Statement by the IMF Staff Representative

This 2005 Article IV Consultation highlights that data for the first half of 2005 point to a widening fiscal deficit for Antigua and Barbuda. A combination of a reduction in capital spending and some improvement in revenues following a tightening of the concessions regime resulted in a closing of the primary deficit to 1½ percent of GDP in 2004. Revenues have performed well following the reintroduction of the personal income tax. The external current account deficit has narrowed to about 11 percent of GDP, financed by foreign direct investment.

Abstract

This 2005 Article IV Consultation highlights that data for the first half of 2005 point to a widening fiscal deficit for Antigua and Barbuda. A combination of a reduction in capital spending and some improvement in revenues following a tightening of the concessions regime resulted in a closing of the primary deficit to 1½ percent of GDP in 2004. Revenues have performed well following the reintroduction of the personal income tax. The external current account deficit has narrowed to about 11 percent of GDP, financed by foreign direct investment.

December 21, 2005

1. This statement provides additional information that has become available since the circulation of the staff report. It does not alter the thrust of the staff appraisal.

Macroeconomic Developments and Prospects

2. The authorities have revised their growth projection for 2005 to 5 percent from 4 percent previously, on account of a more rapid than expected pick up in construction activity. However, tourism outcomes remain weak—data through end-September indicate a 5.5 percent decline in stayover arrivals by air relative to the same period of 2004—and staff's GDP projection remains unchanged relative to the staff report.

3. Inflation has risen following the recent increases in domestic petroleum prices. The CPI increased by 2.2 percent in the 12 months ending October 2005. The increase in the CPI excluding accommodation was 4.3 percent.

Policy Developments

4. Additional information on the authorities' policy agenda for 2006 has been provided in the context of the Throne Speech (delivered on November 18) and the Budget Speech (delivered on November 30). The 2006 Budget is now being debated in Parliament. Key policy commitments—which are broadly in line with information provided in the staff report—include:

  • The Antigua and Barbuda Sales Tax is to be introduced in the second quarter of 2006, replacing a number of existing taxes but projected to generate additional revenue of around 1½ percent of GDP in 2006.

  • A modern Property Tax is to be effective on January 1, 2006. Following an audit conducted during 2005, the number of properties included in the property tax registry has increased by 75 percent.

  • Petroleum products are to be priced in line with the common approach to achieving increased flexibility being developed throughout the ECCU.

  • A voluntary severance scheme for civil servants has been announced, with applications due by February 28, 2006. The package includes a lump-sum payment based on years of service plus grants for training.

  • Spending on the school meals program will be limited to EC$5 million, by targeting the program to nine primary schools in 2006.

  • The public sector debt stock is to be reduced to less than 80 percent of GDP by end-2007, compared to 105 percent of GDP at end-2005.

  • Amendments to the Labor Code and Industrial Court Act are under preparation to provide a better balance between the rights and obligations of employees and employers, reasonable recognition of long service by employees, and to respond to the need for a regulatory climate conducive to investment and business viability.

  • Liberalization of the telecommunications sector to ensure competition and support development of the IT service sector and the transition to e-Government. The removal of the monopoly operating license on providing landline international calls has been announced, effective January 1, 2006.