St. Lu­cian econ­omy re­turns to growth in 2016, says IMF

The Pak Banker - - COMPANIES/BOSS -

The Ex­ec­u­tive Board of the In­ter­na­tional Mon­e­tary Fund (IMF) to­day con­cluded the 2015 Ar­ti­cle IV con­sul­ta­tion with St. Lu­cia.

Back­ground On the back of strong tourism in­flows and lower oil prices, the St. Lu­cian econ­omy has re­turned to growth af­ter ex­pe­ri­enc­ing a re­ces­sion in 2012 and close-to-zero growth in 2013. GDP growth reached 0.5 per­cent in 2014, with trans­porta­tion and ho­tels mostly con­tribut­ing to the eco­nomic re­cov­ery. The cur­rent ac­count deficit is es­ti­mated to have nar­rowed from 11.2 to 6.7 per­cent of GDP in 2014. In­fla­tion in­creased to 3.5 per­cent, mainly ow­ing to higher food prices. For the first time since FY2008/09[2], the pri­mary bal­ance switched to a small sur­plus of 0.1 per­cent of GDP in FY2014/15, re­flect­ing some­what higher rev­enues, in­clud­ing from pol­icy mea­sures, re­straint on cur­rent spend­ing, and cuts to cap­i­tal ex­pen­di­tures. Nev­er­the­less, debt con­tin­ued to rise to al­most 80 per­cent of GDP re­flect­ing non­con­ces­sional in­ter­est rates and low growth. De­spite mod­er­ate eco­nomic re­cov­ery, un­em­ploy­ment rose to 24.4 per­cent in 2014. Youth un­em­ploy­ment, in par­tic­u­lar, reached 41.8 per­cent. De­spite some re­duc­tion in non­per­form­ing loans, credit to pri­vate sec­tor con­tin­ued to de­cline. Com­pounded by ro­bust de­posit growth, the fall in credit con­tin­ued to add onto liq­uid­ity ac­cu­mu­la­tion in the bank­ing sys­tem, rais­ing ex­cess re­serves to an all­time high. The Fe­bru­ary 2015 de­ci­sion by the East­ern Caribbean Cur­rency Union Mon­e­tary Coun­cil to lower the min­i­mum sav­ing de­posit in­ter­est rate from 3 to 2 per­cent (ef­fec­tive May 2015) al­le­vi­ated pres­sures on bank prof­itabil­ity and al­lowed some eas­ing of mon­e­tary con­di­tions while the ex­change rate, which is pegged to the U.S. dol­lar, ap­pre­ci­ated by 3 per­cent as of Septem­ber 2015 in real ef­fec­tive terms from a year ago.

IMF Ex­ec­u­tive Di­rec­tors wel­comed the re­cent uptick in eco­nomic ac­tiv­ity and the pos­i­tive short?term out­look on the back of stronger tourist ar­rivals and lower oil prices, but noted that un­ad­dressed vul­ner­a­bil­i­ties are hold­ing back the pace of the re­cov­ery. Ac­cord­ingly, Di­rec­tors en­cour­aged the au­thor­i­ties to per­se­vere with their ef­forts to im­prove the fis­cal po­si­tion, re­vive bank in­ter­me­di­a­tion, and push ahead with the re­form agenda. Ac­tions on all th­ese fronts hold the key to re­duc­ing un­em­ploy­ment, boost­ing com­pet­i­tive­ness, and strength­en­ing St. Lu­cia's growth prospects over the medium term.

Di­rec­tors wel­comed progress in tack­ling fi­nan­cial sec­tor weak­nesses, but ob­served that non?per­form­ing loans re­main high and bank credit to the pri­vate sec­tor con­tin­ues to de­cline. They agreed that clean­ing up banks' bal­ance sheets and fa­cil­i­tat­ing a re­sump­tion of lend­ing should be top pol­icy pri­or­i­ties. While some ef­forts re­quire re­gional co­or­di­na­tion, key steps for the St. Lu­cian au­thor­i­ties to con­sider in­clude a re­form of the fore­clo­sure and in­sol­vency leg­is­la­tion and the rat­i­fi­ca­tion of all the el­e­ments of the re­gional strat­egy for bank res­o­lu­tion, par­tic­u­larly the law on the East­ern Caribbean As­set Man­age­ment Cor­po­ra­tion. Di­rec­tors wel­comed the progress so far on com­ply­ing with the in­ter­na­tional stan­dards against money laun­der­ing and the fi­nanc­ing of ter­ror­ism. Di­rec­tors noted re­cent im­prove­ments in the fis­cal bal­ance, but con­curred that St. Lu­cia's high pub­lic in­debt­ed­ness lim­its the room for pol­icy ma­neu­ver and poses risks. They en­cour­aged the au­thor­i­ties to for­mu­late with­out de­lay a strong medium?term plan to achieve the re­gional debt tar­get and se­cure the sus­tain­abil­ity of pub­lic fi­nances.

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