SLOW DOWN: IMF predicts a two per cent slow down of St. Lucia’s economy

The IMF will maintain a close policy dialogue with the authorities and stands ready to provide advice and assistance.

Cananews

The economic growth in St. Lucia to slow down to about two per cent this year

CASTRIES, St Lucia, CMC – The International Monetary Fund (IMF) says it expects the economic growth in St. Lucia to slow down to about two per cent this year.

An IMF mission led by Aliona Cebotari of the IMF’s Western Hemisphere Department Thursday ended a two-week visit to the island discussing economic developments and macroeconomic policies.

The mission which met met with Prime Minister and Minister for Finance Stephenson King as well as opposition legislators and members of the private sector and trade union movement, said the island’s economy recovered rapidly from the global crisis, supported by timely policy action by the authorities and a rebound in construction and tourism.

“In the face of increasing headwinds from subdued growth in the U.S. and Europe and an uncertain global financial environment, we expect growth to slow to about two per cent in 2011, shored up by post-hurricane reconstruction,” said Cebotari.

She said high world commodity prices are expected to put temporary pressures on inflation and the balance of payments in 2011, but these will subside over the medium-term.

The IMF official said that the discussions with the authorities focused on three policy issues: how to ensure fiscal sustainability moving forward, how to support growth, and how to safeguard the stability of the financial system.

“Fiscal policies provided the needed support during the crisis, but going forward there is a need to offset the pressures building on the fiscal accounts and return to fiscal sustainability. The mission believes that targeting a debt ratio of 50–55 per cent of GDP (Gross Domestic Product) by 2020 will be a prudent fiscal anchor given the vulnerability of the economy to external shocks and natural disasters.

“This will require bringing the primary balance to a surplus of at least 3½ percent of GDP over the medium-term. The implementation of the value-added tax by April 2012 would be a critical pillar of the fiscal adjustment, supported by efforts to contain public sector wage growth, reform the public pension system, streamline tax incentives and exemptions, phase out generalized subsidies in favor of targeted assistance for the poor, and restoring the financial viability of the water company.”

Cebotari said given the uncertain international and regional financing prospects, the task of fiscal consolidation is even more urgent.

She said with fiscal space to support growth receding, the IMF believes policies should focus sharply on creating an enabling environment for private-sector led growth and enhanced competitiveness.

“This would require improving the investment environment, including by establishing an effective one-stop investment agency and simplifying the investment process; maintaining flexibility of labor and product markets by avoiding policies that may increase labor costs and stifle employment; and removing price and non-price impediments to credit availability.

“Safeguarding the stability of the financial system would require active monitoring and forceful action to address risks in the banking and nonbanking sector, which may arise from a weakening credit portfolio, exposure to the failed regional insurance companies and potential spillovers from regional financial markets.”

Cebotari said the IMF will maintain a close policy dialogue with the authorities as they continue to address these challenges and stands ready to provide advice and assistance.

CMC/2011

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