GOVERNMENT OF SAINT LUCIA Ministry of Finance, Economic Affairs, Planning & Social Security Economic Performance and Prospects

Recent Economic Performance 2

Growth Performance 3 Average growth of 2.5% over the last decade. GDP contracted by 0.6 percent in 2012 due to low external demand…

Real Sector Review Baseline: Real Growth Rates (%) Pre. Real GDP Agriculture Of which: Bananas Hotels Manufacturing Construction Distributive Trades Banking & Insurance -0.2 Real Estate, renting & Business activities

Trend In FDI 5

Commercial Bank Credit 6

Fiscal Performance 7 The fiscal position has deteriorated… Widening fiscal deficit, corrective measures required…

8 Fiscal Summary

Current Revenue 9 Fall in current revenue due to reduce intake of taxes on income and international trade

Current Revenue 10 Fall in taxes on income driven by fall in corporate taxes…

Current Revenue 11 Fall in international trade led by fall in excise tax (petroleum)…

VAT Performance 12

Current Expenditure 13 Increases in current expenditure driven by higher interest payments, goods and services and transfers…

Composition of Budget 2012/13 14 By Category of Recurrent Expenditure

DEBT 15 Debts levels are trending upwards…

Inflation 16 Inflation uptick due to VAT but temporary… Source: IMF Staff Report

Unemployment 17 Unemployment climbing due to slow economic activity and structural problems in the labour market.

18 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.

Where we are Vs Where we should be… 19 Indicators (2012 pre) (%) Targets (%) Growth Rates Unemployment 20.7≤15 Inflation Debt/GDP Overall Deficit/GDP Economic Performance and Targets (In Percent)

Turning Point 20 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

Growth is Key… 21 Growth Jobs Lower unemployment Reduce poverty Higher Living Standards Economic Development Improve Debt Ratios

Growth leads to higher incomes… 22 Impact of Growth on GDP (nominal) per Capita CountryAvg. GDP Growth (%) ( ) GDP/Capita $US (2000) GDP/ Capita $US (2011) China , 417 Brazil3.73,76212,789 Singapore5.922,79150,714 Taiwan4.214,64121,592 Mauritius 4.23,9928,511 St. Lucia2.54,6227,379

GDP per capita In $US 23 CountriesGDP per Capita ($US) (2011 Est.) Bahamas22,354 Trinidad and Tobago17,060 Barbados15,554 Antigua12,760 St. Kitts12,728 St. Lucia7,379  We have some catching up to do…

Challenges to Growth 24 Rapid wage growth coupled with low productivity growth has eroded competitiveness. Source: IMF staff estimates

How do we boost Growth ? 25

Creating an Environment to Facilitate Growth 26 Structural Reform Improving education and skill set for increase productivity Improve Investment climate to attract investment Improving Competitiveness 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 27 Explore strategies to increase tourist arrivals Explore Latin America as a potential market Short Term Attract investment in the areas of Health and Edu- Tourism as the way forward. 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 Medium term

Fiscal Sustainability 28 Reduce Overall Deficit: - Keep current expenditure flat - Prioritize Capital Spending: Ongoing projects and targeted capital projects Reduce Borrowing Requirement: 100M Redirect Debt to a more sustainable Trajectory

Curbing Current Expenditure… 29 Reduce Current Expenditure Public Pension Reform Setting WASCO on a sound financial footing Containing the wage bill Review of generalized subsidies (food, fuel)

Curbing Current Expenditure 30 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

Capital Expenditure 31 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.

This will be Challenging… 32 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.

Challenges… 33 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

Going Forward… 34 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)

35 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.

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