Abstract
KEY ISSUES Context. The new government that came to power in June 2014 inherited serious fiscal and external payments problems, including arrears to the Fund and other creditors, and unresolved banking sector problems. Moreover, public debt remains at an unsustainable level of close to 100 percent of GDP, while economic activity has been weak with output still well below the level reached at the time of the 2008/09 global financial crisis. Main policy recommendations • Implement fiscal measures equivalent to 2.8 percent of GDP in 2015 to tackle cash flow problems and achieve an underlying primary surplus of 3.0 percent of GDP by 2016 to address debt sustainability challenges. Underpin measures with structural fiscal reforms. • Use Citizenship by Investment Program revenues to pay down arrears and debt and fund bank resolution. The program should be managed in line with the high standards of governance and transparency set out in the law. • Move expeditiously as planned with the resolution of ABI Bank and support initiatives underway to strengthen the regional bank resolution framework, in particular, the passage of needed legislative reforms. • Improve competitiveness by moderating labor costs; increasing energy efficiency, including by better performance of the state-owned utility company; and improving the investment climate. Authorities’ views. The authorities broadly agreed with staff’s assessment of the economic situation and risks, and its recommendations to reduce fiscal vulnerabilities and strengthen the banking system. They were more optimistic about growth prospects for 2015 based on expectations for substantial FDI. They are opposed to increases in taxes and plan to focus fiscal efforts on cutting recurrent spending. On bank resolution, they wish to work closely with the Fund and World Bank to speedily address outstanding problems. They paid the arrears to the Fund and committed to timely servicing of Fund obligations. Data provision. Data provision is adequate for surveillance and post-program monitoring although significant areas for improvement remain, in particular on labor market statistics, measurement of arrears, financial information on state-owned enterprises, and national accounts by expenditure components.
Public Sector Debt Sustainability Analysis
Background2
There is one main revision to the DSA compared to the one for the first Post-Program Monitoring Staff Report (EBS/14/34, Supplement 1). Medium-term growth projections have been revised down significantly from 3.5 percent in the previous DSA to 2.5 percent.
Cash flow problems have emerged as the reform effort stalled. Strains on government loan payments are acute and the authorities are having difficulties meeting their current financial obligations. With a rise in amortization payments and limited external financing sources, arrears built up (including temporarily to the Fund) reaching 3.1 percent of GDP by end-June 2014.3 Although arrears to the Fund have been cleared, future payments are at risk.4
Realism of Projections (Figures 1, 2, and 3)
Debt level. The public sector’s debt-to-GDP ratio is projected to peak at 102.6 percent in 2015 (from 94.3 percent and 96.6 percent in 2013 and 2014 respectively) and will decline to 81.2 percent by 2019, before reaching the ECCU 60 percent debt target by the year 2023. The projected deterioration of the central government debt ratio in 2014 reflects the settlement of the Half Moon Bay debt.5 The reduction after 2015 arises from an expected improvement in the primary fiscal balance owed to average annual CIP revenues of about 1.9 percent of GDP and underlying primary balances of 3 percent of GDP starting in 2016.
Growth. The real GDP projections in 2015–19 have been revised downward. Recent projections of growth outcomes have exhibited reasonable forecast errors, particularly during 2011–13 (Figure 2, top left panel).6 The macroeconomic forecast is still associated with large uncertainties, tilted slightly to the downside (see Appendix II in the Staff Report).
Antigua and Barbuda: Public DSA Risk Assessment
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ Long-term bond spread over U.S. bonds, an average over the last 3 months, 24-Mar-14 through 22-Jun-14.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.Antigua and Barbuda: Public DSA Risk Assessment
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ Long-term bond spread over U.S. bonds, an average over the last 3 months, 24-Mar-14 through 22-Jun-14.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.Antigua and Barbuda: Public DSA Risk Assessment
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ Long-term bond spread over U.S. bonds, an average over the last 3 months, 24-Mar-14 through 22-Jun-14.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.
Antigua and Barbuda Public DSA - Realism of Baseline Assumptions
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Not applicable for Antigua and Barbuda.4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.Antigua and Barbuda Public DSA - Realism of Baseline Assumptions
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Not applicable for Antigua and Barbuda.4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.Antigua and Barbuda Public DSA - Realism of Baseline Assumptions
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Not applicable for Antigua and Barbuda.4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.Fiscal adjustment. Staff projections target an average primary surplus of 4.9 percent of GDP for the period 2016-19, assisted by CIP receipts; the underlying surplus is 3.0 percent. However, in 2015 the government would run a primary deficit of 5.6 percent of GDP, reflecting one-time costs to help resolve ABIB.7 Achieving these primary balances will be a challenge; the headline fiscal adjustment required by the cyclically-adjusted primary balance (CABP) in Antigua places it at the top decile of world adjustments (see Figure 2).8 As noted, much of this “adjustment” is the result of windfall revenues from the Citizenship by Investment Program. The underlying primary surplus of around 3 percent of GDP is much lower and would be in the 3rd quartile of world adjustments.
Financing needs. The public sector gross financing needs will almost double to 17.7 percent of GDP in 2015 to finance the bank resolution, but then will quickly return to an average of about 11 percent of GDP for the 2016-19 period.
Interest rate profile. As the bulk of future financing is expected to come from domestic sources the effective interest rate is expected to increase. Through end-2013, the share of public sector external debt stood at 46 percent with an average interest rate of 3.1 percent and maturities ranging from 5 to 20 years. In the meantime, domestic debt carries an average interest rate of 5.8 percent with shorter maturities.
Fan charts. The fan charts in Figure 1 highlight the risks surrounding the DSA projections. While there is the potential for a rapid reduction in the debt to GDP ratio such scenarios have a low probability. Furthermore, when considering that the probability of positive shocks to the primary balance is zero (and the historical data supports this assumption) the asymmetric fan chart shows that risks are mostly tilted to the upside; suggesting that the probability of a higher debt to GDP ratio in 2019 is more likely than a lower debt ratio.
Shocks and Stress Tests (Figures 4 and 5)9
The stress tests further highlight deep vulnerabilities of the debt profile to various shocks.
Growth shock. A lower real output growth of 1 standard deviation for 2 years starting in 2014 would have a significant impact on the level of gross debt, which would reach 123.7 percent of GDP in 2016 and although the debt ratio would start to decline afterwards, it would still be above the 2014 level by 2019. This is the result of a deterioration in the primary balance relative to the 2015-16 baseline of about 2.9 percent of GDP. On the other hand, the staff report points to an upside risk to growth stemming from possible large investments in the tourism sector. If these investments were to materialize, the debt to GDP ratio would decline much faster than in the baseline scenario.
Primary balance shock. A shock equivalent to 50 percent of the planned adjustment through 2019 would be equivalent to a deterioration of 2.7 percentage points in the primary balance (from the baseline scenario) in 2015–16. The debt-to-GDP ratio would be about 4.5 percentage points higher than the baseline on average over 2015–19, and gross financing needs would also be about 2.5 percent of GDP higher than the baseline over the same period.
Interest rate shock. This stress test assumes a permanent increase in the nominal interest rate by 200 bps starting in 2015.10 Higher borrowing costs would slow the decrease in the debt-to-GDP ratio, which ends up 5.3 percentage points higher than in the baseline in 2019, at around 86.6 percent.
Combined macro-fiscal shock. A combination of the above shocks generates unsustainable debt dynamics. In this case, the debt-to-GDP ratio would reach 123.4 percent of GDP in 2019 (from 119 percent of GDP in 2015) and continue to rise thereafter. Similarly, gross financing needs would exceed 25 percent of GDP by 2019.
Contingent liability shock. The sizeable contingent liabilities of the banking and public sector still remain a significant source of risk to debt sustainability. Despite the lack of detailed information, many SOEs are facing debt management and financial problems (e.g. APUA, the Airport Authority, and St John’s Hospital). If the government was required to assume 10 percent of banks’ total assets (excluding banks recapitalization11) through a one-time bail out, the debt-to-GDP ratio would jump to 141.6 percent by 2016 before declining to 128.6 percent by 2019, and gross financing needs would be about 15.8 percentage points above the baseline (on average).12
External Public Sector Debt Sustainability Analysis
Gross external financing needs are expected to remain high in the medium term to service the debt from Paris Club and the Fund (Figure 6 and Table 1). External debt was revised upward by 4 percent of GDP in 2013 to account for borrowings from China for the airport terminal. Over the medium term, SOEs debt is assumed to remain around 18.6 percent of GDP to account for their difficult financial situations. This is consistent with the deteriorating current account projection, growth slowdown and less optimistic outlook of foreign direct investment inflow. Most of the consolidation is expected to be done on domestic debt. While external debt remains resilient to an interest rate and growth shock, it is highly vulnerable to adverse current account or depreciation shocks. Gross external financing needs are expected to remain high, although on a declining path, at about 16 percent of GDP on average in 2014–19 as Antigua and Barbuda starts to service their debt from Paris Club and the Fund.
Antigua and Barbuda: Public Sector Debt Sustainability Analysis (DSA) - Active Scenario
(In percent of GDP, unless otherwise indicated)
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ Public sector is defined as general government.2/ Based on available data.3/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.4/ Derived as [(r − π(1+g) − g + ae(1+r)]/(1 + g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).5/ The real interest rate contribution is derived from the numerator in footnote 5 as r − π (1 + g) and the real growth contribution as -g.6/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1 + r).7/ In 2014 it includes the assumption of the Half Moon Bay liability. Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.8/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.Antigua and Barbuda: Public Sector Debt Sustainability Analysis (DSA) - Active Scenario
(In percent of GDP, unless otherwise indicated)
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ Public sector is defined as general government.2/ Based on available data.3/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.4/ Derived as [(r − π(1+g) − g + ae(1+r)]/(1 + g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).5/ The real interest rate contribution is derived from the numerator in footnote 5 as r − π (1 + g) and the real growth contribution as -g.6/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1 + r).7/ In 2014 it includes the assumption of the Half Moon Bay liability. Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.8/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.Antigua and Barbuda: Public Sector Debt Sustainability Analysis (DSA) - Active Scenario
(In percent of GDP, unless otherwise indicated)
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ Public sector is defined as general government.2/ Based on available data.3/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.4/ Derived as [(r − π(1+g) − g + ae(1+r)]/(1 + g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).5/ The real interest rate contribution is derived from the numerator in footnote 5 as r − π (1 + g) and the real growth contribution as -g.6/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1 + r).7/ In 2014 it includes the assumption of the Half Moon Bay liability. Includes asset changes and interest revenues (if any). For projections, includes exchange rate changes during the projection period.8/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
Antigua and Barbuda:Public DSA - Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ Primary balance in 2015–19 is adjusted from the assumed ABIB resolution in 2014 (10.4 percent of GDP).Antigua and Barbuda:Public DSA - Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ Primary balance in 2015–19 is adjusted from the assumed ABIB resolution in 2014 (10.4 percent of GDP).Antigua and Barbuda:Public DSA - Composition of Public Debt and Alternative Scenarios
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.1/ Primary balance in 2015–19 is adjusted from the assumed ABIB resolution in 2014 (10.4 percent of GDP).
Antigua and Barbuda:Public DSA - Stress Tests
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.Antigua and Barbuda:Public DSA - Stress Tests
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.Antigua and Barbuda:Public DSA - Stress Tests
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Source: IMF staff.
Country: External Debt Sustainability: Bound Tests1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.Country: External Debt Sustainability: Bound Tests1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.Country: External Debt Sustainability: Bound Tests1/2/
(External debt in percent of GDP)
Citation: IMF Staff Country Reports 2015, 189; 10.5089/9781513591254.002.A002
Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.Country: External Debt Sustainability Framework, 2009-2019
(In percent of GDP, unless otherwise indicated)
Derived as [r − g − r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
Country: External Debt Sustainability Framework, 2009-2019
(In percent of GDP, unless otherwise indicated)
| 2009 | Actual | Projections | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Debt-stabilizing non-interest current account 6/ | ||||||||
| 1 Baseline: External debt | 35.8 | 38.7 | 39.0 | 36.7 | 43.1 | 42.7 | 41.1 | 39.1 | 36.6 | 35.0 | 33.9 | −11.9 | ||||||
| 2 Change in external debt | 4.5 | 2.9 | 0.3 | −2.3 | 6.5 | −0.4 | −1.6 | −2.0 | −2.5 | −1.6 | −1.1 | |||||||
| 3 Identified external debt-creating flows (4+8+9) | 11.0 | 8.4 | 4.8 | 0.7 | 6.4 | 3.1 | 1.8 | 1.2 | 0.8 | 0.5 | 0.3 | |||||||
| 4 | Current account deficit, excluding interest payments | 11.9 | 14.5 | 10.1 | 13.5 | 13.3 | 13.9 | 13.2 | 12.3 | 11.8 | 11.6 | 11.3 | ||||||
| 5 | Deficit in balance of goods and services | 12.0 | 13.7 | 9.2 | 12.1 | 13.4 | 14.4 | 13.7 | 12.8 | 12.2 | 11.9 | 11.6 | ||||||
| 6 | Exports | 46.6 | 46.1 | 47.6 | 45.0 | 45.9 | 46.1 | 46.8 | 47.3 | 47.4 | 47.5 | 47.7 | ||||||
| 7 | Imports | 58.6 | 59.8 | 56.8 | 57.1 | 59.3 | 60.5 | 60.5 | 60.0 | 59.6 | 59.4 | 59.3 | ||||||
| 8 | Net non-debt creating capital inflows (negative) | −6.7 | −8.5 | −5.8 | −10.7 | −7.9 | −11.4 | −12.1 | −11.7 | −11.3 | −11.3 | −11.3 | ||||||
| 9 | Automatic debt dynamics 1/ | 5.8 | 2.4 | 0.5 | −2.1 | 0.9 | 0.6 | 0.7 | 0.6 | 0.3 | 0.3 | 0.3 | ||||||
| 10 | Contribution from nominal interest rate | 2.1 | 0.2 | 0.3 | 0.4 | 0.8 | 1.3 | 1.3 | 1.3 | 1.2 | 1.1 | 1.1 | ||||||
| 11 | Contribution from real GDP growth | 3.7 | 3.2 | 0.7 | −1.3 | −0.7 | −0.8 | −0.6 | −0.7 | −0.9 | −0.9 | −0.8 | ||||||
| 12 | Contribution from price and exchange rate changes 2/ | −0.1 | −1.0 | −0.5 | −1.1 | 0.8 | … | … | … | … | … | … | ||||||
| 13 Residual, incl. change in gross foreign assets (2-3) 3/ | −6.5 | −5.5 | −4.6 | −3.0 | 0.1 | −3.5 | −3.4 | −3.2 | −3.3 | −2.1 | −1.3 | |||||||
| External debt-to-exports ratio (in percent) | 76.9 | 84.0 | 82.0 | 81.6 | 94.1 | 92.7 | 87.9 | 82.8 | 77.3 | 73.6 | 71.1 | |||||||
| Gross external financing need (in billions of US dollars) 4/ | 0.2 | 0.2 | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | |||||||
| in percent of GDP | 15.4 | 16.3 | 10.9 | 14.4 | 15.5 | 10-Year | 10-Year | 18.3 | 17.4 | 17.0 | 16.7 | 15.6 | 15.0 | |||||
| Scenario with key variables at their historical averages 5/ | 42.7 | 42.3 | 41.7 | 41.0 | 40.4 | 40.3 | −14.8 | |||||||||||
| Historical | Standard | |||||||||||||||||
| Key Macroeconomic Assumptions Underlying Baseline | Average | Deviation | ||||||||||||||||
| Real GDP growth (in percent) | −10.7 | −8.5 | −1.9 | 3.6 | 1.8 | 1.6 | 7.1 | 1.9 | 1.4 | 1.8 | 2.5 | 2.5 | 2.5 | |||||
| GDP deflator in US dollars (change in percent) | 0.2 | 2.9 | 1.4 | 2.9 | −2.1 | 2.2 | 2.2 | 1.1 | 1.9 | 2.4 | 2.5 | 2.5 | 2.5 | |||||
| Nominal external interest rate (in percent) | 6.0 | 0.6 | 0.8 | 1.0 | 2.2 | 1.9 | 1.5 | 3.2 | 3.2 | 3.2 | 3.2 | 3.3 | 3.3 | |||||
| Growth of exports (US dollar terms, in percent) | −10.2 | −6.7 | 2.7 | 0.7 | 1.7 | 2.0 | 7.1 | 3.5 | 5.0 | 5.2 | 5.3 | 5.4 | 5.5 | |||||
| Growth of imports (US dollar terms, in percent) | −25.8 | −3.9 | −5.5 | 7.2 | 3.5 | 3.7 | 13.2 | 5.1 | 3.4 | 3.4 | 4.2 | 4.8 | 4.9 | |||||
| Current account balance, excluding interest payments | −11.9 | −14.5 | −10.1 | −13.5 | −13.3 | −17.0 | 7.2 | −13.9 | −13.2 | −12.3 | −11.8 | −11.6 | −11.3 | |||||
| Net non-debt creating capital inflows | 6.7 | 8.5 | 5.8 | 10.7 | 7.9 | 14.0 | 9.2 | 11.4 | 12.1 | 11.7 | 11.3 | 11.3 | 11.3 | |||||
Derived as [r − g − r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
Country: External Debt Sustainability Framework, 2009-2019
(In percent of GDP, unless otherwise indicated)
| 2009 | Actual | Projections | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Debt-stabilizing non-interest current account 6/ | ||||||||
| 1 Baseline: External debt | 35.8 | 38.7 | 39.0 | 36.7 | 43.1 | 42.7 | 41.1 | 39.1 | 36.6 | 35.0 | 33.9 | −11.9 | ||||||
| 2 Change in external debt | 4.5 | 2.9 | 0.3 | −2.3 | 6.5 | −0.4 | −1.6 | −2.0 | −2.5 | −1.6 | −1.1 | |||||||
| 3 Identified external debt-creating flows (4+8+9) | 11.0 | 8.4 | 4.8 | 0.7 | 6.4 | 3.1 | 1.8 | 1.2 | 0.8 | 0.5 | 0.3 | |||||||
| 4 | Current account deficit, excluding interest payments | 11.9 | 14.5 | 10.1 | 13.5 | 13.3 | 13.9 | 13.2 | 12.3 | 11.8 | 11.6 | 11.3 | ||||||
| 5 | Deficit in balance of goods and services | 12.0 | 13.7 | 9.2 | 12.1 | 13.4 | 14.4 | 13.7 | 12.8 | 12.2 | 11.9 | 11.6 | ||||||
| 6 | Exports | 46.6 | 46.1 | 47.6 | 45.0 | 45.9 | 46.1 | 46.8 | 47.3 | 47.4 | 47.5 | 47.7 | ||||||
| 7 | Imports | 58.6 | 59.8 | 56.8 | 57.1 | 59.3 | 60.5 | 60.5 | 60.0 | 59.6 | 59.4 | 59.3 | ||||||
| 8 | Net non-debt creating capital inflows (negative) | −6.7 | −8.5 | −5.8 | −10.7 | −7.9 | −11.4 | −12.1 | −11.7 | −11.3 | −11.3 | −11.3 | ||||||
| 9 | Automatic debt dynamics 1/ | 5.8 | 2.4 | 0.5 | −2.1 | 0.9 | 0.6 | 0.7 | 0.6 | 0.3 | 0.3 | 0.3 | ||||||
| 10 | Contribution from nominal interest rate | 2.1 | 0.2 | 0.3 | 0.4 | 0.8 | 1.3 | 1.3 | 1.3 | 1.2 | 1.1 | 1.1 | ||||||
| 11 | Contribution from real GDP growth | 3.7 | 3.2 | 0.7 | −1.3 | −0.7 | −0.8 | −0.6 | −0.7 | −0.9 | −0.9 | −0.8 | ||||||
| 12 | Contribution from price and exchange rate changes 2/ | −0.1 | −1.0 | −0.5 | −1.1 | 0.8 | … | … | … | … | … | … | ||||||
| 13 Residual, incl. change in gross foreign assets (2-3) 3/ | −6.5 | −5.5 | −4.6 | −3.0 | 0.1 | −3.5 | −3.4 | −3.2 | −3.3 | −2.1 | −1.3 | |||||||
| External debt-to-exports ratio (in percent) | 76.9 | 84.0 | 82.0 | 81.6 | 94.1 | 92.7 | 87.9 | 82.8 | 77.3 | 73.6 | 71.1 | |||||||
| Gross external financing need (in billions of US dollars) 4/ | 0.2 | 0.2 | 0.1 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | |||||||
| in percent of GDP | 15.4 | 16.3 | 10.9 | 14.4 | 15.5 | 10-Year | 10-Year | 18.3 | 17.4 | 17.0 | 16.7 | 15.6 | 15.0 | |||||
| Scenario with key variables at their historical averages 5/ | 42.7 | 42.3 | 41.7 | 41.0 | 40.4 | 40.3 | −14.8 | |||||||||||
| Historical | Standard | |||||||||||||||||
| Key Macroeconomic Assumptions Underlying Baseline | Average | Deviation | ||||||||||||||||
| Real GDP growth (in percent) | −10.7 | −8.5 | −1.9 | 3.6 | 1.8 | 1.6 | 7.1 | 1.9 | 1.4 | 1.8 | 2.5 | 2.5 | 2.5 | |||||
| GDP deflator in US dollars (change in percent) | 0.2 | 2.9 | 1.4 | 2.9 | −2.1 | 2.2 | 2.2 | 1.1 | 1.9 | 2.4 | 2.5 | 2.5 | 2.5 | |||||
| Nominal external interest rate (in percent) | 6.0 | 0.6 | 0.8 | 1.0 | 2.2 | 1.9 | 1.5 | 3.2 | 3.2 | 3.2 | 3.2 | 3.3 | 3.3 | |||||
| Growth of exports (US dollar terms, in percent) | −10.2 | −6.7 | 2.7 | 0.7 | 1.7 | 2.0 | 7.1 | 3.5 | 5.0 | 5.2 | 5.3 | 5.4 | 5.5 | |||||
| Growth of imports (US dollar terms, in percent) | −25.8 | −3.9 | −5.5 | 7.2 | 3.5 | 3.7 | 13.2 | 5.1 | 3.4 | 3.4 | 4.2 | 4.8 | 4.9 | |||||
| Current account balance, excluding interest payments | −11.9 | −14.5 | −10.1 | −13.5 | −13.3 | −17.0 | 7.2 | −13.9 | −13.2 | −12.3 | −11.8 | −11.6 | −11.3 | |||||
| Net non-debt creating capital inflows | 6.7 | 8.5 | 5.8 | 10.7 | 7.9 | 14.0 | 9.2 | 11.4 | 12.1 | 11.7 | 11.3 | 11.3 | 11.3 | |||||
Derived as [r − g − r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.
The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).
For projection, line includes the impact of price and exchange rate changes.
Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.
The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.
Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.
Conclusion
The analysis indicates that the debt-to-GDP profile under staff’s proposed scenario is sustainable but subject to a high risk of debt distress. The debt trajectory shows a steady decline after the banking sector is resolved, but it entails substantial headline fiscal adjustments that will be challenging to sustain over time, and that rely heavily on the volatile Citizenship by Investment revenues. Furthermore, finding the resources to finance the banking system resolution in 2015 will be a challenge, given the government cash flow difficulties; which could be exacerbated if PetroCaribe flows are disrupted. Thus, the outlook for public debt remains fragile and is vulnerable to shocks, particularly contingent liabilities, and growth and fiscal shocks.
By exception, the “baseline” adopted for this DSA explores the staff’s proposed scenario, because the staff does not consider the “current trends” scenario as viable (the authorities agree). The authorities have not yet formulated their own medium-term policy scenario, and when they do, this will become the baseline scenario for the DSA. Even with the staff’s proposed scenario, the risk of debt distress remains high for some time.
This DSA uses the Market Access Countries framework; the guidance note of the new DSA framework can be found at: http://www.imf.org/external/np/pp/eng/2013/050913.pdf.
Arrears to Paris Club creditors amounted to US$7 million (or 0.6 percent of GDP) by end-June from US$2.5 million at end-2013 (or 0.2 percent of GDP). Arrears have also emerged vis-à-vis non-Paris Club countries (Venezuela and China) as well as the European Investment Bank and the OPEC Fund for International Development.
Scheduled debt service payments to the Fund have been made through September 2014, secured by a private domestic bond of EC$25 million (0.7 percent of GDP). Payments of US$5.6 million (EC$15.1 million or 0.5 percent of GDP) are due between October and December 2014.
The Half Moon Bay settlement amounts to US$40 million (or 3.2 percent of GDP). The government is waiting for the ruling on their proposed payment schedule.
Systematic biases in projection of key macroeconomic aggregates could undermine the DSA assessment.
Excluding the resolution of ABIB the government would have a headline primary surplus of 6 percent of GDP.
That is, of all the fiscal adjustments done in advanced and emerging markets in the period 1990-2011 (for countries with debt above 60 percent of GDP) only 10 percent of those adjustments have been larger as measured by the headline balance than the one envisaged for Antigua under the staff’s proposed scenario.
This section discusses the major sources of debt distress. Given Antigua and Barbuda’s current and prospective debt structure, the pass-through of the exchange rate is relatively small (compared to growth, fiscal, contingent liability, and interest rate shocks). It should be noted that the exchange rate shock also makes part of the combined shock.
It could be associated with market concerns about the credibility of policies to bring down debt that could increase the sovereign risk premium. It is assumed that this higher borrowing cost will not depress growth.
The contingent liabilities associated with bank resolution have already been incorporated into the debt projections starting in 2015.
The DSA framework standard stress test on contingent liabilities assumes 10 percent of banks’ assets are borne by the government (directly through non-interest expenditure). The scenario also implies a real GDP growth shock of a 1-standard deviation for 2 years.
