August 13, 2021
On July 28, 2021, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Antigua and Barbuda.
Antigua and Barbuda has been hit hard by the global pandemic. The domestic lockdown and border closure in early 2020 prompted a collapse of tourism-related activities. The economy contracted by an estimated 17.3 percent in 2020. The government promptly took public health measures to limit the spread of the virus and introduced social programs to support the vulnerable. The pandemic was well contained in 2020, even after the reopening of borders in the summer, but the winter tourism season saw a temporary surge in COVID-19 cases. Infection rates have since stabilized with about one-third of the population fully vaccinated.
The economy is projected to contract by 1 percent in 2021 before a recovery takes hold in the second half of this year. A gradual pick-up in tourism activity is expected with the first cruise ship arrival in July and Antigua and Barbuda’s favorable travel risk ratings in key source markets. Downside risks to the outlook are significant, primarily from a more prolonged pandemic due to the spread of new COVID-19 variants and limited vaccine availability both at home and abroad.
The pandemic has intensified cash flow pressures, led to a further accumulation of domestic and external arrears, and sharply increased the public debt and gross financing needs. The government has embarked on an economic plan centered on a Medium-Term Fiscal Strategy which seeks to restore debt sustainability and gradually resolve outstanding domestic and external arrears; prioritize policies that tackle COVID-19 and improve healthcare delivery; protect the vulnerable; and create the conditions for durable growth and job creation.
Executive Board Assessment [2]
Executive Directors noted that Antigua and Barbuda was hit hard by the COVID-19 pandemic and commended the authorities for their swift containment measures and support for the vulnerable. A gradual recovery is envisaged, but downside risks are significant, including a prolonged pandemic, delays in fiscal reforms, and natural disasters. Directors stressed the need to continue supporting economic recovery, while stabilizing public finances and promoting competitiveness and sustainable growth.
Directors underscored the urgency of restoring debt sustainability. In this regard, they welcomed the authorities’ Medium-Term Fiscal Strategy, anchored on domestic revenue mobilization and rationalized spending. Achieving the fiscal targets will require additional measures, as well as efforts to secure long-term financing on favorable terms. Noting the continued accumulation in arrears, Directors encouraged the authorities to put in place a concrete clearance plan, continue to engage with creditors, and avoid new arrears. They noted the benefits of the potential SDR allocation in rebuilding reserves and helping to meet the financing gap if needed.
Directors welcomed planned reforms to improve public financial management, tax administration, and targeting of social programs. They recognized the initial steps taken to contain the wage bill and recommended that the authorities consider a long-term strategy to reform the public sector. Further steps are also essential to strengthen the governance and financial position of state-owned enterprises.
Directors welcomed ongoing initiatives to boost growth and job creation, diversify the economy, and improve the business environment. They emphasized the importance of upgrading public infrastructure, including to support digitalization. Directors looked forward to the completion of the National Adaptation Plan to build physical and financial resilience to climate change and natural disasters.
Directors called for efforts to safeguard financial stability in support of the economic recovery. Given the deteriorating asset quality and profitability of the financial system, they saw a need to closely monitor risks, particularly to credit unions. Interconnectedness between banks and non-banks also warrants a coordinated supervisory approach. Directors encouraged the authorities to formalize a national crisis management plan in collaboration with the ECCB, and to gradually reduce reliance on domestic bank financing to limit sovereign financial risks. They called for additional efforts to advance AML/CFT reforms, building on the progress already made.