By Robert A Emmanuel
The International Monetary Fund (IMF) has praised the government for the ‘robust recovery’ of the country’s economy over the past two years, noting that real GDP was expected to return to pre-pandemic levels in 2023’s stats, amidst a declining debt ratio and inflation rate.
However, the IMF called for decisive action to address fiscal and external imbalances and to improve growth prospects and build resilience, noting some of their 2022 report recommendations showed “limited” or “partial” progress.
Their comments were made in the financial agency’s full 2023 report – published on Tuesday – following its assessment of the nation’s economic and financial development.
Despite the various external factors which impact the country’s economy such as natural disasters, the IMF board concluded that, for the near term, the country’s growth outlook is “favourable” with growth projected at 5.7 percent, propelled by a “rebound in tourism and construction activity”.
“Inflation has declined from 2022 peaks, but remains elevated (at 6.6 percent in August 2023), accompanied by moderating core inflation,” the press release which accompanied the report said.
Growth is expected to moderate and gradually converge to its long-term trend, and price pressures are expected to dissipate in 2024.
However, Antigua and Barbuda faces a number of “downside risks”, according to the IMF, including a persistently high inflation rate from high global food and fuel prices and if debts continue to grow, or if existing funding options become unavailable or too costly, particularly if the planned deficit reduction plans by the government do not occur.
The IMF projected that long-term economic growth would converge to an average of three percent with tourism services expected to moderate, and global commodity prices keeping the country’s inflation rate near four percent—although they are hoping that inflation will “dissipate” this year.
The IMF report, therefore, emphasised the need for fiscal adjustment, and welcomed plans for revenue mobilisation and expenditure restraint, including limiting discretionary tax exemptions and broadening the ABST base.
Among their top policy advice for the government is that the administration address fiscal imbalances which include unsustainable public debt due to a “large outstanding stock of arrears, and the fact that paying down these arrears appears infeasible over the medium term without a broader debt restructuring”.
The IMF states that bringing down public debt safely below medium-term targets will require measures of around one percent of GDP, including reducing products subject to tax exemptions or zero-rating, particularly those introduced in response to the pandemic.
Recently, the Inland Revenue Department announced that Covid-related zero-rating on health and some sanitation products like disinfectant wipes will be rescinded, in line with a Cabinet decision issued in October.
They also called for the application of a standard rate of 15 percent to short-term accommodation and extending ABST to online purchases.
“Increasing the rate to 17 percent, including on short-term accommodation, would increase revenues by 0.7-0.8 percent of GDP. Combining this higher rate of 17 percent with base broadening would yield revenues of close to two percent of GDP,” they wrote.
The government announced a two percent increase on ABST last month, raising the sales tax from 15 to 17 percent as of January 1.
Additionally, the IMF welcomed plans to operationalise a fiscal resilience oversight committee and confirmation by Cabinet that fiscal resilience guidelines were approved, though they stated that the Cabinet has no intention to have those guidelines approved by Parliament.
Among their 2022 country report suggestions, the IMF noted that conducting a public sector employment census and skills database as part of a longer-term strategy to address the wage bill would be a positive step.
They said that while the government has attempted to contain wage and employment growth in the public sector, the lack of plans to conduct a public sector employment census was seen as making limited progress on the issue.
Additionally, they highlighted limited progress made towards a crisis management plan to address potential risks to the financial system.
“[The authorities] agreed with the importance of a crisis management framework (particularly as there is no lender-of-last-resort for credit unions) and reiterated their interest in receiving technical assistance for a comprehensive and in-depth assessment of non-banks,” the IMF report noted.
