By S Coward

On April 21, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the first Post Program Monitoring discussion for Antigua and Barbuda.

On June 5, 2013, the Board concluded the tenth and final review of the 36-month Stand-By Arrangement (SBA). Given that outstanding Fund credit was 500 percent of quota, Directors agreed that post-program monitoring should be initiated.

Antigua and Barbuda’s economy is facing headwinds. In 2013, economic growth was somewhat lower than projected at the time of the SBA review and the fiscal deficit widened substantially. This year, the economy is expected to grow by 1.6 percent, up from 0.5 percent in 2013; and inflation is expected to remain subdued at around 1 percent. However, risks to this outlook are high, stemming in particular from the country’s unsustainable fiscal situation, and the large share of nonperforming loans in the banking system.

Executive Board Assessment

Executive Directors noted with concern that the macroeconomic performance has deteriorated in the months following the conclusion of the SBA with the Fund, weakening the growth outlook and exacerbating downside risks.

Directors recognized the progress made in bank resolution, but stressed that delays in reforms are exacerbating fiscal risks and undermining the stability of the banking system. They urged the authorities to move quickly to resolve the Antigua and Barbuda Investment Bank, in close collaboration with the Eastern Caribbean Central Bank. Directors cautioned that the resolution strategy should not weaken the fiscal position further.

Directors stressed the importance of swiftly reversing fiscal slippages and encouraged the authorities to articulate a comprehensive medium-term fiscal consolidation program to put the public debt on a sustainable path.

Directors called for a redoubling of efforts to implement pending tax administration reforms, including the long-delayed Tax Administration and Procedures Act, and scale back tax exemptions. They also recommended that wage restraint to reduce personnel costs should be an important element of the authorities’ fiscal strategy. More broadly, the recent increase in current expenditure should be reversed and transfers to state-owned enterprises reduced, while protecting capital spending.

Directors considered that the recently launched Citizenship by Investment Program (CIP) could bring benefits to Antigua and Barbuda, if managed prudently. Noting the inherent uncertainty associated with income from such a program, they recommended that CIP revenues be targeted primarily for paying down debt and for creating a buffer to smooth spending in the event of adverse shocks.

Directors stressed the importance of measures to improve the business climate and external competitiveness over the medium term, and welcomed the initiatives underway in this area.