Quick Facts
Population:
GDP (PPP):
- $1.7 billion
- -5.2% growth
- 0.4% 5-year compound annual growth
- $10,178 per capita
Unemployment:
Inflation (CPI):
FDI Inflow:
Saint Lucia’s economic freedom score is 70.8, making its economy the 26th freest in the 2011 Index. Its score is 0.3 point better than last year, with improvements in monetary and fiscal freedom offset somewhat by decreases in other areas. Saint Lucia is ranked 2nd out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.
Saint Lucia scores above the world average in business freedom, freedom from corruption, and monetary freedom. The entrepreneurial environment is generally efficient and transparent, and the regulatory framework has become more streamlined. The small financial sector has been isolated from any serious impact of the global financial turmoil, but the recession has hurt the country’s tourism sector.
Saint Lucia’s trade freedom is limited by tariff and non-tariff barriers. Government spending is pushing public debt to over 70 percent of GDP. Greater access to financing opportunities remains critical to private-sector development in the island’s economy, and there is considerable scope for further development and better regulation of the financial sector.
Background
Saint Lucia is a two-party parliamentary democracy. Prime Minister Stephenson King of the business-friendly United Workers Party took office in 2007. Saint Lucia is a member of the Caribbean Community and Common Market and home to the Organization of Eastern Caribbean States. Its economy depends primarily on tourism, banana production, and light manufacturing. An educated workforce and improvements in roads, communications, water supply, sewerage, and port facilities have attracted foreign investment in tourism and in petroleum storage and transshipment. However, with the U.S., Canada, and Europe in recession, tourism has declined by double digits. Because of fluctuations in banana prices and reduced European Union trade preferences in bananas, the government is encouraging farmers to diversify into such crops as cocoa, mangos, and avocados.
Saint Lucia’s regulatory environment fosters private-sector development. Establishing a business is neither time-consuming nor costly and licensing requirements are not burdensome.
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Saint Lucia’s weighted average tariff rate was 9 percent in 2007. Some high tariffs, import bans and restrictions, import fees, non-automatic import and export licensing, and limitations on trade capacity add to the cost of trade. Ten points were deducted from Saint Lucia’s trade freedom score to account for non-tariff barriers.
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Saint Lucia’s tax rates are moderately high. The top income tax rate is 30 percent, and the top corporate tax rate is also 30 percent, down from 33.33 percent. Property sales and transfers are also subject to taxation. In the most recent year, overall tax revenue as a percentage of GDP was 27.5 percent. The government introduced a value-added tax (VAT) in 2009 and a vehicle licensing fee in 2010. The tax on mobile phone use was raised as of May 1, 2010.
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In the most recent year, total government expenditures, including consumption and transfer payments, equaled 30.9 percent of GDP. Fiscal stimulus, if sustained, could drive up public debt, which now stands at 75 percent of GDP.
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Inflation has been low, averaging 2.4 percent between 2007 and 2009. The global recession has caused a reduction in tourist revenue and foreign investment, significantly slowing growth rates and dampening inflationary pressures. Saint Lucia’s currency is the Eastern Caribbean Dollar (EC$), a regional currency shared among members of the Eastern Caribbean Currency Union. The Eastern Caribbean Central Bank issues the EC$, manages monetary policy, and regulates and supervises commercial banking activities in member countries. Five points were deducted from Saint Lucia’s monetary freedom score to account for measures that distort domestic prices.
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In general, foreign and domestic firms are treated equally under the law, and many sectors of Saint Lucia’s economy are open to foreign investment. All investors must register with the government, and foreign investors must obtain a license to purchase land or shares in a company. A separate trade license must be obtained if more than 49 percent of the company’s shares are held by foreign nationals or if the company is 100 percent foreign-owned. Licenses are required for all foreign companies. National investment laws do not cover all aspects of commercial law, contract enforcement is problematic, and bureaucracy can be cumbersome. Foreign exchange and capital transactions are subject to some restrictions and approvals.
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Saint Lucia’s small financial sector is not fully developed. The global financial turmoil has not severely affected the financial system, but it did reveal weaknesses in the regulation of non-bank financial institutions, which are not subject to the same standards as banks and have engaged in riskier investments. There is a small offshore financial sector, and the banking sector is dominated by commercial banking. Saint Lucia is a member of the Eastern Caribbean Currency Union, which has a common central bank and currency. The financial services sector is also overseen by the government’s Committee on Financial Services. A considerable portion of the population remains outside the formal banking sector, and limited access to financing remains a barrier to more dynamic business activity. Nonetheless, credit to the private sector has grown steadily. Non-performing loans have gradually declined since around 2003, although they have edged up over the past two years. The non-financial sector, led by insurance firms, has expanded rapidly.
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Saint Lucia has an efficient legal system based on British common law. The judiciary is independent and conducts generally fair public trials. Pirated copyrighted material is sold openly with no fear of arrest or prosecution.
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Corruption is perceived as present. Saint Lucia ranks 22nd out of 180 countries in Transparency International’s Corruption Perceptions Index for 2009. The law provides criminal penalties for official corruption, and the government generally implements the law effectively.
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Saint Lucia’s labor regulations are flexible, but an efficient labor market has not fully developed. Application of existing labor codes is uneven. The non-salary cost of employing a worker is low, and dismissing an employee is relatively easy.
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