Abstract
IMF Country Report No. 22/348
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IMF Country Report No. 22/348
ST. LUCIA
2022 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ST. LUCIA
November 2022
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 2022 Article IV consultation with St. Lucia, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its September 7, 2022, consideration of the staff report that concluded the Article IV consultation with St. Lucia.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 7, 2022, following discussions that ended on May 23, 2022, 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 8, 2022.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for St. Lucia.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
IMF Executive Board Concludes 2022 Article IV Consultation with Saint Lucia
FOR IMMEDIATE RELEASE
Washington, DC – November 18, 2022: On September 7, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Saint Lucia and endorsed the staff appraisal.
St. Lucia has been severely affected by the Covid-19 pandemic and the increase in import prices due to the war in Ukraine. After a collapse in 2020, tourist arrivals have rebounded significantly in 2021–22, but the recovery remains incomplete. The public balance sheet remains under considerable strain, with a sizeable fiscal deficit and a significant increase in public debt since 2019. Inflation has picked up with the surge in commodity prices—somewhat mitigated by price controls and energy subsidies. The financial sector has remained stable, but nonperforming loans have risen during the pandemic.
Output is projected to gradually recover to the pre-pandemic level by 2024, slowed by the impacts of the war in Ukraine and the tightening of global financial conditions. Public and private investments are constrained by weak balance sheets, as well as higher input costs and supply constraints. Inflation is projected to rise to 6.4 percent in 2022. The fiscal outlook is challenging due to high public debt and large refinancing needs which lead to financing constraints. Without additional policy measures, public debt is projected to stabilize around 90 percent of GDP in the medium term, limiting the space for public infrastructure and social investments. The current account deficit is projected to gradually narrow with the recovery of tourism. Bank credit to the private sector is expected to remain anemic due to concerns about weak corporate balance sheets and structural impediments, such as the lack of a credit registry and a weak insolvency framework. Downside risks dominate, mainly from higher global food and energy prices, global inflation and tightening of financial conditions, supply bottlenecks, and the ongoing pandemic. The natural disaster risk remains a near-term challenge and is expected to intensify with climate change.
Executive Board Assessment2
Executive Directors noted that St. Lucia’s tourism-dependent economy was severely hit by the pandemic, and while there was a significant rebound in tourism in 2021, the recovery remains incomplete as the surge in import prices and high inflation following the war in Ukraine weigh on economic growth. Directors noted significant challenges ahead as the public balance sheet remains under pressure, with a sizeable fiscal deficit, high rollover needs, and a sharp increase in public debt, as well as the looming threat of natural disasters. Against this backdrop, they emphasized the need to address fiscal and financial constraints to public and private investment to foster a sustainable and inclusive recovery.
Directors concurred that, in the near-term, fiscal policy should focus on protecting the most vulnerable from food and fuel price increases. Given financing constraints, they encouraged the authorities to prioritize spending and to increase the pass-through of global energy prices while supporting vulnerable households with targeted transfers.
As the recovery takes hold, Directors called for pursuing a credible and growth-friendly fiscal consolidation to strengthen fiscal sustainability, create space for social and infrastructure investment, build buffers against natural disasters, and put debt on a downward path. Adopting a medium-term fiscal responsibility framework, a debt management strategy, and a fiscal rule to support debt sustainability would be important.
Directors highlighted the role of the financial sector to unlock private sector growth. They encouraged facilitating access to credit and boosting financial intermediation, including by modernizing the insolvency and foreclosure legislation and establishing the credit bureau and a movable collateral framework, as well as strengthening the non-bank financial sector. Directors noted the expansion of the credit union segment and welcomed the Financial Services Regulatory Authority’s plan to conduct an asset quality review of credit unions. They urged the authorities to address remaining AML/CFT deficiencies to protect correspondent banking relationships.
Directors called for tackling structural challenges to support growth and boost productivity, including by addressing labor market skill mismatches, building energy independence, and increasing economic diversification. They encouraged enhancing structural and financial resilience to natural disasters through a long-term integrated strategy 2 in a comprehensive macroeconomic framework within debt-sustainable bounds. Investment in resilient infrastructure would support growth and enhance fiscal sustainability. Directors noted the importance of developing a strong disaster insurance strategy while structural resilience is built.
Table. St. Lucia: Selected Economic and Financial Indicators, 2019–23
GDP historical series was rebased to 2018 base year in 2020. This increased nominal GDP figures by about 9 percentage points.
Fiscal year (April-March) basis. Fiscal balances do not include the airport project, which is implemented by a public corporation.
Public sector debt includes payables and overdrafts/ECCB advances.
Comprises public sector external debt, foreign liabilities of commercial banks and other private debt.
Table. St. Lucia: Selected Economic and Financial Indicators, 2019–23
| Projections | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||
| (Annual percentage change, unless otherwise specified) | ||||||||
| Output and prices | ||||||||
| Real GDP (at market prices) | -0.7 | -24.4 | 12.2 | 9.1 | 5.8 | |||
| Consumer prices, period average | 0.5 | -1.8 | 2.4 | 6.4 | 2.7 | |||
| Output gap (percent of potential GDP) | -1.4 | -19.1 | -10.0 | -4.3 | -2.5 | |||
| Unemployment rate (% annual average) | 16.8 | 21.7 | 21.9 | ... | ... | |||
| Nominal GDP (EC$ millions) 1/ | 5,654 | 4,093 | 4,566 | 5,325 | 5,814 | |||
| Public finances | (In percent of GDP, unless otherwise specified) | |||||||
| Central government 2/ | ||||||||
| Revenue | 21.6 | 22.1 | 23.7 | 23.1 | 22.5 | |||
| Expenditure | 25.1 | 34.0 | 30.1 | 28.9 | 24.8 | |||
| Natural disaster (ND) annualised cost | 0.0 | 0.0 | 0.0 | 0.7 | 0.7 | |||
| Primary balance, incl. ND cost | -0.5 | -8.0 | -2.9 | -3.1 | 0.5 | |||
| Overall balance, incl. ND cost | -3.5 | -11.9 | -6.5 | -6.4 | -2.9 | |||
| Central government debt | 58.7 | 91.6 | 86.5 | 81.9 | 78.5 | |||
| Total public sector debt 3/ | 62.1 | 96.9 | 92.2 | 90.1 | 88.3 | |||
| Domestic | 32.3 | 50.4 | 44.2 | 39.1 | 36.6 | |||
| External | 29.8 | 46.4 | 48.0 | 51.0 | 51.7 | |||
| Money and credit, end of period (annual percent change) | ||||||||
| Broad money (M2) | 3.2 | -6.6 | 14.9 | 8.0 | 4.5 | |||
| Credit to private sector (real) | -2.4 | 4.5 | -2.4 | -5.4 | -2.3 | |||
| Credit to private sector (nominal) | -1.9 | 2.7 | -0.1 | 0.6 | 0.3 | |||
| External sector | ||||||||
| Current account balance, o/w: | 5.7 | -15.7 | -11.0 | -6.4 | -0.9 | |||
| Exports of goods and services | 57.7 | 29.4 | 43.0 | 56.3 | 58.2 | |||
| of which: tourism | 50.8 | 22.4 | 36.2 | 49.7 | 51.8 | |||
| Imports of goods and services | -46.2 | -44.4 | -53.0 | -59.2 | -54.8 | |||
| Capital account balance | 1.6 | 1.6 | 1.4 | 1.5 | 1.0 | |||
| Financial account balance | 0.9 | -9.1 | -9.6 | -4.9 | 0.1 | |||
| External debt (gross) 4/ | 61.6 | 79.5 | 78.2 | 76.9 | 75.4 | |||
| Public | 29.8 | 46.4 | 48.0 | 51.0 | 51.7 | |||
| Net imputed international reserves | ||||||||
| Months of imports of goods and services | 4.5 | 3.0 | 3.6 | 3.4 | 3.5 | |||
| Percentage of demand liabilities | 88.7 | 88.3 | 92.6 | 90.9 | 90.9 | |||
| Real effective exchange rate | ||||||||
| (annual average, depreciation -) | 103.3 | 99.7 | 95.1 | ... | ... | |||
GDP historical series was rebased to 2018 base year in 2020. This increased nominal GDP figures by about 9 percentage points.
Fiscal year (April-March) basis. Fiscal balances do not include the airport project, which is implemented by a public corporation.
Public sector debt includes payables and overdrafts/ECCB advances.
Comprises public sector external debt, foreign liabilities of commercial banks and other private debt.
Table. St. Lucia: Selected Economic and Financial Indicators, 2019–23
| Projections | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2019 | 2020 | 2021 | 2022 | 2023 | ||||
| (Annual percentage change, unless otherwise specified) | ||||||||
| Output and prices | ||||||||
| Real GDP (at market prices) | -0.7 | -24.4 | 12.2 | 9.1 | 5.8 | |||
| Consumer prices, period average | 0.5 | -1.8 | 2.4 | 6.4 | 2.7 | |||
| Output gap (percent of potential GDP) | -1.4 | -19.1 | -10.0 | -4.3 | -2.5 | |||
| Unemployment rate (% annual average) | 16.8 | 21.7 | 21.9 | ... | ... | |||
| Nominal GDP (EC$ millions) 1/ | 5,654 | 4,093 | 4,566 | 5,325 | 5,814 | |||
| Public finances | (In percent of GDP, unless otherwise specified) | |||||||
| Central government 2/ | ||||||||
| Revenue | 21.6 | 22.1 | 23.7 | 23.1 | 22.5 | |||
| Expenditure | 25.1 | 34.0 | 30.1 | 28.9 | 24.8 | |||
| Natural disaster (ND) annualised cost | 0.0 | 0.0 | 0.0 | 0.7 | 0.7 | |||
| Primary balance, incl. ND cost | -0.5 | -8.0 | -2.9 | -3.1 | 0.5 | |||
| Overall balance, incl. ND cost | -3.5 | -11.9 | -6.5 | -6.4 | -2.9 | |||
| Central government debt | 58.7 | 91.6 | 86.5 | 81.9 | 78.5 | |||
| Total public sector debt 3/ | 62.1 | 96.9 | 92.2 | 90.1 | 88.3 | |||
| Domestic | 32.3 | 50.4 | 44.2 | 39.1 | 36.6 | |||
| External | 29.8 | 46.4 | 48.0 | 51.0 | 51.7 | |||
| Money and credit, end of period (annual percent change) | ||||||||
| Broad money (M2) | 3.2 | -6.6 | 14.9 | 8.0 | 4.5 | |||
| Credit to private sector (real) | -2.4 | 4.5 | -2.4 | -5.4 | -2.3 | |||
| Credit to private sector (nominal) | -1.9 | 2.7 | -0.1 | 0.6 | 0.3 | |||
| External sector | ||||||||
| Current account balance, o/w: | 5.7 | -15.7 | -11.0 | -6.4 | -0.9 | |||
| Exports of goods and services | 57.7 | 29.4 | 43.0 | 56.3 | 58.2 | |||
| of which: tourism | 50.8 | 22.4 | 36.2 | 49.7 | 51.8 | |||
| Imports of goods and services | -46.2 | -44.4 | -53.0 | -59.2 | -54.8 | |||
| Capital account balance | 1.6 | 1.6 | 1.4 | 1.5 | 1.0 | |||
| Financial account balance | 0.9 | -9.1 | -9.6 | -4.9 | 0.1 | |||
| External debt (gross) 4/ | 61.6 | 79.5 | 78.2 | 76.9 | 75.4 | |||
| Public | 29.8 | 46.4 | 48.0 | 51.0 | 51.7 | |||
| Net imputed international reserves | ||||||||
| Months of imports of goods and services | 4.5 | 3.0 | 3.6 | 3.4 | 3.5 | |||
| Percentage of demand liabilities | 88.7 | 88.3 | 92.6 | 90.9 | 90.9 | |||
| Real effective exchange rate | ||||||||
| (annual average, depreciation -) | 103.3 | 99.7 | 95.1 | ... | ... | |||
GDP historical series was rebased to 2018 base year in 2020. This increased nominal GDP figures by about 9 percentage points.
Fiscal year (April-March) basis. Fiscal balances do not include the airport project, which is implemented by a public corporation.
Public sector debt includes payables and overdrafts/ECCB advances.
Comprises public sector external debt, foreign liabilities of commercial banks and other private debt.
Title page
ST. LUCIA
STAFF REPORT FOR THE 2022 ARTICLE IV CONSULTATION
July 8, 2022
KEY ISSUES
The St. Lucian economy is confronted with significant challenges from consecutive external shocks. While still recovering from the impact of the Covid-19 pandemic, which led to an output collapse in 2020 and 2021 mainly due to a halt in tourism, the war in Ukraine is adding inflation and balance of payments pressures given the dependence on fuel and food imports. As a member of the Eastern Caribbean Currency Union (ECCU) with limited fiscal space, St. Lucia’s policy options to cushion the impact are constrained. Public debt is high, and the government’s large gross financing needs are a significant near-term risk. In the financial sector, asset quality has largely recovered to pre-pandemic levels, but legacy underperforming loans remain a concern and could amplify the impact of shocks.
The policy priority is to foster a sustainable and inclusive recovery by addressing fiscal and financial constraints to public and private investment. In the near-term, fiscal policy should remain supportive, but financing constraints affecting the government may require spending reprioritization to limit the social impact of the surge in food and fuel prices. As the recovery takes hold, fiscal policy focus should shift to supporting debt sustainability, creating fiscal space for social and infrastructure investment, and building buffers against natural disasters. A consolidation plan that is both socially inclusive and sufficient to put public debt firmly on a downward trajectory would support the government’s commitment to reach the regional debt target. The consolidation should be supported by identified institutional fiscal reforms, including a medium-term fiscal responsibility framework and a fiscal rule to strengthen the debt sustainability outlook and maintain fluid access to financing. Financial sector policies should focus on advancing legislative reforms to facilitate balance sheet repair and removing constraints to private sector credit.
Structural reforms can support climate resiliency and long-term growth. Strengthening structural and financial resilience to natural disasters and climate change calls for a long-term integrated strategy in a comprehensive macroeconomic framework within debt-sustainable bounds. Pursuing policies to address labor market skills mismatches, build energy independence and support economic diversification can help boost lagging productivity growth.
Approved By
James Morsink (WHD) and Natalia Tamirisa (SPR)
Discussions for the 2022 consultation took place in Castries on May 9–23, 2022. The team comprised Alejandro Guerson (head), Swarnali Hannan, Chao He, Marie Kim (all WHD) and Sergei Antoshin (MCM). Ronald James (CDB), Gregory Horman (MCM), Paul Mooney (OED), Beverley Lugay (ECCB), Ran Li (WB) joined several meetings. Philip Jennings (OED)joined the concluding meeting. The mission met with the Honorable Prime Minister Philip J. Pierre, Permanent Secretary Esther Rigobert and other senior government officials, representatives of the opposition, the private sector, and labor unions. Andres Gonzalez Gomez (ICD) contributed with research on climate resilience. The team was supported byAnahit Aghababyan and Huilin Wang (WHD).
Contents
CONTEXT
COVID-19 PANDEMIC IMPACT AND POLICY RESPONSE
OUTLOOK: HEADWINDS FROM THE WAR IN UKRAINE AND A SLOWING GLOBAL ECONOMY
POLICY PRIORITIES
A. Fiscal Policy: Preparing an Equitable and Credible Consolidation Plan While Mitigating the Impact on Vulnerable Households
B. Financial Sector: Supporting Growth and Financial Inclusion
ADDRESING LONG-TERM STRUCTURAL CHALLENGES
A. Climate Change: Investing in Resilience to Natural Disasters
B. Addressing Structural Growth Constraints
STAFF APPRAISAL
BOX
1. Vulnerability to Tightening Global Financial Conditions
FIGURES
1. Recent Economic Developments
2. Fiscal Sector Developments
3. External Sector Developments
4. Banking System Developments
TABLES
1. Selected Social and Economic Indicators, 2018–27
2a. Central Government Operations, 2018–27 (In EC$)
2b. Central Government Operations, 2018–27 (In percent of GDP)
3. Balance of Payments Summary, 2018–27
4. Monetary Survey, 2018–22
5. Banking System Summary Data, 2017–21
6. Selected Labor Market Indicators, 2014–20
ANNEXES
I. Risk Assessment Matrix
II. External Sector Assessment
III. Debt Sustainability Analysis
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm
