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Antigua And Barbuda Plans Ambitious Fiscal Reforms

by Amanda Banks,, London

21 July 2010

Antigua and Barbuda, having suffered its worst recession in decades, has been advised to implement far-reaching reforms to tackle significant fiscal deterioration that occurred in 2009.

The authorities, now faced with a double-digit deficit and a declining economy, have planned ambitious reforms to overcome the deficit by 2012.

The IMF said that the territory's economy is being severely affected by the global downturn. Foreign Direct Investment (FDI) inflows and remittances, and fiscal revenue have deteriorated significantly. Real GDP has contracted by 7%, down from average growth of around 6% in the previous five years.

“The recession and associated fiscal crisis coincided with an already unsustainable fiscal situation and mounting problems in the financial sector — the collapse of the Stanford Group (the largest private conglomerate) and of the Trinidad-based CL Financial Group,” the IMF said. The Fund added:

“Following many years of accumulation of arrears to domestic and external creditors, the fiscal situation turned critical in 2009 as the recession led to a 20% decline in tax revenue. Meanwhile, expenditure rose by 4.5% of GDP.”

“The overall fiscal deficit widened from 6% of GDP in 2008 to about 19% in 2009. With limited financing options, the government accumulated arrears amounting to about 9% of GDP to domestic and external creditors, bringing the total stock of arrears to about 53% of GDP, or 45% of the outstanding public debt, which totaled 115% of GDP.”

Embattled, the authorities requested Fund financial assistance and the Executive Board approved a three-year Stand-By Arrangement in June 2010 in support of a comprehensive reform strategy aimed at restoring fiscal and debt sustainability.

According to the IMF, "the reforms [agreed] include a significant and sustained tightening of fiscal policy supported by a comprehensive debt restructuring and structural reforms to strengthen the customs and inland revenue departments. The approved 2010 budget built on the fiscal measures taken in mid-2009, and features additional measures that are designed to shift the fiscal position to a primary surplus of 3% of GDP from a primary deficit of 11.5% of GDP in 2009.”

“These measures, which include prioritizing capital and goods and services expenditure and a freeze on public sector wages, will be complemented by revenue measures aimed at returning the tax-to-GDP ratio to pre-crisis levels and bring the overall deficit to zero by 2012,” the Fund added.

The IMF's Executive Board welcomed the jurisdiction's commitment to a strong fiscal adjustment program, which it said constitutes a decisive step towards restoring debt sustainability.

Last month, Antigua's government outlined a fiscal consolidation plan which includes several measures to enhance revenues. In particular, the fiscal plan focuses on improving the tax administration and encouraging tax compliance. This would include strengthening the capacity of the Inland Revenue and Customs and Excise departments, to enable authorities to undertake tax audits, bring previously non-compliant operators into the tax net, and identify and address tax evasion and avoidance. The plan also widened the scope of the sales tax, and proposed a new 10% 'Recovery Charge' on all non-oil imports and domestic production.

On the oversight of the banking industry, the Board said the financial sector reform agenda is well focused on both bank and non-bank segments. The Board said on-site inspection of the banking system by the Eastern Caribbean Central Bank will provide important and timely information and form the basis to deal with the weaknesses of domestic banks.

TAGS: compliance | tax | economics | sales tax | tax compliance | fiscal policy | banking | international financial centres (IFC) | budget | offshore | Antigua and Barbuda | tax reform

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