St. Lucia: Staff Concluding Statement of the 2025 Article IV Mission
The International Monetary Fund (IMF) staff mission, led by Ms. Swarnali Ahmed Hannan, concluded discussions with the authorities of St. Lucia in Castries on November 3-14, 2025, as part of the 2025 Article IV consultation. The mission's findings and recommendations are summarized below.
Economic Recovery and Outlook:
St. Lucia's economy demonstrated resilience post-Covid-19, with projected growth of 1.7% in 2025, following a strong 4.7% expansion in 2024. While tourism may moderate due to temporary closures and reduced airlift, strong construction activities, domestic demand, and credit expansion will largely offset this. The economy is expected to rebound in 2026 and gradually decline to its potential rate of 1.5% over the medium term as tourism stabilizes and infrastructure projects are completed.
Fiscal Position and Challenges:
The fiscal balance improved in FY2024/25, primarily due to lower capital expenditure. The overall fiscal deficit is projected to narrow to 2.3% of GDP by FY2030/31, with rising interest and wage bills partially offset by declining capital expenditure. Public debt, including natural disaster costs, is expected to stabilize at around 77% of GDP in the medium term. The priority is to reduce public debt and create space for capital spending through revenue-based measures.
Tax Reform and Revenue Enhancement:
Reforming the tax system is crucial for boosting revenue, improving equity, and reducing distortions. St. Lucia's tax system has high tax expenditures, weakening collection. Recommended reforms offer gains exceeding the adjustment needed for the regional debt target, allowing flexibility based on feasibility and political economy considerations.
- Tax Measures: Rationalizing corporate income tax incentives, broadening VAT base, improving personal income tax progressivity, shortening property exemptions, and reforming fuel taxes and excises on alcohol and tobacco.
- Tax Administration: Strengthening audit and inspection, digitalization of processes, enhancing compliance, and transparency. Avoiding further tax amnesties.
Banking Sector and Financial Resilience:
The banking sector is well-capitalized and liquid, but NPLs remain elevated. Efforts to strengthen the sector should continue, focusing on compliance with provisioning requirements, avoiding excessive reliance on general reserves, and promoting timely write-offs or restructuring of impaired assets.
Insurance Sector and Climate Resilience:
Given St. Lucia's vulnerability to natural disasters, strengthening the insurance sector's resilience is crucial. Local insurers have lower property reinsurance retention ratios and premium levels, limiting profitability. A more integrated regional supervisory framework would enhance oversight and resilience, helping to narrow the insurance protection gap and support affordability.
Structural Reforms for Growth and Resilience:
Addressing supply-side bottlenecks will increase long-run growth and reduce the cost of living. Key constraints, such as high finance costs, limited credit access, inadequate workforce education, and tax/customs compliance difficulties, have contributed to the slowdown in potential growth. Tackling these obstacles could improve productivity and growth.
- Labor Market: Strengthening labor market institutions for inclusive growth. The proposed unemployment insurance scheme and minimum wage are important steps, requiring careful monitoring to support vulnerable groups without hampering employment opportunities.
- Digitalization: Sustaining digitalization efforts to unlock long-term growth and foster new opportunities, including expanding internet connectivity, digital literacy, and innovation.
- Trade and Connectivity: Expanding trading relationships, improved connectivity, and regional coordination could increase economic resilience and affordability.
Climate Adaptation and Insurance:
Continued efforts on climate adaptation, energy transition, and climate insurance are essential. Recent reforms have enhanced institutional capacity and financial resilience. Addressing climate insurance protection gaps is crucial, as low affordability contributes to widespread non- and under-insurance.
