St Lucia, Thursday December 13, 2012 – The St Lucia government has received a
stamp of approval from the International Monetary Fund (IMF) for its
implementation of the controversial new Value Added Tax (VAT) but this will not
be enough to sustain the economic growth of the eastern Caribbean nation
cautioned the Washington-based institute.
a visit by an IMF staff team to St Lucia during November 27 to December 7 for
its annual Article IV consultation with St Lucia public, private sector and
trade union officials, a statement issued by the IMF yesterday (December 12)
said that it welcomed the introduction of the VAT as this would modernize St
Lucia’s tax system, broaden the tax base, and enhance revenue collection.
the IMF cautioned that the expected gain from the VAT could only be realized if
all sectors contributed, and the base is shielded from the exemptions that have
eroded the yield of other taxes. Even then, it said, a considerable further
effort would be needed to strengthen the fiscal position and bring it on track
to reach the Eastern Caribbean Currency Union-wide debt target of 60 percent of
gross domestic product (GDP) by 2020.
be successful, stated the IMF, this adjustment effort will need to fall predominantly
on current spending, especially containing the already large public wage bill
and better targeting transfers and subsidies to the most vulnerable, as well as
build on the introduction of the VAT to further widen the tax base. It said
these efforts were also necessary to safeguard needed productive investments
and enhance the country’s competitiveness through restrained growth in wage
Lucia has weathered the difficult post-crisis environment well, becoming the
largest economy in the Eastern Caribbean Currency Union (ECCU). Rising external
headwinds, however, have dampened economic activity, with growth estimated to
slow to 0.2-0.4 percent in 2012, despite government efforts to revive the
economy. Low growth and high unemployment are weighing on financial
institutions’ credit quality and their balance sheets. Fiscal imbalances have
also widened, reflecting past expansionary policies and the recent stimulus
efforts to boost growth, and are expected to contribute to continued sizeable
external current account deficits. Inflation is projected to edge up in the
wake of the introduction of the value added tax (VAT) on October 1, 2012, but
the effect will be temporary,” stated the IMF’s St Lucia mission chief Aliona
Cebotari in the release.
this backdrop, the discussions with the authorities focused on achieving the
appropriate balance between fostering growth and employment, while
strengthening economic fundamentals through fiscal adjustment and addressing
financial sector vulnerabilities,” she went on to add.
unemployment remaining very high, especially among the youth, growth and job
creation are appropriately key priorities for the government. Addressing these
challenges through fiscal policies is no longer an option because of lack of
fiscal space. The mission welcomed efforts under way to improve the efficiency
of the public service, streamline the regulatory environment for investments,
and establish the institutional underpinnings of competitiveness reforms, in
order to boost St. Lucia’s growth potential. Additional structural reforms will
be needed to improve the business climate, adapt the education system to the
needs of the economy, reduce trading and electricity costs, and eliminate price
and non-price impediments to credit availability. Most importantly, restraining
growth in public wages will be key to safeguarding the economy’s
competitiveness and growth potential going forward,” cautioned Cebotari.
the health of the financial system is necessary to support the growth and
stability objectives of the government. The mission discussed with the
authorities measures to decisively address identified weaknesses in the
financial system and its regulatory and supervisory environment, including by
working closely with the regional bank supervisor and making the nonbank
supervisory body (Financial Sector Regulatory Authority) fully operational.
Passing the revamped legislation regulating credit unions and insurance
companies will also be important in this respect,” she advised.
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