A delegation from the International Monetary Fund (IMF) vesting Antigua and Barbuda predicted good times for the economy of the Caribbean nation. Observing signs of improvement in economic activity, real DPG, and tourism, the leader of the delegation predicted 2014 GDP growth at two percent, which is an improvement over the 1.8% growth that the nation enjoyed in 2013.
The nation has seen a pickup in the growth of real GDP in the first half of 2014 and is expected to reap the benefits of the ongoing recovery in tourism, which is a significant contributor to the nation’s economy. Stay-over arrivals have increased by 7.7% in the first half of 2014, which is a positive sign with regard to the sustained and steady economic recovery.
However, the IMF delegation also warned about certain risks that continue to cast a shadow over the economy. The team noted that July 2014 inflation stood at 1.7% and commercial banks fared badly on numerous financial soundness indicators. Further, the delegation highlighted the fact that the issue concerning ABI Bank, which was taken over by the Eastern Caribbean Central Bank in 2011, had still not found a resolution.
Other areas of risk included widening of primary deficit for the period of July 2013 to June 2014 as compared to July 2012 to June 2013. As opposed to a surplus of 0.6% of the GDP in the earlier period, the country had run up a deficit of 1.3% of the GDP during 2013-14.
Further, it was noted that since limited sources of funding were available to the highly indebted country, the total external arrears owed to external lenders grew by about 1% of the GDP in the first half of the year. Dues owed to the Fund and Paris Club creditors caused the scheduled external amortization to rise from 1.2% of the GDP in 2013 to about 3% of the GDP in 2014.
The IMF was critical of the expansionary polices that were implemented in the run up to the general elections that were held in June 2014. The delegation opined that the country needed a strong fiscal policy framework and should work towards enhancing the reliability of its medium-term fiscal consolidation strategies.
While observing that expenditure had risen by 6.6% in the first half of 2014 as compared to the first half of 2013 with tax revenue growing at a relatively lower rate of 3.4%, the delegation emphasized on the importance of expenditure cuts combined with attempts to boost revenue for the country to repair the ailing banking sector at the earliest. It pointed out that high arrears could affect confidence and slow growth in the weaker segments of the economy.
Despite the potential risks, the IMF sounded positive on the condition of Antigua and Barbuda’s economy and predicted the combination of recovery in tourism and the global cyclical expansion to boost economic growth. The delegation applauded attempts to tackle cash flow issues and the focus of the authorities to bring public finances back on a sound footing.
The IMF also highlighted the potential impact of the Citizen Investment Programme run by the country. The CIP, according to the delegation, could boost economic growth and help ease fiscal issues in the short and medium term. The IMF advised that CIP funds be used to clear past dues, pare debt, constitute buffers, and for financing strategic infrastructure projects designed to boost the country’s productive capacity. The delegation warned against using CIP funds for recurrent expenditure and against relying on volatile CIP inflow to defer measures designed to enhance fiscal discipline or improve public finances.
The delegation hoped that the CIP would follow stringent standards of governance and transparency and spoke in favor of publication of names of individuals obtaining citizenship under the CIP.
Referring to the path ahead, the team leader emphasized the importance of resolving the ABI Bank issue at the earliest along with implementation of financial sector reforms to prevent a crisis of confidence in the country’s financial system. Further, Antigua and Barbuda was urged to boost competition in the economy and was advised to secure robust growth through improvement of the overall business climate in the country. The IMF also recommended reforming of the Antigua Public Utilities Authority and a strategic shift towards renewable sources of energy to reduce energy costs in the future.
The team warned against macroeconomic instability, unpredictable planning, unsound banking system, and poor public financial condition with frequent defaults by the government.