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IMF team says after latest Article IV Consultation: ‘St. Lucia’s Debt Management Best in the OECS’

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Contact: Prime Minister's Press Secretary

Friday, February 3, 2006 - The International Monetary Fund (IMF) has again commended the prudent fiscal management of the Government of St. Lucia. This time, it's for having “the best record of prudent public debt management” in the OECS -- an accomplishment that has been welcomed by the island’s Prime Minister and Minister of Finance.

This latest commendation from a leading global financial institution follows the conclusion of the most recent Article IV Consultation with St. Lucia undertaken by the Directors on the IMF Executive Board.

The consultation is an annual assessment of each member-country undertaken by IMF staff missions from the Washington-based institution. The latest for St. Lucia took place on December 21, 2005.

The previous Consultation took place in July 2005, after which the IMF staff mission reported that economic activity had gained momentum, rising to 4% in 2004 from 2.9% the previous year.

The mission also indicated back then that growth was projected to exceed 5% in 2005 and to accelerate in 2006, in the run-up to the island's hosting of the Cricket World Cup in 2007.

Both these predictions have come true, with the country topping the 5% growth rate increase for 2005 and the island experiencing an unprecedented construction boom.

According to an official report following the latest Article IV consultation in December 2005, the IMF Directors “commended the authorities for their record of prudent public debt management.”

They also described St. Lucia’s record as “the best within the ECCU.”

The ECCU (Eastern Caribbean Currency Union) governs the single common currency of the OECS (Organisation of Eastern Caribbean States), the EC Dollar.

The IMF Directors also commended the St. Lucia Government “for the progress made in fiscal consolidation over the past two years.”

The visiting team noted that “a restrictive trade regime, high cost of capital and labour market rigidities appear to have delayed structural change.”

But they also acknowledged that after experiencing a prolonged period of slow economic activity from the 1980s to the immediate aftermath of the bombing of the World Trade Centre in September 2001, the island’s economy “has picked up since 2003.”

They pointed out that “real GDP growth was 4% in 2004” and predicted “it is expected to exceed 5% in 2005 and 2006.”

The IMF team reported that “central government’s fiscal policy has tightened markedly since 2003 and deficits have narrowed.”

Assessing the handling of the island’s public debt, the international financial and monetary inspectors said: “The rapid rise in public debt in recent years has slowed with total public debt reaching almost 68% of GDP by end of fiscal year 2004/05.”

They noted that “the current account deficit is set to widen through 2006,” but indicated that it “should begin to narrow thereafter as investment demand eases.”

Looking to the future, the IMF Directors recommended “a combination of revenue and expenditure measures”, which they said were needed “to strengthen the underlying fiscal position.”

These include “rebuilding petroleum tax revenues and converting the petroleum tax into an excise tax,” as well as “limiting the growth of the civil service wage bill.”

The team also recommended “eventually introducing a modern system of VAT and excise taxation.”

The IMF Directors considered that “to boost St. Lucia’s growth potential, the investment climate should be strengthened, competitiveness enhanced and outward orientation of the economy further decreased.”

The IMF is expected soon to release a Public Information Notice (PIN) containing its findings after the latest assessment by its team to St. Lucia.

Prime Minister Anthony, who has stewarded the country’s finances since 1997 as Minister of Finance, Economic Development and International Financial Services, has welcomed the latest findings and declarations by the IMF.

He said on Friday: “I am very pleased with the report.”

Dr. Anthony said St. Lucia “needs to continue along the path of economic reform,” adding that warning that “we must not waver, even in the face of the global challenges which continue to marginalize us.”


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