2010 New Year’s Address To The Nation By The Honourable Stephenson King

Address On The State Of The Economy

By

Honourable Stephenson King,

Prime Minister and Minister For Finance, Economic Affairs,

Economic Planning and National Development

February 1, 2010

Ladies and Gentlemen, as we begin the second month of this New Year and new decade, let me take this opportunity once again, to wish you peace, love, happiness, prosperity and God’s richest blessings, during the remaining months of this new year. As we look with hope and aspirations toward the horizon and as we reflect, last year will be remembered in the annals of history as one of the worst for the global economy in modern times.

The economic recession experienced by the major industrialized countries has not been seen in almost 70 years, and has resulted in huge job losses and major structural shifts in the economies of the United States and other developed countries. Governments around the World were forced to pump trillions of dollars to avert total collapse of the financial system and to support economic activity. That support took the form of stimulus packages, as banks shied away from lending, while consumption and investment spending declined. The economic and financial crisis affected Saint Lucia’s economy directly, resulting in a fall in tourist arrivals, reduced foreign investment for construction of hotels and other projects and a contraction in domestic economic activity in 2009.

Last year was a difficult year by any standard, requiring of everyone, belt tightening and paying close attention to spending priorities. As the global recession intensified, we were all concerned about its impact on Saint Lucia. Through very rough conditions and trying times, Saint Lucia was able to weather the storm better than expected. The government for its part provided much needed support and relief through its fiscal stimulus programme. The situation would have been much worse, had it not been for the timely and effective intervention of the government. But this you will never hear from the Opposition. Instead, their diatribe focuses only on a few revenue measures we introduced, classifying them as a “tax assault” on Saint Lucians. They will never admit, although it is well known, that the few revenue measures we implemented were aimed at increasing efficiency and reducing waste. Also, those measures were introduced in such a way as to minimize any possible burden on you, the people of this country.

Their amnesia will never allow them to remind you that we lessened the burden of the global recession on Saint Lucians, by introducing a number of measures and initiatives, including the following:

1. Increasing the personal income tax threshold by $1,000 which had the effect of moving 800 persons from the income tax net, while making available more disposable income to taxpayers,
2. Increasing deductions for mortgage interest by $3,000 for existing mortgage owners and by $5,000 to first time home owners for two years, in order to stimulate the construction sector,
3. Improving the system for the payment of tax refunds, with a view to helping to increase the liquidity of individuals and businesses,
4. Introducing development finance programs for the youth and key sectors of the economy through the St. Lucia Development Bank,
5. Implementing a substantial capital programme, aimed at minimizing the negative impact on growth created by the recession, thus securing jobs and protecting the vulnerable, and
6. Partnering with the wider public sector, as well as the private sector, on a range of investment projects and programmes.

All these initiatives helped Saint Lucians weather the global economic storm and helped the economy perform better than expected in 2009.

Let us therefore briefly reflect on some of the challenges of 2009 and how they impacted on the economy. The international financial crisis which began to intensify and adversely affect our economy from around September, 2008, manifested in fewer stay-over visitors during the 2008/09 winter season. With declines in tourism revenue; our main source of income, hotels were forced to adjust by discounting heavily, laying-off staff and embarking on staff rotation programmes. This situation was compounded by significant reductions in inflows of foreign direct investment, as funding for investments in major hotel plant on the island dried up because of the global credit crunch. The downturn in economic activity was also influenced by the level of spending on public sector investment projects which fell short of previous years, resulting in a decline in activity in the construction sector.

As a result of these factors, preliminary estimates suggest a decline in Saint Lucia’s real GDP of about 5 percent in 2009. In addition to the tourism and construction sectors, declines were recorded in agriculture and the wholesale and retail trade.

It was in the context of a deteriorating external economic environment that the 2009/10 budget was prepared, aimed at creating a suitable environment to mitigate the impact of the crisis on our people, particularly the poor and vulnerable. Our strategy included a mix of policy measures announced in the 2009/10 budget address, most of which have been successfully implemented.

Our main priorities included job creation, preventing job losses and protecting the poor and vulnerable. Among the programmes announced in the budget in fulfilment of these objectives was the Holistic Opportunities for Personal Empowerment (HOPE) programme. This programme, under the aegis of the Saint Lucia Social Development Fund of the Ministry of Social Transformation, Youth and Sports, has had tremendous success since its commencement in May, 2009. To date, over 900 people have received direct employment under the HOPE programme, including approximately 600 people who have received skills training in areas such as construction, communications and management. The programme has several components, including infrastructure development, youth and sports development, skills training, health and wellness counselling, job placement and agriculture. To date, 42 national and community infrastructural projects have been completed, providing short term employment to hundreds of people. A total of $9.6 million has been spent on the programme to date and, given the successes achieved and the impact of the programme in creating employment and enhancing skills, Government will be extending the programme into the next financial year.

The Government will continue to make job creation and enhancing social safety net programmes priorities in 2010 and will seek to partner with the private sector in pursuit of its goals. Specific announcements in this regard can be expected in my next budget address for 2010/11.

Fellow St. Lucians, I can now report to you that the worst of the crisis appears to be behind us and we are cautiously optimistic that the prospects for recovery in 2010 look promising. This renewed optimism is based on a turnaround in the tourism industry and robust activity anticipated in construction by the second quarter of this year, which I will elaborate on later.

Last year, Government was quite successful in attracting additional airlines to our shores, beginning in the October/November 2009 period. Already, these additional flights have resulted in increases in the number of stay-over visitors during the October to November 2009 period by 4.5 percent or 2,950 visitors compared with the same period in 2008. We are confident that the decline in the tourism industry experienced during the first nine months of 2009 has bottomed out and brighter days lie ahead for the industry. While current trends are projected to be sustained in the months ahead, we will continue to strengthen the marketing of Saint Lucia as a prime tourist destination, to take advantage of the increases in available airline seats throughout the winter season and beyond. We are cautiously optimistic that we will experience a modest recovery in tourism.

Along with tourism, the construction sector is expected to provide a significant growth impetus in 2010, as a number of new projects have either started or are well on course for commencement. Among the major projects expected to make a significant contribution to growth, is the new national hospital being constructed at a cost of approximately EC$150 million. A substantial amount of work on this project is expected to be completed this year 2010, as actual work on the foundation has already begun and is in an advance stage.

Hewanorra International Airport

Another major project for 2010 is the upgrading and modernization of the Hewanorra International Airport, which includes construction of a new terminal building, installation of jet bridges, a new modern air traffic control tower and increased aircraft apron parking space, all of which are expected to ease existing congestion and position Saint Lucia to take advantage of future growth in tourism. The total cost of this project is estimated at over EC$300 million and construction is expected to begin by mid-year.

St Jude Hospital

Ladies and Gentlemen, the reconstruction of St Jude Hospital is a top priority of this Government and the sod turning ceremony will take place during the first quarter of this year. We are currently finalizing the design and financing arrangements for reconstruction of this vital facility in the south of the island, and further information will be provided in due course.

Private Sector Investment

Our optimism for the construction sector is not only confined to the public sector but the private sector will also be playing its part in the resuscitation of the economy. Work on the Le Paradis/Westin hotel project is expected to recommence soon, as the developers are completing new financing arrangements. Work on two other major hotels; Hotel Chocolat which has already started will intensify, and Point Hardy Development, is due to begin sometime later this year. The freeze in global credit markets had severe repercussions for investment in large scale tourism projects, not only in Saint Lucia but all over the world.

The Domestic Economy

Reflecting the downturn in the external environment, Government’s fiscal position deteriorated in 2009. During the first nine months of the 2009/10 fiscal year, current revenue declined by 3.4 percent to $532 million, while current expenditure increased by 4.0 percent to $479 million, resulting in a current account surplus of $53 million which is just over half (i.e. 56 per cent), of the surplus realized in the same period in 2008/09. The fall in revenue largely reflects the decline in domestic economic activity. The increasing expenditure pressures stemmed mainly from higher salaries and wages paid to Public officers. Preliminary estimates suggest that a reduced current account surplus will also be realized in the 2009/10 fiscal year. While this can be largely attributed to the difficult external economic conditions, Government will continue to manage this situation in order to ensure that Saint Lucia’s reputation of prudent fiscal management is maintained.

However, despite the challenges, Government has been able to honour all its financial obligations, including servicing its debt, paying salaries and meeting its other expenditure obligations. There were also welcome developments for the public, as the increase in the cost of living which affects all of us directly, was significantly lower, falling from 7.2 percent in 2008 to 1 percent last year (mainly reflected in the prices of food, housing, transport, electricity and fuel). We all know from personal experience that inflation has eased in a number of areas, but I also urge you not to let other people mislead you and I invite you to check with the Department of Statistics for yourself.

While the prospects for a very modest economic recovery in 2010 look promising, our optimism must be tempered with a dose of reality. Clear signs of recovery in the global economy have already started to emerge, as a number of countries including the US appear to be coming out of the recession. However, the severity of the recession coupled with the crisis in the financial system has resulted in serious reduction in the wealth of households, prompting a shift towards increasing savings and lowering consumption spending. Over the years consumers have been the major driving force behind US economic growth, but there is a real sense that their new found frugality will dampen growth for the foreseeable future. This is not very good news for small countries like Saint Lucia, as spending by Americans on activities such as long haul travel vacations, is likely to be low on the list of priorities for the average household budget. In general, our optimism must be tempered by the realization that spending in our source tourism markets is unlikely to be robust, investor confidence will continue to be low for some time and the global recovery, though present, is likely to be weak.

As far as the government’s financial situation is concerned, the fiscal position is likely to remain very challenging in 2010/11, as revenue growth remains weak, while expenditure pressures increase. We will have to ensure that the capital investment programme, which plays a crucial role in generating growth, is not compromised. As we emerge from the recession, it will be necessary to strengthen the resilience of our economy to external shocks and to build the fiscal space necessary for Government to respond to economic downturns such as we are currently experiencing.

Law and Order

Ladies and Gentlemen, the optimism that I spoke of can easily vanish if we do not bring the scourge of crime and deviant behaviour under control. No economy can thrive in societies without law and order. As such, I recognize the efforts of the Royal Saint Lucia Police Force in providing the security necessary to our nation. The recent spate of criminal activity is a definite concern to this government as it is to all St. Lucians. Unabated, it threatens to affect negatively our daily lives and our economic recovery efforts. Cognizant of this, the government, through the Royal Saint Lucia Police Force, will be embarking on a renewed and intensified effort to put a stop to the elements that are at the root of this problem. In this regard I have challenged the Commissioner of Police to end this unacceptable trend in our once peaceful Saint Lucia, and he has been assured of my unwavering support. As Prime Minister, it is my responsibility to ensure that all Saint Lucians and residents generally enjoy fully the fundamental rights and freedoms guaranteed under the Saint Lucia Constitution Order. Let it be known that I will not shirk, I will not waver, I will not cower and I will not fail in my responsibility to do just that. Neither will I ask the criminals for “... a break” in any season. This Country must return to absolute peace and tranquillity for all to enjoy.

Fellow Saint Lucians, it is incumbent that you too understand that the preparation of appropriate strategies to deal effectively with this problem takes time. Mindful of this, we are moving quickly to mobilize the resources necessary to tackle the problem. Be assured, that there will be an effective and robust response from this government.

The responsibility of effectively dealing with crime and deviant behaviour is not only that of the Police Force. I appeal to each and every Saint Lucian to play your part in taking a stance against crime. To the young men and women and others who are being lured in by the destructive elements, I ask you to rethink those choices. Do not allow your talents to be wasted away, through a life of criminality. To the parents, siblings, friends and the wider community, I appeal to you to encourage and support a change in lifestyle by these individuals. It is my fervent belief that through the combined efforts of the Police Force and each and every citizen, we can deal effectively with crime.

Haiti

Before closing, I want to recognise and commend Saint Lucians both at home and scattered the world over, for their spirit of generosity and goodwill towards our brothers and sisters whose lives have been shattered by the earthquake in Haiti. We must be ever mindful that no matter what our circumstances, we must open our hearts to those in need. We are never too poor to lend a helping hand. The needs of our Haitian brothers and sisters, whether for medical attention, food, shelter, proper sanitation, other goods or money, are numerous. I would like to use this occasion to make an appeal to all, to make contributions in whatever way you can, to the relief effort being organized by the various charitable organizations operating on behalf of Haiti.

As a reflection of the spirit of charity exemplified by Saint Lucians, the government has made a contribution of EC$500, 000 directly to the people of Haiti on behalf of the people and citizens of Saint Lucia. In addition, the government, through the agency of the National Emergency Management Office (NEMO) and in collaboration with local healthcare providers, has dispatched a team to assist directly with the relief effort. Government will continue to work through CARICOM to offer assistance to our sister CARICOM member state; Haiti, in her time of need.

I also recognise that as a people who come together in crisis, that we need a civil response so that all Saint Lucians can become more involved in assisting our brothers and sisters, who have lost the little that they had. In this regard, we have established a Committee made up of the “Friends of Haiti,” which will be undertaking various projects that will bring not only immediate relief, but will focus on the rebuilding of the country. I urge you to support their efforts and do whatever little you can, to help our neighbour.

In this effort, I ask you to also pray for Mr. Rosemund James, as well as his family and friends. Mr. James, the Director of the Eastern Caribbean Civil Aviation Authority is a Saint Lucian who was in Haiti for a regional meeting. Unfortunately, he was at the Montano Hotel which collapsed and to date no word has been received regarding his location.

Finally, as we prepare to face the challenges that lie ahead, I look forward to that same spirit of brotherhood displayed by the response of Saint Lucians to the Haitian disaster, being extended to the less fortunate among us. I wish to assure every Saint Lucian that this government is working with your interest in mind and I pray that God will continue to bless our nation and our extended family in Haiti, now and always.

Please accept my love and best wishes, and may the good Lord richly bless you.

I thank you.

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