Remarks by Ratna Sahay, Assistant Director, Western Hemisphere Department of the International Monetary Fund at Donors’ Meeting in Antigua and Barbuda, September 12, 2005
September 12, 2005
Assistant Director, Western Hemisphere Department
International Monetary Fund
At Donors' Meeting in Antigua and Barbuda
September 12, 2005
It is an honor to be present at this donors' conference. But more importantly, it gives me great pleasure to participate in discussions on Antigua and Barbuda's economic strategy—at a time when the authorities are confronting deep-rooted economic problems inherited from the past, but remain determined in their resolve to continue implementing bold and much needed reforms.
I would like to step back a little, and reflect upon the significance of the changes taking place in Antigua from a broader perspective. As we all well know, it is difficult to assess events that are still unfolding but I have confidence that many years from now, the Antiguan people will look back with pride on how they overcame a very difficult economic situation and how, by implementing bold reforms now, they raised their standards of living.
During the 1980s, the Organization of Eastern Caribbean States (OECS) region grew at very high rates, above 6% on average per year, driven by high public investment, preferential access for traditional exports in banana and sugar, and the newly emerging tourism sector. However, in the 1990s, as growth slowed to less than 3 percent per year, governments responded by expanding the public sector—spending more on capital projects, often with little oversight, as well as employing more and more people. In fact, in Antigua and Barbuda, growth in recent years was sustained primarily by increasing public sector employment. Unfortunately, growth led by the public sector cannot be sustained forever, as the experience in the region itself and outside has shown.
So where do we stand today? Although many aspects of the external environment are still favorable, it is undeniable that the region is facing many difficult challenges. A serious negative consequence of the public sector led growth strategy has been the rapid accumulation of public debt. In fact, this phenomenon is not unique to just the OECS region. By 2004, fourteen of the fifteen Caribbean countries were among the top 30 most indebted emerging market countries in the world. Second, natural disasters now appear to become more frequent and even more devastating, as the experience of Grenada or even the US shows. Third, the sharp rise in oil prices and the trending up of global interest rates, are additional challenges...but let me stop as I think I have said enough to demonstrate that the external environment is not benign.
But there is also good news: the global growth on which the tourism dominated regional economies depend is projected to remain healthy going forward. The 2007 Cricket World Cup will offer additional opportunity for attracting cricket fans and tourists.
What do these mixed developments in the global environment mean for the region? On the one hand, this means that the region has to be better prepared both financially and in its capacity to protect its people and physical structures, and that the region can no longer rely on aid to promote the development processes. Nor can it afford to make mistakes on investment decisions, since commercial borrowings are expensive. On the other hand, it also means that the region should take advantage of the positive growth outlook in the world by implementing difficult reforms now, consolidating the fiscal accounts, and entrenching a process of sustainable growth. But you can say, we know all that—the key question is how to achieve all this going forward.
Looking forward, to my mind a key precondition to any successful reform is that a radical change will be needed in the way people—and I would emphasize its the people—think about the role of the government. And an undeniable fact is that in strongly democratic countries like Antigua and Barbuda the success or failure of a reform strategy is very much in the hands of the people. Therefore, it's the people who should start the reform process by demanding better government practices—more fiscal transparency, better design and implementation of the budget process, and greater accounting of public spending. Second, the people should not rely on the Government to create employment and growth, but they should demand a much more conducive environment for private citizens to invest, in particular by expecting greater certainty and transparency in the policy environment.
The growth potential as we see it, in Antigua and Barbuda, is very high. It has experienced rapid growth rates in the past and can do so again. It has frequently been the leader in the OECS—in trade negotiations, in tackling the loss of trade preferences in agriculture, in developing the tourism sector, to give but three examples. It should now lead in demonstrating how the public sector can be transformed so that it provides quality services and supports private sector development. As a member of the international community, the IMF stands ready to help Antigua and Barbuda in any of the three key ways it can—by providing technical assistance, policy advice, or financial assistance within its mandate.