Antigua and Barbuda: Staff Concluding Statement of the 2022 Article IV Mission
October 5, 2022
A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.
The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.
Washington, DC:
An International Monetary Fund (IMF) team, led by
Mr. Varapat Chensavasdijai, visited St. John’s during September
20-October 3, 2022, to hold the 2022 Article IV consultation. At the
conclusion of the mission, Mr. Chensavasdijai issued the following
statement.
Recent Developments, Outlook, and Risks
Antigua and Barbuda’s economy is recovering, but output remains well
below pre-pandemic levels.
Labor market disruptions, loss of tourism capital stock, and school
closures during the pandemic may contribute to long-term scarring effects.
Following a decline of 20 percent in 2020, real GDP is estimated to have
expanded by 5.3 percent in 2021 buoyed by tourism and construction
activity. The external position in 2021 is assessed to be weaker than the
level implied by fundamentals and desirable policies, with the current
account deficit estimated at 15 percent of GDP and financed by foreign
direct investment. Tourism has been robust despite some real exchange rate
appreciation. The financial sector remains stable so far even as regulatory
forbearance has expired, but credit growth is weak.
Higher commodity prices and tighter global financing conditions are
weighing on economic activity.
The country’s first international bond issuance was delayed in the context
of elevated gross financing needs (19 percent of GDP at end-2021).
Inflation accelerated to 8½ percent in July following the surge in global
food and energy prices. The government responded by allowing fuel price
pass-through but introducing targeted subsidies to the transport and
fishing sectors to keep public transportation fares and seafood prices
stable.
Implementation of the Medium-Term Fiscal Strategy (MTFS) and growth
recovery have helped improve the fiscal position, but outturns
underperformed the original targets.
The primary deficit narrowed by 2 percent of GDP in 2021 as
pandemic-related spending was wound down and better tax administration and
higher external capital grants bolstered revenues. The outturn, however,
fell short of the MTFS target by 1 percent of GDP. Despite arrears
resolution during 2021, arrears to domestic and external creditors stood at
19 percent of GDP. Public debt peaked at 102 percent of GDP and is
projected to decline to 91 percent of GDP in 2022. Revenue shortfalls in
2022 are likely to imply a primary deficit of about ½ percent of GDP, or 1
percent of GDP below target. Tax exemptions have increased significantly
from late 2021. Fuel consumption taxes have fallen by about 1½ percent of
GDP since 2021 to absorb the impact of rising global energy prices.
Risks to the outlook are largely on the downside.
Output is expected to return gradually to its pre-pandemic level by 2025
supported by strong tourism recovery and foreign direct investment in the
hospitality sector, and public sector projects. Real GDP is projected to
grow at 6 and 5½ percent in 2022 and 2023, respectively. However, commodity
price shocks can dampen domestic demand and entrench inflation. A growth
slowdown in main tourism source markets and/or renewed COVID-19 outbreaks
and travel restrictions could stall the tourism recovery and deepen
scarring effects. A further appreciation of the U.S. dollar would weaken
competitiveness through the currency peg. Tighter financial conditions may
put additional strain on public finances and lead to further domestic
arrears accumulation. On the domestic front, a decline in
citizenship-by-investment program (CIP) revenues due to increased scrutiny
of such programs by the EU and U.S. would hamper fiscal consolidation
efforts. More frequent and intensive natural disasters due to climate
change pose an ever-present risk. On the upside, a faster-than-expected
recovery in tourism activity could boost growth.
Fiscal Policy
The government should continue to prioritize spending on social safety
nets to protect the vulnerable against rising living costs.
The authorities should expedite efforts to centralize and digitize
information and payment systems for social transfer programs, to improve
their coverage and targeting. Coordination amongst government agencies
implementing social transfer programs should be enhanced, in line with the
objectives of the Social Protection Act. A comprehensive social safety net
program, including cash transfers to lower-income households, could then be
used to replace the temporary gas voucher program, which needs to be
monitored to avoid abuses.
To return to the fiscal path envisaged in the MTFS will require
steadfast implementation of the strategy and additional measures of
at least 1¼ percent of GDP over the next three years.
Tax exemptions should be limited to those specified in the legislation with
clear eligibility criteria and sunset clauses, and effective monitoring and
evaluation. To improve accountability and transparency, tax expenditures
should be published with the budget. The ABST rate for tourism activities
could be harmonized to the standard 15 percent and the ABST extended to
online purchases. Excise duties could be introduced on alcohol and tobacco
products. Stricter controls on the property tax are required to ensure
timely payment of obligations, while property valuations for tax purposes
should be updated effective 2023. The authorities will also need to contain
increases in public sector real wages and rely on worker attrition and
redeployment to ensure the wage bill is brought below 9 percent of GDP by
2025. A public sector employment census and skills database will help
inform a longer-term strategy to tackle the wage bill. The government’s
decision to allow pass-through of international fuel prices to domestic
consumers is welcome and should be continued to ensure demand responds to
the global shift in relative prices. Going forward, the authorities should
consider adopting an automatic fuel pricing mechanism with full
pass-through in conjunction with social protection for vulnerable
households.
Securing long-term financing and avoiding accumulation of new arrears
are critical in an environment of tight financial conditions.
Continued fiscal consolidation and growth recovery are expected to bring
debt to under 70 percent of GDP by 2030 as set out in the MTFS. However,
gross financing needs will remain above 10 percent of GDP until 2025 even
as the deficit falls, if high reliance on short-term borrowing continues.
Public debt remains unsustainable due to the large outstanding stock of
arrears and high gross financing needs, which if not covered, will likely
lead to the accumulation of new arrears. To address these vulnerabilities
will require progress in reducing the underlying fiscal imbalance and
securing financing with long maturities. The authorities are making efforts
to issue long-term securities on the domestic and external markets and are
planning a green bond issuance in collaboration with multilateral and
commercial partners. Securing this financing could potentially extend debt
maturity and lower rollover risk and debt service burden. Further progress
in clearing the stock of domestic and external arrears, including
reconciliation and prioritization of arrears for clearance and close
engagement with creditors, will help increase credibility of the
government’s commitment to fiscal discipline and will boost economic
activity.
Further strengthening of the fiscal framework will help
institutionalize fiscal discipline and build buffers against natural
disasters.
To build political consensus, it would be useful to have the MTFS and
underlying Fiscal Resilience Guidelines formally endorsed by parliament.
There is also a need to increase the operational capacity of the
Macro-Fiscal Unit and get the Fiscal Resilience Oversight Committee up and
running before end-year. The government should move ahead to approve
regulations to operationalize the Climate Resilience and Development Fund
(CRDF), enact the amended Finance Administration Act, develop a public
financial management action plan based on the results of the Public
Expenditure and Financial Accountability self-assessment, introduce a
system to measure the financial performance of SOEs, and finalize
amendments to the Procurement Administration Act and ensuing regulations.
On revenue administration, operationalization of post-clearance audit and
risk management at customs is a welcome step. The authorities should put in
place the single window system at customs and extend forensic audits to
other low compliance sectors as planned. Implementation of e-filing and
e-payment of taxes in the coming year will enhance revenue mobilization and
improve the business environment.
Parametric reforms to the pension system are essential to ensure its
long-term sustainability.
Despite ongoing reforms that began in 2017, the financial position of the
public pension system weakened in large part due to the loss in expected
contributions as wage income and employment remain permanently lower than
pre-pandemic forecasts. Further parametric reforms and revisions to the
investment framework and strategy are thus warranted. As a transitory step,
retirement age could be increased by half a year to 64.5 years in 2024 and
reach 65 years in 2025 as currently envisaged. After 2025, gradual
increases in contribution rates (0.5 percent per year up to 17 and 18
percent for public and private sector employees, respectively) and
automatic adjustment in the retirement age in line with the increase in
life expectancy at retirement would improve the pension system’s
sustainability.
The Financial Services Regulatory Commission (FSRC) should continue to
exercise vigilance to safeguard financial stability.
It will be important to intensify the monitoring of credit unions’ asset
quality and ensure loan loss provisioning is consistent with fragilities in
borrowers’ financial position and broader economic prospects. The FSRC
should also collaborate with the ECCB to formulate a national crisis
management plan to contain potential system-wide risk covering both banks
and non-banks. In addition, the supervision, reporting, and regulatory
frameworks should be adapted to incorporate climate risks, leveraging
regional initiatives led by the ECCB and including through stress tests for
non-banks.
Reforms are needed to improve access to credit.
The regional credit bureau is expected to accelerate the lending process
and enhance credit quality. Modernization of the insolvency law to
facilitate out-of-court settlement and clarify creditor rights can help
incentivize lending. The recently launched regional partial credit
guarantee scheme for micro-, small- and medium-sized enterprises can be
utilized to alleviate collateral constraints of borrowers.
Effective implementation of the AML/CFT framework would help mitigate
risks to the CIP, thereby protecting existing correspondent banking
relationships.
Significant progress has been made in adopting and strengthening a
risk-based supervisory AML/CFT framework applicable to all financial
institutions and designated non-financial businesses and professions
(including CIP agents). The due diligence process for screening CIP
applicants that is currently in place has several layers to minimize the
risks and additional measures are being taken to strengthen the CIP
legislative framework. Active communication with counterparts in the EU and
U.S. and other CIPs in the region should be maintained to keep all partners
abreast of the progress of these reforms and to share best practices.
Policies to revive the labor market would support the economic
recovery.
Formal work arrangements declined and education outcomes worsened due to
school closures during the pandemic. To help mitigate these effects,
policies should prioritize increased training, vocational education, and
skills certification to address human capital deterioration, assisting with
job search to facilitate reintegration of workers into the labor force, and
reversing the decline in self-employment by providing comprehensive support
to small businesses.
Investment in climate resilience continues to be a priority.
Resilience building is necessary as part of the current infrastructure is
not resilient to natural disasters, which will become more intense and
frequent due to climate change. Ongoing efforts to leverage donor resources
and other international financing are crucial given the large investment
needs and limited fiscal space. The National Adaptation Plan is expected to
be completed by June 2023, which will help coordinate and focus donor
efforts on key priorities and incorporate climate resilience considerations
into the development strategy and budget process. Timely capitalization of
the CRDF will be key to building fiscal buffers against natural disasters.
Accelerating the shift to renewables would help insulate the country
from swings in global energy prices.
Antigua and Barbuda’s electricity tariffs are among the highest in the
Caribbean region. Diversifying the energy matrix in line with the National
Energy Policy and allowing private sector participation in the renewable
energy market can bring significant energy cost reduction. A phased
approach to the transition to renewables should be taken, with careful
considerations given to the financing instruments and the implications of
stranded assets of carbon-intensive sectors.
Data Issues
Progress is being made to improve data quality, but further efforts are
needed to update and disseminate critical information for policy and
business decision-making.
With support from the IMF Statistics Department and CARTAC and other
donors, progress is being made on a new Producer Price Index, collection of
the rental index for the Consumer Price Index, and improvements to the
national accounts and external sector statistics. Key remaining areas that
require attention include conducting a poverty assessment, publishing
timely reports on central government and SOE operations, and compiling
detailed labor market statistics.
The mission team thanks the authorities and other counterparts for
their excellent collaboration and the candid and constructive
discussions.
Antigua and Barbuda: Selected Economic and Financial Indicators
|
Population (2021) |
98,219 |
Adult literacy rate (2015) |
99 |
||||||||
|
GDP per capita (US$, 2021) |
14,978 |
Mean years of schooling (2021) |
9.3 |
||||||||
|
Life expectancy at birth (years, 2021) |
78.5 |
Human Development Index rank |
71 |
||||||||
|
Mortality rate (under 5, per 1,000 live births, 2020) |
6 |
(2021, of 191 economies) |
|||||||||
|
Prel. |
Projections |
||||||||||
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
|
|
(Annual percentage change) |
|||||||||||
|
National Income and Prices |
|||||||||||
|
Real GDP |
3.1 |
6.9 |
4.9 |
-20.2 |
5.3 |
6.0 |
5.6 |
5.4 |
4.0 |
2.7 |
2.7 |
|
Nominal GDP |
2.2 |
9.4 |
5.1 |
-18.8 |
7.4 |
15.0 |
10.3 |
7.9 |
6.1 |
4.8 |
4.8 |
|
Consumer prices (end of period) |
2.4 |
1.7 |
0.7 |
2.8 |
1.2 |
10.5 |
2.7 |
2.0 |
2.0 |
2.0 |
2.0 |
|
Consumer prices (period average) |
2.4 |
1.2 |
1.4 |
1.1 |
1.6 |
8.5 |
4.5 |
2.4 |
2.0 |
2.0 |
2.0 |
|
Money and Credit |
|||||||||||
|
Net foreign assets |
10.9 |
6.2 |
-0.9 |
-4.6 |
18.5 |
5.4 |
4.2 |
4.0 |
2.3 |
1.0 |
0.3 |
|
Net domestic assets |
-3.3 |
0.1 |
1.7 |
-0.6 |
-4.6 |
-1.6 |
6.1 |
4.0 |
3.8 |
3.8 |
4.5 |
|
Broad money (M2) |
7.6 |
6.3 |
0.8 |
-5.2 |
13.9 |
3.9 |
10.3 |
7.9 |
6.1 |
4.8 |
4.8 |
|
Credit to private sector |
-1.6 |
1.8 |
1.3 |
4.8 |
-4.1 |
0.0 |
5.0 |
5.0 |
5.0 |
5.0 |
5.0 |
|
(Percent of GDP) |
|||||||||||
|
Central Government |
|||||||||||
|
Primary balance |
-0.1 |
0.0 |
-1.2 |
-3.8 |
-1.9 |
-0.4 |
-0.9 |
1.5 |
2.0 |
2.1 |
2.1 |
|
Overall balance |
-2.8 |
-2.5 |
-4.0 |
-6.4 |
-4.8 |
-2.4 |
-3.3 |
-1.2 |
-0.5 |
-0.4 |
-0.4 |
|
Total revenue and grants |
20.7 |
19.8 |
18.6 |
20.4 |
20.6 |
20.9 |
20.2 |
21.2 |
20.9 |
20.8 |
20.8 |
|
Total expenditure |
23.6 |
22.3 |
22.6 |
26.8 |
25.3 |
23.4 |
23.5 |
22.4 |
21.4 |
21.2 |
21.2 |
|
External Sector |
|||||||||||
|
Current account balance |
-8.0 |
-14.5 |
-7.5 |
-18.4 |
-15.0 |
-20.3 |
-14.1 |
-13.3 |
-12.5 |
-11.8 |
-11.3 |
|
Trade balance |
-31.1 |
-36.1 |
-34.2 |
-29.3 |
-33.7 |
-39.8 |
-37.5 |
-37.4 |
-37.0 |
-36.8 |
-36.7 |
|
Nonfactor service balance |
32.3 |
30.2 |
35.1 |
18.6 |
25.6 |
26.0 |
29.1 |
33.6 |
34.2 |
34.8 |
35.1 |
|
Of which: |
50.2 |
48.3 |
53.5 |
30.1 |
37.1 |
45.4 |
46.0 |
44.9 |
45.2 |
46.2 |
47.2 |
|
Overall balance |
-2.4 |
-0.5 |
-4.2 |
-7.1 |
4.3 |
-3.9 |
-5.1 |
-1.8 |
-2.6 |
-3.3 |
-3.8 |
|
External public sector debt |
37.5 |
36.7 |
36.5 |
48.1 |
50.5 |
49.7 |
49.9 |
49.7 |
49.4 |
48.3 |
46.8 |
|
Savings-Investment Balance |
-8.0 |
-14.5 |
-7.5 |
-18.4 |
-15.0 |
-20.3 |
-14.1 |
-13.3 |
-12.5 |
-11.8 |
-11.3 |
|
Savings |
15.4 |
22.9 |
27.4 |
12.9 |
23.2 |
19.3 |
22.7 |
24.2 |
24.1 |
24.3 |
24.3 |
|
Investment |
23.5 |
37.5 |
34.9 |
31.3 |
38.2 |
39.6 |
36.8 |
37.5 |
36.6 |
36.1 |
35.7 |
|
Memorandum Items |
|||||||||||
|
Net imputed international reserves (US$ million) |
314 |
329 |
279 |
222 |
324 |
349 |
414 |
482 |
524 |
543 |
549 |
|
(Months of prospective imports) |
3.3 |
3.3 |
4.5 |
3.1 |
3.1 |
3.3 |
4.0 |
4.4 |
4.5 |
4.4 |
4.2 |
|
GDP at market prices (EC$ million) |
3,964 |
4,336 |
4,556 |
3,700 |
3,972 |
4,567 |
5,040 |
5,439 |
5,770 |
6,045 |
6,332 |
|
Public debt stock (EC$ million) 1/, 2/ |
3,654 |
3,803 |
3,702 |
3,754 |
4,066 |
4,167 |
4,305 |
4,353 |
4,369 |
4,354 |
4,339 |
|
(Percent of GDP) |
92.2 |
87.7 |
81.3 |
101.5 |
102.4 |
91.2 |
85.4 |
80.0 |
75.7 |
72.0 |
68.5 |
|
Sources: Country authorities, ECCB, UN Human Development |
|||||||||||
|
1/ Includes stock of principal and interest arrears, unpaid |
|||||||||||
|
2/ Includes central government guarantees of state |
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