Economic Performance and Prospects
GOVERNMENT OF SAINT LUCIA
Ministry of Finance, Economic Affairs, Planning & Social Security
Recent Economic Performance
2
Growth Performance
 Average growth of 2.5% over the last decade.
 GDP contracted by 0.6 percent in 2012 due to low external demand…
St. Lucia and ECCU: Real GDP Growth
(In Percent)
10.00
8.00
6.00
4.00
2.00
0.00
-2.00
2004
2005
2006
2007
2008
2009
-4.00
-6.00
-8.00
St. Lucia
3
ECCU
2010
2011
2012
Real Sector Review
Baseline: Real Growth Rates (%)
2011
2012 Pre.
Real GDP
1.0
-0.6
Agriculture
-6.5
10.5
-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
Of which: Bananas
4
Trend In FDI
FDI Inflows
(In Percent of GDP)
30
25
20
15
10
5
5
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
-
Commercial Bank Credit
Growth in Credit
(In Percent)
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2004
6
2005
2006
2007
2008r
2009
2010
2011
2012p
Fiscal Performance
 The fiscal position has deteriorated…
 Widening fiscal deficit, corrective measures required…
Revenue and Expenditure
(In percent of GDP)
40
35
Deficit: -10.7
30
25
20
Total Expenditure
7
Total Revenue and Grants
Fiscal Summary
Total Rev. & Grants
2009/10
826.8
% Change
Current Revenue
759.6
% Change
Current Expenditure
683.8
% Change
Capital Expenditure
241.3
% Change
Total Expenditure
% Change
925.1
In EC Millions
2010/11
2011/12
874.5
926.7
2012/13
808.4
5.8
6.0
-12.8
787.8
839.5
784.9
3.7
6.6
-6.5
742.7
776.7
831.8
8.6
4.6
7.1
298.6
369.3
356.4
23.7
23.7
-3.5
1,041.3
1,146.0
1,157.0
12.6
10.1
1.0
8
Current Revenue
 Fall in current revenue due to reduce intake of taxes on income and
international trade
Changes in Current Revenue
(In EC Millions)
% Change in brackets
Taxes on International Trade
(-5%)
Tax On Goods And Services
(22%)
Taxes on Income
(-7%)
0.00
100.00
200.00
2011/12
9
300.00
2012/13
400.00
500.00
Current Revenue
 Fall in taxes on income driven by fall in corporate taxes…
Changes in Taxes on Income
(In EC Million)
% Change in brackets
Arrears
(-29%)
Corporations
(-14%)
Withholdings
(9%)
Individuals
(4%)
0.00
10
20.00
40.00
60.00
2011/12
2012/13
80.00
100.00
Current Revenue
 Fall in international trade led by fall in excise tax (petroleum)…
Changes in Taxes on International Trade
In EC Millions
% Changes in brackets
Excise tax (Imports)
(-30%)
Service Charge (imports)
(2%)
Import Duty
(-3%)
0.00
20.00
40.00
2011/12
11
60.00
2012/13
80.00
100.00
120.00
VAT Performance
VAT Collections: ActualsYTD VS Budget
(In EC Million)
120.00
98.05
100.00
80.00
60.00
54.21
47.08
40.00
37.63
20.00
0.00
Inland Revenue
Customs and Excise
Actuals (YTD)
12
Budget
Current Expenditure
 Increases in current expenditure driven by higher interest payments,
goods and services and transfers…
Changes in Current Expenditure
(% Changes in brackets)
Goods and services
(17%)
Transfers
(15%)
2011/12
2012/13
Interest Payments
(20%)
Wages and Salaries
(3%)
0.00
13
50.00
100.00 150.00 200.00 250.00 300.00 350.00 400.00
Composition of Budget 2012/13
By Category of Recurrent Expenditure
Transfers
10%
Debt Servicing
24%
Salaries & Wages
46%
Goods & Services
20%
14
DEBT
 Debts levels are trending upwards…
Public Debt
3,000
90
80
Right axis
2,000
60
50
1,500
40
1,000
30
20
500
10
-
0
Debt Levels
15
70
Debt / GDP (right axis)
(In Percent)
($EC Millions)
2,500
Inflation
 Inflation uptick due to VAT but temporary…
St. Lucia: CPI inflation
(in percent, year-on-year)
Headline inflation (no VAT)
5.0
VAT component
Projection
4.5
4.0
3.8%
3.5
1.5
3.0
1.5
1.3
2.9%
1.5
2.5
4.3
2.0
3.2
1.5
2.8
1.0
2.5 2.3
3.0 3.0 3.0
0.5
Source: IMF Staff Report
16
2014Q4
2014Q3
2014Q2
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
2010Q4
2010Q3
2010Q2
2010Q1
0.0
Unemployment
 Unemployment climbing due to slow economic activity and structural problems in the
labour market.
Unemployment Rate
(In Percent)
25
20
15
10
5
0
2004
17
2005
2006
2007
2008
2009
2010
2011
2012
(Q1)
2012
(Q2)
2012
(Q3)
 Challenges in curbing unemployment…
 Young demographic imply large inflows into the labour market
 Most 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.
Qualifications of Job Seekers/ Unemployed, Jul - Sep 2012
7%
33%
Tertiary Education
Secondary (with CXC)
60%
18
Below Secondary Level
Where we are Vs Where we should be…
Economic Performance and Targets
(In Percent)
Indicators
19
(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
Turning Point
 To bridge the gap government policy should aim to
achieve the following:
 Boosting GDP Growth
 Removing structural impediments to growth
 Improve targeting of capital spending
 Maintaining Fiscal Sustainability
 Reduce overall deficit through fiscal consolidation
 Redirect debt on a more sustainable path
20
Growth is Key…
Growth
Jobs
Economic
Development
Lower
unemployment
Higher Living
Standards
Reduce poverty
21
Improve Debt Ratios
Growth leads to higher incomes…
Impact of Growth on GDP (nominal) per Capita
Country
22
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
St. Lucia
4.2
3,992
8,511
2.5
4,622
7,379

We have some catching up to do…
GDP per capita
In $US
Countries
23
GDP per Capita ($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
Challenges to Growth
 Rapid wage growth coupled with low productivity growth has eroded
competitiveness.
Average Wages and Productivity
(Indices, 1994=100, weighted by industry's share in total employment)
250
ULC (labor cost per unit of output)
Average productivity (real output per employee)
Average real wage
200
150
100
50
0
2011
2010
2009
2008
2007
2006
2005
Source: IMF staff estimates
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
24
How do we boost Growth ?
25
Creating an Environment to Facilitate Growth
Structural Reform
Improve Investment
climate to attract
investment
Improving
Competitiveness
Improving education and
skill set for increase
productivity
26
Infrastructure Development
Target capital investment to projects
that will facilitate export growth
- North- South link road network
-South Water Dam
- Castries Redevelopment
Investment in Renewable
Energy
Export Expansion
Short
Term
• Explore strategies to increase tourist
arrivals
• Explore Latin America as a potential market
• Attract investment in the areas of Health and EduTourism as the way forward.
Medium
term
• Improve Business Climate
• Infrastructural Development ( North South Road
Network, Airport Improvement, Castries
Redevelopment)
• Improve training for greater absorption of current
technology
• Create greater linkages between tourism and other
sectors
27
Fiscal Sustainability
Reduce Overall Deficit:
- Keep current
expenditure flat
- Prioritize Capital
Spending: Ongoing
projects and targeted
capital projects
28
Reduce Borrowing
Requirement: 100M
Redirect Debt to a
more sustainable
Trajectory
Curbing Current Expenditure…
Setting WASCO
on a sound
financial footing
Containing
the wage
bill
Review of
generalized
subsidies (food,
fuel)
Public
Pension
Reform
Reduce Current Expenditure
29
Curbing Current Expenditure
 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
30
Capital Expenditure
 In the wake of global recession, the focus of government
spending has been to;
 Generate economic activity through fiscal stimulus
 Reduce high unemployment rate
 However the current environment requires consolidation and
streamlining of the capital budget.
 Currently 37% of capital budget is spent on maintenance
 Capital investment to focus not only on physical capital but on
building human capital.
31
This will be Challenging…
 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.
32
Challenges…
 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
33
Going Forward…
Fiscal Adjustment
Containing Current Expenditure
Reduce the overall deficit by 100M
Prioritize Capital Spending:
-Ongoing projects
-targeted capital projects
-(formulate effective PPP arrangements
to assist with financing growth inducing
projects rather than incurring more debt)
34
Structural Reforms
Improving the Investment Climate:
-Fast tracking pending legislation
-Training for unemployable to match needs of
the labour market
-Training to enhance technological adaption to
increase the efficiency of business processes
-Introduce standards for industry
-More effective and targeted fiscal incentives
framework
-Accreditation for medical schools to facilitate
expansion of the education tourism sector
Public Sector Modernisation
Means testing to better target subsidies
to the poor to reduce cost of transfers.
35
Role of the Private sector
 Aggressively 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
36