IMF approves $10.7 mln loan for St Lucia

WASHINGTON, July 28 (Reuters) - The International Monetary Fund on Monday approved a $10.7 million loan disbursement to St Lucia, which has been hit by a sharp drop in tourism, foreign direct investment and remittances from overseas workers.

The IMF said gross domestic product in the small Caribbean island was expected to contract by as much as 2.5 percent this year and unemployment set to rise sharply.

"The impact in St. Lucia has been considerable, since government tax revenue, foreign exchange reserves and employment are all closely linked to the tourism industry," the IMF said.

"The arrangement will help mitigate the impact of the global crisis on the country's economy," it added.

IMF Deputy Managing Director Murilo Portugal said part of the government's fiscal program for 2009/10 was to improve tax collection and to prioritize spending, while also controlling costs. (Reporting by Lesley Wroughton; Editing by Carol Bishopric)