Press Release: IMF Executive Board Approves Three-Year US$117.8 Million Stand-By Arrangement with Antigua and Barbuda
June 8, 2010Press Release No. 10/232
June 8, 2010
The Executive Board of the International Monetary Fund (IMF) has approved a three-year Stand-By Arrangement (SBA) for an amount equivalent to SDR 81 million (about US$ 117.8 million) with Antigua and Barbuda. The arrangement will support the authorities’ efforts to restore fiscal and debt sustainability and set the stage for a sustained recovery.
Antigua and Barbuda’s tourism-dependent economy has been severely impacted by the global economic and financial crisis. Falling tourism and foreign direct investment (FDI)-related construction activities have triggered the worst recession in decades and contributed to a sharp decline in government revenue. This has aggravated an already unsustainable fiscal position resulting from longstanding fiscal imbalances and accumulation of a large stock of arrears to domestic and external creditors.
Following the Board’s decision, a sum equivalent to SDR 16.875 million (about US$24.5 million) is available for immediate disbursement. The three-year SBA arrangement represents 600 percent of Antigua and Barbuda’s SDR 13.50 million IMF quota. Antigua and Barbuda joined the Fund in February 1982.
Following the Executive Board’s discussion of Antigua and Barbuda, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, made the following statement:
“The Antiguan economy has been severely impacted by large exogenous shocks to tourism receipts, FDI inflows, and remittances. These shocks have led to a marked decline in economic activity, weakened the balance of payments, and exacerbated an unsustainable fiscal position.
“The government has formulated a comprehensive policy framework for restoring fiscal and debt sustainability which is supported by the IMF. The three-pronged approach comprises front-loaded adjustment measures, debt restructuring, and structural reforms to further strengthen the fiscal position, address financial sector vulnerabilities, and foster growth. The substantial measures already taken by authorities target a primary surplus of 3 percent of GDP following a primary deficit of 11½ percent last year.
“Over the medium term, structural reforms will play a central role in the authorities’ efforts to further strengthen the fiscal position and balance the budget by 2012. These include the much needed strengthening of revenue collection agencies, public financial management reforms and improvements in the efficiency of public spending. Notwithstanding the strength of fiscal adjustment, the comprehensive public debt restructuring sought by the authorities is critical to achieving debt sustainability.
“The program also aims to rebuild international reserves to prudent levels and safeguard the stability of the payments system. To this end, the program includes measures to contain the risks to the financial system by bolstering supervision, including enhancing onsite inspection to detect and address the fragilities of domestic banks. The authorities will also put in place an effective regulatory framework for offshore financial services and nonbank financial institutions.
“The authorities’ comprehensive and bold strategy merits strong support of the international community. While subject to considerable risks, if fully implemented, the program will provide a framework for the needed adjustment and financing, placing Antigua and Barbuda’s economy back on a path of macroeconomic stability and sustained economic growth.”
Recent Economic Developments
Antigua and Barbuda’s economy contracted by 7 percent in 2009, experiencing its worst recession in decades. The global slowdown has severely affected Antigua and Barbuda’s economy through its impact on tourist arrivals, FDI inflows and remittances, and fiscal revenue. The recession and associated fiscal crisis coincides with already weak public finances and mounting problems in the financial sector, including the collapse of the Stanford Group and the Trinidad-based CL Financial Group.
Following many years of accumulation of arrears to domestic and external creditors, the fiscal situation turned critical in 2009 as the recession led to a 20 percent decline in tax revenue. The overall fiscal deficit widened from 6 percent of GDP in 2008 to about 19 percent in 2009, public debt increased to 115 percent and the total stock of arrears rose to about 53 percent of GDP, or 45 percent of the outstanding public debt.
The authorities’ comprehensive medium-term economic program aims to stabilize the public finances in 2010 and entrench the downward trend for the public debt ratio in subsequent years, thereby setting the stage for restored fiscal and external sustainability and revival of private investment.
Key reform objectives include:
• Continuous implementation of fiscal adjustment measures on both expenditure and revenue sides.
• Orderly restructuring of Antigua and Barbuda’s debt in view of normalizing relations with its domestic and external creditors.
• Enhancing public financial management through improved reporting and auditing in ministries.
• Streamlining the country’s public sector through a comprehensive civil service reform.
• Strengthening financial sector regulatory authorities so as to avoid a recurrence of regulatory arbitrage episodes.
• Continued support to the most vulnerable social groups through a variety of social programs.