WASHINGTON, CMC – The International Monetary Fund (IMF) says a modest recovery is underway in Antigua and Barbuda but macroeconomic indicators are still weak and important vulnerabilities remain.
The Washington-based financial institution said that economic activity in the first half of 2014 showed continuing signs of recovery following real gross domestic product (GDP) growth of 1.8 per cent in 2013. It said tourism has performed strongly, with stay-over arrivals up 7.7 per cent during the first half of the year.
“The winter tourist season was the most successful since 2009. Nevertheless, tourist arrivals are still over five per cent below pre-global crisis (2008) levels while real GDP is 14 per cent lower.”
The IMF said that commercial bank credit to the private sector was down by 4.4 per cent in June 2014 compared with a year ago, as banks continue to deal with high levels of non-performing loans.
Inflation remains subdued, reflecting sluggish aggregate demand and the absence of international commodity price pressures.
The IMF said that the fiscal stance was eased after the Stand-by Arrangement ended in June 2013 and in the run up to the June 2014 elections.
“At the same time, scheduled external amortization has more than doubled this year to nearly three per cent of GDP. With limited financing options, there was a re-emergence of arrears on external debt,” the IMF added.
It said on current trends, growth would remain modest, with risks tilted slightly to the downside.
“Real GDP would grow by 1.9 per cent in 2014 and 1.7 per cent in 2015, underpinned by the ongoing recovery in North America and the United Kingdom.”
It said that although the government has begun to address its fiscal imbalances, arrears would be projected to grow.
“Increased cash flow problems for the government and unattended banking system problems represent serious downside risks,” the IMf said, adding that on the other hand, the possibility of large inflows from the Citizenship by Investment Program (CIP) and foreign direct investments could significantly improve the outlook.
“However, these would not obviate the need for important policy adjustments,” it said.
The IMF executive board has underscored the need for decisive action to restore fiscal and debt sustainability as a matter of priority. The board has also emphasized the importance of achieving macroeconomic and financial stability to underpin stronger growth.
The IMF board of directors said they have also noted the urgency of addressing the cash flow problem. “They encouraged the authorities to adopt a comprehensive medium term fiscal consolidation program beginning with the upcoming 2015 budget.
“While welcoming the measures recently taken, they considered that, given limited financing options, additional measures would be required on the revenue side to improve tax collection and administration, and reduce tax incentives while enhancing regional collaboration to avoid tax competition.
“They also recommended measures to reduce the wage bill, and cut transfers to state owned enterprises and improve their financial performance and oversight more broadly,” the IMF statement said, noting that the directors welcomed the new government’s swift action to settle arrears and commitment to remain current with its obligations to the Fund.
“Noting the high risk of debt distress, they encouraged the authorities to explore available financing and debt management options,” the statement added.
