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Public Information Notice (PIN) No. 04/130
November 22, 2004
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Concludes 2004 Article IV Consultation with Antigua and Barbuda

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On November 15, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Antigua and Barbuda.1

Background

Economic growth accelerated in mid-2003, reaching close to 5 percent for the year as a whole, driven by a sharp recovery in the tourism sector. Strong tourism arrivals data for the first half of 2004, improved tax collections to end-June, and continued growth in deposits with the banking system, point to the economic momentum carrying over into this year, with growth anticipated to reach 4 percent in 2004. Inflation remains low under the currency board arrangement.

Fiscal imbalances narrowed in 2003 as financing constraints forced expenditure compression. The primary balance of the central government improved by 3 percent of GDP in 2003. While payments on wages and salaries plus transfers increased modestly, other expenditure items—particularly payments for goods and services—were cut sharply. Arrears—obligations incurred by the central government but not paid—are estimated to have increased by 10½ percent of GDP during 2003.

A modest improvement in fiscal outcomes is expected in 2004, reflecting the continuing recovery in growth and a small net positive effect from policy adjustments, but the government is able to meet only some of its obligations in a timely manner. Revenues in the first half of the year are significantly higher than the same period of last year, reflecting stronger growth and a large increase in receipts from stamp duties due to a surge in real estate sales. Collections for the year as a whole will likely show only a modest improvement, as the tourism growth is anticipated to taper off in the second half of the year and revenues from petroleum products decline in the absence of pass-through of recent increases in world oil prices. Initial expenditure policy adjustments have added to the wage bill in the near-term—wage increases were granted to certain groups of workers, while the decision to retire public servants who exceed the retirement age led to an increase in severance payments. The primary deficit of the central government is expected to improve by ¾ percent of GDP over 2003, but the accumulation of new arrears is likely to fall only modestly to 9½ percent of GDP.

With the recovery in the tourism sector, the external current account deficit has narrowed. The real depreciation of the EC dollar had little impact on the trade balance. The current account deficit was financed by FDI into the tourism sector, land sales to nonresidents, and a further increase in arrears.

Monetary aggregates have continued to grow in line with economic growth. Deposit growth has been used by commercial banks to increase foreign asset holdings, as credit to the private sector has stagnated and net credit to the public sector has increased only marginally.

The regulatory and supervisory framework for the offshore banks has strengthened significantly over the last few years. Bank examination procedures were recently amended to address credit policies, loan loss provisioning, large exposure limits, and connected lending.

Progress in broader structural reforms has been made. Particularly noteworthy is the long-delayed introduction of ASYCUDA at two of the ports of entry which will both strengthen customs administration and significantly improve the flow of data on external transactions. The implementation of the fourth stage of CARICOM's Common External Tariff also shows a commitment to fulfill regional obligations.

Executive Board Assessment

Executive Directors welcomed the new administration's resolve to address Antigua and Barbuda's deep-rooted problems head-on and its openness in discussing difficult issues. Fiscal mismanagement and deterioration of institutions over the past two decades have resulted in a large buildup of public debt and of domestic and external payments arrears.

Directors urged the new administration to adopt a medium-term economic strategy aimed at fiscal consolidation, raising economic growth rates by creating an enabling environment for the private sector to flourish, and rebuilding institutions to support the fiscal and growth objectives.

Directors called for a large upfront fiscal adjustment as a key step in regaining fiscal balance and clearing arrears. This would involve increasing revenue through strengthened tax policy and administration, including a reduction of tax exemptions and the reintroduction of a personal income tax. Directors urged a comprehensive public sector reform to reduce expenditure—including through reduction of the very high level of public sector employment—and to enhance the efficiency of government service provision. This should be accompanied by the introduction of an appropriate safety net.

Directors emphasized that re-building institutions is crucial for implementing and sustaining the reform effort, and ultimately for achieving the authorities' growth and fiscal objectives. They recommended putting in place an effective and transparent system of cash and commitment expenditure management, introducing incentives in the civil service to reward good performers, and reforming the two-tier system of public sector employment. They also recommended that steps be taken to enhance public accountability, transparency, and governance, including: closer monitoring of public enterprises, routine auditing of all government accounts, improving customs and tax administration, and introducing a system of effective penalties for noncompliance with tax laws.

Directors encouraged the authorities to take steps to enable Antigua and Barbuda to achieve its high-growth potential. While welcoming the authorities' plan to establish a one-stop window aimed at streamlining bureaucratic procedures for new business initiatives, Directors recommended leveling the playing field for foreign and local investors, limiting the role of the public sector to providing basic public goods and services that are complementary to private sector activities, and enhancing efficiency in public utilities. Directors encouraged the government to take a lead role in supporting and engaging in regional initiatives, such as the Caribbean Single Market Economy, which would provide new opportunities for growth.

Directors were encouraged by the continuing progress in strengthening the regulation and supervision of the offshore financial sector. Directors also encouraged the authorities to continue to work closely with the Eastern Caribbean Central Bank to further strengthen the supervision of domestic banks, including by approving and implementing the amendments to the Uniform Banking Act, and to ensure an appropriate level of supervision for nonbank financial institutions.

Directors noted the urgent need to strengthen the quality and coverage of the statistical database in the areas of the national accounts—especially the tourism sector and related services—labor market developments, the public debt, and monitoring the outcomes of the broader public sector. They also saw room for greater regional collaboration on data issues. They encouraged the authorities to enhance reporting under the GDDS, and to seek technical assistance through CARTAC and other donors.

Directors expressed concern about the high level of vulnerabilities facing Antigua and Barbuda in light of the frequency of natural disasters, the high debt, and the openness of the economy. They encouraged the authorities to formulate a contingency plan to respond to shocks, and to continue with efforts to reduce financial sector vulnerabilities and mitigate the impact of natural disasters.


Antigua and Barbuda: Selected Economic and Financial Indicators, 1999-2004


 

 

 

 

 

Prel.

Proj.

 

1999

2000

2001

2002

2003

2004


             

(Annual percentage changes, unless otherwise specified)

National income and prices

           

GDP at constant factor cost

4.9

3.3

1.5

2.2

4.9

4.1

Nominal GDP at market prices

5.0

4.1

4.7

2.3

4.5

5.7

GDP deflator at factor cost

1.0

0.6

2.6

-0.1

-0.4

1.5

Consumer prices (period average)

1.1

-0.6

-0.4

1.8

2.8

1.5

             

External sector

           

Exports, f.o.b.

0.1

39.9

-22.4

-9.1

13.7

7.2

Imports, f.o.b.

9.9

-2.9

-6.2

4.5

5.2

6.0

Travel receipts (gross)

3.0

0.2

-6.4

0.6

9.5

9.0

Nominal effective exchange rate (depreciation -) 1/

3.7

5.8

1.5

-5.4

-7.4

-4.7

Real effective exchange rate (depreciation -) 1/

1.4

4.9

3.2

-4.8

-6.7

-4.6

             

(Contribution to broad money growth)

Money and credit

           

Net foreign assets

19.1

-9.6

12.6

0.6

21.9

-10.2

Net domestic assets

-8.7

15.3

-7.8

5.7

-0.8

15.9

Net credit to the public sector

-11.3

2.0

-1.8

0.3

3.0

-3.0

Credit to the private sector

7.8

8.5

2.9

7.5

2.2

1.6

Broad money

10.5

5.7

4.8

6.3

21.1

5.7

Average deposit rate (in percent per annum)

3.9

5.0

4.4

4.3

5.0

...

Average lending rate (in percent per annum)

11.5

12.2

11.5

11.3

13.5

...

             

(In percent of GDP)

Central government

           

Total revenue and grants

21.9

21.7

19.2

21.5

21.0

21.0

Total expenditure and net lending

27.4

26.7

30.3

32.2

29.1

27.3

Overall balance (after grants)

-5.5

-5.0

-11.1

-10.7

-8.1

-6.3

Identified financing

10.1

10.5

10.6

11.1

9.4

6.3

External

3.3

2.0

5.2

4.4

3.1

3.0

Domestic

6.8

8.5

5.4

6.6

6.3

3.3

Total debt

107.6

115.8

114.7

129.3

134.1

126.0

             

External sector

           

Current account balance

-8.9

-9.7

-9.2

-15.2

-13.7

-13.2

Trade balance

-48.4

-42.7

-39.5

-41.1

-41.0

-41.0

Service balance

40.1

38.3

32.5

30.7

31.1

31.7

Of which: gross tourism receipts

44.5

42.8

38.3

37.7

39.5

40.7

Overall balance

-1.5

-7.8

-0.9

-1.6

0.5

-5.3

External public debt (end of year)

63.8

66.2

66.3

71.7

75.0

71.9

Of which: arrears

15.3

12.6

13.9

17.4

21.6

24.4

Scheduled external debt service

           

(in percent of exports of goods and services)

5.6

8.6

8.5

8.5

8.9

8.5

Scheduled debt service/total revenue and grants

18.7

27.4

27.5

23.2

25.7

24.3

             

Gross international reserves of the ECCB

           

(in millions of U.S. dollars)

365

384

446

505

540

564

(in percent of ECCU broad money)

18.1

17.1

18.9

20.1

19.6

19.2

 

         

 

 

 

 

 

 

 

 

Sources: Antigua and Barbuda authorities, ECCB; and Fund staff estimates and projections.

             

1/ End of period. Figures for 2004 are 12-month changes to end-July.

             

1 Under 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.




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