IMF Staff Completes 2015 Article IV Consultation and Fourth Post-Program Monitoring Mission to Antigua and Barbuda
At the conclusion of the visit, Mr. McIntyre made the following statement:
“Growth surprised to the upside in 2014, but is expected to decelerate in 2015. The economy grew at 4.2 percent in 2014 on the back of strong public sector, construction, wholesale and retail trade activities. At the same time, credit to the private sector, which contracted by 5.6 percent for the year ending June 2015 (marking four consecutive years of decline), continues to be a drag on growth. Economic activity is expected to decelerate in 2015 to a growth rate of 2.2 percent in light of the 3.6 percent decline in tourist arrivals in the first half of the year and the weaker construction activity. Inflation stood at 0.6 percent year-on-year (y-o-y) at end-June 2015 because of lower energy prices and is projected to reach 0.8 percent (y-o-y) by year-end.
“Fiscal performance has improved in 2015 but financing pressures remain acute. The underlying primary balance (i.e., excluding citizenship-by-investment program revenues and bank resolution costs) is projected to register a small deficit of 0.2 percent of GDP in 2015, compared with a deficit of 2.0 percent in 2014. This mainly comes on the back of higher corporate income tax collections, higher consumption taxes on fuel (owing to the limited pass through of the decline in international oil prices), and under execution of the capital budget. Given the limited sources of available financing on account of Antigua and Barbuda’s elevated debt levels, the central government continues to cover financing shortfalls through the accumulation of arrears, which are projected to rise by 2 percent of GDP in 2015.
“The mission welcomes the authorities’ commitment to address the cash flow problem and move the economy toward fiscal and debt sustainability. This will require strong fiscal adjustment to stop further arrears accumulation and provide the fiscal space to support economic activity and bring debt to a sustainable footing. The mission also urges the authorities to develop a comprehensive strategy to strengthen the balance sheets of state-owned enterprises (SOEs), in particular APUA, the Social Security Board, Medical Benefits Scheme, and Mt. St. John’s Medical Centre. Resolving the central government’s financing pressures will help minimize spillovers to the rest of the public sector and improve the capacity of SOEs to meet their financial commitments.
“The mission welcomes the authorities’ efforts for a swift resolution of ABI Bank, including progress made on approving the necessary legislative framework. The Fund and World Bank will also continue to collaborate with the Eastern Caribbean Central Bank to ensure the stability of the financial system.
“Strong inflows from the Citizenship by Investment Program (CIP) have helped ease financing pressures. However, CIP revenues are inherently volatile, and carry risks of a sudden stop. Consequently, the prospect of CIP inflows should not weaken the government’s resolve to undertake strong fiscal adjustment measures to durably improve the public finances. CIP revenues should not be used to fund recurrent government expenditure but rather to clear arrears, pay down debt, build buffers, and fund key strategic infrastructure projects. The mission recommends the development of an accountability framework for CIP-related resources to ensure their prudent use and management.
“The mission supports the authorities’ growth agenda and initiatives to attract investment projects and improve the tourism product, including through upgrades to the hotel room stock. However, FDI inflows continue to lag behind expectations and the authorities’ should work on other areas that enhance Antigua and Barbuda’s investment appeal. These include businesses’ access to credit and ease of starting a business. The mission also welcomes the effort to collect labor statistics with a new survey, and the improvements on balance of payments statistics. Finally, the mission recommends formulating plans to build resilience to natural disasters in collaboration with the World Bank and other IFIs.
“The mission wishes to thank Minister of State Weston, Financial Secretary Harris, and other senior government officials for the cordial and constructive meetings. It would also like to thank representatives of the Opposition and the banking, business, labor, and tourism sectors for their candid views, which helped to broaden the mission’s understanding of economic developments in Antigua and Barbuda.”