The latest VAT cuts will put pressure on the fiscal position of St. Lucia according to the IMF.
The view was stated in a report after an IMF team visited the island late last month.
“In the meantime, the fiscal package announced by the government under the “Five to Stay Alive” initiative, which includes a reduction of the VAT rate from 15 percent to 12.5 percent, will weaken the fiscal position unless measures are taken to mitigate its impact,” the IMF said in a statement on their website.
The VAT cut was one of the major promises by the UWP in the lead up to the 2016 general elections.
The cut in VAT, a part of the “Five to Stay Alive” innitiative, is seen by the St. Lucian Government as a major stimulus towards increasing the spending capital of St. Lucians which, it was hoped, would spur growth in the short to mid term.
The IMF also believes that shifting the tax burden on the tourism sector will negatively impact competitiveness and undermine growth.
The IMF also focused on St. Lucia’s debt burden, stating that a “multi-year fiscal consolidation plan” was needed in order to start the process of debt to GDP reduction from the current 82% to the target of 60% by 2030.
St. Lucia’s debt to GDP ratio has been in rapid increase over the last 2 years, moving from 77.8% in 2015 to 82.9% in 2016. Debt to GDP is expected to hit a high of 85.4% in 2017.