Press Release No. 16/496

IMF Staff Completes 2016 Article IV Mission to Antigua and Barbuda

November 9, 2016

• IMF visits Antigua and Barbuda for Article IV mission
• Growth expected to expand by 3.7 percent in 2016, underpinned by the continued recovery in the tourism sector
• Public debt continues to decline but stronger revenue mobilization efforts and tighter expenditure control are still necessary to put government finances on a sustainable path

An International Monetary Fund (IMF) mission, led by Mr. Meredith Arnold McIntyre, visited Antigua and Barbuda during October 26-November 7 to conduct the 2016 Article IV Consultation.

At the conclusion of the visit, Mr. McIntyre made the following statement:

“The economy is 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. In 2017, growth is projected to moderate to 3 percent, 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.

“The fiscal balance is expected to improve on the back of a one-off revenue windfall from forfeiture funds in 2016, totaling 4.5 percent of GDP. However, the repeal of the personal income tax in the second half of 2016 has weakened structural revenue sources, and will only be partially offset by the unincorporated business tax and taxes on offshore banks’ profits. This was coupled by higher-than-projected spending on goods and services, transfers to state-owned enterprises (SOEs), and the Work Experience Program. The underlying primary deficit, excluding Citizenship-by-Investment (CIP) revenues and one-off items, is thus expected to reach 2.3 percent of GDP, compared to a 1.1 percent surplus in 2015. Tight financing conditions have triggered a significant drawdown on deposits as well as continued arrears accumulation, with negative spillovers to public and private sector balance sheets. Notwithstanding, public debt is 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.

“Stronger revenue mobilization efforts, together with tighter expenditure control, are still necessary to put central government finances on a sustainable path. In particular, pervasive tax exemptions at customs need to be streamlined, while transfers to SOEs need to be capped. A comprehensive strategy to strengthen the balance sheets of SOEs and increase their revenue from user fees is also critical to improving the solvency of the broader public sector and reducing large contingent liability risks to central government.

“CIP inflows have slowed down in 2016, as a result of increased global competition and more stringent due diligence requirements. Against this background, the mission reiterated the need to boost sustainable structural revenue sources and curtail the use of CIP resources to fund recurrent expenditures. Instead, a prudent CIP management framework should prioritize the use of CIP revenues for debt repayment and arrears clearance as well as for building fiscal buffers for future shocks, including natural disasters.

“The resolution of ABI Bank has significantly improved the capital and liquidity position of the banking sector. However, lending activity remains subdued, mostly due to weak credit demand and banks’ high risk aversion. In order to support credit growth and a further decline in non-performing loans, the mission recommended enhancing the foreclosure legislation, reducing government arrears to the corporate sector and pressing ahead with the operationalization of the Eastern Caribbean Asset Management Company. The mission also urged the authorities to coordinate with the ECCB on a comprehensive restructuring plan for Caribbean Union Bank. Although there has been little evidence of withdrawal of correspondent bank relationships (CBRs) by international banks thus far, 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 thus remains warranted, as well as efforts to further strengthen the AML/CFT framework.

“The mission commended the authorities for their progress in upgrading key tourism facilities such as the new airport terminal and the cruise ship pier as well as progress in implementing the energy sector strategy, including the increased penetration of solar energy technology. The mission also welcomed the authorities’ intentions to upgrade the commercial port facilities but cautions against risks related to the scale of the project and its financing. Notwithstanding, the authorities should pursue reforms to address the current skills gap, including through reorienting spending towards technical and vocational training consistent with international standards. They should also prioritize other reforms that improve the business climate, including by reducing policy uncertainty, improving public sector efficiency and transparency, cutting bureaucratic delay and enhancing the IT infrastructure. Finally, the mission recommends formulating plans to build resilience to natural disasters in collaboration with the World Bank and other IFIs.

“The mission wishes to thank Minister of State Weston, Financial Secretary Harris, and other senior government officials for the constructive meetings. We would also like to thank representatives of the Opposition and the banking, business, labor, and tourism sectors for their candid views, which helped to broaden the mission’s understanding of economic developments in Antigua and Barbuda.”