Address by the Honourable Stephenson King on Current Economic Threats and Challenges facing Saint Lucia
Address by the
Honourable Stephenson King - Prime Minister and Minister for Finance, Economic Affairs, Economic Planning, National Development, External Affairs
October 13th 2008
“Current Economic Threats and Challenges facing Saint Lucia”
Good evening fellow Saint Lucians. As Prime Minister of Saint Lucia, entrusted with the management and stewardship of Saint Lucia’s economic and social development, I take this opportunity to address you today, on the current global economic situation in general, and in particular, to engage you on the efforts of the Government to mitigate these trying circumstances.
Let me assure you, that I have been carefully monitoring the unfolding events in the domestic and international environment, during these past weeks. Given the escalation and severity of the global crisis, it is incumbent upon me to speak to the nation at this time, about the realities that we face.
Indeed, the famous analogy; “The world is a global village” has never been more profound, than it is at this time. In recent times, the economy of Saint Lucia, like that of many other countries, has been experiencing a series of economic shocks. The impact of such shocks was the subject of the recently concluded Meeting of “Commonwealth Finance Ministers”, held here in Saint Lucia during the period October 6-8, 2008. These matters are also expected to dominate the discussions at the World Bank and IMF Meetings, to be held next week in Washington.
Among the numerous economic issues before us, the first shock relates to the inflationary impact of increasing commodity prices, including fuel and food prices, during the last year and a half. Oil prices more than doubled, between December 2006 and mid July 2008. This increase in oil prices, was driven by a number of factors, including increasing demand from emerging economies, such as China and India, as well as constraints to supply from 2006 to the mid 2008.
Fellow Saint Lucians, in addition to higher prices for petroleum products, I am well aware that Saint Lucians are also grappling with the reality of increasing food prices. The trend of soaring food prices began sometime in mid 2006, and intensified during early 2008. This was driven by price increases in six main food commodities, including corn, wheat, rice and soybean.
In recent times, the economy of Saint Lucia also had to respond to the impact of loss of airlift on the domestic tourism industry. In July of this year, American Eagle announced it’s decision to reduce its regular scheduled service to Saint Lucia effective September, consequential upon the downsizing of its hub in Puerto Rico. In order to mitigate this impact the Government of Saint Lucia initiated discussions with American Airlines, to introduce a second daily flight from Miami into Saint Lucia. In order to successfully conclude these discussions, Government will have to provide a revenue guarantee for this flight, to American Airlines.
Ladies and Gentlemen, fellow citizens, in the last few months commencing February 2008, another crisis emerged in the financial markets of the United States. This crisis started with the collapse of the US housing market, which ultimately led to a cascading series of bankruptcies.
The collapse of the US financial system forced radical interventions, by the United States government, in an effort to stabilize the market. This included a US$700 billion bailout package, provided to the United States financial sector.
The crisis in the US financial market has repeated itself in other markets around the world, including the British market where regulators have implemented a £200 billion bailout, for the banking system.
Fellow Saint Lucians, these shocks to which I have alluded, have precipitated a global economic slowdown of significant magnitude. As a result, the IMF reviewed its global economic outlook for real growth from 5% to 3.9% for 2008. In fact, the International Monetary Fund in a statement released on Wednesday October 8, 2008 labeled the crisis as the “worst financial shock” since the great depression of the 1930’s. Analysts have indicated that they are uncertain of how long this recessionary period will last. However, the forecast is that the recession may be prolonged and “bottom out” over a three year period. It is therefore imperative that we “prepare for the worst”, while we “hope for the best” possible economic outcomes, in Saint Lucia and the rest of the world.
A. Potential Impact on the economy of Saint Lucia
The question that is being asked is: “What are the potential impacts of these crises on the Saint Lucia economy? No doubt, this is the question on the mind of every citizen. Given our dependence on the tourism industry as a principal employer and source of foreign exchange, the most direct impact is likely to be felt in that sector. The crisis is likely to impact the sector, mainly through a decline in visitor arrivals in the medium term. Notwithstanding, based on advanced bookings, indications are that the UK market is expected to perform favorably during the coming winter season. The forecast for the cruise season is promising, in terms of estimated cabin numbers. We are therefore likely to start experiencing some adverse effects, early in the New Year.
Secondly, individuals and institutional investors who invest in international financial markets, will undoubtedly be adversely affected. However a recent statement by the Eastern Caribbean Central Bank, concerning the strength of the domestic financial system, has served to allay concerns regarding our financial system.
In this regard, the ECCB revealed that commercial banks are adequately capitalized and may not be impacted significantly by the crisis. Although we take a measure of comfort from this revelation, the Government through the Ministry of Finance has started a series of meetings with stakeholders in the financial sector, to determine the likely impact of the crisis, with a view to taking any necessary corrective action at the earliest.
Against this prevailing backdrop of economic downturn and financial turmoil in the international economy, the government has already taken a number of steps to mitigate the impact of the food and fuel price shocks, on the people of Saint Lucia. The first reaction of Government was to buffer the domestic economy, in order to reduce the adverse impacts on the disposable income and the standard of living of the ordinary citizens of Saint Lucia.
Contrary to views expressed in the public domain, that the government has done nothing to “ease the squeeze” on the average Saint Lucian, let me share with you some of the steps and measures, which this government, under my leadership, has taken to cushion the impact of these external price shocks on the people of Saint Lucia.
However, as you will appreciate, the capacity of the government to continue to absorb these losses and cushion the public from the brunt of the impact of high and rising prices is limited. If we are to ensure fiscal prudence and proper macroeconomic management of our economy, some difficult decisions will have to be made regarding these subsidies.
The increases which took effect on 1st August 2008 are as follows:
Government, in its efforts to preserve its ability to assist the citizens of Saint Lucia has seen it necessary to pursue a more sustainable policy stance to deal with the economic and fiscal challenges which we now face. In this regard, the government shall seek to replace existing blunt policy instruments, with more targeted interventions which bring relief directly and specifically to those who need it most. Those are our poor and vulnerable citizens, who are disproportionately affected by the increases in food and fuel prices. This will involve the use of a number of short-term and medium to long-term measures.
Clearly, these challenges will also call for personal sacrifices and adjustments, in our lifestyles and choices. The implementation of cost saving measures such as car pooling, increased use of public transportation, growing of kitchen gardens, recycling and use of energy saving bulbs can go a long way in easing the burden on families.
B. Recent Economic Performance (April to September)
The current financial turbulence is not expected to have any immediate or significant direct impacts on the economy of Saint Lucia. However, as the US economy and the economies of other major trading partners slow or slide into recession, the result could be slower growth of the Saint Lucia economy, over the medium term.
Brothers and sisters, notwithstanding these diverse external shocks, the economy of Saint Lucia has demonstrated some resilience. As alluded to earlier, inflation has been a major concern for the Government and consumers alike. Nonetheless, the government continues in its commitment to contain inflation, while steering economic growth. Against this backdrop, real economic growth in Saint Lucia is expected to show signs of weakening in 2008 and potentially into 2009.
But my fellow Saint Lucians, it is not all doom and gloom. Some sectors in the economy are showing resilience, with improved performances to date, relative to 2007. As at September, the tourism sector recorded growth in stay-over arrivals of 4.9 percent with modest growth in the cruise sub-sector. Following the passage of Hurricane Dean last August, banana production rebounded by 12.2 percent to reflect a favourable performance in export earnings.
However, activity in other sectors has been adversely impacted by many of the challenges posed by current global economic conditions. Constrained by low export demand, output in the manufacturing sector remained broadly stable. Preliminary indicators suggest, activity in the construction sector declined relative to the first half of 2007, when a number of infrastructural and private sector projects were being completed in final preparations for the hosting of Cricket World Cup.
There is also no doubt, that in addition to the subsidies, further fiscal pressures will emanate from the recent double-digit percentage salary increase, awarded to civil servants, as well as Government’s debt service commitments.
C. Way Forward: Inspiring Confidence
Despite the aforementioned challenges, the government remains steadfast in its resolve to deliver a better standard of living for Saint Lucians through the implementation of our vision plan for the economic and social development of Saint Lucia. Through this plan we hope to increase job opportunities for our people especially our youth.
To this end, the government will continue with the execution of its capital work programme aimed at expanding and modernizing the infrastructure of the Country, to make us more competitive, in this globalized environment.
In order to meet these challenges, we must all unite and respond accordingly. The government will work in collaboration with its partners in the economy, whether under the auspices of the Chamber of Commerce, the Saint Lucia Small Businesses Association, trade unions, investors and the media, to ensure this collaborative effort.
The government will continue to play its role in facilitating growth and development by proceeding steadfastly towards implementing public and infrastructural projects in Saint Lucia. Amongst these, are the construction of facilities aimed at improved delivery of health services with the re-commencement of physical work on the Psychiatric Hospital by the Government of Taiwan and the finalization of the process with the European Union, towards commencement of the New National Hospital early in the new year.
Further, the agriculture sector will benefit from an injection of capital to support feeder road development and construction of the National Abattoir. These feeder roads include Chassin, Des Barras, Combat, Lanfond, Morne D’or, Marc, Deglos, Polin, Piton, Torness, Malzeire/Sarrot, Au Pillon, Discoper. The roads development programme will also feature the continued rehabilitation of the East Coast Road from Praslin to Canelles, and segments of the West Coast Road will also commence. Most of these projects are scheduled to commence in early 2009.
Private Sector Investment
These public sector investments will be complemented by a number of private sector projects. Despite dampening global economic outlook, initial indications suggest that there will be minimal fallout associated with investment decisions for major private sector projects which have been announced.
Some of the projects expected to come on stream in the near to medium term, include the completion of Phase Two of the Landings in November 2008, and the commencement of phase III thereafter.
Additionally, phase I of the Rodney Bay Marina development should be completed by November of this year and work on the second phase will start shortly thereafter. The Jalousie Hotel has been sold and the new owners plan to commence renovations and expansion in April 2009.
I am pleased to report that discussions are in their advanced stages towards the recommencement of work at the Le Paradis and Raffles developments, and interest remains high in other major tourism projects. In light of this, the Government of Saint Lucia has convened a tourism summit with major potential investors in the tourism sector later this month, in order to reconfirm investment commitments. The hosting of Caribbean Hotel Association meetings in January next year should also reinforce confidence and interest in our tourism product and the “Simply Beautiful” brand.
Hess Oil refinery project
While in New York at the end of last month, I held discussions with the management of Hess Oil who reassured me of their commitment to get that project off the ground within the shortest possible time frame.
Hess oil is currently conducting their mandatory geotechnical and preparatory site works to facilitate proposed project and the realignment of a section of the millennium highway.
As an immediate demonstration of Hess’s commitment to the people of Saint Lucia the Company has agreed to finance the construction of the new CARE Technical-Vocational Institute, the rehabilitation of the Micoud Secondary and Leon Hess Comprehensive Secondary Schools to international standards.
I therefore encourage the local private sector to reaffirm their support for the development process through continued efforts at improving productivity and output. It must be recognized that our competitive edge can only be maintained through the provision of quality goods and services. The Government of Saint Lucia, for its part will continue to support the process of improving the business climate in Saint Lucia. To this end, a meeting will soon be convened by Government with the Chamber of Commerce, to explore ways and means of facilitating the improvement of the socio-economic climate in the Country. In addition, the Government will seek to improve business processes so that Saint Lucia can continue to advance its status as one of the best places to do business, within Latin America and the Caribbean region.
Fellow Saint Lucians, the events of the past few months are just a reminder that change is a constant, in our lives. Everyday new developments are unfolding in the global environment, which may have implications for our everyday lives. It is in that spirit, that I urge each and every Saint Lucian to exercise good judgement in their daily decisions. These are indeed “trying times”, which will require each one of us to exercise restraint in our consumption patterns and to improve our savings culture, to guard against future uncertainties. I must reiterate that we do not know how long this global economic downturn is likely to last, but the government of Saint Lucia remains cautiously optimistic about the future prospects of the Saint Lucian economy, and will do all in its power to temper the destabilizing effects of the economic storm.
Amidst growing apprehension about the impact of climate change, let us pray that we are spared the ravages of any unsettled weather conditions at this time, as we near the end of the hurricane season. The recent patterns of torrential rainfalls have already been having its impact on the economy. I hope that it does not progress any longer, since the Government can ill afford any unexpected charges on the “Public Purse” at this time.
Please accept my very best wishes and may God strengthen and richly bless our good nation, that we may continue to live in an atmosphere of peace, love and tolerance for each other.
My fellow Saint Lucians, I thank you.
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