An International Monetary Fund (IMF) mission, led by Trevor Alleyne, visited Antigua and Barbuda during August 18-29 to hold discussions on the 2014 Article IV Consultation and to conduct the second Post-Program Monitoring review. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
At the conclusion of the visit, Mr. Alleyne made the following statement:
“Economic activity in Antigua and Barbuda is improving, with a pickup in real GDP in the first half of 2014 following real GDP growth of 1.8 percent in 2013. Tourism is recovering, with stay-over arrivals up 7.7 percent during the first half of the year. Other sectors have continued to grow. Inflation in July stood at 1.7 percent (y-o-y). Commercial banks continue to suffer from weak financial soundness indicators and ABI Bank, which was taken over by the Eastern Caribbean Central Bank (ECCB) in 2011, is still awaiting resolution.
“The fiscal position deteriorated under the expansionary stance in the run-up to the elections. Spending for the first six months of 2014 was up 6.6 percent compared with the same period in 2013, while tax revenue grew by 3.4 percent. For the 12-month period July 2013-June 2014, the primary deficit widened to 1.3 percent of GDP compared with a surplus of about a 0.6 percent of GDP for July 2012-June 2013. Scheduled external amortization has risen significantly this year to close to 3 percent of GDP from 1.2 percent in 2013, mainly due to repayment obligations to the Fund and Paris Club creditors. With few sources of financing on account of Antigua and Barbuda’s already elevated debt levels, external arrears accumulated, growing by almost 1 percent of GDP in the first half of 2014.
“On current trends, growth in 2014 is expected at about 2 percent in 2014 with a moderate recovery in tourism – based on the ongoing cyclical expansion in the main client countries. However, the persistence of government arrears could undermine confidence and be a drag on growth in the nontrade able sectors of the economy.
“The mission therefore welcomes the authorities’ intention to decisively address the cash flow problem and put public finances on a sustainable footing. This will require strong fiscal adjustment measures – expenditure cuts and increased revenue collection – to generate a surplus large enough not only to stop further arrears accumulation but also to free up resources to help address the problems with ABI bank.
“The deterioration in fiscal management in the lead up to the general elections underscores the need to strengthen the fiscal policy framework and enhance the credibility of the medium-term fiscal consolidation program. This can be achieved if annual budgets are implemented within consistent multi-year expenditure frameworks. In turn these frameworks should be underpinned by a fiscal rule that clearly prioritizes reducing debt to sustainable levels and has strong accountability provisions.
“Strong inflows from the Citizen Investment Program (CIP) could improve prospects for economic growth and fiscal performance in the medium term. However, CIP revenues are inherently very volatile, with risk 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. These revenues should not be used to fund recurrent government operations but rather to clear arrears, pay down debt, build buffers, and deployed for key strategic infrastructure projects that would enhance Antigua and Barbuda’s productive capacity. Given the increased international scrutiny of such programs, it will be important for the CIP to adhere to the highest standards of governance and transparency, including publishing names of new citizens.
“The mission welcomes the new government’s intention to address the problems of ABI Bank. Completion of this process and implementation of the financial sector reforms that are in progress at the ECCU level are critical to ensure confidence in and stability of the financial system.
“The mission encourages the authorities to take steps to boost competitiveness and improve the business climate of the economy in order to strengthen the prospect for robust growth. In this context, the first priority should be to restore macroeconomic stability: investors need to be assured of a stable, predictable planning horizon, where the banking system is sound, the public finances are healthy, and the government pays its bills on time. To improve cost competitiveness, it will be important to ensure that wage and salary adjustments are in line with productivity gains, and that energy costs are reduced over the medium-term, including through a comprehensive reform of the Antigua Public Utilities Authority (APUA) and a strategy to increase the use of renewable energy.
“The mission wishes to thank Prime Minister Browne, Ministers Michael and Yearwood, Minister of State Weston, the Financial Secretary, and other senior government officials for the cordial and constructive meetings. It would also like to thank representatives of the Opposition, banking, business, and labor for their candid views, which helped to broaden the mission’s understanding of economic developments in Antigua and Barbuda.”