ST. JOHN’S, Antigua, CMC – The Worldwide Financial Fund (IMF) Friday mentioned that financial exercise continues to bounce again from the sharp declines registered in the course of the coronavirus (COVID-19) pandemic and that financial progress for Antigua and Barbuda this yr is projected at 5.7 p.c.
An IMF delegation, headed by Emine Boz, an Assistant to the Director on the Analysis Division of the IMF, has ended a two-week go to right here, holding discussions with numerous stakeholders for the 2023 Article IV session.
In an announcement, Boz mentioned that financial progress for 2022 is projected at 8.5 p.c and that tourism and development exercise proving to be significantly robust because the island is anticipated to register a rise of 5.7 p.c in 2023
“After reaching 9.2 p.c at end-2022, inflation fell to 5 p.c by July of this yr, with core inflation additionally steadily declining. The present account deficit widened to an estimated 16.2 p.c of GDP (gross home product) in 2022 with increased tourism receipts more-than-offset by a rise in items imports and a worsening within the phrases of commerce.”
Because of this, the exterior place in 2022 is weaker than the extent implied by medium-term fundamentals and fascinating insurance policies.
The IMF delegation chief mentioned that whereas the deficit and debt have been declining, gross fiscal financing wants stay excessive, and the money circulate place of the federal government has been below pressure.
Boz mentioned fiscal measures to restrict the pass-through of upper international meals and gas costs have been offset by improved income efficiency and wage restraint. Because of this, the first deficit fell to 1.7 p.c of GDP in 2022 (from 2.3 p.c of GDP in 2021).
“The speedy rise in nominal GDP is estimated to have introduced public debt to 87 p.c of GDP by end-2022 (from 95 p.c at end-2021). The lack to entry worldwide capital markets has resulted in financing wants being met by issuing securities, primarily within the Regional Authorities Securities Market (RGSM), borrowing from home banks and regional establishments, and accumulating arrears.
“Whereas RGSM yields have remained low, the shortening of maturities has resulted in vital gross financing wants of round 13 p.c of GDP in 2022. Regardless of some progress in resolving arrears to sure exterior collectors and home suppliers, the inventory of excellent arrears stays giant,” Boz mentioned.
She mentioned the monetary sector is well-capitalized and liquid, however credit score progress stays weak. As of the second quarter of this yr, 6.9 p.c of financial institution loans had been non-performing loans (NPLs), with 78 p.c of NPLs being provisioned for.
“Financial institution lending to the personal sector has been falling as a share of GDP with weak credit score progress for households and small and medium-sized enterprises (SMEs) resulting from problem assembly documentation and collateral necessities for brand new loans.
“Then again, credit score union lending has continued to proliferate (7.6 p.c year-on-year), though it nonetheless makes up a comparatively small share of general lending, 13 p.c within the second quarter this yr.”
Boz mentioned Antigua and Barbuda faces vital dangers forward.
She mentioned progress is anticipated to average and progressively converge to its long-term pattern of about three p.c, and value pressures are anticipated to dissipate in 2024.
Nonetheless, increased international commodity costs would convey renewed value pressures, and slower-than-expected progress in buying and selling companions might hinder the power of tourism demand.
The IMF official mentioned that international monetary circumstances might tighten additional and make the federal government’s efforts to entry worldwide capital markets much more advanced, and a strengthening of the US greenback might weaken competitiveness.
“The associated fee and availability of fiscal financing by means of the regional or home debt markets might grow to be extra restrictive, doubtlessly worsening debt dynamics and growing the recourse to arrears, primarily if the deliberate deficit discount is just not realized.
“Local weather change might result in extra frequent and intensive droughts and extreme hurricanes. An upside threat is stronger-than-expected FDI inflows that might additional enhance development exercise,” Boz mentioned.
The delegation mentioned it welcomes the authorities’ plan to scale back the first deficit by means of income measures and expenditure restraint.
Tax exemptions constituted 47 p.c of potential revenues in 2023 by means of August. Boz mentioned to mitigate the lack of revenues; the authorities have determined to cap discretionary exemptions on import duties and droop exemptions on different taxes and prices.
“ An replace of valuations for property taxes is scheduled to be accomplished in Fall 2023, and the next tax fee is deliberate to be utilized to high-end properties from 0.3 p.c to 0.5 p.c <’ she mentioned, noting that the authorities are transitioning to Harmonized System 2022 classifications at customs, which is anticipated to end in increased revenues from import duties.
She mentioned there’s a continued effort to include public sector wages and employment. These mixed coverage initiatives envisaged by the authorities are more likely to generate a small main surplus and produce debt right down to 69 p.c by 2028 and to 61 p.c by 2035, marginally above the Japanese caribbean Central Financial institution (ECCB) Financial Council’s goal of 60 p.c by 2035.
“Public debt is assessed to be unsustainable as a result of giant excellent inventory of arrears and the truth that paying down these arrears seems unfeasible over the medium time period with no broader debt restructuring. Restricted entry to financing is more likely to result in financing gaps even with out contemplating the necessity to clear the prevailing areas.”
Boz mentioned that Antigua and Barbuda ought to work towards constructing extra substantial fiscal buffers.
“Bringing debt safely beneath medium-term targets, decreasing gross financing wants, and clearing arrears would require extra coverage measures equal to 0.5-1 p.c of GDP,” she mentioned, including that the authorities ought to broaden the Antigua and Barbuda Gross sales Tax (ABST) base by decreasing objects topic to exemptions or zero-rating, making use of the usual fee of 15 p.c to short-term lodging, presently at 14 p.c, and increasing the ABST to on-line purchases.
She mentioned excise taxes on tobacco, alcohol, and sugar must be launched.
“There’s scope to enhance the gathering of property taxes. The authorities ought to expedite the introduction of a single window system at customs and operationalize methods to permit e-filing, e-payment, and registration of taxes.
“Moreover, the authorities ought to enhance tax compliance by means of administrative measures to shut loopholes and strengthen auditing capability.”
Boz mentioned that higher money and debt administration would reduce money circulate pressures and scale back the dangers to fiscal financing.
She mentioned a sound money and debt administration technique ought to deal with lengthening debt maturity to decrease rollover threat, clearing excellent debt arrears to exterior collectors and home suppliers, and defining the potential modalities for growing entry to local weather financing and insurance coverage in opposition to pure disasters.
“ The authorities also needs to undertake contingency planning for antagonistic situations the place the provision of financing falls wanting budgetary wants,” Boz mentioned, including that enhancements are wanted in order that the social security web can higher help the weak.
“There are a lot of social help applications administered uncoordinatedly by numerous public entities. Consolidating these applications can be useful, however, at a minimal, there’s a want for a centralized info system to offer an correct document of all beneficiaries to maintain monitor of the help they obtain and establish gaps in protection and duplication.”
Boz mentioned there’s a want to maneuver from generalized subsidies and help by means of broad-based value subsidies for gas towards focused applications whose advantages are periodically recalibrated to mirror the price of
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