Caribbean & Central America - April 2025

The St Lucia economy had a strong year in 2024 but the pace is now set to slow as the government struggles with heavy debt levels.

The latest Article IV Consultation report by the International Monetary Fund (IMF) on the St Lucia economy, published on 13 March is a mixture of light and shade. On the plus side the report says that the economy grew by 3.7% last year on the back of strong tourism, construction, and manufacturing. Unemployment trended down (but remained high for the region at 14%); the government introduced a minimum wage while reducing VAT. Inflation, which had peaked at 6.4% in 2022 dropped to under 1% in the middle of the year. However, the fiscal deficit widened to 2.6% of GDP and total debt rose to 74.5% of GDP (a level many analysts consider unsustainable on the medium to longer term).

IMF economists also note that as the current cycle of tourism infrastructure and hotel investment is set to be completed, growth will slow to a 1.5% annual trend over the medium term. Inflation will rise to an annual 2% in coming years. The fiscal deficit excluding natural disasters will narrow to 1.3% in FY 2024 but then widen to 2.2%-2.9% of GDP as capital expenditure begins to push up again.  Bank lending will be anaemic because of relatively high NPLs (non-performing loans). The IMF says risks to the economy are “tilted to the downside” and include a global economic slowdown and extreme climate events.

Commenting on these predictions the IMF executive directors called for prudent policies and reforms designed to reduce debt, increase productivity, and boost potential growth. They also recommended “comprehensive tax policy reform”, with improved targeting of current expenditure including the wage bill. The directors welcomed the government’s commitment to a regional debt target but suggested it could also introduce a “sound fiscal rule”.

They also called for action to reduce bank NPLs and legislation on foreclosures to support credit growth. The IMF also issued a call to boost natural disaster-resilient investment.