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© 2008 International Monetary Fund
October 2008
IMF Country Report No. 08/329
St. Lucia: 2008 Article IV Consultation—Staff Report; Staff Supplement, and Public Information Notice on the Executive Board Discussion.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2008 Article IV consultation with St. Lucia, the following documents have been released and are included in this package:
The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 18, 2008, with the officials of St. Lucia on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 10, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement on the joint IMF/World Bank debt sustainability analysis.
A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its July 30, 2008 discussion of the staff report that concluded the Article IV consultation.
The document listed below will be separately released.
Statistical Appendix
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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700 19th Street, N.W. • Washington, D.C. 20431
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Price: $18.00 a copy
International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
ST. LUCIA
Staff Report for the 2008 Article IV Consultation
Prepared by the Staff Representatives for the 2008 Consultation with St. Lucia
Approved by Guy Meredith and Anthony R. Boote
July 10, 2008
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Executive Summary
Recent developments. Following an acceleration in real GDP growth between 2001–06, activity was flat in 2007, reflecting a hurricane-induced contraction in banana exports, and a downturn in construction activity and tourist arrivals. Despite being underpinned by the regional currency board arrangement, annual inflation reached close to 7 percent in 2007, due largely to food and fuel price shocks and the ongoing depreciation of the U.S. dollar. The fiscal policy stance tightened markedly in 2007/08, while public debt remained stable at about 70 percent of GDP.
Outlook and risks. Although near-term growth prospects are favorable, risks are tilted to the downside. Given continuing pressure for higher social and capital spending, there is a risk that current policies may adversely affect the sustainability of public debt. While St. Lucia’s domestic credit markets remain largely unaffected by international financial turbulence, slower growth and consumption in the U.S. and world economy, accompanied by high energy prices, may dampen tourism and private capital inflows.
External competitiveness. The real effective exchange rate is in line with macroeconomic fundamentals, yet maintaining competitiveness remains a challenge. The recent rise in the external current account deficit reflects an adverse terms of trade shock and a downturn in tourist arrivals, and is almost fully financed by nondebt-creating private capital inflows.
Main issues. Policy discussions focused on the key challenges facing St. Lucia:
• Broadening the bases of growth. The authorities and staff agreed on the required steps, including efforts to revitalize tourism, improve the investment climate, and diversify exports.
• Debt sustainability and fiscal consolidation. To ensure fiscal and debt sustainability, staff advocated fiscal adjustment to be achieved largely by greater prioritization of capital spending, enhanced debt management, and a broadening of the tax base, including through enhanced pass-through of world energy prices. The authorities agreed with the need for fiscal consolidation and better evaluation of public sector investment, but emphasized that their plan to boost tourism-sector public infrastructure was the lynchpin of a strategy to attract large private capital flows into tourism.
• Financial and external stability. Current account imbalances are projected to decline over the medium term, and be smaller than the estimated equilibrium level. The authorities have strengthened banking sector supervision, but need to bolster efforts to introduce a single regulatory agency for nonbank financial institutions and close unregulated investment schemes.
Contents
Executive Summary
I. Background and Recent Economic Developments
II. Policy Discussions
Broadening the Bases of Economic Growth
Fiscal Consolidation and Debt Sustainability
External Stability
Real and Financial Sector Vulnerabilities
Other Issues
III. Staff Appraisal
Boxes
1. The 2008/09 Budget
2. Current Account Deficit
3. Unregulated Investment Schemes in St. Lucia
Figures
1. Macroeconomic Developments, 1985–2007
2. Inflation Developments, 2000–07
3. Fiscal Developments, 1990/91–2007/08
4. Evolution of Public Debt, 2002–07
5. Monetary Developments, 2002–07
6. Banking System Developments, 2002–08
7. Doing Business Indicators, 2007
8. External Competitiveness, 1991–2007
Tables
1. Selected Social and Economic Indicators, 2004–09
2. Operations of the Central Government, 2005–13 (in millions of EC dollars)
3. Operations of the Central Government, 2005–13 (in percent of GDP)
4. Operations of the Central Government, 2005–13 (in millions of EC dollars)
5. Operations of the Central Government, 2005–13 (in percent of GDP)
6. Balance of Payments Summary, 2005–13
7. Monetary Survey, 2003–09
8. Medium-Term Projections, 2005–13
9. Public Sector Debt, 2004–08
10. Indicators of External and Financial Vulnerability, 2004–08
11. Millennium Development Goals Country Profile
Annexes
I. Medium-Term Outlook Under Alternative Fiscal Scenarios
II. Summary of Appendices
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INTERNATIONAL MONETARY FUND
ST. LUCIA
Staff Report for the 2008 Article IV Consultation—Informational Annex
Prepared by the Western Hemisphere Department
July 10, 2008
Contents
Appendices
I. Fund Relations
II. Relations with the World Bank Group
III. Relations with the Caribbean Development Bank
IV. Statistical Issues
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INTERNATIONAL MONETARY FUND
ST. LUCIA
External and Public Debt Sustainability Analysis
Prepared by the staff of the International Monetary Fund
In consultation with World Bank Staff
July 10, 2008
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Public Information Notice (PIN) No. 08/118
FOR IMMEDIATE RELEASE
September 16, 2008
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
Washington, D.C. 20431 • Telephone 202-623-7100 • Fax 202-623-6772 • www.imf.org
