The International Monetary Fund (IMF) says it is concerned that the macroeconomic performance of Antigua and Barbuda has deteriorated in the months following the conclusion of the three year-old Stand-By Arrangement, weakening the growth outlook and exacerbating downside risks.
The IMF said that its executive board had late last month concluded the first post programme monitoring discussion for Antigua and Barbuda and that the local 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 per cent, up from 0.5 per cent in 2013; and inflation is expected to remain subdued at around one per cent,” the IMF said.
“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,” the Washington-based financial institution said.
It said that the executive directors had 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”
They have recognised the progress made in bank resolution, but stressed that delays in reforms are exacerbating fiscal risks and undermining the stability of the banking system.
The IMF said it was urging the authorities to move quickly to resolve the Antigua and Barbuda Investment Bank, in close collaboration with the Eastern Caribbean Central Bank and “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.”
The IMF said that there was need 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.
It 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.”
The IMF said 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 programme, 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.”
The IMF executive directors also 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.