BRIDGETOWN, Barbados, Mar 20, CMC – St. Lucia is expected to record economic growth of three per cent this year with the Barbados-based Caribbean Development Bank (CDB) saying that the growth appears poised to increase in large part due to private and public sector construction programmes coming back on stream.
In its “Country Economic Review 2018-St. Lucia”, the region’s premier financial institution said that tourism activities are projected to expand and agriculture output will remain buoyant.
“Consequently, growth in ancillary economic activities, such as wholesale and retail and transport and storage, will likely trend upwards. Higher levels of expenditure, mainly capital spending, could lead to a slight deterioration in fiscal conditions with an adverse impact on public debt.
“Moreover, a bunching of debt service payments could present challenges in 2019. Projected global economic slowdown and the island’s high susceptibility to natural hazard events present major downside risks,” the CDB noted.
It said that economic activity in St Lucia decelerated to 0.6 per cent last year from 3.7 per cent in 2017 and that this slowdown was mainly due to a significant downturn in the construction sector.
Headline inflation increased, while Central Government operations resulted in improved fiscal balances; and public debt as a per cent of the gross domestic product (GDP) was slightly lower.
Commercial bank credit to the private sector contracted in 2018; and the spread between lending and deposit rates widened. The external current account was in surplus, while gross reserves as a percentage of imports contracted.
But the CDB said that the economic outlook is positive and that “growth is projected to rebound to three per cent, and fiscal conditions should improve in 2019”.
However it said risks to the outlook are tilted to the downside.
It is estimated that GDP expanded by 0.6 per cent in 2018 and this deceleration in activity was driven mainly by unfavourable outturns in the main growth sectors.
Delays in private and public sector construction projects resulted in a steep sector decline of 17 per cent, in contrast to a robust expansion of 11.4 per cent in 2017. Meanwhile, the pace of growth in tourism-related activities slowed to 4.3 per cent, compared with the 10.3 per cent recorded in 2017.
Consequently, key ancillary activities such as wholesale and retail, and transport and storage, either contracted or recorded lower expansion in 2018. Conversely, the buoyant growth in agricultural output (11.4%) mitigated the slowdown in economic activity. This outturn represented a considerable turnaround in the agricultural sector which had recorded an average decline of two per cent over the previous five years.”
The CDB said weaker economic conditions compromised employment performance in 2018. Data from the Central Statistics Office (CSO) show that, on a year-on-year basis, the unemployment rate rose to 20.9 per cent in the third quarter of 2018, compared with 16.8 per cent for the same period in 2017.
Job losses were recorded in all major sectors except public administration. On an annualised basis, unemployment was estimated to be approximately 21.5 per cent in 2018, marginally up from 20.2 per cent in 2017.
Central government operations resulted in improved fiscal outcomes in 2018.
Preliminary estimates from the Ministry of Finance (MOF) indicate that the overall balance switched to a surplus position of 0.3 per cent of GDP as at September 2018, from a deficit of 0.8 per cent as at the same period in 2017, while the primary surplus improved to 3.5 per cent of GDP from 2.4 per cent over the comparable period.
“The improved fiscal balances resulted from expansion in total revenue and grants, which grew by 9.3 per cent, outpacing the 4.6 per cent growth in total expenditure. Notable revenue performances were recorded in value-added tax (VAT), which rebounded by 4.9 per cent following a 9.4 per cent decline in 2017 when the rate was reduced to 12.5 per cent from 15 per cent,” the bank said.
It said collections from the Citizenship by Investment Programme (CBI) were particularly strong. September 2018 figures indicate a more than sevenfold rise to US$60.2 million from seven million US dollars for the same period a year earlier.
On the expenditure side, a number of categories recorded growth. Spending on goods and services, which grew by 45.8 per cent year-on-year as at September 2018, recorded the largest increase.
Public sector debt was estimated to be 67.8 per cent of GDP at the end of 2018, slightly down from 68.5 per cent a year earlier. The reduction in debt was consistent with improvements in fiscal outturns, and a reduction in borrowing requirements for 2018
Outcomes in the financial sector largely reflected the slowdown in economic activity. Commercial banks’ lending to the public and private sectors declined as at end of September 2018. Credit to the private sector contracted by 1.7 per cent, while lending to Central government fell by seven per cent.
At the same time and, consistent with lower economic activity, currency with the public recorded a 10.2 per cent decline. The prime lending rate increased by 200 basis points to nine per cent, and the spread between the weighted average lending and deposit rate widened by 10 basis point to 6.62 per cent.
Meanwhile, the ratio of gross non-performing loans to total loans declined to 10.3 per cent from 12.5 per cent at the end of 2017. The capital adequacy ratio moved up to 19.2 per cent.
The CDB reported that the external current account recorded a small surplus for the first time in three years.
The surplus was 0.8 per cent of GDP compared with a deficit of 2.5 per cent at the end of 2017.
“This outturn was aided by higher exports of services, which offset the decline in goods and merchandise trade. Data as at September 2018 show that imputed gross reserves ticked up to an equivalent of 4.8 months of imports,” the CDB said.