The document summarizes the current state of the global and Saint Lucian economies. It notes that the global economic outlook has worsened as growth has slowed in major economies like China, India, and Brazil. This slowing is expected to negatively impact Saint Lucia through lower tourism, FDI, exports, and grants. Saint Lucia's growth is projected to be below targets for 2012 due to these mounting risks. The government's fiscal position is also expected to deteriorate as the recurrent deficit exceeds targets and revenues fall short. Salaries and wages comprise the largest share of expenditures and have been steadily increasing, posing challenges. Recommendations include foregoing salary increases this period to address fiscal issues and risks to the economy.

1. 1

2. Order of Presentation
International Economic Situation
Impact on St Lucia’s Economy
Highlights of Government Fiscal
Position
Growth in Salaries and Wages
Issues for Consideration
Recommendations
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3. Global economic outlook has worsen…
The recent deepening of the European banking and
sovereign debt crisis has given rise to renewed
uncertainty of the pace of the global economic
recovery.
Growth has slowed in some of the major drivers of
the global economy such as China, India and Brazil.
The recovery in the US and other advanced
economies appears to be stalling.
There are renewed fears that the global economy is
headed for a recession.
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4. 4
2010 2011 2012 2013
World Output 5.3 3.9 3.5 3.9
Advanced Economies 3.2 1.6 1.4 1.9
USA 3.0 1.7 2.0 2.3
Euro Area 1.9 1.5 -0.3 0.7
Germany 3.6 3.1 1.0 1.4
France 1.7 1.7 0.3 0.8
Italy 1.8 0.4 -1.9 -0.3
Spain -0.1 0.7 -1.5 -0.6
Japan 4.4 -0.7 2.4 1.5
UK 2.1 0.7 0.2 1.4
Canada 3.2 2.4 2.1 2.2
Emerging &
Developing Countries 7.5 6.2 5.6 5.9
China 10.4 9.2 8.0 8.5
India 10.8 7.1 6.1 6.5
LAC 6.2 4.5 3.4 4.2
Brazil 7.5 2.7 2.5 4.6
Mexico 5.6 3.9 3.9 3.6
Source: IMF WEO (July 2012)
World Economic Projections - Percentage Change

5. … and Saint Lucia’s economy could be
negatively impacted
Saint Lucia’s economy is very open and closely
integrated with advanced economies, US, Canada and
Europe.
As these economies continue to slowdown, we could
see decline in tourist arrivals, FDI inflows, lower
demand for our exports, reduced grants.
Major productive sectors of our economy are likely to
come under intense pressure this year reflecting the
global slowdown.
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6. Economic growth is likely to be subdued
The stimulus package announced in the 2012/13 budget will
have a positive impact on growth and employment but
downside risks are mounting.
Impact on growth and employment depends on the pace of
implementation and sustainability of programs.
Impact is likely to be realized towards the latter part of 2012
given the need to raise financing and put measures in place.
Recent experiences with debt restructuring around the
region (Antigua, St Kitts and now Belize) may not bode well
for our fund raising drive.
While growth of 2.5 percent was projected for 2012, we may
fall short of target given mounting downside risks.
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7. Fiscal position is likely to deteriorate
sharply
Recurrent deficit in the 2012/13 budget – borrowing to
finance recurrent expenditure.
More than half of the $40.8 million recurrent deficit was
realized in just the first quarter (Apr – Jun 2012).
Based on current trend and given mounting expenditure
pressures, the recurrent deficit is likely to exceed the
budget target.
Revenue performance was below projections for April to
June 2012, falling short of target by $23 million.
The likely increase in recurrent and capital expenditure
coupled with lower revenue collection are expected to
result in an increase in the overall fiscal deficit to about 9
percent of GDP.
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8. 8
2007/08r 2008/09r 2009/10r 2010/11r 2011/12pre
TOTAL REVENUE AND GRANTS 753.10 829.03 826.79 873.91 921.63
Current Revenue 741.23 804.87 759.62 787.18 828.76
Tax Revenue 687.74 737.74 700.76 736.34 757.39
Non Tax Revenue 53.49 67.13 58.86 50.85 71.37
TOTAL EXPENDITURE 811.34 856.82 925.08 1,041.04 1,183.25
Capital Expenditure 230.70 208.17 241.31 298.57 402.60
Current Expenditure 580.64 648.65 683.77 742.47 780.65
Salaries & Wages 266.97 301.07 316.15 342.30 350.31
Current Balance 160.59 156.22 75.85 44.71 48.11
Primary Balance 26.27 60.68 -11.54 -65.38 -150.45
Overall Balance -58.24 -27.79 -98.29 -167.13 -261.62
Salaries and Wages Account for Single Largest Share of Increaes in Current Expenditure
Increases in Current Expenditure ($ Mil.) 25.77 68.01 35.12 58.70 38.18
Increases in Salaries and Wages ($ Mil.) 11.32 34.10 15.08 26.15 8.01
S & W as Percentage Share of Increases 43.9% 50.1% 42.9% 44.5% 21.0% 40.5%
CENTRAL GOVERNMENT
SUMMARY OF FISCAL OPERATIONS [Fiscal Year]
ECONOMIC CLASSIFICATION
(EC$ Millions)

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10. 10
FY 2012/13
Budgeted
Prudential
Ratio
Current Account Surplus (% of GDP) -1.7 3 to 4
Overall Deficit (% of GDP) 9.3 3.0
Public Debt (% GDP ) 75.9 60 (by 2020)
Debt Servicing to Current Revenue (%) 24.5 15.0

11. Salaries and wages are growing steadily…
The wage bill has increased by 65.5 percent over the last 10
years growing at an average rate of 6.5 percent a year, one
of the highest rates of growth in the ECCU.
The wage bill is the largest component of current
expenditure averaging 46 percent.
Salaries and wages account for average of 41 percent of
current revenue.
Averaging 9.8 percent of GDP over the last 5 years.
Increases in wage bill over the years have been the single
largest contributor to increases in current expenditure.
Increases in salaries and wages result in permanent
increase in expenditure.
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Average Numbers Employed by the Central Government
Category 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* # Change
2012/2011
Civil Servants** 3,086 3,136 3,099 3,065 3,071 3,138 3,268 3,335 3,383 3,419 35
Teachers 2,109 2,075 2,019 2,038 2,064 2,172 2,251 2,311 2,319 2,331 12
Police 829 853 895 941 1,027 980 974 1,016 1,057 1,119 62
Fire Service 217 217 228 230 287 285 274 270 284 297 12
Prisons 126 126 119 110 128 132 134 156 160 156 -4
Nurses 304 287 257 234 222 213 220 225 236 236 0
Doctors 64 65 66 88 81 79 75 72 73 73 0
Daily Paid 962 963 954 942 964 985 895 902 925 945 20
Other 185 218 304 323 209 214 305 338 371 371 0
Total 7,881 7,939 7,940 7,971 8,052 8,199 8,395 8,625 8,808 8,946 138
% Change 0.7% 0.0% 0.4% 1.0% 1.8% 2.4% 2.7% 2.1% 1.6%
Increase in numbers 58 1 31 81 147 196 230 183 138
Total Grades 1-18 7,829 7,880 7,882 7,917 8,006 8,160 8,336 8,555 8,739 8,877 139
% Change 0.7% 0.0% 0.4% 1.1% 1.9% 2.2% 2.6% 2.2% 1.6%
* refers to the average for the period January to May 2012
** includes persons paid wages

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Comparative Public Service Salaries in Selected OECS Countries
St Lucia
St Vincent
&
Grenadines Grenada Dominica
Accountant II 59,533 50,136 51,060 40,611
Customs Officer II 59,533 32,532 NA 31,849
Economist I 52,080 48,711 44,256 40,611
Secondary School Principal 63,259 57,948 50,808 53,387
Nurse I 40,446 NA NA 36,230
Qualified Teacher 36,992 NA 26,148 NA
Police Constable I 25,176 20,220 15,484 NA
Police Corporal 36,992 27,228 24,504 NA

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Salaries and Wages Scenarios (2010/11 to 2012/13)
Yr. 1 Yr. 2 Yr.3
Rate of
Increase Total Costs
Scenario 1 0% 0% 3.0% 3.0% $10.0 Mil.
Scenario 2 1.0% 2.0% 3.0% 6.0% $33.4 Mil.
Scenario 3 4.0% 4.0% 8.0% 16.0% $93.4 Mil.

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Inflation Over-compensation %
(%) Growth Inflation
2004/05 4.57 2.44 3.00 (1.57) 0.56
2005/06 0.75 4.42 3.00 2.25 (1.42)
2006/07 7.24 2.32 4.00 (3.24) 1.68
Cumulative 2004/05 to 2006/07 12.56 9.18 10.00 (2.56) 0.82
2007/08 3.11 4.07 3.00 (0.11) (1.07)
2008/09 3.96 4.83 4.00 0.04 (0.83)
2009/10 0.38 (0.26) 7.50 7.12 7.76
Cumulative 2007/08 to 2009/10 7.45 8.64 14.50 7.05 5.86
Cumulative Total last 6 years 20.01 17.82 24.50 4.49 6.68
Cumulative Average last 6 years 3.34 2.97 4.08 0.75 1.11
2010/11 0.70 3.04
2011/12 1.40 3.47
Real GDP
Growth
Salary
Increases (%)

16. Issues to consider
Government’s main economic priority is to grow the
economy and create jobs.
The main impetus for economic growth and job creation
will come from the public sector.
Given absence of fiscal space, Govt needs to remain focus
on achieving its economic priority.
The issue then becomes, should we be awarding salary
increases to those in jobs or creating new ones?
No space in the budget for both.
It is not prudent to borrow to pay for salary increases in
the context of a recurrent budget deficit.
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17. Issues to consider
Our fiscal problems will not be solved with the
introduction of VAT if there is no expenditure restraint.
Any revenue generated in excess of the VAT estimates
should be used in funding Govt job creating strategy and
improving social safety nets.
Awarding salary increases will result in a permanent rise in
current expenditure which will further compound our
fiscal problems.
This could have major repercussions for our sovereign
credit rating and the cost of borrowing.
Funding agencies and investors in Govt securities pay
attention to the views of the rating agency and the IMF
Salary increases should be in line with increases in worker
productivity if our economy is to be competitive. 17

18. Recommendations
Given the fiscal challenges and downside risks to the
economy, unions should consider foregoing salary
and wage increases for this triennium.
It should be recalled that civil servants were over
compensated for the 2007/08 to 2009/10 period using
the criteria of economic growth and inflation.
Further justification can also be provided on the
basis of the generous stimulus package announced in
the budget that should assist civil servants.
Consideration should be given to starting and
completing negotiations early for the 2013/14 to
2015/16 period.
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