Feb 2016 Financial News

IMF says St. Lucia’s economy has returned to economic growth

Feb 15, 2016

WASHINGTON, FEB 12, CMC—The International Monetary Fund (IMF) says the St Lucian economy has returned to growth after experiencing a recession in 2012 and close to zero growth in 2013. The Washington-based financial institution said that the growth was based on strong tourism inflows and lower oil prices and that growth domestic product (GDP) reached 0.5 per cent in 2014.

“The current account deficit is estimated to have narrowed from 11.2 to 6.7 per cent of GDP in 2014. Inflation increased to 3.5 per cent, mainly owing to higher food prices,” the IMF said, noting that for the first time since the financial year 2008-09, the primary balance switched to a small surplus of 0.1 per cent of GDP in 2014-15 “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 non-concessional interest rates and low growth.”

The IMF said that despite moderate economic recovery, unemployment rose to 24.4 per cent in 2014. It said youth unemployment, in particular, reached 41.8 per cent. “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 all-time high.” The IMF said the February 2015 decision by the Eastern Caribbean Currency Union (ECCU) Monetary Council to lower the minimum saving deposit interest rate from three to two per cent, effective May 2015, “alleviated pressures on bank profitability and allowed some easing of monetary conditions while the exchange rate, which is pegged to the US dollar, appreciated by three per cent as of September 2015 in real effective terms from a year ago”.

The IMF said that while it welcomed the recent uptick in economic activity and the positive short-term outlook on the back of stronger tourist arrivals and lower oil prices, unaddressed vulnerabilities were holding back the pace of the recovery. The financial institution said it is encouraging the St Lucian 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,” the IMF said, welcoming the progress in tackling financial sector weaknesses. It warned that nonperforming loans remain high and bank credit to the private sector continues to decline and 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,” the IMF said, welcoming the progress so far on complying with the international standards against money laundering and the financing of terrorism.

Source:
Trinidad Guardian, A15
Saturday February 13, 2016