WASHINGTON, CMC – The executive board of the International Monetary Fund (IMF) says the St. Lucian economy has staged a robust performance in recent years and that after recording one of the most significant declines in the region in 2020, economic growth rebounded sharply, buoyed by increased tourism services.
The IMF executive board announced that, following the Staff Report prepared for the Article IV Consultation for St. Lucia, it had completed the consultation.
According to the executive board of the Washington-based financial institution, following substantial expansion in 2024, St. Lucia’s economic growth is expected to fall in 2025 from weaker tourism amid temporary hotel closures and reduced airlift, but to rebound in 2026 as tourism picks up.
It said the external position in 2024 was assessed as broadly consistent with fundamentals and desirable policies and that fiscal performance has strengthened, supported by three consecutive years of primary surpluses.
“Nonetheless, long-standing challenges remain with income per capita diverging from the United States in the past decades, weak productivity, high public debt stock, and the ever-present risk of natural disasters.”
The IMF executive board said that the overarching fiscal policy priority is to reduce public debt and create room for capital spending through revenue-based measures.
It said under current policies, public debt will fall short of the regional target of 60 per cent of gross domestic product (GDP) by 2035, warning that “without further actions, development resources may shrink, and debt and borrowing costs could increase further during shocks.
“A growth-friendly and feasible fiscal adjustment would help to decisively reduce public debt to the regional target, lower borrowing costs, and enable resources for higher capital expenditure to address growth bottlenecks.”
It said it could include three pillars: a comprehensive tax reform and enhanced tax administration, starting now and implemented gradually over the medium term; an improved control and targeting of current expenditures; and the adoption of a sound fiscal rule within a fiscal responsibility framework.
Reforming the tax system would boost revenue, improve equity, and reduce distortions.
The IMF executive board said that St. Lucia’s tax system has high tax expenditures, which weaken collection.
It said tax measures could include rationalising corporate income tax incentives, broadening the VAT base (including digital services), accompanied by targeted support to vulnerable households, improving personal income tax progressivity, shortening property exemptions, reforming fuel taxes, and increasing excises on alcohol and tobacco.
Tax administration priorities include strengthening audit and inspection, accelerating digitalization of processes, enhancing compliance, and improving transparency, the IMF executive board said, noting that higher efficiency and spending rebalancing would create space for growth- and equity-enhancing expenditures.
It said that social protection initiatives should be well-targeted and budgeted, and that strengthening the public-private partnerships (PPPs) framework through transparent reviews and sound institutions.
The IMF officials said that the recent increase in pension benefits, amid a rapidly aging population, creates longer-term fiscal risks and requires forward-looking reforms.
They said the introduction of a medium-term fiscal framework (MTFF) and formal fiscal rules. They continued to strengthen the Citizenship Investment Programme (CBI). However, granting citizenship to foreign investors who return to the island to make a substantial investment in its socio-economic development could further instill fiscal planning, prudence, and discipline.
The IMF board said that further priorities, building upon past initiatives, include the publication of an MTFF before the annual budget, with at least three years’ projections, a fiscal risk statement, a debt sustainability analysis, and policy scenarios, as well as examining the potential establishment of operational budgetary rules, and continuing to improve CBI governance and transparency.
The IMF executive board said that efforts to strengthen the financial sector should be sustained. The banking sector is well-capitalised and highly liquid, but non-performing loans (NPLs) remain elevated despite recent improvements.
“Policy priorities include ensuring full compliance with the Eastern Caribbean Central Bank’s (ECCB) 60 per cent provisioning requirement for NPLs and avoiding excessive reliance on general reserves.
“The recent enactment of legislation aimed at strengthening debtor rights and streamlining movable asset financing marks a significant milestone. Introducing foreclosure legislation—that balances market efficiency with strong borrower protections—to effectively secure real estate mortgages could be the next step.”
The IMF said that further strengthening the resilience of non-bank financial institutions is essential.
“Building on the new Co-operative Societies Act, additional steps are needed to strengthen credit union regulation and supervision, including developing and enforcing prudential standards, streamlining provisioning rules to align with ECCB practices, and progressively extending Asset Quality Reviews and stress testing to all credit unions.
“Rising reinsurance costs and low property retention ratios among local insurers constrain profitability and coverage, underscoring the need for a more integrated regional supervisory framework to strengthen oversight, narrow the protection gap, and support affordability.”
The IMF said that addressing supply-side bottlenecks will increase long-run growth and reduce the cost of living.
“Structural bottlenecks such as high financing costs, limited credit access, and regulatory burdens need to be addressed to improve productivity and reduce living costs. The recent introduction of a minimum wage provides an essential safeguard for low-income workers. Still, careful monitoring is required to ensure it supports vulnerable groups without hampering their employment opportunities or competitiveness.
“Digitalization efforts must continue, with a focus on expanding internet access, improving digital literacy, and fostering innovation to create jobs and attract investment. Continued efforts on climate adaptation, energy transition, and climate insurance are essential.”
The IMF executive board said that expanding trade relationships, improving connectivity, and strengthening regional cooperation are key to enhancing resilience and affordability.
“St. Lucia’s economy is highly open, driven by tourism services and imports of goods, which heightens vulnerability to external shocks. Import concentration increases living costs and external vulnerability.
“Policy efforts should streamline customs procedures, help reduce freight costs and shipping fees, and enhance market competition. However, the scope and scale of source reorientation would depend on addressing diversification challenges related to the size of the economy.
“Tourism and export broadening over time should continue, including expanding into new source markets, and broadening the economic base beyond tourism (e.g., developing human capital-intensive service sectors such as digital and professional services). Proactive engagement in new and existing trade opportunities, in collaboration with OECS and CARICOM partners, can support sustainable trade reorientation,” the IMF executive board said in its assessment.
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