The International Monetary Fund (IMF) on Monday said the prospects for St Lucia’s near-term growth are favourable, but warned that policy adjustments will be needed to strengthen longer-term growth.
The IMF executive board in its assessment of the island’s economy noted that the commencement of large public infrastructure projects is expected to substantially boost growth in 2020-22 but will raise public debt and weaken the external position.
“However, a deeper-than-expected slowdown in major source markets for tourism, energy price shocks, disruptions to global financial markets, and loss of (correspondent banking relationship) CBR all represent downside risks”
“There is an upside that infrastructure investment could catalyze a greater-than-expected expansion of the tourism sector.”— IMF
The executive board said that St Lucia’s high vulnerability to natural disasters constitutes an ever-present risk to both growth and the fiscal outlook.
It said longer-term growth continues to be impeded by the high public debt, lingering vulnerabilities in the financial system, and structural impediments to private investment.
“On the other hand, there is an upside that infrastructure investment could catalyze a greater-than-expected expansion of the tourism sector and related activities. While the overall external position is assessed to be broadly consistent with the level implied by fundamentals and desirable policies, St Lucia still has considerable competitiveness challenges, particularly in its non-tourism sector, that need to be addressed.”
The IMF said that fiscal policies should be geared toward rebuilding policy space and ensuring public debt converges to the regional target of 60 per cent of gross domestic product (GDP) by 2030.
The Washington-based financial institution said the debt-financed infrastructure investments, despite being on semi-concessional terms with long-run repayment largely covered by dedicated revenue streams, will move public debt further away from the regional target.
“The need to invest in climate resilience and the uncertainty over future CIP revenues pose additional challenges to public finances. Without policy adjustments, debt vulnerabilities are elevated, and public debt does not stabilise over the near term,” IMF said.
It said that the Allen Chastanet government’s near-term focus should be on revenue-enhancing measures and investments that build resilience to climate-related shocks.