2009 Index of Economic Freedom

Quick Facts

Population:

• 0.2 million

GDP (PPP):

• $1.7 billion
• 5.0% growth
• 3.5% 5-year compound annual growth
• $9992 per capita

Unemployment:

• 20.0%

Inflation (CPI):

• 1.9%

FDI Inflow:

• $118.8 million

The 2009 Index is the first to assess Saint Lucia's level of economic freedom. The country's economic freedom score is 68.8, making its economy the 39th freest in the Index. Saint Lucia is ranked 6th out of 29 countries in the South and Central America/Caribbean region, and its overall score is above the world average.

Saint Lucia scores well in business freedom, monetary freedom, property rights, freedom from corruption, and labor freedom. Regulation is efficient and transparent. Inflation remains low, and efforts that began in 2003 to eliminate price controls have stabilized and facilitated economic growth. Corruption is present, but the government does an efficient job of implementing penalties.

Saint Lucia's trade freedom is still limited by tariff and non-tariff barriers. Government spending is pushing public debt to unsustainable levels. Investment freedom and financial freedom are weak. Contract enforcement is problematic, and the bureaucracy is cumbersome. There is much room for development and expansion of the financial sector. Greater access to financing is crucial for the business sector.

Background Back to the top

Saint Lucia is a two-party democracy with a bicameral parliament. Prime Minister Stephenson King of the business-friendly United Workers Party took office in 2007 following the death of long-time political leader John Compton. The economy depends primarily on tourism and banana production, with some light manufacturing. Recent improvements in roads, communications, water supply, sewerage, and port facilities, combined with a well-educated workforce, have attracted foreign investment in tourism and petroleum storage and transshipment. The Caribbean Development Bank funded an extensive airport expansion project. Faced with declining revenues from bananas due to foreign competition and reduced European Union trade preferences, the government is encouraging farmers to diversify into such crops as cocoa, mangos, and avocados. Saint Lucia is a member of the Caribbean Community and Common Market and hosts the headquarters of the Organization of Eastern Caribbean States.

Business Freedom 87.7 Back to the top

The overall freedom to conduct a business is well protected under Saint Lucia's regulatory environment. Starting a business takes an average of 20 days, compared to the world average of 38 days. Obtaining a business license requires nine procedures, compared to the world average of 18, and the number of days required is almost 100 less than the world average of 225.

Trade Freedom 72.0 Back to the top

Saint Lucia's weighted average tariff rate was 9 percent in 2007. Some high tariffs, import bans and restrictions, import taxes, import fees, some non-automatic import and export licensing, and some 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.

Fiscal Freedom 74.0 Back to the top

Saint Lucia's tax rates are high. The top income tax rate is 30 percent, and the corporate tax rate is a flat 33.3 percent. Property sales and transfers are also subject to taxation. In the most recent year, overall tax revenue as a percentage of GDP was 23.1 percent. The government has passed legislation to introduce a value-added tax (VAT) in 2009.

Government Size 68.5 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 32.0 percent of GDP. The precarious fiscal situation is exacerbated by growing public spending.

Monetary Freedom85.1 Back to the top

Inflation is relatively low, averaging 2.5 percent between 2005 and 2007. Saint Lucia's currency is the Eastern Caribbean Dollar (EC$), a regional currency shared among members of the Eastern Caribbean Currency Union (ECCU). The Eastern Caribbean Central Bank (ECCB) issues the EC$, manages monetary policy, and regulates and supervises commercial banking activities in member countries. The ECCB has kept the EC$ pegged at EC$2.7 = US$1. In 2003, the government began a comprehensive restructuring of the economy, including elimination of price controls and privatization of the state banana company. This restructuring paved the way for a healthy economic recovery, although growth slowed in 2007 as higher fuel prices hurt tourism and spurred inflation. Five points were deducted from Saint Lucia's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

In general, foreign and domestic firms are treated equally under the law, and many sectors are open to foreign investment. 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 renewed annually and are required for all foreign companies. All investors must register with the government. National investment laws do not cover all aspects of commercial law, infrastructure is weak, contract enforcement is problematic, and bureaucracy can be cumbersome. Foreign exchange and capital transactions are subject to some restrictions and approvals.

Financial Freedom40.0 Back to the top

Saint Lucia's financial sector is small and not fully developed. 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. Credit to the private sector has grown steadily, and non-performing loans have declined. The non-financial sector, led by insurance firms, has expanded rapidly.

Property Rights70.0 Back to the top

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.

Freedom From Corruption68.0 Back to the top

Corruption is perceived as present. Saint Lucia ranks 24th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The law provides criminal penalties for official corruption, and the government generally implements the law effectively.

Labor Freedom82.8 Back to the top

Saint Lucia's flexible labor regulations are conducive to employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is relatively easy.