GOVERNMENT OF SAINT LUCIAGOVERNMENT OF SAINT LUCIA

Ministry of Finance, Economic Affairs, Planning & Social Ministry of Finance, Economic Affairs, Planning & Social SecuritySecurity

 

Economic Performance and Prospects

Recent Economic Performance

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Growth Performance

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Average growth of 2.5% over the last decade.GDP contracted by 0.6 percent in 2012 due to low external

demand…

Real Sector Review

Baseline: Real Growth Rates (%)

2011 2012 Pre.

Real GDP 1.0 -0.6

Agriculture -6.5 10.5

Of which: Bananas -37.6 45.3

Hotels -0.4 -1.5

Manufacturing 2.5 -4.7

Construction 2.1 -4.5

Distributive Trades 5.6 -5.4

Banking & Insurance -0.2 -1.0

Real Estate, renting &Business activities 1.0 2.1

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Trend In FDI

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Commercial Bank Credit

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Fiscal Performance

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The fiscal position has deteriorated… Widening fiscal deficit, corrective measures required…

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Fiscal Summary

2009/10 2010/11 2011/12 2012/13Total Rev. & Grants 826.8 874.5 926.7 808.4

% Change 5.8 6.0 -12.8

Current Revenue 759.6 787.8 839.5 784.9% Change 3.7 6.6 -6.5

Current Expenditure 683.8 742.7 776.7 831.8% Change 8.6 4.6 7.1

Capital Expenditure 241.3 298.6 369.3 356.4% Change 23.7 23.7 -3.5

Total Expenditure 925.1 1,041.3 1,146.0 1,157.0% Change 12.6 10.1 1.0

In EC Millions

Current Revenue

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Fall in current revenue due to reduce intake of taxes on income and international trade

Current Revenue

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Fall in taxes on income driven by fall in corporate taxes…

Current Revenue

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Fall in international trade led by fall in excise tax (petroleum)…

VAT Performance

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Current Expenditure

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Increases in current expenditure driven by higher interest payments, goods and services and transfers…

Composition of Budget 2012/13

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By Category of Recurrent Expenditure

DEBT

15

Debts levels are trending upwards…

Inflation

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Inflation uptick due to VAT but temporary…

4.3

3.22.8

2.5 2.3

3.0 3.0 3.0

1.51.5

1.5 1.3

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010Q

1

2010Q

2

2010Q

3

2010Q

4

2011Q

1

2011Q

2

2011Q

3

2011Q

4

2012Q

1

2012Q

2

2012Q

3

2012Q

4

2013Q

1

2013Q

2

2013Q

3

2013Q

4

2014Q

1

2014Q

2

2014Q

3

2014Q

4

Headline inflation (no VAT) VAT component

St. Lucia: CPI inflation(in percent, year-on-year)

3.8%

2.9%

Projection

Source: IMF Staff Report

Unemployment

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Unemployment climbing due to slow economic activity and structural problems in the labour market.

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Challenges in curbing unemployment…Young demographic imply large inflows into the labour

marketMost of the unemployed are unemployable…

According to the latest Labour Market Needs Assessment (LMNA) for Saint Lucia 60% of job seekers have educations levels below secondary school.

Where we are Vs Where we should be…

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Indicators (2012 pre)(%)

Targets(%)

Growth Rates -0.6 3-5

Unemployment 20.7 ≤15

Inflation 4.2 2-3

Debt/GDP 80.2 60

Overall Deficit/GDP -12.9 3-5

Economic Performance and Targets (In Percent)

Turning Point

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To bridge the gap government policy should aim to achieve the following:Boosting GDP Growth

Removing structural impediments to growthImprove targeting of capital spending

Maintaining Fiscal Sustainability Reduce overall deficit through fiscal consolidation Redirect debt on a more sustainable path

Growth is Key…

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Growth

Jobs

Lower unemployment

Reduce poverty

Higher Living

Standards

Economic Development

Improve Debt Ratios

Growth leads to higher incomes…

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Impact of Growth on GDP (nominal) per Capita

Country Avg. GDP Growth (%)(2000-2011)

GDP/Capita $US (2000)

GDP/ Capita $US (2011)

China 10.2 946 5, 417

Brazil 3.7 3,762 12,789

Singapore 5.9 22,791 50,714

Taiwan 4.2 14,641 21,592

Mauritius 4.2 3,992 8,511

St. Lucia 2.5 4,622 7,379

GDP per capita In $US

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Countries GDP per Capita ($US)

(2011 Est.)

Bahamas 22,354

Trinidad and Tobago 17,060

Barbados 15,554

Antigua 12,760

St. Kitts 12,728

St. Lucia 7,379

We have some catching up to do…

Challenges to Growth

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Rapid wage growth coupled with low productivity growth has eroded competitiveness.

0

50

100

150

200

250

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

ULC (labor cost per unit of output)Average productivity (real output per employee)Average real wage

Average Wages and Productivity(Indices, 1994=100, weighted by industry's share in total employment)

Source: IMF staff estimates

How do we boost Growth ?

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Creating an Environment to Facilitate Growth

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Export Expansion

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Fiscal Sustainability

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Curbing Current Expenditure…

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Review of generalized subsidies

(food, fuel)

Curbing Current Expenditure

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Review of generalized subsidies (food, fuel)Scope for reducing generalized bulk food subsidies LPG subsidy not to exceed $15 per 20lb cylinder

Containing the wage bill

Setting WASCO on a sound financial footing to reduce expenditure on transfers

Increase water tariffs to cover operating costs

Reform of the Public Pension System

Capital Expenditure

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In the wake of global recession, the focus of government spending has been to;Generate economic activity through fiscal

stimulusReduce high unemployment rate

However the current environment requires consolidation and streamlining of the capital budget. Currently 37% of capital budget is spent on

maintenanceCapital investment to focus not only on

physical capital but on building human capital.

This will be Challenging…

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The experience of other countries demonstrate that structural adjustment and reforms are not easy to implement.

Not many examples of countries seamlessly undertaking required adjustments prior to a crisis.

The reality is that there will always be resistance to change.

Challenges…

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Fiscal adjustment will be difficult due to the current composition of government expenditure.Large percentage of recurrent expenditure is

distributed to education, health and security (teachers, nurses and policemen).

VAT and wage negotiations will impact current expenditure

78 percent of capital budget is ongoing projects. Scope for reductions is limited.

Public sector reforms will involve revisiting the current legislative framework

Re-examining the expectations of the state

Going Forward…

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Role of the Private sectorAggressively seek new investment

opportunities including partnership with foreign investors

Embrace competition and drive efficiency through adaptation of available technology

Introduce and reach for standards in support of world class product and service delivery

Play a strong, constructive and focused role in shaping government policy

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