IMF Staff Completes 2016 Article IV Mission to Antigua and Barbuda

IMF News, November 9, 2016

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Growth expected to expand by 3.7 percent in 2016, underpinned by the continued recovery in the tourism sector and investment in new and existing tourist facilities, including the new cruise ship pier.
Growth projected to moderate to 3 percent in 2017, mainly reflecting still tight financing conditions for the public and private sector.
Inflation declined to around zero in the first half of 2016, mostly due to fuel price adjustment and continued softness in global commodity prices, and is projected to remain at low levels for the rest of this year and into 2017.

One-off revenue windfall from forfeiture funds in 2016 totaling 4.5 percent of GDP supported an expected fiscal balance improvement in 2016.
Repeal of the personal income tax in the second half of 2016 weakened structural revenue sources, only partially offset by the unincorporated business tax and taxes on offshore banks’ profits.
Higher-than-projected spending on goods and services, transfers to state-owned enterprises (SOEs), and the Work Experience Program contributed to fiscal pressures.
Underlying primary balance (excluding Citizenship-by-Investment (CIP) revenues and one-off items): expected underlying primary deficit of 2.3 percent of GDP in 2016, compared to a 1.1 percent surplus in 2015.
Tight financing conditions led to a significant drawdown on deposits and continued arrears accumulation, with negative spillovers to public and private sector balance sheets.
Public debt projected to decline to 92 percent of GDP by end-2016, down from 99 percent of GDP in 2015, largely due to repayments of multilateral and some bilateral debt financed by CIP revenues and the drawdown of deposits.

CIP inflows slowed down in 2016 due to increased global competition and more stringent due diligence requirements.
Mission recommendations regarding CIP:
- Boost sustainable structural revenue sources.
- Curtail the use of CIP resources to fund recurrent expenditures.
- Implement a prudent CIP management framework prioritizing CIP revenues for debt repayment and arrears clearance and for building fiscal buffers for future shocks, including natural disasters.

Stronger revenue mobilization efforts and tighter expenditure control are necessary to put central government finances on a sustainable path.
Specific measures recommended:
- Streamline pervasive tax exemptions at customs.
- Cap transfers to SOEs.
- Adopt a comprehensive strategy to strengthen SOE balance sheets and increase their revenue from user fees to improve solvency of the broader public sector and reduce large contingent liability risks to central government.

Resolution of ABI Bank has significantly improved the capital and liquidity position of the banking sector.
Lending activity remains subdued, mostly due to weak credit demand and banks’ high risk aversion.
Measures recommended to support credit growth and reduce non-performing loans:
- Enhance foreclosure legislation.
- Reduce government arrears to the corporate sector.
- Press ahead with operationalization of the Eastern Caribbean Asset Management Company.
- Coordinate with the ECCB on a comprehensive restructuring plan for Caribbean Union Bank.
Correspondent banking relationships (CBRs):
- Little evidence of withdrawal of CBRs by international banks thus far, but correspondent banking fees have risen by up to 200 percent, driven by the pass-through of increased compliance costs.
- Continued close monitoring of existing CBRs and fees is warranted.
- Efforts to further strengthen the AML/CFT framework should continue.

Commendations:
- Progress upgrading key tourism facilities such as the new airport terminal and the cruise ship pier.
- Progress implementing the energy sector strategy, including increased penetration of solar energy technology.
Cautions and recommendations:
- Authorities’ intentions to upgrade the commercial port facilities are welcomed but cautioned against risks related to the scale of the project and its financing.
- Pursue reforms to address the current skills gap, including reorienting spending towards technical and vocational training consistent with international standards.
- Prioritize reforms to improve the business climate, including reducing policy uncertainty, improving public sector efficiency and transparency, cutting bureaucratic delay, and enhancing IT infrastructure.
- Formulate plans to build resilience to natural disasters in collaboration with the World Bank and other IFIs.

The mission thanked Minister of State Weston, Financial Secretary Harris, and other senior government officials for constructive meetings.
The mission also thanked representatives of the Opposition and the banking, business, labor, and tourism sectors for their candid views, which helped broaden understanding of economic developments in Antigua and Barbuda.

IMF Staff Completes 2016 Article IV Mission to Antigua and Barbuda — Press Release No. 16/496 (November 9, 2016).