Apr 2017 Financial News

IMF: Marginal growth for St Lucia in 2017

Apr 03, 2017

WASHINGTON—The International Monetary Fund (IMF) is predicting that St Lucia will record economic growth of 0.5 per cent this year driven mostly by continued strong performance in construction and agriculture.

It said higher import prices, including oil, will cause inflation to rise temporarily and, together with weak tourist expenditures, will contribute to widen external imbalances.

“With slow progress in cleaning up their balance sheets, banks are expected to further shrink their loan portfolio. While the forthcoming budget should bring some clarity about fiscal policies, in the absence of corrective measures, rising interest payments will add to expenditure pressures, leading public debt to an unsustainable path.”

The IMF said that as commodity prices gradually rise from recent lows, the current account deficit will widen, reflecting low competitiveness.

“Unless structural reforms are implemented, rigidities in the labour market, high costs of doing business, and low external competitiveness will continue to weigh on growth,” the IMF added.

Last year, St. Lucia recorded gross domestic product (GDP) growth of 0.8 per cent down from 1.8 per cent in 2015.

The IMF executive board which concluded 2017 Article IV consultation with St. Lucia, said that growth remains subdued.

It said in the short term, construction and agriculture should continue to perform strongly while growth in tourism, which should be driven by consistent inflows of United States tourist, new flights, and new hotels, could be stifled by the new airport tax.

The Washington-based financial institution said slow progress in cleaning up bank balance sheets limits the extent to which banks can help sustain growth.

“In the medium term, rigidities in the labour market, a costly business environment, and low external competitiveness severely limit growth prospects. A comprehensive reform programme is needed to appropriately address key weaknesses and improve growth prospects, but downside risks, both external and domestic, dominate the outlook.”

The IMF said that the deterioration of the fiscal position, which has been accelerated by the recent fiscal package, should be addressed promptly and decisively in the context of the forthcoming budget.

It said that in the absence of corrective measures, financing difficulties will increase and force inefficient fiscal adjustment—typically by reducing already low capital spending—with negative effects on growth.

“At the same time, public debt will continue to increase with unsustainable dynamics. The financial year 2017/18 budget therefore presents an opportunity for the authorities to demonstrate their commitment to fiscal responsibility and clarify their intentions on a broad range of policies.

“A more stable fiscal position and reduced uncertainty about the government’s economic programme would pave the way to stronger domestic and foreign investment,” the IMF said.

The financial institution said that corrective measures should be supported by a multi-year consolidation plan to attain the 2030 debt target of 60 per cent of GDP.

Source:
Trinidad Guardian, A14
Monday April 3, 2017