IMF Predicts Economic Growth For Antigua And Barbuda

ST. JOHN’S, Antigua and Barbuda, November 9, 2016 (CMC) – The Antigua and Barbuda economy is expected to grow by three per cent this year, underpinned by the continued recovery in the tourism sector and investments in new and tourist facilities, the International Monetary Fund (IMF) has said.

An IMF delegation, headed by Meredith Arnold McIntyre, has ended a two-week visit to the country and said that growth last year was 3. 7 per cent.

He said the growth this year reflects mainly the 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, totalling 4.5 per cent of gross domestic product (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,” noted McIntyre.

The IMF official said that this was coupled by higher-than-projected spending on goods and services, transfers to state-owned enterprises (SOEs), and the Work Experience Program.

The IMF said the underlying primary deficit, excluding Citizenship-by-Investment (CIP) revenues and one-off items, is expected to reach 2.3 per cent of GDP, compared to a 1.1 per cent 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,” the IMF said, notwithstanding, public debt is projected to decline to 92 per cent of GDP by end-2016, down from 99 per cent of GDP in 2015, largely due to repayments of multilateral and some bilateral debt financed by CIP revenues and the drawdown of deposits.

McIntyre said 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,” he added.

McIntyre said that the 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. “

He said 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 IMF delegation also urged the Antigua and Barbuda authorities to coordinate with the Eastern Caribbean Central Bank (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 Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) framework,” it added.

McIntyre said that 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.