IMF Executive Board Concludes 2005 Article IV Consultation with Antigua and Barbuda

Public Information Notice (PIN) No. 6/09
February 1, 2006

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. The staff report for the Article IV consultation with Antigua and Barbuda may be made available at a later stage if the authorities consent.

On December 21, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Antigua and Barbuda.1


Antigua and Barbuda has lived with high debt, weak institutions, and substantial arrears for many years. Public sector debt rose rapidly in the 1980's as the economy moved out of sugar into tourism. Exacerbated by a series of exogenous shocks—five major hurricanes hit Antigua and Barbuda during the 1990's—fiscal imbalances widened, financed by the accumulation of arrears, and the public sector was used as the employer of last resort when growth slowed.

Since 2004, significant reforms have been introduced. In particular, governance has been strengthened through the approval of the Integrity in Public Life Act and the Anti-Corruption Act, the granting of discretionary tax concessions has been suspended, the tax system has been overhauled, and social programs expanded.

Following strong growth in 2003-04, economic activity is estimated to have slowed in 2005—the tourism sector has cooled, partly due to one-off factors, but growth is expected to rebound as construction activity accelerates ahead of the 2007 Cricket World Cup. Inflation has been low, but is anticipated to rise due to the impact of global oil price increases.

After strengthening in 2004, data for the first half of 2005 point to a widening fiscal deficit. A combination of a reduction in capital spending and some improvement in revenues following a tightening of the concessions regime resulted in a closing of the primary deficit to 1½ percent of GDP in 2004. Revenues have performed well following the reintroduction of the Personal Income Tax, but expenditures have increased due to the implementation of new social programs, higher capital expenditures in preparation for the 2007 Cricket World Cup, and an increase in the number of ministries. Arrears continue to accumulate, but the debt stock fell following debt relief provided by the Italian Government.

The external current account deficit has narrowed to around 11 percent of GDP, financed by foreign direct investment. Foreign assets of the banking system have risen as a result of high money demand growth, a reduction in bank exposure to the government, and limited domestic lending opportunities.

Progress has been made in addressing the issues raised in the Basle Core Principles (BCP) assessment of the offshore banking system.2 Amendments to the International Business Corporations Act were approved in 2004, and new regulations and guidelines were issued by the Financial Services Regulatory Commission (FSRC).

Executive Board Assessment

Directors commended the authorities for their strong start in addressing Antigua and Barbuda's deep-rooted economic problems. Important legislative and structural changes have been introduced, including politically difficult tax reforms, and measures aimed at improving governance, transparency, and the investment climate. However, important macroeconomic imbalances persist, and in this context, Directors welcomed the authorities' active engagement with the staff and efforts to raise public awareness regarding the need for the sustained implementation of further reforms. Improving the business environment, closing fiscal imbalances, and reducing vulnerabilities will be key to attracting private investment and strengthening economic prospects. Directors also observed that a regional approach is needed to significantly reduce tax concessions and discourage a destructive competition for investments.

Directors urged the authorities to take advantage of the strong near-term growth prospects to pursue structural reforms to raise longer-term growth. They recommended improving governance and transparency, moving to a rules-based investment incentive system, further liberalizing the trade regime, enhancing the efficiency of Customs, and introducing greater flexibility into the labor market.

Directors called for a greater focus on controlling expenditures to ensure progress toward fiscal and debt sustainability. They expressed regret that expenditure slippages, in particular the expansion in the number of Ministries, had offset the revenue improvements achieved by the tax reform during 2005. They stressed the importance of the government demonstrating its resolve to cut spending in order to maintain support from taxpayers for the fiscal reform. Directors welcomed the recently launched voluntary severance scheme, but noted the importance of retaining an adequate skill mix to transform the public sector into a modern and efficient civil service. Additional steps are needed to improve expenditure control mechanisms, to strengthen the Public Sector Investment Program, and to address emerging concerns about the long-term viability of the pension system, including the separate pensions provided for retired civil servants.

Directors emphasized that the ongoing tax reform should foster the creation of a more equitable and efficient tax system. At the same time, strengthening tax administration will be key to ensuring that the benefits of the reform materialize, and they supported the authorities' request for further Fund technical assistance in this area. Directors urged the authorities to deny requests for special tax exemptions. They recommended the adoption of a transparent petroleum product pricing formula with a full pass-through of global oil price fluctuations, which would avoid the need for discrete adjustments and provide appropriate incentives for consumers.

Directors noted that clearing longstanding arrears and establishing a reputation as a reliable counterpart will be key steps in reestablishing the country's access to capital markets. They welcomed the hiring of financial advisors to assist in the design of the strategy to regularize relations with creditors. Directors encouraged the authorities to maintain an open dialogue with creditors to facilitate the identification of a cooperative solution.

Directors considered that significant vulnerabilities to exogenous shocks highlight the need to focus on contingency planning and disaster mitigation efforts. They urged the authorities to ensure appropriate insurance coverage of key public sector assets, and to enhance supervision of the insurance sector.

Directors called for careful monitoring of developments in the financial sector in light of the high level of nonperforming loans and substantial exposure to the public sector. They welcomed the recent approval of the Amendments to the Uniform Banking Act, and urged their prompt implementation. Directors noted the progress made in strengthening the regulation and supervision of the offshore sector, and the need for continued efforts to ensure the stability of the financial system.

Directors stressed the importance of sustaining public support for the reform efforts in order to prevent domestic policy slippages. While significant advances have been made in strengthening transparency and governance, Directors noted that further steps, including enhanced data dissemination, would help generate consensus for needed reforms. The development and public discussion of medium-term fiscal projections could facilitate public understanding of available policy choices and generate support for the authorities' efforts to achieve fiscal and debt sustainability. Directors supported the establishment of a well-targeted social safety net to ensure that vulnerable groups are protected.

Directors encouraged the authorities to work toward providing more timely and accurate economic data in order to support effective policy making.

Antigua and Barbuda: Selected Economic and Financial Indicators, 2000-2005

          Prel. Proj.
  2000 2001 2002 2003 2004 2005

(Annual percentage changes, unless otherwise specified)

National income and prices


GDP at constant factor cost

3.3 1.5 2.0 4.3 5.2 3.0

Nominal GDP at market prices

4.1 4.7 1.0 5.1 8.6 4.6

GDP deflator at factor cost

0.6 2.6 -0.1 0.3 1.2 1.7

Consumer prices (end of period)

0.5 1.0 2.2 1.5 1.5 1.5

Consumer prices (period average)

-0.6 -0.4 1.8 2.8 1.3 1.3

External sector


Exports, f.o.b.

39.9 -22.4 -3.3 14.5 23.0 7.7

Imports, f.o.b.

-2.9 -6.2 4.5 5.2 7.3 3.6

Travel receipts (gross)

0.2 -6.4 0.6 9.5 12.6 0.0

Nominal effective exchange rate (period ave., depreciation -) 1/

4.9 2.8 -1.8 -6.7 -4.9 -2.3

Real effective exchange rate (period ave., depreciation -) 1/

2.1 3.6 -0.6 -6.0 -4.4 -2.2
(Contribution to broad money growth)

Money and credit


Net foreign assets

-9.6 12.6 0.6 21.9 3.3 6.6

Net domestic assets

15.3 -7.8 5.7 -0.8 5.8 2.7

Net credit to the public sector

2.0 -1.8 0.3 3.0 -1.9 -1.7

Credit to the private sector

8.5 2.9 7.5 2.2 1.6 3.9

Broad money

5.7 4.8 6.3 21.1 9.1 9.3

Average deposit rate (in percent per annum) 1/

5.0 4.5 4.4 4.9 4.4 4.1

Average lending rate (in percent per annum) 1/

12.2 11.6 11.4 12.8 12.3 12.2
(In percent of GDP)

Central government


Primary balance

-0.3 -6.8 -7.0 -4.4 -1.6 -3.4

Overall balance

-5.0 -11.1 -11.2 -9.0 -5.4 -6.7

Total revenue and grants

21.7 19.2 21.7 21.1 21.6 22.8

Total expenditure and net lending

26.7 30.3 32.9 30.2 27.1 29.6

Identified financing

10.5 10.6 7.4 7.6 9.5 2.0


2.0 5.2 1.5 1.6 -25.1 -1.4


8.5 5.4 5.9 6.0 10.0 3.4

Statistical discrepancy

-5.5 0.5 3.8 1.4 -4.1 ...

Financing gap

... ... ... ... ... 4.7

External sector


Current account balance

-9.7 -8.9 -15.7 -14.2 -10.8 -11.6

Trade balance

-42.7 -39.5 -41.3 -40.9 -39.5 -38.9

Service balance

38.2 32.8 30.6 30.0 33.2 30.9

Of which: gross tourism receipts

42.8 38.3 38.1 39.8 41.2 39.4

Overall balance

-7.8 -0.9 -1.6 0.5 -19.6 -4.8

External public debt (end of year)

66.2 66.6 73.2 76.5 47.0 47.7

Of which: arrears

12.7 14.5 19.0 23.7 17.1 17.6

Scheduled external debt service


(in percent of exports of goods and services)

8.6 8.5 8.4 9.0 39.3 7.5

Gross international reserves of the ECCB


(in millions of U.S. dollars)

384 446 505 540 632 ...

(in percent of ECCU broad money)

17.1 18.9 20.1 19.8 20.4 ...

Nominal GDP at market prices (in millions of EC$)

1,832 1,918 1,938 2,036 2,211 2,313

Sources: Antigua and Barbuda authorities; Eastern Caribbean Central Bank; and Fund staff estimates and projections.
1/ Numbers are as of end-June 2005.

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.

2 The BCP assessment was conducted in conjunction with the Eastern Caribbean Currency Union regional FSAP held in September and October 2003. The Report on the Observance of Standards and Codes (ROSC) for the BCP assessment of the offshore banking sector in Antigua and Barbuda is available at


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