Projections vs Potential: Saint Lucia and the IMF’s 3.4% Growth Forecast

[dropcap]W[/dropcap]hen it comes to the International Monetary Fund’s (IMF) recent assessment of Saint Lucia, readers of The STAR Businessweek have much to be excited about. The IMF’s recent Regional Economic Outlook gave kudos to the strong performance of the tourism sector especially, for having been a key driver of broader economic growth. The most recent report followed on from the in-depth examination of Saint Lucia under the IMF’s Article IV consultations, seeing it also single out (alongside tourism) foreign direct investment and the increased investment in infrastructure as core elements of the nation’s economic momentum.

Yet, while the short term projections were good, the IMF’s report has also detailed some issues expected to impact in the long term. The benefit of awareness about them now, means there’s time to grow dialogue and consider what options exist to address them going forward. So let’s dive in-depth.

BACKGROUND

Having concluded an Article IV consultation in June of this year, the IMF has provided a positive outlook for Saint Lucia.

While these forecasts are contingent, in part, on the expected completion of a number of the major tourism projects that have been in development — like the Fairmount in Choiseul, The Sandals Golf & Country Club, Dreams and Secrets in Canelles and the the Pearl of the Caribbean’s first stage — a delay or setback in one or all would impact the IMF’s viewpoint. Ultimately, the IMF’s assessment of Saint Lucia’s progress in the short term is bullish.

While the short term is promising, the report also underlined the need for more substantial change to drive growth in the long term, with a focus on removing structural barriers and reducing high production costs.

Yet combatting the impact of climate change remains central to any future planning. Already the damage caused by it accounts for 1% of Saint Lucia’s annual GDP. In a more severe weather environment, it could exceed 5%, and place new pressure on social supports and services, especially as the projections for diminished tax revenue in this scenario would make a bad problem worse.

Alongside this, one overarching goal of driving down public debt remains key. The IMF contends that a greater focus will need be placed behind this goal if Saint Lucia is to meet its Eastern Caribbean Currency Union debt target of ‘60 by 30’ (60% by 2030).

PROJECTIONS FROM OTHER GROUPS AGREE SAINT LUCIA WILL GROW

As Ernst and Young noted in its report on the 2018 budget, though “diversification has proven to be a very difficult path to execute, it cannot be ignored”. The strengths that Saint Lucia has in tourism are real strengths, but the future will ideally see greater growth alongside the development of new sectors that co-exist, and indeed complement it.

The financial reforms that the Chastanet government has made a priority are central to this. Reforms to more effectively address a foreclosure and post-foreclosure auctions, reforms to simplify the current laws surrounding insolvency, and the establishment of lending with the use of non-traditional assets have all been cited prior as cornerstones of this new vision.

For Saint Lucia to drive forward at its strongest, it is not only these reforms but the capacity of the Chastanet government (and any that may succeed it) to create a reformist spirit that will be key. There is no shortage of (democratic) governments around the world that struggle to pass needed reforms but, in Saint Lucia’s case, progress is crucial, and greater pressure is on Chastanet’s government accordingly.

THE FRAGILITY OF FORECASTS

While the forecast for Saint Lucia in the near term is positive, it is not without qualifications.

The forecast based upon the expected completion of major projects comes with the recognition that a major project is always subject to the potential for delays, and even outright collapse.

Having concluded an Article IV consultation in June of this year, the IMF has provided a positive outlook for Saint Lucia

An example of the ordeals that major development can offer up has been seen in recent months within Saint Lucia, as Range Development’s plans for a Ritz Carlton in Black Bay encountered immense turbulence. While the Black Bay episode was unique to Saint Lucia, other nations around the region have known similar experiences.

The Baha Mar resort in the Bahamas that encountered immense delays — taking over ten years to develop before its opening in April 2017, and even then doing so only in part — remains a rolled gold example of what can be encountered in a major tourism project.

Baha Mar was originally forecast to add 12 per cent to the Bahamas GDP, yet ultimately the setbacks were so severe as to be a contributing factor to the S&P Global credit rating agency downgrading the Bahamas sovereign rating before the resort’s opening. These events are a sobering warning sign to anyone who reads forecasts and projections as a clear-cut promise.

CANNOT GO SHORT ON LONG TERM

The hurdle ahead for Saint Lucia  is to maximise opportunities in the short term without diminishing those in the long term. In many respects the timing of this isn’t ideal as global trends, such as Brexit and concerns over the risk of another GFC, are seeing nations prioritise short term gains, not to mention a 24/7 media cycle that so often sees politicians focused on their political survival at a particular moment instead of planning for the years ahead.

But ultimately, and especially for a nation like Saint Lucia with opportunity now to consolidate gains that could see off future challenges, there’s a capacity here to chart a course for more long-term and stable growth. Even if that growth turns out not to be as strong as the forecast indicated, prioritising consistency and sustainability is surely the chief task for the economy in the short and long term.