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Economic Memorandum teportNo. 3828-SLU EconomicMemorandum Dn Public Disclosure Authorized St.Lucia kpril21, 1982 .atinAmerica and the CaribbeanRegional Office FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Documentof the Wfrld Bank Thisdocument has a restricteddistribution and may be usedby recipients only in the performanceof their officialduties. Its contentsmay not otherwise be disclosedwiLhout World Bankauthorization. CURRENCYEQUIVALENTS Currency Unit East Caribbean Dollar Since its creation in 1965, the East Caribbean dollar was tied to sterling a the rate of L 1.00 o EC$4.8. In July 1976 the link with, sterling was broken and the East Caribbean dollar was aligned with the US dollar at the rate US$1.00 = EC$k.70. Since July 1976: EC$1.00 = US$0.370 or US$1.00 = EC$2.700 FOR OFFICIAL USE ONLY This report is the result of a joint IMF/IBRD/CDB mission to St. Lucia in November 1981. The mission con- sisted of Mr. Samuel Stephens (IMF) - Chief of Mission, Mr. Carlos Elbirt (IBRD), Mr. Alan Slusher (CDB), Mr. Ali Abdi (IMF), Federico Rubli-Kaiser (IMF), Mr. Luis Valdivieso (IMF), Ms. Dolores Velasco (IBRD) and Mr. Paolo Lucani (FAO). Chapters I - IV and most of the statisticaltables were prepared by the Staff of the IMF. The contributionby IBRD includes Chapters V - VIII and the Summary and Conclusions. The assistance of ECCM in the preparation of some basic statistics and of UNDP in the preparation of the National Accounts is duly acknowledged. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ST. LUCIA Table of Contents Page COUNTRY DATA SUMMARYAND CONCLUSIONS ....................... , ... i-iii I. THE DOMESTIC ECONOMY.................. es ...... .. * ... 1 A. Overall Trends in Production and Expenditure............. 1 B. Output by Secoe.................. 3 C. Energy Consumption...... ........ ... .... O... 6 D. Population, Employment, Wages, and Industrial Reltonl......t...i..on...s0..0 .. 7 E. Price Trends ............ ,. .... 90*.. II. THE PUBLIC SECTOR.CT.. .. ........... R................... 11 A. Introduction .... *.. ........ 00... .... fee 11 B. Operations of the Central Government through FY 1980/81 .......... ,.. 0..O.* ... 0 11 C. Central Government Operations in FY 1981/82 .............. 17 D. Other Public Sector ........... ........ .. ...... 18 III. THE FINANCIAL SECTOR .............. 20 A. Characteristics and Overall Trendsr.............r... 20 B. The East Caribbean Currency Authority.... 20 C. Operations of the Commercial Banksa....... 22 D. Other Financial Intermediaries ........................... 25 IV. THE EXTERNAL SECTOR ................... .......... .O... ...... 26 A. The Balance of Payments. y.ms..... ........ ........ 26 B. Merchandise Exports.#r...................... * ............. 26 C. Merchandise Imports...p..... 28 D. Touim.*...i *.# sm.. 29 E. Other Transactions.a....... ............... 29 F. External Public Debte............. e........... 30 G. Exchange Rata................e 31 Table of Contents (Cont'd) Page V. DEVELOPMENT POLICY ISSUES . ............... 32 VI. PRIVATE INVESTMENT AND EXPORT PROMOTION ...................... 41 VII. PUBLIC SECTOR INVESTMENT PROGRAM....................GRA M..... VIII. PROSPECTS ........................... ....................oo........... 47 APPENDIX A. EXCHANGE AND TRADE SYSTEM..So. o............. 49 APPENDIX B. TAX SUMMARY, NOVEMBER 1981 .................... 52 APPENDIX C. CHANGES IN THE TAX SYSTEM SINCE 1980.....o.... 56 GOVERNMENT'S PROJECT AND TECHNICAL ASSISTANCE LISTS .......... 62 STATISTICAL APPENDIX. o ........ .... .................................. ... 147 MAP PREFACE AND ABSTRACT The economy of St. Lucia grew 3% in 1981 after a decline of 5% in 1981 caused by natural disasters and political instability. Public finances deterioratedin 1981 as wages and other current expenditures increased sharply. The current account deficit of the balance of payments continued to widen. Inflation decreased from 20% in 1980 to 16% in 1981. To encourage private investment, improvementsin the investment climate and improved infrastructuralservices are required. Land tenure policy, credit and extension services need to be addressed. Upgrading and increasing the supply of skilled personnel is a major requirement for industrial expansion. The Tourist Board needs to be strengthenedto better promote summer tourism. Road maintenance,port services and electricitysupply need to be improved. If the government pursues prudent policies and public sector savings are raised to earlier levels the country should enjoy a greater margin for borrowing on conventionalterms. ST. LUCIA--COUNTRY DATA ST. LUCIA Area and population Area 238 sq. miles (616 sq. kilometers) Population(end-1981 proj.) 122 thousand Annual rate of populationincrease (1976-81) 1.5 per cent GDP (proj. 1981) SDR 111.0 million GDP per capita 1981 SDR 910 Origin of GDP (proj. 1981) (per cent) Agricultureand fishing 17 Manufacturing 7 Construction 15 Government 13 Other 52 Ratios to GDP (proj. 1981) Exports of goods and nonfactor services 59.4 Imports of goods and nonfactorservices 111.2 Central governmentrevenues (fiscal year from April 1) 30.4 Central governmentexpenditures (fiscal year from April 1) 37.3 External public and government-guaranteeddebt (end of year) 13.7 Gross domesticsavings 5.2 Gross investment 57.0 Money and quasi-money(end of September) 57.2 Annual changes in selected economic Est. indicators 1978 1979 1980 1981 (per cent) Real GDP per capita 11.7 3.6 -5.9 1.6 Real GDP (at factor cost) 13.5 4.4 -4.5 3.2 GDP at currentprices 23.3 16.8 13.0 14.8 Domestic expenditure (at current prices) 32.1 15.4 14.9 23.3 Investment (68.5) (-3.4) (17.8) (19.6) Consumption (12.2) (30.9) (13.1) (25.6) GDP deflator 10.8 9.5 19.2 14.1 Consumer prices (annualaverages) 10.9 9.4 19.6 15.5 Central governmentrevenues (fiscal year from April 1) 10.9 38.3 5.9 3.5 Centralgovernment expenditures (fiscal year from April 1) 12.6 36.9 22.6 8.0 Money and quasi-money1/ 17.7 22.1 11.6 9.8 3/ Money (2.2) (51.8) (11.0) (-1.8)3/ Quasi-money (23.4) (12.9) (11.8) (16.1)3/ Commercial bank net domestic assets 2/ 27.5 12.8 16.6 22.6 3/ Credit to Central Government (aet)2/ (-3.4) (3.9) (-0.4) (3.9)3/ Credit to private sector 2/ (23.7) (16.4) (23.9) (16.4)3/ Merchandise exports (f.o.b., in U.S. dollars) 18.6 18.7 44.7 -12.2 Merchandise imports (c.i.f., in U.S. dollars) 39.6 22.2 22.3 11.6 Travel receipts (gross, in U.S. dollars) 55.6 20.6 17.1 -10.5 ST. LUCIA--COUNTRY DATA (Continued) Central government finances (fiscal Proj. year from April 1) 1978 1979 1980 1981 (millions of East Caribbean dollars) Revenue 63.8 88.2 93.4 96.7 Expenditure 67.5 92.4 113.3 122.3 Current account surplus or deficit (-) 7.0 2.1 1.0 -13.0 Overall surplus or deficit (-) -3.7 -4.2 -19.9 -25.6 External financing (net) 6.9 2.1 10.3 16.5 Internal financing (net) and residual -3.2 2.1 9.6 9.1 Balance of payments (millions of U.S. dollars) Merchandise exports (f.o.b.) 26.8 31.8 46.0 40.4 Merchandise imports (c.i.f.) -82.8 -101.2 -123.8 -138.1 Travel (net) 22.4 29.2 32.7 28.8 Other services and transfers (net) 10.1 12.3 11.8 17.3 Balance on current and transfer accounts -23.5 -27.9 -33.3 -51.6 Official capital (net) 2.7 3.0 1.6 2.6 Private capital (net) and errors and omissions 20.0 23.8 28.3 44.8 SDR allocation -- 0.5 0.5 Change in official net reserves (increase -) 0.8 1.1 2.9 3.7 IMF data (as of November 30, 1981) Article VIII status Intervention currency and rate U.S. dollar at EC$2.70 per US$ Quota SDR 5.4 million Cumulative purchases SDR 5.2 million Reserve tranche SDR 0.7 million Regular purchases SDR 1.8 million Compensatory financing facility purchases SDR 2.7 million Cumulative repurchases Fund holdings of East Caribbean dollars under tranche policy 125.0 per cent of quota Total Fund holdings of East Caribbean dollars 175.0 per cent of quota Special Drawing Rights Department Cumulative SDR allocation SDR 0.74 million Net acquisition or utilization (-) of SDRs -SDR 0.51 million Holdings of SDRs 30.9 per cent of allocation Share of profits from gold sales None 1/ Includes deposits of rest of public sector (excluding the Central Government). 2/ In relation to liabilities to the private sector at beginning of period. 3/ Year ended September 1981. ST. LUCIA SUMMARYAND CONCLUSIONS i. The economy of St. Lucia enjoyed a rapid expansion during the 1960s and most of the 1970s. The expansion took place in agriculture,tourism and, more recentlyr,in manufacturing. Natural disasters and a decline in private inveastmentdue to political insta- bility sharply slowed down the economic growth during 1979-80. After a decline of almost 5% in 1980, the economy grew about 3% in 1981 thanks to a significantrecovery of ag;ricultureand an expansion of the manufacturingsector, which more than offset a further contraction in tourism. ii. The financial situation of the consolidatedpublic sector deterioratedsharply in FY1981/82. Public sector savings dropped from about 5% of GDP in FY1980/81 to an es.timateddeficit of 0.3% in FY1981/82 primarily as a result of a sharp increase in current expen- ditures, particularlywages. iii. The current account deficit of the balance of payments has widened significantlyover the last fEewyears and, in 1981, reached a record level of about US$52 million, almost 40% of GDP. The main underlying factors behind this were a sharp increase in imports asso- ciated with foreign investments,particularly for the oil transship- ment terminal,and, more recently, a slowdown in export and tourist receipts.
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