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IMF Concludes Article IV Consultation With Antigua And Barbuda

by Amanda Banks,, London

29 January 2007

The Executive Board of the International Monetary Fund (IMF) announced last week that on January 17, it concluded its 2006 Article IV consultation with Antigua and Barbuda.

The Board observed that the government of Antigua and Barbuda had adopted an ambitious reform program in its endeavor to pull the economy from decades of fiscal weakness-characterized by persistent fiscal deficits, a triple-digit debt burden, endemic arrears, and a large civil service - and declining growth rates.

The reform agenda included comprehensive tax reforms, civil service downsizing, measures to improve the investment climate, plans to reform the ailing social security system, and an impending strategy to regularize relations with creditors. Successful implementation of the ongoing and planned reforms could mark a watershed for Antigua and Barbuda's economic prospects, the IMF officials suggested.

The reform drive has benefited from an upswing in recent economic activity. The economy is experiencing its third consecutive year of high growth, driven by a construction boom in hotels and housing, as well as projects related to the 2007 Cricket World Cup. Growth in 2006 is expected to reach 8%, among the highest in the region.

Over the medium term however, growth is expected to slow as the construction boom winds down. Inflation has remained low, largely reflecting the stability provided by the regional quasi-currency board arrangement.

The external current account deficit increased to 15% of GDP in 2005 and is projected to widen further to 20% of GDP in 2006, but will be fully financed by foreign direct investment.

In a statement on the matter, the Executive Board Assessment announced that:

"Directors welcomed the government's program to resolve long-standing fiscal and debt problems, raise growth prospects, and build a consensus to support difficult and ambitious reforms. The strong economic outlook provides a good opportunity to advance these reforms."

"The tax reform, including the imminent implementation of the value-added tax, is a major achievement. At the same time, it will be important to strengthen tax administration and tax compliance."

"Directors emphasized that tight control over expenditure will be crucial to achieve fiscal sustainability. In this light, the sharp increase in wage and investment spending in the 2007 budget, if implemented, would set back plans to restore viable public finances. Directors welcomed the authorities' intention to work toward achieving the fiscal adjustment as originally envisaged."

"Directors supported the government's intentions to regularize relations with creditors and achieve debt sustainability. They encouraged the authorities to maintain an open and collaborative approach with all creditors and to make progress in resolving outstanding arrears."

"Structural reforms - in particular, labor market reforms and improvements in infrastructure - will be important to sustain growth and external competitiveness. The efforts to enhance the transparency of the incentive regime through the Investment Authority Act are commendable, but consideration should also be given to a broader reform of the tax incentives system, perhaps at a regional level."

"Directors welcomed the government's stated intentions on pension reform, needed to ensure the long-term sustainability of the universal pension scheme and to address budgetary pressures related to population aging. Directors recommended that plans for social security reform also cover civil service pensions, and that consideration be given to integrating the two systems."

"Directors urged a further strengthening of financial sector supervision, in particular with respect to the expanding and thus-far unregulated non-bank financial sector."

"Directors welcomed the authorities' efforts to reorganize the statistics department, and encouraged them to persevere with improvements in data needed for policy making and surveillance. They supported the provision of technical assistance in these areas as needed, from CARTAC and other sources."

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