Antigua and Barbuda continues its impressive trajectory of economic growth following the sharp decline seen during the pandemic.
Emine Boz, an assistant to the Director of the Research Department at the International Monetary Fund, headed a delegation for a two-week visit. The delegation held discussions on a variety of topics with multiple stakeholders for the 2023 Article IV consultation.
Boz also issued a statement in which she said, “After reaching 9.2 per cent at end-2022, inflation fell to five per cent by July of this year, with core inflation also steadily declining. The current account deficit widened to an estimated 16.2 per cent of GDP (gross domestic product) in 2022 with higher tourism receipts more-than-offset by an increase in goods imports and a worsening in the terms of trade.”
She made it a point to explain that the economic growth for 2022 was projected at 8.5 per cent and that tourism and construction activity has and will continue to lay a major role as the island is expected to register a growth of 5.7 per cent in 2023.
She also added that the levels suggested by the medium-term fundamentals and desirable policies in place were slightly stronger than the external position in 2022, according to their assessment.
Boz also said that even though deficit and debt has been on a decline, gross fiscal financing needs remain high and the cash flow position of the government has been under some pressure.
She went on to explain that the fiscal measures put in place to mitigate higher global food and fuel prices have been offset by improved revenue performances and wage restraint.
Consequently, the primary deficit dropped to 1.7 per cent of GDP in 2022, from 2.3 per cent of GDP in 2021.
She said the following in her statement, “The rapid rise in nominal GDP is estimated to have brought public debt to 87 per cent of GDP by end-2022 (from 95 per cent at end-2021). The inability to access international capital markets has resulted in financing needs being met by issuing securities, mainly in the Regional Government Securities Market (RGSM), borrowing from domestic banks and regional institutions, and accumulating arrears”
“While RGSM yields have remained low, the shortening of maturities has resulted in significant gross financing needs of around 13 per cent of GDP in 2022. Despite some progress in resolving arrears to certain external creditors and domestic suppliers, the stock of outstanding arrears remains large.”
Boz also said that as of the second quarter of this year, 6.9 per cent of bank loans were non-performing loans (NPLs) with 78 per cent of NPLs being provisioned form, showing how well capitalized and liquid the financial sector is.
“Bank lending to the private sector has been falling as a share of GDP with weak credit growth for households and for small and medium-sized enterprises (SMEs) due to difficulty meeting documentation and collateral requirements for new loans.
“On the other hand, credit union lending has continued to grow rapidly (7.6 per cent year-on-year), although it still makes up a relatively small share of overall lending, 13 per cent at second quarter this year.”
Despite the positive seasoning this dish was serves with, Boz does warn that Antigua and Barbuda faces some significant risk.
This is because, while growth is expected to moderate and slowly but surely converge to its long-term average of roughly three per cent and price pressures are expected to dissipate in 2024, higher global commodity prices would bring price pressures and slow down growth from expected levels.
This in turn will affect trading partners and could hinder the strength of tourism demand.
The global financial market is also expected to cinch up significantly, resulting in the government’s efforts to access international capital markets becoming even more difficult.
The strengthening of the US dollar could lead to a further weakening in competitiveness.
“The cost and availability of fiscal financing through the regional or domestic debt markets could become more restrictive, potentially worsening debt dynamics and increasing the recourse to arrears, particularly if the planned deficit reduction is not realized.
“Climate change could lead to more frequent and extensive droughts and/or more severe hurricanes. An upside risk is stronger-than-expected FDI inflows that could further boost construction activity,” Boz stated.