The 2011 Article IV Consultation highlights that low growth is expected for Montserrat in 2011 after sharp output contractions in 2009–10. Stress in the financial sector and slower-than-expected development of major capital investment projects continue to limit prospects for growth. Directors have welcomed the development of a strategy for addressing financial vulnerabilities and the initial progress in implementing it. They have supported preemptive action to minimize costs and risks and preparation of an action plan spelling out the roles of key players.

Abstract

The 2011 Article IV Consultation highlights that low growth is expected for Montserrat in 2011 after sharp output contractions in 2009–10. Stress in the financial sector and slower-than-expected development of major capital investment projects continue to limit prospects for growth. Directors have welcomed the development of a strategy for addressing financial vulnerabilities and the initial progress in implementing it. They have supported preemptive action to minimize costs and risks and preparation of an action plan spelling out the roles of key players.

ANNEX I. FUND RELATIONS

  • The consultation discussions with the authorities in Montserrat, which are part of the 2011 Article IV consultation discussions with the United Kingdom, were held in The Valley during July 20-29, 2011. The staff team comprised Messrs. Monroe (head), Mrkaic, and Ms. Viseth (all WHD), Ms. Yang (FIN) and Mr. Akçakoca (external consultant). It met with the Governor of Montserrat, the Chief Minister (who is also the Minister of Finance) and senior officials of the government of Montserrat, members of the Anguillan parliament, and representatives of labor unions, business associations, banks, and pension and health care funds.

  • As a British Overseas Territory, Montserrat falls under UK sovereignty. The UK has accepted the obligations under Article VIII. Anguilla maintains an exchange system free of restrictions.

United Kingdom

I. Membership Status: Joined: December 27, 1945.

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IV. Outstanding Purchases and Loans: None

V. Financial Arrangements: None

VI. Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):

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Montserrat

VII. Exchange Rate Arrangement:

The Eastern Caribbean Dollar has been pegged to the U.S. dollar at EC$2.7 per US$1 since July 7, 1976.

VIII. Article IV Consultation Discussions: The 2011 Article IV consultation discussions are the first bilateral Fund discussions with Montserrat.

IX. Financial Sector Supervision, FATF Evaluation, and OFC Assessment: The evaluation of Montserrat’s compliance with the Financial Action Task Force (FATF) 40+9 Recommendations on AML/CFT was conducted jointly by the FATF and the Caribbean

Financial Action Task Force during July 2011.

X. Technical Assistance: CARTAC is providing technical assistance to Montserrat in the areas of macroeconomic analysis, forecasting and performance monitoring, public finance management, budget preparation, Chart of Accounts reform, cash management and forecasting, and pension reform.

ANNEX II. MONTSERRAT’S RELATIONS WITH THE CARIBBEAN DEVELOPMENT BANK (CDB)

(As of July 31, 2011)

The CDB’s interventions in Montserrat in the aftermath of the volcanic eruptions which began in 1995 have been primarily limited to the provision of technical assistance (TA) for capacity building and small-scale infrastructure projects financed under the Basic Needs Trust Fund (BNTF) programme. However, even these capacity building efforts are challenged by human resource deficiencies which are evident as the country seeks to restore viability through the rebuilding of social and economic infrastructure.

Montserrat has further benefited from other regional TA programs sponsored or co-sponsored by CDB. In April 2011, representatives from Montserrat participated in a Public Sector Investment Planning workshop jointly funded by CDB and the Eastern Caribbean Central Bank designed to build capacity in PSIP formulation, implementation and management. During the same month, the country also participated in TA training to enhance long-term social and economic development through improving capacity for long-range planning.

Under the BNTF programme, TA is being provided in a number of critical areas relevant to community upliftment and empowerment, leading to the enhancement of social and human capital. Table 1 shows the grant amounts approved and disbursed within the various categories during the 2006-10 period.

Between October 2006 and December 2009, a number of public servants in Montserrat benefited from a CDB sponsored Project Cycle Management Training Programme designed to improve project administration capacity within the Bank’s borrowing member countries. In addition to attending a number of training modules in Trinidad and Tobago, a separate module on Procurement and Contract Management was delivered in Montserrat in recognition of the dearth of skills and hence the need to build expertise within the country.

In May, 2011, CDB Board of Directors approved a soft loan to the Government of Montserrat (GOM) in the amount of USD2.5 million for the construction of a permanent power station to provide efficient, secure and reliable electricity services. This loan was accompanied by a TA grant of US$364,170 for institutional strengthening of the Finance and Accounting Division of Montserrat Utilities Limited. The total cost of the project is estimated at USD13.4 million with the United Kingdom Department for International Development providing a grant equivalent to 62% of the cost.

GOM has not borrowed externally since the volcanic eruptions started in 1995 and as at July 29, 2011, loans outstanding to CDB by GOM totalled USD2.9 million.

TABLE 1:

BNTF GRANT FUNDING APPROVED TO MONTSERRAT 2006–10

(USD’000)

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ANNEX III. STATISTICAL ISSUES

As of November 15, 2011

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Montserrat—Table of Common Indicators Required for Surveillance

(As of November 15, 2011)

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Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

The Eastern Caribbean Dollar is pegged to the US Dollar.

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.