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INTERNATIONAL MONETARY FUND

IMF Country Report No. 12/8

UNITED KINGDOM—ANGUILLA—BRITISH OVERSEAS TERRITORY

2011 ARTICLE IV CONSULTATION DISCUSSIONS

January 2012

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2011 Article IV consultation discussions with United Kingdom—Anguilla—British Overseas Territory, the following documents have been released and are included in this package:

Staff Report for the 2011 Article IV consultation discussions, prepared by a staff team of the IMF, following discussions that ended on July 29, 2011, with the officials of United Kingdom—Anguilla—British Overseas Territory on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 15, 2011. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

Informational Annex prepared by the IMF.

Public Information Notice (PIN)

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

Copies of this report are available to the public from

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INTERNATIONAL MONETARY FUND

UNITED KINGDOM—ANGUILLA—BRITISH OVERSEAS TERRITORY

STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION DISCUSSIONS

November 15, 2011

KEY ISSUES

Setting: Anguilla has experienced a boom-bust cycle related to the global crisis and has faced a persistent hangover. This has accentuated weaknesses in the financial sector and undermined the fiscal position. After sharp output contractions in 2009-10, growth is still expected to be negative in 2011 and return to positive territory in 2012 with the two major tourism projects getting back on course. The 2011 Article IV Consultation Discussions represent the Fund’s first formal bilateral dialogue with this British overseas territory, building on the annual ECCU Common Policies discussions.

Addressing financial vulnerabilities: The most pressing issue is how to deal with weak indigenous banks, as the downturn has placed strains on the financial system, seriously affecting asset quality and liquidity. Continued efforts are needed to enhance nonbank supervision, particularly in light of the failure of two regional insurance companies, and to improve coordination. An action plan for addressing financial sector vulnerabilities is needed that spells out the respective roles of the Eastern Caribbean Central Bank, the Anguillan government, and the Financial Services Commission (FSC) of Anguilla. The offshore financial sector offers some potential to diversify the economy, but the balance between the potential economic benefits and costs need to be weighed carefully.

Rebalancing fiscal policy: A fiscal framework needs to be put in place in line with the resources available and with an appropriate balance between current and capital expenditure. An adequate framework would build buffers in good times to allow countercyclical spending when needed and incorporate a system of tax policy and administration that would yield sufficient revenue to meet established priorities. A comprehensive tax reform to simplify the tax structure and broaden the tax base is needed. Reversing some of the growth in the wage bill, which more than doubled during the 2003-08 boom, is unavoidable. Within this framework, the 2012 budget should restore capital spending, cut current spending including wages, and increase revenue by broadening the tax base.

Enhancing growth prospects: The short-run policy priorities should be to increase capital spending, improve the business environment including through a one-stop shop, and address skills shortages through training and greater labor mobility, while improving access to the island and enhancing diversification in the longer run.

Approved By David Vegara and Jan Kees Martijn

Discussions took place in The Valley during July 20-29, 2011. The consultation discussions form part of the Article IV consultation with the United Kingdom. The staff team comprised H. Monroe (head), M. Mrkaic and A. Viseth (all WHD) and F. Yang (FIN) with an overlapping visit by Mr. Akçakoca (MCM expert).

CONTENTS

  • RECENT DEVELOPMENTS AND OUTLOOK

  • POLICY ISSUES

  • A. Addressing Financial Sector Vulnerabilities

  • B. Rebalancing Fiscal Policy

  • C. Enhancing Growth Prospects

  • STAFF APPRAISAL

  • BOXES

  • 1. Exchange Rate Assessment

  • 2. The Tax System in Anguilla

  • TABLES

  • 1. Selected Indicators, 2006-12

  • 2a. Central Government Operations, 2006–13

  • 2b. Central Government Operations, 2006–13

  • 3. Summary Balance of Payments, 2006–16

  • 4. Monetary Survey, 2006–12

  • 5. Vulnerability Indicators, 2005–11

  • 6. Medium Term Macro Framework, 2006–16

  • FIGURES

  • 1. Key Characteristics

  • 2. Real Sector Developments

  • 3. Fiscal Developments

  • 4. Financial Soundness Indicators

  • 5. External Sector Developments

  • 6. Monetary Developments

  • Public Information Notice

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Draft Public Information Notice (PIN) No. 11/157

FOR IMMEDIATE RELEASE

December 13, 2011

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

IMF Executive Board Concludes 2011 Article IV Consultation Discussions with United Kingdom-Anguilla-British Overseas Territory

On November 28, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the first ever Article IV consultation discussions with United Kingdom-Anguilla- British Overseas Territory.1

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INTERNATIONAL MONETARY FUND

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November 15, 2011

Prepared By

UNITED KINGDOM—ANGUILLA—BRITISH OVERSEAS TERRITORY

STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION DISCUSSIONS—INFORMATIONAL ANNEX

The Western Hemisphere Department.

CONTENTS

  • ANNEX I: FUND RELATIONS

  • ANNEX II: ANGUILLAS RELATIONS WITH THE CARIBBEAN DEVELOPMENT BANK ANNEX

  • ANNEX III. STATISTICAL ISSUES

United Kingdom-Anguilla-British Overseas Territory: Staff Report for the 2011 Article IV Consultation
Author: International Monetary Fund