St Lucian economy hard hit by COVID and war, says IMF

Washington – The International Monetary Fund (IMF) on Friday said St Lucia has been “severely affected” by the COVID-19 pandemic and the increase in import prices due to the war in Ukraine.

“After a collapse in 2020, tourist arrivals have rebounded significantly in 2021–22, but the recovery remains incomplete,” said the Washington-based financial institution after its Executive Board concluded Article IV consultation with St Lucia.

“The public balance sheet remains under considerable strain, with a sizeable fiscal deficit and a significant increase in public debt since 2019,” it added. “Inflation has picked up with the surge in commodity prices – somewhat mitigated by price controls and energy subsidies. The financial sector has remained stable, but nonperforming loans have risen during the pandemic.”

The IMF said output is projected to gradually recover to the pre-pandemic level by 2024, slowed by the impacts of the war in Ukraine and the tightening of global financial conditions.

It said public and private investments are constrained by weak balance sheets, as well as higher input costs and supply constraints.

The IMF said inflation is projected to rise to 6.4 per cent in 2022, adding that the fiscal outlook is challenging due to high public debt and large refinancing needs which lead to financing constraints.

“Without additional policy measures, public debt is projected to stabilise around 90 percent of GDP (gross domestic product) in the medium term, limiting the space for public infrastructure and social investments……the  current account deficit is projected to gradually narrow with the recovery of tourism.”

“Bank credit to the private sector is expected to remain anemic due to concerns about weak corporate balance sheets and structural impediments, such as the lack of a credit registry and a weak insolvency framework,” the IMF added.

“Downside risks dominate, mainly from higher global food and energy prices, global inflation and tightening of financial conditions, supply bottlenecks, and the ongoing pandemic. The natural disaster risk remains a near-term challenge and is expected to intensify with climate change.”

Executive directors noted that St Lucia’s tourism-dependent economy was severely hit by the pandemic, and while there was a significant rebound in tourism in 2021, the recovery remains incomplete, “as the surge in import prices and high inflation following the war in Ukraine weigh on economic growth.”

The IMF directors noted significant challenges ahead as the public balance sheet remains under pressure, with a sizeable fiscal deficit, high rollover needs, and a sharp increase in public debt, as well as the looming threat of natural disasters.

Against this backdrop, they emphasised the need to address fiscal and financial constraints to public and private investment “to foster a sustainable and inclusive recovery”. (CMC)

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