By Orville Williams
While the government has been commended by the International Monetary Fund (IMF) for its efforts to improve the country’s economy and create jobs, it is also being urged to safeguard financial stability and completely reform the public sector.
These are just some of the findings that have been revealed in a report, following the IMF Executive Board’s 2021 Article IV Consultation with Antigua and Barbuda.
The consultation was concluded late last month, according to the IMF’s website, and the report touches on several aspects of the country’s economic condition.
It noted that the domestic lockdown and border closure caused by the pandemic last year decimated the country’s primary income generator, the tourism sector, leading to a 17.3 percent economic contraction in 2020.
A further one percent contraction is projected for the first half of this year, “before a recovery takes hold in the second half”.
As has been widely discussed over the past few months, the recovery will be led by the resurgence in the tourism sector, and the IMF pointed to the return of cruise ships and “favourable travel risk ratings in key source markets” as the reasons for a gradual pick-up in tourism activity.
Despite the promise that these developments bring, the IMF’s executive directors warned that a prolonged pandemic, delays in fiscal reforms and the impact of natural disasters could pose a threat.
They underscored the urgency of restoring debt sustainability, welcoming the government’s medium-term fiscal strategy which is based on “domestic revenue mobilisation” and “rationalised spending”.
This strategy is also meant to prioritise policies that tackle Covid-19 and improve healthcare delivery, to protect the vulnerable and to create the conditions for durable growth and job creation.
Another important component of the economic recovery, the IMF directors said, will be securing long-term financing on favourable terms. Noting a sustained accumulation in arrears, they urged the government to put a concrete clearance plan in place, to continue to engage with creditors and to avoid new arrears.
Safeguarding financial stability in support of the economic recovery is another piece of advice laid out in the report.
The directors identified a need to closely monitor risks, particularly to credit unions, due to the “deteriorating asset quality and profitability of the financial system”. They pointed out that “interconnectedness between banks and non-banks also warrants a coordinated supervisory approach”.
The government was advised to formalise a national crisis management plan – in collaboration with the Eastern Caribbean Central Bank (ECCB) – and to “gradually reduce reliance on domestic bank financing to limit sovereign financial risks”.
Additionally, the IMF directors welcomed the planned reforms to public financial management. They recognised the initial steps taken to contain the wage bill and recommended that the government consider a long-term strategy to reform the public sector.
They also emphasised the importance of upgrading public infrastructure, including to support digitalisation, and said they are looking forward to the completion of a national adaptation plan to build physical and financial resilience to climate change and natural disasters.
The IMF report projected that the country’s economy will grow by 8.5 percent in 2022, 5.6 percent in 2023, followed by descending growth figures through to 2026.
It was reported a few months ago that Prime Minister Gaston Browne met with representatives of the IMF to assess the options that were available to the country if help was needed from the body to cushion the blow from the pandemic.
The PM was insistent that the one-size-fits-all approach would not be entertained, but rather, a specialised agreement based on the country’s particular situation.
It does not seem at this point, however, that the PM will be looking further into those possibilities, at least in the near future, as the country appears to be on the right track to make a full economic recovery.