IMF Article IV Review Projects Slower Growth For St. Lucia In 2025

The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for St. Lucia.[2] The authorities have consented to the publication of the Staff Report prepared for this consultation.^[3]

Real GDP expanded by 4.7 percent in 2024, driven by robust tourism flows from the U.S. and construction activity. However, stayover tourist arrivals declined by 3.2 percent y/y during January-September 2025, underperforming regional peers, mainly driven by a decline in U.K. and Canadian tourists as temporary hotel closures and reduced airlift weighed in. In line with economic developments, the unemployment rate reached 10.8 percent in 2024, a historic low, but then inched up to 13.4 percent in Q22025. The headline CPI fell by 0.5 percent in 2024, primarily driven by easing international food and energy prices, and increased modestly by 0.5 percent in H12025.

Growth is expected to decline to 1.7 percent in 2025 with weaker tourism but strong construction activities, domestic demand, and credit expansion, and then rebound to 2.3 percent in 2026 as tourism picks up. Over the medium term, growth will converge to its potential rate of 1.5 percent as tourism flows stabilize and planned infrastructure and construction projects complete.

Twelve-month moving-average inflation is projected to increase by 1.3 percentage points to 0.8 percent in 2025 due to, amongst other factors, higher import costs from tariffs imposed elsewhere, and then gradually converge to 2 percent over the medium-term, consistent with the expected trend among major trading partners. The current account deficit will gradually narrow to 1.1 percent of GDP by 2030 as planned construction at hotels, airports and cruise facilities is completed.

The overall fiscal deficit excluding natural disaster costs is expected to narrow to 2.3 percent of GDP by FY2030/31, with rising interest and wage bills partly offset by a decline in capital expenditure. Public debt, which also pencils in natural disaster costs, is projected to stabilize at around 77 percent of GDP in the medium term.

Risks to the outlook remain tilted to the downside. External risks include geopolitical tensions, escalating trade measures and prolonged policy uncertainty, which could dampen global economic activity, potentially weaken tourism and FDI flows to St. Lucia and increase its import costs. On the domestic front, weaker-than-expected performance in the tourism and construction sectors may further constrain growth. St. Lucia is also vulnerable to the ever-present natural disasters and climate change risks. Upside risks to growth include stronger-than-expected growth in tourism, construction, and public investment.

Executive Board Assessment

The St. Lucian economy has staged a robust performance in recent years. After one of the largest declines in the region in 2020, economic growth rebounded sharply, buoyed by increased tourism services. Following a strong expansion in 2024, growth is expected to fall in 2025 from weaker tourism amid temporary hotel closures and reduced airlift but rebound in 2026 as tourism picks up. The external position in 2024 was assessed as broadly consistent with fundamentals and desirable policies. Fiscal performance has strengthened, supported by three consecutive years of primary surpluses. Nonetheless, long-standing challenges remain with income per capita diverging from the US in the past decades, weak productivity, high public debt stock, and the ever-present risk of natural disasters.

The overarching fiscal policy priority is to reduce public debt and create room for capital spending through revenue-based measures. Under current policies, public debt will fall short of the regional target of 60 percent of GDP by 2035. Without further actions, development resources may shrink, and debt and borrowing costs could increase further during shocks. A growth-friendly and feasible fiscal adjustment would help to decisively reduce public debt to the regional target, lower borrowing costs, and enable resources for higher capital expenditure to address growth bottlenecks. It could include three pillars: (i) a comprehensive tax reform and enhanced tax administration—starting now and implemented gradually over the medium term; (ii) improved control and targeting of current expenditures; and (iii) adoption of a sound fiscal rule within a fiscal responsibility framework.

Reforming the tax system would boost revenue, improve equity, and reduce distortions. St. Lucia’s tax system has high tax expenditures which weaken collection. Tax measures could include rationalizing corporate income tax incentives, broadening the VAT base (including digital services)—accompanied with targeted support to vulnerable households, improving personal income tax progressivity, shortening property exemptions, reforming fuel taxes and increasing excises on alcohol and tobacco. Tax administration priorities include strengthening audit and inspection, accelerating digitalization of processes, enhancing compliance and improving transparency.

Higher efficiency and spending rebalancing would create space for growth- and equity-enhancing expenditures. Social protection initiatives should be well-targeted and budgeted. Strengthening the public-private partnerships (PPPs) framework through transparent reviews and sound institutional structures can support infrastructure development without undermining fiscal discipline. The recent increase in pension benefits, amid a rapidly aging population, creates longer-term fiscal risks and requires forward-looking reforms.

Introduction of a medium-term fiscal framework (MTFF) and formal fiscal rules, and continued strengthening of the Citizenship Investment Program (CIP) could further instill fiscal planning, prudence, and discipline. Further priorities, building upon past initiatives, include: (i) publication of an MTFF prior to the annual budget, with at least three years’ projections, a fiscal risk statement, a debt sustainability analysis, and policy scenarios; (ii) examining the potential establishment of operational fiscal rules; and (iii) continuing to improve CIP governance and transparency.

Efforts to strengthen the financial sector should be sustained. The banking sector is well-capitalized and highly liquid, but NPLs remain elevated despite recent improvements. Policy priorities include ensuring full compliance with the ECCB’s 60 percent provisioning requirement for NPLs and avoiding excessive reliance on general reserves. The recent enactment of legislation aimed at strengthening debtor rights and streamlining movable asset financing marks a significant milestone. Introducing foreclosure legislation—that balances market efficiency with strong borrower protections—to effectively secure real estate mortgages could be the next step.

Further strengthening the resilience of non-bank financial institutions is essential. Building on the new Co-operative Societies Act, additional steps are needed to strengthen credit union regulation and supervision, including developing and enforcing prudential standards, streamlining provisioning rules to align with ECCB practices, and progressively extending Asset Quality Reviews and stress testing to all credit unions. Rising reinsurance costs and low property retention ratios among local insurers constrain profitability and coverage, underscoring the need for a more integrated regional supervisory framework to strengthen oversight, narrow the protection gap, and support affordability. Efforts to mitigate ML/FT risks should continue.

Addressing supply-side bottlenecks will increase long-run growth and reduce the cost of living. Structural bottlenecks—such as high financing costs, limited credit access, and regulatory burdens—need to be addressed to improve productivity and reduce living costs. The recent introduction of a minimum wage provides an important safeguard for low-income workers, but careful monitoring is required to make sure that it supports vulnerable groups without hampering their employment opportunities or competitiveness. Digitalization efforts must continue, with a focus on expanding internet access, improving digital literacy, and fostering innovation to create jobs and attract investment. Continued efforts on climate adaptation, energy transition, and climate insurance are essential.

Expanding trade relationships, improving connectivity, and strengthening regional cooperation are key to enhancing resilience and affordability. St. Lucia’s economy is highly open, driven by tourism services and imports of goods, which heightens vulnerability to external shocks. Import concentration increases living costs and external vulnerability. Policy efforts should streamline customs procedures, help reduce freight costs and shipping fees, and enhance market competition. However, the scope and the size of source-reorientation would depend on addressing diversification challenges related to the size of the economy. Tourism and export broadening over time should continue, including expanding into new source markets, and broadening the economic base beyond tourism (e.g., developing human capital-intensive service sectors such as digital and professional services). Proactive engagement in new and existing trade opportunities, in collaboration with OECS and CARICOM partners, can support sustainable trade reorientation.