaster Risk Financing Strategy, and establishment of a contingent credit line through the World Bank’s Catastrophe Deferred Drawdown Option (CAT DDO).
- Address climate insurance protection gaps: schemes must address basis risk, maintain affordability via targeted subsidies, and improve climate data systems.
Selected social and economic indicators (2021–30)
- Real GDP growth (at market prices, percent):
- 2021: 11.3
- 2022: 20.6
- 2023: 3.3
- 2024: 4.7
- 2025: 1.7
- 2026: 2.3
- 2027: 1.8
- 2028: 1.6
- 2029: 1.5
- Consumer price index (average, change in percent):
- 2021: 2.4
- 2022: 6.4
- 2023: 4.5
- 2024: -0.5
- 2025: 0.8
- 2026: 1.9
- 2027: 2.0
- Primary fiscal balance (excl. ND) 1/ 2/:
- 2021: -2.2
- 2022: 1.0
- 2023: 0.2
- 2024: 0.3
- 2025: 0.9
- 2026: 1.1
- 2027: 1.2
- Primary fiscal balance (incl. ND) 1/ 2/:
- 2021: 0.1
- 2022: 0.4
- 2023: 0.6
- Overall fiscal balance (excl. ND) 1/ 2/:
- 2021: -5.4
- 2022: -2.5
- 2023: -3.2
- 2024: -1.8
- 2025: -2.9
- 2026: -2.7
- 2027: -2.6
- 2028: -2.3
- Overall fiscal balance (incl. ND) 1/ 2/:
- 2021: -3.3
- 2022: -3.0
- Public sector debt (percent of GDP) 2/ 3/:
- 2021: 81.9
- 2022: 73.9
- 2023: 75.2
- 2024: 76.7
- 2025: 77.2
- 2026: 77.1
- 2027: 77.0
- Credit to private sector growth (real):
- 2021: -4.4
- 2022: -1.6
- 2023: 5.6
- 2024: 4.2
- 2025: 3.1
- 2026: 1.4
- External current account balance:
- 2021: -11.3
- 2022: -3.6
- 2023: -2.1
- 2024: -1.4
- 2025: -1.1
International Monetary Fund staff.