Abstract
On behalf of the authorities of St. Lucia, we express gratitude to Mr. Guerson and his team for the constructive discussions throughout the Article IV mission. Our authorities have expressed satisfaction with the discussions and are in broad agreement with staffs assessment and recommendations.
On behalf of the authorities of St. Lucia, we express gratitude to Mr. Guerson and his team for the constructive discussions throughout the Article IV mission. Our authorities have expressed satisfaction with the discussions and are in broad agreement with staffs assessment and recommendations.
The COVID-19 pandemic had a significant impact on the economy and people of St. Lucia. However, our authorities’ sound fiscal and macroeconomic policies helped the citizens of St. Lucia to weather the pandemic. Support from the Fund, through the Rapid Credit Facility in 2020, in addition to concessional funding from other multilateral partners and donor governments, assisted in mitigating the pandemic’s impact on the most vulnerable.
Recent Developments, Economic Outlook, and Risks
St. Lucia has been severely affected by the pandemic, with GDP contracting by 24 percent in 2020, mainly reflecting the sharply negative impact of widespread travel restrictions on tourism and related industries. The collapse of international travel, combined with strict containment measures in the form of border closures and country-wide lockdowns, contributed to the containment of community spread. In addition, significant macroeconomic policy support was put in place, including measures to protect both the health and the financial systems, and to provide economic and social support to those most affected by the pandemic.
The economy experienced robust growth in 2021, with preliminary data showing that real GDP reboundedby 12.2 percent. This was primarily driven by a pick-up in stay-over tourist arrivals from the main source market, the US, and to a lesser extent from the UK. This partial recovery in tourism has facilitated a narrowing of the large current account deficit, which stood at 11 percent of GDP in 2021. The Hewanorra International Airport Redevelopment Project, coupled with other major planned infrastructural projects, is also expected to have a positive impact on economic activity.
As elsewhere, inflation has picked up in recent months; the country’s dependence on fuel and food imports makes it particularly vulnerable to the economic repercussions of Russia’s invasion of Ukraine. Inflationis projected to increase to 6.4 percentin 2022, before moderating towards 2 percent in the medium term. The authorities have adopted various measures aimed at curbing the economic pressures on citizens emanating from the rise in inflation in recent months.
Our authorities broadly agree with staffs outlook and the prevalence of downside risks to growth, especially the risks related to Russia’s invasion of Ukraine and the pandemic.
Debt and Tax Policy
The current level of public debt as of June 2022 stood at approximately 83.2 percent of GDP, or US$4,463 billion. The debt stockincludes central government contracted debt and liabilities, government-guaranteed debt, and public sector debt. Our authorities’ immediate debt policy strategy is to reduce dependence on short term high-interest borrowing, through the use of treasury bills, and to pursue long term financing with lower interest rates from multilateral agencies, financial institutions, and donor governments.
In line with the government’s Medium Term Debt Management Strategy (MTDS), our authorities will seek to convert treasury bills into longer-term instruments to lengthen the maturity profile, reduce rollover risk, and reduce the cost of borrowing by seeking lower interest rates. To assist the government in returning to prudential levels of borrowing, the Public Debt Management Bill will be enacted. This legislation will consolidate all laws pertaining to debt and will do so with a high level of transparency and accountability. The Debt Management reform is further supported by the advancement of an extensive legislative agenda, which will see the establishment of regulations to strengthen recently promulgated legislation, including the Public Finance Management Act and the Public Procurement Act. These will help transform the legislative and regulatory environment for the jurisdiction and will enhance compliance with international standards.
The government of St. Lucia plans to overhaul the tax system to ensure greater efficiency in the collection of taxes, to secure a higher level of tax compliance, and to broaden the tax base. In this process, the existing tourism and fiscal incentive regimes will be reviewed to ensure they are fit for purpose.
Furthermore, a comprehensive revision of tax policies and legislation, as it relates to international taxation, will be undertaken. Our authorities will continue to work diligently to maintain current compliance with both the EU and the OECD guidelines and standards on tax transparency and fairness, while attracting foreign direct investment and fueling sustainable economic growth.
Financial Sector
Weak bank credit growth and limited access to credit are some of the key obstacles to economic growth. In light of this, the government will provide much-needed financial support across all sectors of the economy to Micro, Small, and Medium-sized Businesses (MSME), in the form of soft loans, grants, and technical assistance.
The MSME Soft Loan and Grant Programme will advance the government’s priorities in the areas of:
Generating economic growth, business expansion, sustainability, and diversification;
Employment creation; and
Uplifting the quality of life of Saint Lucians.
This initiative is targeted to reach 849 registered MSMEs, including women and young persons, and will provide at least 1,698 new jobs. In addition, further support has been made available to SMEs in the form of loan guarantees for loans secured from a number of financial institutions.
Our authorities have made progress in addressing the deficiencies identified in the CFATF report. A National AML/CFT Policy was adopted at the end of 2021 to streamline the necessary reforms. Dedicated AML/CFT on-site reviews are ongoing, while legislative amendments have been made to clarify the definition of beneficial ownership, and the ML/TF risks posed by legal entities are being analyzed, as facilitated by the World Bank’s risk assessment tool.
Structural and Governance Reform
Climate
Due to climate change, the physical environment of St. Lucia remains under constant threat of destruction. Building resilience and adapting to climate change is a full-time effort, which requires the dedication of resources of all kinds. Our authorities continue to mainstream resilience-building across government and non-government agencies, private sector entities, and community-based organizations.
The government is committed to explore viable alternative sources of energy to transition away from current use of fossil fuels and achieve energy independence. The Renewable Energy Sector Development Project (RESDP) is anticipated to lead the way in the creation of an enabling environment to scale up renewable energy investments in the private sector, and to advise the government on the viability of geothermal energy as a resource for power generation. The World Bank has approved a financing package of approximately US$21.9 million for the project, which will be implemented over 4 years, 2022–2026.
Digitization
Our authorities have embraced the Caribbean Digital Transformation Project (CARDTP), which aims to build the region’s comparative advantage while overcoming its small size and vulnerabilities as the key theme for reducing poverty and increasing shared prosperity.
One of the government-led initiatives driving the acceleration of the digital transformation of the economy is the Digital Government Services Platform (DiGiGOV). This platform aims to provide a confidential, efficient, and simplified one-stop government service aimed at providing 154 different services online, across eight ministries through a single access point. The use of DiGiGov will be incentivized to encourage its widest use by residents and nonresidents alike, to allow for online secondary and tertiary education, to enable Saint Lucians in the diaspora to promote and enhance the tourism product, and to allow investment in government financial instruments.
Economic Recovery of Youth and Women
The COVID-19 pandemic and the devastating impact of recent natural hazards have revealed the disproportionate impact on women’s livelihoods through loss of employment in hazard affected sectors like tourism and agriculture. St. Lucia was the first country in the Eastern Caribbean to launch the Build Back Equal project, funded by Global Affairs Canada, which builds on our authorities’ commitment to gender equality by prioritizing access to safe, accessible, and affordable childcare services, increasing women’s opportunities to pursue employment, building businesses, and reinforcing existing social protection measures.
In order to upskill women and young people, our authorities have rolled out targeted training courses in the specialized areas of Health Aide, Hospitality, Digital and Creative Entrepreneurship, andEarly Childhood Development Aide. Tuition for participants will be fully funded, and participants will be provided with a stipend for full attendance. These training programmes will be supported by a more broad-based and inclusive initiative for young persons, referred to as the Youth Economy, which will see the institutionalization of youth-oriented entrepreneurship and business development activities; young persons are provided with the skills, training, technical support and financial assistance to convert their creative potential, interests and hobbies into businesses, enterprises and careers. Legislation on the Youth Economy has been passed in Parliament, and the Government is in the process of establishing an Administrative Framework.
Governance
St. Lucia had witnessed a steep decline in its Corruption Index global rating. Our authorities are committed to restoring the country’s reputation to good international standings. In this regard, the government is reviewing the Integrity in Public Life Act, to strengthen this legislation and to hold public officials accountable for their actions. Additionally, the relevant legislation to appoint a Special Prosecutor was recently enacted, to conduct investigations into acts of alleged public corruption.
Conclusion
The COVID-19 pandemic, coupled with the spillover effects of the Russian invasion of Ukraine, has proven particularly challenging for St. Lucia and has highlighted vulnerability to external shocks. Our authorities are encouraged by the strong rebound in tourism but are cognizant of the downside risks associated with a heavy debt burden and the negative impact of the current inflationary environment and the need for economic diversification. The government remains committed to measures that will place public debt on a downward trajectory, while maintaining investment in critical infrastructure and the green agenda.
Given the ongoing risk of climate shocks, our authorities call for further concessional and grant support from the international community to finance climate change mitigation and adaptation measures, and welcome the efforts being made by the Fund in this regard.