Public Information Notice: IMF Concludes Article IV Consultation with Antigua and Barbuda

November 23, 1999

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On November 10, 1999, the Executive Board concluded the Article IV consultation with Antigua and Barbuda.1


Economic growth slowed sharply in the first half of the 1990s (from an average of 8 percent in 1984-89 to 2 percent in 1990-95), as the rapid expansion of tourism based on large public investment projects in the 1980s could not be sustained. The accumulation of large fiscal deficits since the mid-1980s led to external payments arrears, which in turn curtailed foreign capital inflows.

In 1996-97, real GDP grew by close to 6 percent on average, as tourism recovered from two hurricanes in 1995 and post-hurricane reconstruction activity was brisk. However, real GDP growth slowed to 3.9 percent in 1998, owing to a decline in tourist arrivals that was exacerbated by Hurricane Georges, and is projected to slow further to 3.2 percent in 1999.

In 1998, the fiscal deficit fell to 4.3 percent of GDP (from 8 percent of GDP in 1997) as a result of a drop in external interest obligations following a rescheduling of external debt, and lower public investment. The central government wage bill rose to 11.6 percent of GDP (10.6 percent in 1997) as a result of a 6 percent increase in government wages and higher employment. The fiscal deficit has widened in 1999 and is projected to reach almost 7 percent of GDP under the impact of a sharp rise in import tax waivers, in particular on individuals' imports of some 3,000 motor vehicles; a further increase in the central government wage bill; and lower earnings by the public utilities. The increase in the wage bill derives mainly from new hiring. The deficit continues to be financed by an accumulation of arrears.

The external current account deficit has remained high since 1996 (exceeding 14 percent of GDP), as tourism has recovered only partially from the hurricanes of 1995 and 1998. Foreign exchange earnings from tourism fell to 47 percent of GDP in 1998, compared with a peak of 64 percent of GDP in 1994, in part because of reductions in room rates following the hurricanes, as hoteliers sought to bring the tourists back. The large current account deficits also reflected higher imports associated with the post-hurricane reconstruction effort. In 1999, the deficit is projected to rise further to 18.6 percent of GDP as a result of the large increase in motor vehicle imports.

The government's bilateral approach to the external arrears problem advanced with a restructuring of the public sector's largest external loans in 1997-98. As a result, external arrears were reduced from the equivalent of 80 percent of GDP at end-1996 to 24 percent of GDP at end-1998. In the second half of 1999, contacts with other external creditors were renewed with a view toward further restructuring of debts, and agreement was reached on the restructuring of one additional loan.

Broad money growth picked up to 15 percent during 1998, reflecting large capital inflows but, with the continued expansion of credit to the public sector, the growth of credit to the private sector slowed to around 7 percent during the year. In early 1999 bank liquidity eased somewhat as money continued to rise rapidly, while bank credit to both the private and public sectors expanded little. The quality of bank loan portfolios improved during 1998 and early 1999, in part reflecting stepped-up efforts by some banks to collect on overdue loans. Bank interest rates have been stable over the last two years.

Executive Board Assessment

Executive Directors noted that economic growth had slowed in the aftermath of the hurricane damage in 1998, and that foreign exchange earnings from tourism had yet to recover fully. While recognizing the difficulties for economic management posed by frequent hurricanes, Directors nevertheless underscored the need to address the challenges facing Antigua and Barbuda, in particular, to strengthen the fiscal policy stance, undertake reforms to improve efficiency and governance in the public sector, and to normalize creditor relations. Directors welcomed the enhanced willingness of the authorities to tackle these important issues.

Directors commended the authorities for their success in restructuring bilateral debts, and stressed the importance of ensuring that debt service payments on the newly restructured loans be kept current. They urged the authorities to complete the normalization of relations with external creditors.

Directors considered that the progress in reducing external arrears through debt restructuring had not been accompanied by a correction of the underlying fiscal imbalances. They expressed concern over the expected increase in the fiscal deficit in 1999, and recommended that steps be taken to improve the revenue performance and restrain current expenditure. Looking to 2000 and beyond, Directors recommended that the authorities adopt a comprehensive macroeconomic program with annual fiscal targets, framed within a medium-term plan for improving the public finances.

Directors urged the authorities to move promptly to eliminate discretionary tax exemptions. They encouraged the authorities to increase tax revenue through the introduction of a value-added tax, as well as greater reliance on direct taxation. Directors welcomed the authorities' intention to freeze central government wages, but they noted that there was also a need to address the problem of overstaffing in the public sector.

Directors emphasized the importance of establishing an adequate framework for the regulation and supervision of the offshore financial sector. They welcomed the recent amendments to the Money Laundering Prevention Act aimed at bringing it into line with international best practice, but stressed that the challenge would be to ensure its effective implementation and enforcement. Directors encouraged the authorities to restore the ban on offshore bank lending to the Antiguan Government. They cautioned against excessive reliance on this sector as a source of employment and fiscal revenue.

Directors urged the authorities to take steps to promote good governance, including through a reversal of the fragmentation of the government and elimination of the associated revenue earmarking. In this regard, they noted the need for implementation of public sector reforms to improve budgetary procedures and expenditure control, and encouraged further steps to improve governance in the public finances.

Directors agreed that Antigua and Barbuda's participation in the Eastern Caribbean Currency Union had served it well for price and exchange rate stability. They encouraged the authorities to adhere to their plan to implement the final phase of the Caribbean Community's common external tariff in January 2000.

Directors urged the authorities to improve the coverage and quality of economic statistics, which do not currently provide an adequate basis for policy formulation or for Fund surveillance. In particular, the compilation of import data and upgrading of fiscal statistics should be given high priority.

Antigua and Barbuda: Selected Economic Indicators

1995 1996 1997 1998 Proj.

Annual percentage changes
Output and prices
Real GDP -5.0 6.1 5.6 3.9 3.2
Consumer prices (average) 2.5 3.0 0.3 3.4 1.6
In percent of GDP
Investment and saving
Gross domestic investment 33.0 35.0 32.6 32.4 30.1
Gross national savings 28.3 16.2 17.9 18.1 11.5
Public sector operations
Public sector revenue 27.2 28.7 27.7 29.2 27.4
Public sector expenditure 33.7 32.3 35.0 33.5 34.2
Public sector savings -1.9 0.2 -1.2 -0.2 -3.5
Public sector balance -6.5 -3.8 -7.3 -4.3 -6.8
In millions of U.S. dollars unless
otherwise specified
External sector
Merchandise exports 53.1 37.7 37.9 36.2 37.8
Merchandise imports 329.3 339.2 332.4 357.5 385.0
Gross tourism receipts 266.4 262.6 287.5 288.3 302.7
Current account balance -22.9 -102.0 -85.5 -88.6 -118.9
Current account (in percent of GDP) -4.6 -18.9 -14.7 -14.4 -18.6
Overall balance -16.8 -38.6 -29.1 -2.9 -24.8
External public debt 1/ 443.8 456.2 452.7 406.4 433.7
Public sector external arrears 421.0 431.3 367.6 149.6 ...
Real effective exchange rate (1990=100) 103.3 105.0 108.8 111.0 ...
Changes in percent of broad money at beginning of period
Monetary sector
Net domestic assets 14.6 10.1 18.5 11.4 6.2
Credit to private sector 11.5 12.9 17.2 6.7 6.1
Broad money (M2) 23.8 -1.9 8.3 15.2 7.6

Sources: Antiguan authorities: Eastern Caribbean Central Bank; and IMF staff estimates and projections.

1/ Includes arrears on principal and interest.

1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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