IMF predicting economic growth for Antigua and Barbuda in 2014
The International Monetary Fund (IMF) Wednesday said the Antigua and Barbuda economy was showing signs of improving and predicted that growth would be around two per cent in 2014.
“Economic activity in Antigua and Barbuda is improving, with a pickup in real GDP (gross domestic product) in the first half of 2014 following real GDP growth of 1.8 percent in 2013,” said Trevor Alleyne who led an IMF delegation to the twin-island.
He said that tourism is recovering, with stay-over arrivals up 7.7 per cent during the first half of the year. “Other sectors have continued to grow. Inflation in July stood at 1.7 per cent year on year. Commercial banks continue to suffer from weak financial soundness indicators and ABI Bank, which was taken over by the Eastern Caribbean Central Bank (ECCB) in 2011, is still awaiting resolution,”’ he said.
Alleyne said that the fiscal position deteriorated under the expansionary stance in the run-up to the June general elections that resulted in the removal of the Baldwin Spencer administration. It was replaced by the Antigua Labour Party (ALP) headed by Gaston Browne.
Alleyne said that spending for the first six months of 2014 was up 6.6 per cent compared with the same period in 2013, while tax revenue grew by 3.4 per cent.
The IMF noted that for the 12-month period July 2013-June 2014, the primary deficit widened to 1.3 per cent of GDP compared with a surplus of about a 0.6 per cent of GDP for July 2012-June 2013.
It said scheduled external amortization rose significantly this year to close to three per cent of GDP from 1.2 per cent in 2013, mainly due to repayment obligations to the Fund and Paris Club creditors.
“With few sources of financing on account of Antigua and Barbuda’s already elevated debt levels, external arrears accumulated, growing by almost one per cent of GDP in the first half of 2014,” Alleyne said.
He said that on current trends, growth in 2014 is expected at about two per cent with a moderate recovery in tourism, based on the ongoing cyclical expansion in the main client countries.
However, he said, the persistence of government arrears could undermine confidence and be a drag on growth in the nontrade able sectors of the economy.
“The mission therefore welcomes the authorities’ intention to decisively address the cash flow problem and put public finances on a sustainable footing.
“This will require strong fiscal adjustment measures – expenditure cuts and increased revenue collection – to generate a surplus large enough not only to stop further arrears accumulation but also to free up resources to help address the problems with ABI bank,” he said.
Alleyne noted that the deterioration in fiscal management in the lead up to the general election underscores the need to strengthen the fiscal policy framework and enhance the credibility of the medium-term fiscal consolidation programme.
“This can be achieved if annual budgets are implemented within consistent multi-year expenditure frameworks. In turn these frameworks should be underpinned by a fiscal rule that clearly prioritizes reducing debt to sustainable levels and has strong accountability provisions.”
He said strong inflows from the Citizen Investment Programme (CIP) could improve prospects for economic growth and fiscal performance in the medium term.
“However, CIP revenues are inherently very volatile, with risk of a sudden stop. Consequently, the prospect of CIP inflows should not weaken the government’s resolve to undertake strong fiscal adjustment measures to durably improve the public finances,” Alleyne said.
The IMF official said that these revenues should not be used to fund recurrent government operations but rather to clear arrears, pay down debt, build buffers, and deployed for key strategic infrastructure projects that would enhance Antigua and Barbuda’s productive capacity.
“Given the increased international scrutiny of such programmes, it will be important for the CIP to adhere to the highest standards of governance and transparency, including publishing names of new citizens.”
The IMF said that it welcomed the new government’s intention to address the problems of ABI Bank, noting that completion of this process and implementation of the financial sector reforms that are in progress at the ECCU level are critical to ensure confidence in and stability of the financial system.
The Washington-based financial institution said it was encouraging the authorities to take steps to boost competitiveness and improve the business climate of the economy in order to strengthen the prospect for robust growth.
“In this context, the first priority should be to restore macroeconomic stability: investors need to be assured of a stable, predictable planning horizon, where the banking system is sound, the public finances are healthy, and the government pays its bills on time.
“To improve cost competitiveness, it will be important to ensure that wage and salary adjustments are in line with productivity gains, and that energy costs are reduced over the medium-term, including through a comprehensive reform of the Antigua Public Utilities Authority (APUA) and a strategy to increase the use of renewable energy,” Alleyne added
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