Statement by the IMF Staff Representative

This 2003 Article IV Consultation highlights that after a contraction in GDP of more than 4 percent in 2001 and only a marginal expansion in 2002, the pace of economic growth in St. Lucia accelerated in 2003 to 3.7 percent, driven by a rebound in tourism of close to 17 percent. Despite the pickup in growth, the overall economic situation remained difficult in 2003, as an ongoing recovery in the tourism sector has not spilled over to the whole economy. Unemployment remained high, and bank credit to the private sector is declining.

Abstract

This 2003 Article IV Consultation highlights that after a contraction in GDP of more than 4 percent in 2001 and only a marginal expansion in 2002, the pace of economic growth in St. Lucia accelerated in 2003 to 3.7 percent, driven by a rebound in tourism of close to 17 percent. Despite the pickup in growth, the overall economic situation remained difficult in 2003, as an ongoing recovery in the tourism sector has not spilled over to the whole economy. Unemployment remained high, and bank credit to the private sector is declining.

May 5, 2004

This statement contains information that has become available since the staff report was circulated to the Executive Board. It does not affect the thrust of the staff appraisal.

  • The pick-up in economic activity has been stronger than expected but remains quite narrowly based on the rebound in tourism. Preliminary data indicate that real GDP grew by 3.7 percent in 2003 driven by 17 percent growth in the hotels and restaurants sector. This led to a narrower than expected external current account deficit of about 15½ percent of GDP. Despite these positive developments, the unemployment rate is reported to have increased from 20.4 percent in 2002 to 22.2 percent in 2003.

  • Preliminary fiscal data for FY2003/04 suggest that the overall balance was in line with projections, as additional revenues were offset by higher expenditure. Current revenue of the central government increased by almost 10 percent, reflecting the growth in economic activity as well as a number of one-off revenue measures, including higher collection of tax arrears. Excluding payments associated with a government guarantee,1 current expenditure rose by almost 8 percent with substantial increases in most areas. Notably, outlays for wages and salaries increased by about 11 percent, reflecting an end-year bonus of EC$850 per person and a retroactive 3 percent increase in wages. The current account showed a surplus of 0.5 percent of GDP, compared to the estimate in the staff report of approximate balance.

  • In its first venture on the regional government securities market, in January 2004 the Government of St. Lucia issued EC$27 million in one-year treasury bills. The issue was fully subscribed and yielded an interest rate of 5.5 percent.

  • Reducing the overall fiscal deficit in FY 2004/05 would depend critically on containing capital expenditure. The recently announced budget for FY 2004/05 is largely neutral on the revenue side. Current expenditure is budgeted to increase by over 7 percent. This implies a worsening of the current balance of almost 1 percent of GDP compared to the previous fiscal year, against staffs recommendation of an improvement of about the same magnitude. The allocation for capital spending has been sharply cut relative to last year’s budget, but is higher than realized spending in FY 2003/04. Assessment of the fiscal stance embodied in the budget for FY 2004/05 depends on the outcome for capital expenditure. A 50 percent execution rate, in line with the experience during the past few years, would imply a reduction in capital expenditure of about 2 percent of GDP, as recommended by staff.

1

On March 29, 2004, the OECS Court of Appeal overturned a High Court ruling that the St. Lucia Government had not followed proper procedure in issuing this guarantee.

St. Lucia: Staff Report for the 2003 Article IV Consultation
Author: International Monetary Fund