Economic and Financial Review - June 2019

June 2019 Economic and Financial Review SAINT LUCIA

Airport, the renovation of St Jude Hospital and road rehabilitation projects.

consultations on establishing fiscal responsibility legislation is a key step to reversing the current debt trajectory and restoring fiscal and debt sustainability. In the external sector, the merchandise trade deficit is likely to widen in the short to medium term, as construction-related and other imports increase, in line with greater economic activity. Inflows from travel are projected to grow, consistent with the record-breaking number of tourists visiting the island in the first half of 2019 in both the cruise and stay-over categories. Also, foreign investment flows are likely to improve as prospects for the Citizenship by Investment Programme (CIP) remain positive. Additionally, inflationary pressures may intensify, as global trade and geopolitical tensions escalate, nudging oil prices higher. However, no significant movement is expected in the real exchange rate of the EC dollar as inflationary outcomes in the ECCU are not projected to deviate much from that of its major trading partners. Thus from a competitiveness standpoint, Saint Lucia is not expected to be adversely impacted by movements in the real exchange rate.

Agricultural output is projected to decline in 2019. This development is premised on the reduced demand from Fair Trade Bananas and other importers in the UK which have imposed higher standards on the quality of the product. In addition, the sector is still recovering from the impacts of tropical storm Kirk which damaged approximately 80.0 per cent of the nation’s banana crops in September 2018. The Government of Saint Lucia’s expansionary fiscal stance over the first half of 2019 is expected to continue throughout the rest of the year, largely influenced by major capital investments in the nation’s infrastructure. While this policy stance is expected to boost construction and output over the short to medium term, there are implications for debt and debt servicing going forward. Against this backdrop, the 2019/20 budget estimates an overall deficit of $189.4m, with a net financing requirement of $332.4m. Additionally, baseline projections for debt surpass the 60.0 per cent debt to GDP target by 2030. Consequently, the announcement made by the government to initiate stakeholder

Major downside risks to the economy include the further escalation of trade

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Eastern Caribbean Central Bank