Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review

SAINT LUCIA

While policy initiatives have contributed to strengthening revenue intake, recurrent spending continues to rise, necessitating subsequent measures to contain that expenditure and steer the country to fiscal sustainability. The Citizenship by Investment Programme is expected to contribute to that overall objective. An increase in capital expenditure is projected, contingent on the implementation of major pipelined projects. Of importance is the concern with regard to mounting debt servicing cost and the progress towards the target of 60.0 per cent debt to GDP by 2030. While Saint Lucia’s medium term debt strategy identifies its future borrowing plan, the concentration of short- term debt and rollover risks are significant issues, which need to be addressed in its bid to achieve fiscal and debt sustainability. In the external sector, it is highly likely that the merchandise trade deficit may narrow in the near to medium term, as an improvement in export earnings is anticipated, despite an expected increase in import payments to accommodate the projected expansion in construction activity. Travel inflows are expected to grow concomitant with the expectations for increased activity in the tourism industry, particularly for the stay-over visitor sub-category. Additionally, it is likely

that foreign investment flows may improve in the short run in line with positive prospects for the Citizenship by Investment Programme. Inflationary pressures may persist, largely contingent on developments regarding global commodity prices, especially fuel. Global dynamics indicate that risks are skewed to the downside and significant . These risks, which include the effect of ongoing trade negotiations between China and the USA, have the potential to inhibit economic growth and confidence globally and more so for small open economies like Saint Lucia. Accordingly, Saint Lucia needs to focus on accelerating economic activity and strengthening resilience, while safeguarding financial, fiscal and debt stability. Other key sources of risk to the outlook include the strong dependence of the tourism industry on developments in the advanced economies, a sudden stop in foreign investments necessary for the pending tourism-related projects and the adverse effects of global warming and climate change. On the other hand, opportunities exist with the Citizenship by Investment Programme that the country can leverage to its advantage.

______________________________________________________________________________ 105 Eastern Caribbean Central Bank