IMF: Saint Lucia economy improving but debt still much too high for comfort

The International Monetary Fund (IMF) says the Saint Lucia economy is recovering and the short-term growth outlook is positive. But it has warned that the Dr. Kenny Anthony administration still needs to reduce the high public debt and improve competitiveness to improve medium-term growth prospects and reduce high unemployment.

“On the back of strong tourism inflows and lower oil prices, the Saint Lucian economy has returned to growth after experiencing a recession in 2012 and close-to-zero growth in 2013. GDP growth reached 0.5 percent in 2014 and is expected to accelerate to 1.6 per cent in 2015, driven by tourism and transportation services,” it said.

“The economic recovery has not yet spread to the entire economy and, according to the latest available data, the unemployment rate remains high at 25 per cent, with youth unemployment above 40 per cent. Although unemployment has increased following the global financial crisis, most of it is structural in nature and cannot be solely reduced by demand-supporting policies. Supply bottlenecks, low productivity, labour skill mismatches, and high costs limit medium-term growth prospects well below what is necessary to reduce unemployment on a durable basis.”

The team from the Washington-based institution added that high public debt remains a significant vulnerability. It currently stands at around 80 per cent of GDP – high by international standards – and the IMF noted that ever-increasing interest payments limit the budget resources available for other uses, including high-impact social and infrastructure spending.

“The authorities are committed to the ECCU-wide debt target of 60 per cent of GDP by 2030. Achieving this target requires a medium-term plan designed to strengthen confidence and to provide buffers for risks, including from natural disasters. In staff’s view, an adjustment of four per cent of GDP over the next four years could accomplish these objectives,” the IMF said.

The Fund also referred to the Citizenship by Investment programme which the Saint Lucia government expects to be a significant revenue stream. It has advised government that if it wants to make the most of the new opportunity, it must take a prudent approach.

“The annual cap on approved citizenship applications could be a strong device for containing these risks.”

The IMF said the revenues from the programme should be used to lower public debt or to improve growth-enhancing infrastructure.