A team from the International Monetary Fund (IMF) will hold meetings this week with the Prime Minister, Ministry of Finance and other public and private sector officials as part of the annual Article IV discussions on economic developments and macroeconomic policies of the government.
In its report in August of last year, the IMF team made the following observations to the Stephenson King-administration in its 2011 Article IV Report: “The implementation of the value-added tax by April 2012 would be a critical pillar of the fiscal adjustment, supported by efforts to contain public sector wage growth, reform the public pension system, streamline tax incentives and exemptions, phase out generalized subsidies in favor of targeted assistance for the poor, and restoring the financial viability of the water company. Given the uncertain international and regional financing prospects, the task of fiscal consolidation is even more urgent.”
The IMF has repeatedly advised the Government of Saint Lucia on the need for fiscal consolidation. In the 2008 Article IV Staff Paper, the IMF stated: “Civil service wage negotiations for the 2008–10 triennium will commence later in 2008, and the mission expressed concern regarding the effects on competitiveness of excessive wage increases. The mission and the authorities agreed on the importance of limiting wage increases, to facilitate fiscal consolidation and dampen second round increases in inflation, particularly as the authorities do not have an independent monetary policy that can be used to achieve these goals. In addition, civil service reforms should be undertaken, which would offer some scope for savings while providing greater differentiation in the pay scale between higher- and lower-skilled workers.”
This issue will undoubtedly, once again, be high on the agenda for discussions with the IMF.
In addition to its stance on fiscal consolidation, the IMF has also been a strong advocate of efforts to improve the investment environment by simplifying the investment process. The government has already taken several steps in this regard, including (i) commissioning a Private Sector-led committee to make recommendations on measures to improve Saint Lucia’s Ease of Doing Business Ranking, (ii) initiating an E-Commerce Strategy and Action Plan that will allow for the use of technology in making business processes more efficient, and (iii) re-energizing the Public Sector Modernization programme, which focuses on reducing the transactional time and cost of interacting with Government agencies and improving the efficiency of government operations.
The challenge for the Government of Saint Lucia, which it will share with the IMF during the Article IV consultations, is to facilitate sustained growth in the economy through strategic investments in key areas, some traditional like tourism, agriculture, construction and public infrastructure rehabilitation, and some new or emerging such as the creative industries, renewable energy, and information and communications technology (ICT).
Moreover, the government has to ensure that the revenue base grows at a quick enough pace to sustain much-needed investments in education at the early childhood and post-secondary levels, health care, national security and social safety nets. Therefore, a critical imperative for the Government, over the short to medium term, will be to exercise wage restraint and discipline in order to prevent a deterioration of the fiscal position to a point where the aforementioned urgent development needs cannot be met.
The IMF team is expected to conclude its consultations on Friday, December 7, 2012.
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