St. Lucia: Staff Report for the 2017 Article IV Consultation—Informational Annex
Author: International Monetary Fund. Western Hemisphere Dept.
Publication Date:
31 Mar 2017
eISBN:
9781475590906
Language:
English
Keywords:
ISCR; CR; GDP; financing terms; executive board assessment; CARTAC Mac programme; St. Lucia education quality; high pressure sodium; GDP estimate; financial asset; Budget planning and preparation
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Despite some limited improvement in labor market conditions, unemployment remains high and growth modest as low competitiveness and structural bottlenecks continue to weigh on economic performance. Slow progress in addressing financial sector problems has left banks loaded with impaired assets and unable to support the economy. The new government is developing a program of pro-growth reforms, but policies have not yet been defined.

Abstract

Despite some limited improvement in labor market conditions, unemployment remains high and growth modest as low competitiveness and structural bottlenecks continue to weigh on economic performance. Slow progress in addressing financial sector problems has left banks loaded with impaired assets and unable to support the economy. The new government is developing a program of pro-growth reforms, but policies have not yet been defined.

Fund Relations

(As of December 31, 2016)

Membership Status: Joined: November 15, 1979; Article VIII

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Latest Financial Arrangements: None

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Implementation of HIPC Initiative: Not Applicable

Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable

Exchange Rate Assessment: The de jure exchange rate arrangement is a currency board. St. Lucia participates in a currency union with seven other members of the ECCU and has no separate legal tender. The Eastern Caribbean dollar is pegged to the U.S. dollar under a currency board arrangement at EC$2.70 per U.S. dollar. St. Lucia has accepted the obligations of Article VIII, Sections 2(a), 3 and 4, and maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions.

Safeguards Assessment: Under the Fund’s safeguards policy, the Eastern Caribbean Central Bank (ECCB) is subject to a full safeguards assessment on a four-year cycle. An update assessment was completed in April 2016 and found that the ECCB has maintained generally strong controls over its key operations. External audit and financial reporting practices remain sound. The ECCB financial statements are compliant with International Financial Reporting Standards and are published on a timely basis. The internal audit function needs to be reformed to align it with leading international practices and oversight could be further strengthened by enhancing the financial expertise of the audit committee.

Article IV consultation: St. Lucia is currently on a 12-month cycle. The last Article IV consultation was concluded on February 5, 2016 by the Executive Board; the relevant document is IMF Country Report 16/52.

Technical Assistance: St. Lucia has received substantial technical assistance from the Caribbean Region Technical Assistance Center (CARTAC) and the IMF. Technical assistance missions focused on macroeconomic programming and analysis, reforms of the revenue administration, public financial management, real and external sector statistics and the financial sector. St. Lucia has also participated in a wide range of regional seminars and training, as well as internships and attachments.

Macroeconomic Programming and Analysis

  • April 2016 (CARTAC): Updating the Macro Framework and drafting the medium-term fiscal framework

  • March 2015: To review progress on the GDP Forecasting Framework.

  • October 2015: Make Presentation at CARTAC National Accounts Planning Workshop.

  • July 2014: To make better use of the high-frequency macro indicators in updating short-term GDP projections.

National Accounts

  • September 2016 (CARTAC): National Accounts Mission to develop the compilation system to produce quarterly GDP by economic activity estimates and to improve the annual GDP estimates.

  • September 2015 (CARTAC) A Real Sector Statistics Mission visited Castries to provide TA to the CSO for St. Lucia on reviewing and providing advice to expand and improve the national accounts, including producing SUT and rebasing the GDP estimates.

  • March 2014 (CARTAC): Development a plan to assess the quality of the annual GDP estimates; January 2013 (CARTAC) advice on improving the source data to compile quarterly GDP; May 2011 (CARTAC): advice on the development of quarterly GDP, with St. Lucia being a pilot in the OECS.

  • December 2010 (CARTAC): real sector projections, including the preparation of scenarios that assessed the impact of Hurricane Tomas on the economy.

  • July–August 2009 (CARTAC): national accounts mission aimed at rebasing the GDP estimates to 2006 and exploring the feasibility of producing final expenditure in constant prices.

External Sector Statistics

  • October 2016 (CARTAC): Balance of Payments and IIP Statistics

  • March 2016 (CARTAC): Balance of Payments and IIP Statistics

  • January 2015 (CARTAC): Training on External Sector Statistics for Survey Respondents

Tax Reforms and Revenue Administration

  • November 2016: Strengthening Performance Management – establishing KPI

  • November 2016: IT Support – (via Peer-to-Peer Technical Assistance (TA) Attachment)

  • October 2016 (CARTAC Revenue Administration): Developing a Compliance Risk Management Strategy. (follow-up TA in March 2017 to complete this TA)

  • October 2016: Data Analytics

  • September 2016 (CARTAC Revenue Administration): Developing a Taxpayer Service Strategy.

  • June 2016 (CARTAC Revenue Administration): Building Audit Capacity

  • June 2016 (CARTAC Customs): Strengthen the Post Clearance Audit Function.

  • October 2015 (CARTAC Tax Administration): Technical Assistance to Support the Establishment of a Large and Medium Taxpayers Unit.

  • September 2015 (CARTAC Tax Administration): Technical Assistance for Amending the Corporate Income TA and Determining the Presumptive Tax Rate.

  • September 2015 (CARTAC Customs Administration): Provide guidance & training on improving & strengthening enforcement intelligence and risk.

  • November 2014 (CARTAC Customs Administration): Support Risk Management mission.

  • August 2014 (CARTAC Customs Administration): TA to Montserrat Customs and Excise Department.

  • May 2014 (CARTAC Customs Administration): Organizational Structure Review of the CED.

  • September 1-11, 2015: (CARTAC) Improve the Corporate Income Tax regime.

  • July 6-17, 2015 (CARTAC) IRD structural re-organization establishment of the LMTU and DPMU).

  • March 16-27 2015, May 11-22, July 27-August 6, 2015: (CARTAC) Property taxation.

  • December 9–December 22, 2014: (FAD funded by CARTAC) VAT revenue analysis.

  • July, September, October 2014 and April 2015 (CARTAC) IRD structural re-organization.

  • April 13-24, 2014 (CARTAC) tax and customs, data matching.

  • April 2-15, 2014 (FAD) follow-up on tax and customs administrations after VAT introduction.

  • January 27-31 2014, (CARTAC) IRD strategic planning.

  • October 14-November 1, 2013 and February 10-24, 2014, (CARTAC) development of VAT audit capacity.

  • October 2013 (CARTAC): Strengthening the Customs Administration—Valuation workshop and training.

  • May 2014 (CARTAC): Strengthening the Customs Administration—Organizational Structure Review.

  • December 2008–January 2010 and May 2011-November 2012 (CARTAC): preparations for VAT implementation, including development of the project plan, VAT rate study, drafting the VAT legislation, delivery of training to tax and customs staff, supporting customs and Inland Revenue Department (IRD) preparations for VAT administration, development and implementation of the advisory visits program for potential registrants, and establishing a VAT section within IRD with the necessary procedures for operation.

  • June 2012 and November 2012 (CARTAC): special sector tax audits.

  • August 2012 (CARTAC): review of customs bonded warehouses.

  • June 2008, September 2008, February 2009, August 2009 and May 2012 (CARTAC): development and implementation of Customs Risk Management Program.

  • March 2010, June 2010, October 2010 and June 2011 (CARTAC): development and implementation of Customs Post Clearance Audit Program.

  • September 2010 and May 2011 (CARTAC): development of an integrity program for Inland Revenue.

  • March 2010, June 2010, October 2010 and June 2011 (CARTAC): development and implementation of Customs post clearance audit program.

  • June 2008, September 2008, February 2009 and August 2009 (CARTAC): development and implementation of customs risk management program.

  • June 2009 and September 2009 (CARTAC): development of Corporate Strategic Business Plan for Inland Revenue and customs.

  • April 2003 (FAD): modernization of the tax system in regional (OECS) context.

Expenditure Rationalization and PFM Reforms

  • January 2016 (CARTAC): Diagnostic Assessment of Internal Audit.

  • September 2015 (CARTAC): Assist Authorities in Preparing for the 2015/2017 Budget Process.

  • October 2015 (PFM): PFM Accountant General’s Department review and Pre PEFA assessment.

  • September 2015 (PFM): Program Based Budgeting.

  • August 2015 (PFM): Develop a comprehensive budget manual.

  • December 2014 (PFM): Budget Preparation Mission.

  • October 2014 (PFM): Budget Preparation Mission.

  • February 2014 (PFM): Assist with finalizing annual budget estimates document.

  • January 2014 (PFM): Final Budget Preparation Reform Mission.

  • May 2014 (MCM): Strengthening public debt management in ECCU countries. Assessment of Technical Assistance needs provided to the ECCB.

  • July 2014 (CARTAC): Improvements to real sector monitoring frameworks to provide for rapid updating of real sector variables using high frequency indicators.

  • January 2013, June 2013, November 2013, January 2014 (CARTAC): Budget Preparation Reform;

  • February 2013 (CARTAC): Chart of Accounts reform.

  • December 2013 (CARTAC): Diagnostic of PFM legislation.

  • October 2013 (CARTAC): Improving accountability and performance of Parastatals.

  • January 2012 (CARTAC MAC Programme): real and fiscal medium-term projections under baseline and active scenarios.

  • May and November 2011 (CARTAC): budget preparation mission.

  • June 2010 (CARTAC): preparation of a PFM reform action plan, PFM workshop.

  • December 2010 (CARTAC): fiscal projections under baseline and active scenarios.

  • August 2010 (FAD): regional project on public expenditure issues, including expenditure trends, policies, and expenditure rationalization options.

  • November 2009 (CARTAC): budget preparation and fiscal projections.

  • December 2008 (MCM): improving debt management capacity of the government.

Financial Sector

  • April 2016 (CARTAC): Basel II Implementation.

  • February 2016 (CARTAC): Basel II Implementation.

  • August 2015 (CARTAC): Dynamic Modelling and Stress Testing of St. Lucian Banks (in conjunction with ECCB).

  • August 2015 (CARTAC): Training of Credit Union Regulators on Stress-Testing.

  • December 2015 (MCM): Implementation of Risk Based Supervision.

  • August 2015 (MCM): Dynamic Modelling Project.

  • November 2014 (MCM): Risk Based Supervision Insurance.

  • September 2014 (MCM): Risk Based Supervision Framework

  • March, May and June 2014 (MCM and LEG): Strategy to resolve indigenous banks. Assistance to the ECCB.

  • May 2014 and ongoing (MCM): Collateral valuation. Assistance to the ECCB.

  • May 2014 and ongoing (MCM): Credit risk management assessment. Assistance to the ECCB.

  • May 2014 (CARTAC): Technical assistance requests from the ECCB to implement Basel II in the ECCU. The ECCB as a part of the Caribbean Group of Banking Supervisors (CGBS), has developed the operational risk guidelines for Basel II and has established a steering committee, made up of regulators from some of the SRUs to look at areas of national discretion for the implementation of Basel II.

  • November 2013 and May 2014 (MCM and LEG): Assistance to the ECCB on legislative changes to the ECCB Agreement Act, Banking Act and subsidiary legislation.

  • May 2014 (CARTAC): Assistance to the ECCB with the development and implementation of a strategic plan to achieve compliance with the Basel Core Principles for Effective Banking Supervision.

  • March 2013 (CARTAC): Review a draft Corporate Governance Guidance for ECCB which covers domestic banking operations in St. Lucia

  • December 2013 (CARTAC): Review an Internal Audit Guidance for Banks in the ECCU.

  • February 2011 (IMF/WB/CDB): A Joint Task Force on the ECCU Financial System (FSTF) performed a comprehensive diagnostics on the indigenous banks and delivered recommendations to address critical issues.

  • December 2008 (CARTAC): development of policy proposals for the Single Regulatory Unit (SRU) Act to be drafted by the authorities in St. Lucia;

  • May 2008 (CARTAC): assessment of development needs of the Single Regulatory Unit;

  • October 2007 (CARTAC): participation of St Lucia’s SRU supervisory staff in Off-shore Mutual Funds Supervision Workshop held in St. Kitts and Nevis and St. Vincent;

  • September 2007 (CARTAC): participation of St. Lucia’s SRU supervisory staff in Trust Supervision Workshop held in Turks and Caicos.

Technical assistance on the banking sector is provided to the Eastern Caribbean Central Bank (ECCB) as the supervisor and not to individual countries within the Eastern Caribbean Currency Union (ECCU). Currently, MCM has placed three long-term experts at the ECCB, financed by Canada: (i) a bank resolution advisor; (ii) a bank supervision advisor; and (iii) the manager of the regional asset management company.

CARTAC is working with the ECCB to develop a framework for the implementation of the recommendations of the sixth edition of the balance of payments manual for ECCU members, inclusive of St. Lucia. Additionally, a technical Assistance request from St. Lucia to provide assistance with bank supervision, mutual funds and review of insurance treaties is currently under consideration.

FSAP: A joint IMF/World Bank team performed an assessment of the financial sector of the member states of the ECCU, in two missions—September 1–19 and October 20–31, 2003. The missions assisted the authorities in assessing the development needs and opportunities for the financial sector, identifying potential vulnerabilities of financial institutions and markets to macroeconomic shocks, as well as assessing risks to macroeconomic stability from weaknesses in the financial sector. The Financial System Stability Assessment (FSSA) was discussed by the Executive Board on May 5, 2004, and subsequently published on the IMF’s external website, including the Report on the Observance of Standards and Codes (ROSC) on Banking Supervision.

AML/CFT: A detailed assessment of the AML/CFT regimes of St. Lucia was conducted by the Caribbean Financial Action Task Force (CFATF) in November 2008, and the eighth follow-up report was published in November 2013.

Relations with the World Bank Group

(As of February 10, 2017)

World Bank Group OECS Regional Partnership Strategy: On November 13, 2014, the Board of the Executive Directors of the World Bank Group (WBG) endorsed the Regional Partnership Strategy (RPS) for the Organisation of Eastern Caribbean States (OECS) which covers the period FY15-19 (July 1, 2014 – June 30, 2019). The high-level objective of the RPS is to contribute to laying the foundations for sustainable inclusive growth, in line with the OECS governments’ priorities. In order to achieve this goal, the strategy is organized around three main areas of engagement. Under the first one, the WBG is supporting “competitiveness”. Growth and job creation in the private sector are expected to be supported both horizontally – by improving the business environment – and vertically – by focusing on specific sectors with a high potential to generate inclusive sustainable growth (particularly tourism, agribusiness and their respective linkages). The second area of engagement is “public sector modernization”, with particular focus on public financial management (PFM) and institutional capacity building, including for statistics and public private partnerships (PPPs), to better leverage private investment in infrastructure and service provision. The third area is “resilience”, with the objective to address both social vulnerabilities (in education, health and social protection), and exposure to natural disasters. Constrained in general by the small size of investments in the OECS, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) are expected to contribute to the RPS objectives through selective investment support, depending on opportunities. The IFC would focus on crisis response; job creation and inclusive growth; innovation, competitiveness, and integration; and climate change. MIGA, however, would face more limited opportunities for engagement because of the small market size of the OECS countries.

Within the OECS RPS, St. Lucia, as a member country of the International Development Association (IDA), has received an IDA17 allocation (for the July 1, 2014 – June 30, 2017 period) equal to SDR 17.4 million (roughly USD 24.3 million at today’s exchange rate). The IDA18 national allocation (for the July 1, 2017 – June 30, 2020) is expected to triple the IDA17 allocation.

A. Projects

The current WB portfolio in St. Lucia includes three projects: (i) Regional Disaster Vulnerability Reduction Project-RDVRP (IDA $42.6Million; Trust Funds $15 Million); (ii) Caribbean Regional Communications Infrastructure Project-CARCIP (IDA$6 Million); and (iii) Eastern Caribbean Energy Regulatory Authority-ECERA (IDA$2.8 Million). St. Lucia also benefits from a US$2 million Bank Executed Trust Fund (BETF) to support geothermal development.

B. Economic and Sector Work

The Caribbean Growth Forum (CGF) -The Caribbean Growth Forum (CGF) is a multi-stakeholder platform designed to identify, prioritize and implement a set of activities to improve the growth enabling environment in the Caribbean, while promoting participatory public policy making. It has so far engaged more than 2,500 representatives from business associations, civil society organizations, Government, private sector, media, indigenous groups, and international development agencies on themes such as Logistics and Connectivity; Investment Climate; and, Skills and Productivity.

Low growth, high unemployment, especially for youth and women, high debt ratios (eight of the top twelve most indebted countries in the world are in Caribbean), high incidence of crime, and, growing vulnerability to external shocks characterize the region. In the wake of the global financial crisis, the high debt/low growth challenge has become even more acute.

A number of Caribbean countries reached out to international donors to find an innovative approach to the growth challenge in the region. A suggestion was made to launch a genuinely participatory growth initiative. Following consultations and some preparatory work, the program started in mid-2012 with a regional launch event in Jamaica. The process is supported and facilitated by the World Bank, the Inter-American Development Bank, the Caribbean Development Bank, Compete Caribbean and the European Union.

Key Outcomes

Positive outcomes are tangible: twelve countries formally joined the process by establishing their national CGF chapter and have completed the first phase of national dialogue. This effort has led to the prioritization of concrete and actionable activities and draft action plans are now available, with details on each activity’ implementation plan (e.g., accountabilities, milestones, timeline, funding). The results of each country’s dialogue were presented at three regional forum in The Bahamas in June 2013, in St. Kitts and Nevis in 2014, and in St. Lucia in June 2015. This allowed national stakeholders from government, private sector and civil society to compare notes on each other’s’ priorities and exchange ideas on solutions to each identified challenges with technical specialists and peers. Each government involved in the CGF also committed to follow-up on implementation of the reform agenda, to report back periodically on progress (every 4-5 months) and to enable independent monitoring of the reforms by private sector and civil society representatives.

In terms of analytical products, the Bank has completed a series of studies related to public expenditure, fiscal and debt sustainability, growth and competitiveness, the financial sector, public sector management and social protection. The ongoing dissemination of these reports represents a key instrument for policy dialogue with the OECS governments, including St. Lucia.

A number of recent analytical works have also been disseminated in the context of the CGF process. A number of knowledge products are expected to be disseminated this year, including “Driving tourism in the Eastern Caribbean: The case for a regional Ferry”; “Trade matters: new opportunities for the Caribbean”; “Linking farmers and agro-processors to the tourism industry in the OECS”; and the “OECS Growth report”.

Relations with the Caribbean Development Bank (CDB)

(As of December, 2016)

The Caribbean Development Bank (CDB) has been an important development partner in St. Lucia (STL) and is currently the island’s largest multilateral donor. Interventions have been aimed at facilitating sustainable development by supporting investments in social and economic infrastructure, as well as creating a more enabling policy environment. Specifically, CDB has been involved in areas such as: (i)development of physical infrastructure; (ii) public financial management; (iii) human resource development; (iv)support to the productive sectors; and (v) community-based poverty reduction.

In 2012, the Bank approved a country assistance strategy with an indicative resource envelope of $88.5 mn to guide operations in STL over the period 2013-16. Given STL’s vulnerability to economic shocks and natural hazards, the main strategic objective of the programme was to assist in building social and economic resilience by: (i) improving efficiency of social and economic infrastructure; (ii) increasing the contribution of the agricultural sector; (iii) enhancing youth outcomes; (iv) enhancing the viability of small and medium-sized enterprises (SMEs); and (v) improving management capacity in order to reduce vulnerability to natural hazards and economic shocks. Importantly, recognising the impact of gender and environmental/climate change factors on a country’s ability to achieve sustainable development outcomes.

STL has utilised the Bank’s resources extensively over the years and at the end of 2016, was the third largest recipient of CDB assistance. Cumulative loans, contingent loans and equity and grants totalled $473.5 mn between 1970 and 2016. Of this amount, just over half was approved from Ordinary Capital Resources (OCR) with the remainder being sourced from the “soft” window.

The year 2016 was a relatively active one as the Bank approved five notable capital investment and technical assistance interventions totalling $50.1mn. The most significant, the St. Lucia Education Quality and Improvement Project (24.2mn) seeks to enhance student outcomes across the education sector with particular emphasis on improving learning opportunities and outcomes for learners with special education needs. The Dennery North Water Supply Redevelopment project (11.3mn) continues the Bank’s involvement in the water sector by focussing on the installation of new water supply intake, transmission, treatment and storage facilities for Dennery North. The first of its kind for the Bank, the Street Light Retrofitting Project (10.6mn) seeks to replace all of St. Lucia’s high pressure sodium and mercury vapour street lights with high efficiency light-emitting diode systems and in so doing, reduce energy consumption and associated greenhouse gas emissions. Cognisant of the development potential of the Vieux Fort area, the Bank approved technical assistance for the development of a Spatial Plan for the Vieux Fort District which will provide a physical planning framework to guide long-term sustainable economic and social development and improve management of environment and natural resources. Lastly, technical assistance in the form of a Youth Empowerment Project will assist in the country’s efforts to develop an integrated results-based youth empowerment response to multi-faceted citizen security issues facing at-risk communities in Castries. Other on-going interventions during the year were direct poverty reduction support and capacity enhancement for small and medium sized enterprises.

Notwithstanding the Bank’s significant involvement in St. Lucia, net resource flows have been negative over the 2012 to 2016 period (see Table 1 below). This has largely been due to implementation capacity issues and the availability of alternative funding sources. The most significant disbursements during the period 2013 to 2016 were for lines of credit to support private sector development, reconstruction following the passage of Hurricane Tomas, education sector enhancement, and a policy based loan in support of macroeconomic reforms.

Table 1.

Portfolio Flows

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Statistical Appendix

(As of February 8, 2017)

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St. Lucia: Table of Common Indicators Required for Surveillance

(As of February 8, 2017)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

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Cover IMF Staff Country Reports
St. Lucia: 2017 Article IV Consultation-Press Release and Staff Report
Author: International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2017: Issue 076
Publisher:
International Monetary Fund
ISBN:
9781475590906
ISSN:
1934-7685
Pages:
75
DOI:
https://doi.org/10.5089/9781475590906.002