Western Hemisphere > Antigua and Barbuda

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International Monetary Fund. Western Hemisphere Dept.
St. Kitts and Nevis entered the Covid-19 pandemic from a position of fiscal strength following nearly a decade of budget surpluses. A significant part of the large CBI revenues was prudently saved, reducing public debt below the regional debt target of 60 percent of GDP and supporting accumulation of large government deposits.
International Monetary Fund. Western Hemisphere Dept.
This Article IV Consultation highlights that following the opening of a modern international airport, signs of an economic recovery have emerged, with increased direct flights from major cities in the United States and Canada and renewed interests from foreign investors in tourism projects. The overall fiscal balance has improved over the past few years, and the debt to GDP ratio fell in 2017 for the first time since 2007. However, despite these positive developments, St. Vincent and the Grenadines faces challenges in sustaining the growth momentum over the longer-term. Like other Caribbean economies, its high exposure to natural disasters, limited land, narrow production and exports base, weak business competitiveness, and limited physical and human capital constrain potential growth. The financial system remains broadly stable but has vulnerable spots in the non-bank financial sector. It is important to implement structural reforms to foster private sector activity, by improving the investment environment and strengthening physical and human capital.
Mr. Bernardin Akitoby, Ms. Anja Baum, Clay Hackney, Olamide Harrison, Keyra Primus, and Ms. Veronique Salins
How do countries mobilize large tax revenue—defined as an average increase in the tax-to-GDP ratio of 0.5 percent per year over three years or more? To answer this question, we build a novel dataset covering 55 episodes of large tax revenue mobilization in low-income countries and emerging markets. We find that: (i) reforms of indirect taxes and exemptions are the most common tax policy measures; (ii) multi-pronged tax administration reforms often go hand in hand with tax policy measures or are stand alone; and (iii) sustainability of the episodes hinges on tax administration reforms in the key compliance areas (risk-based audits, registration, filing, payment, and reporting).
International Monetary Fund. Western Hemisphere Dept.
This 2017 Article IV Consultation highlights that the economic performance of St. Kitts and Nevis moderated in 2016. Growth moderated, reflecting the deceleration in tourism-linked sectors and contraction in manufacturing output, while still exceeding the average growth in the Eastern Caribbean Currency Union region. Consumer inflation was negative, reflecting the favorable tax environment and low international fuel prices, but end-year inflation turned positive as these effects started to subside. Growth is expected to average at about 3 percent in the medium term. Inflation is projected to rise with the expected rise in fuel prices, remaining about 2 percent in the medium term.
Stephane Schlotterbeck
Over the past decade, governments in the Caribbean region have introduced the value-added tax (VAT) to modernize their tax system, rapidly mobilize revenue and reduce budget deficits. This paper analyzes VAT performance in the region and concludes that while it has boosted revenues, the VAT has not reached its potential. Intended as a broad-based tax with limited exemptions, a single rate and zero-rating confined to exports, the VAT’s design often lacks these characteristics. The paper also finds that although tax administration reforms can boost revenues, countries have just started to address organizational inefficiencies, data integrity issues, and operational ineffectiveness. These reforms need to intensify in order to have a more significant impact on compliance and revenue.
International Monetary Fund. Western Hemisphere Dept.
This 2016 Article IV Consultation highlights that economy of St. Kitts and Nevis continued its strong growth at about 5 percent, recording the strongest growth in the region during 2013–15. Strong growth has been underpinned by construction and tourism sector activity and their favorable spillovers on the rest of the economy, supported by surging inflows from its Citizenship-by-Investment (CBI) program. Large CBI inflows continued in 2015, albeit at a slower pace. The medium-term outlook is positive, but remains dependent on developments in CBI inflows. Growth is expected to moderate to 3.5 percent in 2016 and 3 percent, on average, over the medium term.
International Monetary Fund. Western Hemisphere Dept.
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.
International Monetary Fund. Western Hemisphere Dept.
KEY ISSUES Background: Activity is slowly recovering after a cumulative decline of about 5 percent during 2008–10. Expansionary fiscal policies—largely to counteract the impact of the global slowdown and the two successive natural disasters—led to a deterioration in fiscal balances, with public debt up by about 10½ percent of GDP over this period. The fiscal deficit, however, is expected to narrow this year, largely reflecting cuts in capital spending. In the financial sector, non performing loans remain above prudential guidelines; provisioning and profitability are low; and supervision remains weak. Policy Challenges: Further fiscal consolidation—including by rebalancing government expenditure toward growth and employment generating public sector projects—is required to ensure medium-term sustained growth as well as keep public sector debt on a downward trajectory. In this regard, improving the efficiency of revenue collection and reducing current spending—especially on the wage bill, which is high relative to revenues—will be crucial to allow the government to maneuver fiscal policy. Financial sector weaknesses also need to be addressed, including through strengthening of supervisory and regulatory standards, to promote effective financial intermediation that supports private sector growth. Structural reforms, including infrastructure enhancements and labor market reforms are critical to improve competitiveness and ensure medium-term growth and current account sustainability.