July 29, 2011
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The International Monetary Fund (IMF) mission headed by Hunter Monroe, Senior Economist in the IMF’s Western Hemisphere Department, issued the following statement on Friday, July 29, 2011 at the end of its discussions in Anguilla:
“An IMF staff team visited Anguilla from July 19 to 29, 2011 to undertake the IMF’s first formal bilateral dialogue with the UK overseas territory of Anguilla at the invitation of the Chief Minister and Finance Minister, building on the annual Eastern Caribbean Currency Union Common Policies discussions. The IMF staff team held productive discussions with the local authorities, focusing on enhancing growth prospects, improving the fiscal outlook, and addressing financial sector vulnerabilities.
“Anguilla’s small size magnified the boom-bust cycle associated with the global crisis, as it benefited from two major tourism projects which later ran into difficulties. Both projects appear to be getting back on track, and the high-end tourism sector remains resilient despite high unemployment in source countries. However, the growth outlook is cautious, given low capital spending and the recent closure of a boutique hotel and a call center. In addition, there is a need to improve access to the island by air and by sea.
“A rebalancing of fiscal policy is needed to create an environment more conducive to private sector growth and job creation. The government is expected to achieve an overall surplus in 2011 taking advantage of windfall revenue from tourism projects, but capital spending remains low. A new fiscal framework could achieve a better balance between current and capital spending that is in line with the resources available and builds buffers in good times. A comprehensive tax reform is being planned aimed at improving the efficiency and equity of the tax system and simplifying the tariff structure. Some reversal of increases in the government wage bill, which doubled during the boom years, may be unavoidable.
“The downturn has placed strains on the financial system, affecting asset quality and liquidity. The mission welcomes the Financial Service Commission’s efforts to enhance nonbank supervision, particularly in light of the failure of two regional insurance companies, and to intensify coordination with the Eastern Caribbean Central Bank and with other regional regulators. The offshore financial sector offers some potential to diversify the economy, but the balance between the potential economic benefits and the regulatory costs and reputational risks needs to be weighed carefully.
“The mission appreciated the open and fruitful exchanges with representatives of the authorities and the private sector and wishes to express its gratitude for the excellent cooperation and kind hospitality.”
