The landmark Piton Mountains in St Lucia. - file

WASHINGTON (CMC):

The International Monetary Fund (IMF) says although economic activity was 'flat' in St Lucia in 2007, growth is likely to accelerate over the next two years.

The IMF says agriculture, the tourism sector and related support activities would spur the economic growth in 2008 and 2009.

The Washington-based financial institution noted, however, that while medium-term growth prospects are favourable, risks were "tilted to the downside given the uncertainties in the external environment, in particular with regard to the effect of energy price increases on tourist arrivals".

It said that it had considered that the reforms envisaged by the authorities, aimed at strengthening the tourism infrastructure, improving the investment climate and diversifying exports would broaden the bases of economic growth and reduce exposure to external shocks.

The IMF said it welcomed the recent improvement in fiscal performance and stressed the need to maintain a primary surplus to ensure debt sustainability, and to help dampen inflationary pressures.

Call for broader tax base

The financial institution has called for a broadening of the tax base, along with stepped up preparations for the introduction of the Value Added Tax (VAT), and has urged the Stephenson King administration to follow through on commitments to introduce a "more flexible retail fuel-pricing mechanism to achieve greater pass-through of world oil price increases, as well as market valuation-based property taxation".

The IMF said that achieving fiscal and debt sustainability would also require greater prioritisation of capital spending, limiting the civil service wage bill and enhancing debt management, noting that the acceleration in inflation appears to be due largely to the high prices of imported food and fuel and the ongoing depreciation of the US dollar.

Given the negative impact of inflation and the erosion of trade preferences on the purchasing power of the poorest segment of society, the IMF welcomed the government's plan to sharpen its poverty-reduction programmes and commended the authorities' efforts to strengthen social safety nets.