March 14, 2025
On February 7, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2024 Article IV consultation[1] with St. Lucia and considered and endorsed the staff appraisal.
St. Lucia’s tourism-dependent economy has normalized after the pandemic. GDP growth is expected at 3.7 percent in 2024, on strong tourism, construction, and manufacturing activity. Unemployment has dropped to decade lows but remains elevated at 14 percent. The authorities recently introduced a minimum wage, increased minimum pensions, and plan to implement an unemployment insurance scheme. Inflation, which peaked at 6.4 percent y/y in 2022, fell to 0.8 percent in June, driven by utilities and energy prices, as well as a VAT reduction. The current account deficit narrowed to 1.9 percent of GDP in 2023 with the rebound in tourism, even as the fiscal deficit widened to 2.6 percent of GDP and debt ticked up to 74.5 percent of GDP. Banks are liquid and profitable, but credit growth is weak, although credit unions are growing rapidly.
Over the medium term, once planned infrastructure and hotel investments approach completion, growth is projected to slow to a modest 1.5 percent over the medium term. Inflation is expected to rise to 2 percent over the medium term as global input costs normalize. The deficit excluding natural disasters costs is forecast to narrow to 1.3 percent of GDP in FY2024 but widen thereafter to 2.2 – 2.9 percent of GDP on the back of higher capital expenditures. Debt is projected to stabilize around 74 percent of GDP, well above the regional debt ceiling of 60 percent of GDP. The current account deficit is anticipated to narrow further over the medium term on account of stronger tourism and lower fuel prices. Bank credit to the private sector is projected to remain anemic because of high NPLs, the lack of foreclosure legislation, and concerns about the fiscal outlook.
Risks to the outlook are tilted to the downside and include investment delays and large debt rollover needs. St. Lucia is vulnerable to a global slowdown and supply disruptions, as well as natural disasters and climate change. On the upside, stronger-than-expected growth in tourism and construction could provide a positive boost to the economy.
Executive Board Assessment[2]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed St. Lucia’s strong economic performance, aided by robust tourist arrivals and a supportive fiscal stance. While noting the favorable near‑term prospects, Directors highlighted that medium‑term growth is expected to slow and risks are tilted to the downside, including from investment delays and high tourism dependence. Prudent policies and reforms should aim to reduce debt, increase productivity, and boost potential growth.
Directors recommended sustained fiscal consolidation, while safeguarding space to support capital projects and resilience against natural disasters. They called for comprehensive tax policy reform, enhanced tax administration, and improved control and targeting of current expenditures, including the wage bill. Directors welcomed the authorities’ commitment to achieving the regional debt target and recommended the adoption of a sound fiscal rule. Further improving the transparency of the Citizenship‑by‑Investment Program is also important.
Directors highlighted that while systemic risks appear contained, further reforms are needed to strengthen the financial sector. They recommended steps to further reduce banks’ NPLs and enact foreclosure legislation to support credit growth. Improved compliance with ECCB provisioning requirements for banks is necessary. Directors welcomed the new Co‑operative Societies Act and encouraged continued efforts to strengthen credit union regulation. They also highlighted the need to enhance risk monitoring of the insurance sector and for continued progress to address AML/CFT regulatory gaps.
Directors underscored that structural reforms and natural disaster‑resilient investment are crucial to diversify the economy and boost potential growth. They emphasized the importance of improving credit access, reducing operating and tax compliance costs, and addressing labor force skill mismatches. Noting the implications for external competitiveness, Directors urged careful calibration of the minimum wage, in close consultation with stakeholders. They also encouraged measures to enhance the natural‑disaster insurance framework and develop geothermal energy.