Key Developments
- Unemployment has reached a decade low, although it remains high at 14 percent.
- Economic growth is projected to moderate to 1.5 percent over the medium term.
- Inflation is anticipated to rise to 2 percent as global input costs stabilize.
- National debt is expected to stabilize around 74 percent of GDP, significantly exceeding the regional cap of 60 percent.
- Bank credit to the private sector is likely to remain constrained due to high non-performing loans (NPLs).
- Downside risks persist, including potential investment delays and substantial debt rollover requirements.
- Enhancing the transparency of the Citizenship-by-Investment Program remains a priority.
CASTRIES, St Lucia – On February 7, 2025, the executive board of the International Monetary Fund (IMF) concluded its consultation with Saint Lucia, endorsing the staff appraisal.
Saint Lucia’s economy, heavily reliant on tourism, is recovering post-pandemic. The GDP growth rate is forecasted at 3.7 percent for 2024, buoyed by strong performances in tourism, construction, and manufacturing. While unemployment has decreased significantly, it remains high at 14 percent.
The government has recently implemented a minimum wage, raised minimum pensions, and plans to launch an unemployment insurance program. Inflation, which peaked at 6.4 percent year-on-year in 2022, dropped to 0.8 percent in June due to lower utility and energy costs and reduced VAT. The current account deficit narrowed to 1.9 percent of GDP in 2023 due to a resurgence in tourism, despite a widening fiscal deficit of 2.6 percent of GDP and rising debt at 74.5 percent of GDP. While banks remain liquid and profitable, credit growth is sluggish, although credit unions are experiencing rapid growth.
In the medium term, growth is projected to decelerate to 1.5 percent as major infrastructure and hotel projects are completed.
Inflation is expected to rise to 2 percent as global input prices normalize. The fiscal deficit, excluding costs associated with natural disasters, is predicted to narrow to 1.3 percent of GDP in FY2024 but may widen to between 2.2 and 2.9 percent in subsequent years due to increased capital spending. Debt is forecasted to stabilize around 74 percent of GDP, significantly above the regional limit of 60 percent. The current account deficit is expected to shrink further due to improved tourism performance and reduced fuel costs. Bank lending to the private sector is projected to stay weak owing to high NPLs and insufficient foreclosure legislation.
Risks remain focused on potential negative outcomes such as investment delays and extensive debt rollover needs. Saint Lucia faces vulnerabilities from a global economic slowdown, supply chain disruptions, and climate-related events. Conversely, stronger-than-expected tourism and construction growth could provide an uplifting boost to the economy.
Executive board assessment
Executive directors concurred with the staff appraisal, acknowledging Saint Lucia’s robust economic recovery driven by increased tourist arrivals and supportive fiscal policies. Despite promising near-term prospects, directors noted that medium-term growth is anticipated to slow, with risks skewed towards the downside due to investment uncertainties and heavy reliance on tourism. Prudent fiscal policies and structural reforms are essential to lower debt levels, enhance productivity, and stimulate potential growth.
Directors advocated for continued fiscal consolidation while ensuring investment in capital projects and resilience against natural disasters. They recommended comprehensive reforms in tax policy and administration and urged improved oversight of current expenditures, including payroll costs. The commitment to meet regional debt targets was welcomed, alongside a recommendation for the adoption of effective fiscal rules. Enhancing the transparency of the Citizenship-by-Investment Program is deemed critical.
While systemic risks appear manageable, directors stressed the need for reforms to fortify the financial sector. They suggested measures to reduce banks’ NPLs and the introduction of legislation to facilitate foreclosures, promoting credit growth. Compliance with Eastern Caribbean Central Bank (ECCB) provisioning requirements is essential. The introduction of the new Co-operative Societies Act was praised, and directors encouraged ongoing efforts to regulate credit unions effectively. Enhanced risk monitoring of the insurance sector and proactive measures to bridge regulatory gaps in Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) were also recommended.
Directors emphasized that structural reforms and investments that bolster resilience against natural disasters are vital for diversifying the economy and enhancing growth potential.
They highlighted the necessity of improving access to credit, minimizing operational and tax compliance challenges, and addressing skill mismatches within the labor market. Caution was advised regarding the calibration of the minimum wage, emphasizing stakeholder consultations. Additionally, measures to strengthen the natural disaster insurance framework and advance geothermal energy initiatives were encouraged.
