St. John's -- June 15, 2010 -- On Monday 7th June 2010, the Executive Board of the International Monetary Fund (IMF) approved a three year Stand By Arrangement (SBA) for Antigua and Barbuda. The SBA will provide Antigua and Barbuda with a loan of about US$117.8 million over a three year period to help finance the implementation of the Government’s Fiscal Consolidation Programme. The elements of this Fiscal Consolidation Programme were developed by the Government and articulated during a series public consultations and meetings with stakeholders and social partners, as well as in the 2010 Budget Statement. This programme will:

1. reduce, rationalise and streamline Government expenditure;
2. enhance revenue administration and increase revenue yield;
3. strengthen public administration though institutional and legislative reforms

Measures to Reduce Expenditure

The measures to reduce and rationalize expenditure include:

1. reducing expenditure on wages and salaries by 20 percent or $40 million by 2012. This is to be achieved by:
   • reducing expenditure on overtime;
   • pursuing a programme of attrition;
   • reallocating workers within the government service to fill vacancies and reduce the growth of the wage bill; and
   • outsourcing a number of government services, starting in 2011;
2. identifying and eliminating waste in all departments with particular focus on reducing expenditure on motor vehicles, rents and other goods and services;
3. reducing transfer payments to various statutory corporations and overseas offices. Much of this reduction will come from rationalising and consolidating the services and functions of our overseas operations.

Measures to Enhance Revenue

On the revenue side, the focus is on increasing revenue in order to meet expenditure needs. The most important revenue enhancement measure is improving the administrative systems and procedures to raise the rate of compliance by tax payers at every level. Other measures include:

1. Introducing the pass-through mechanism for fuel pricing to ensure a minimum yield of EC$2.60 per gallon of gasoline and diesel. This measure was implemented in August 2009.
2. Increasing the revenue yield from the ABST. This included reducing the basket of zero rated items from about 79 categories of goods to 29 categories. This measure took effect on March 15 2010.
3. Replacing the customs service tax (CST) in January 2010 with the Antigua and Barbuda Revenue Recovery Charge, which is levied at 10 percent on all non-oil imports and domestic production. This measure is expected to yield between $25 million and $30 million per annum.
4. Introducing an excise tax on alcohol, tobacco, ammunition and guns and to replace the current tax on luxury vehicles. The excise tax is the only new tax measure that is being imposed. This measure will be introduced in the coming months.
5. Increasing the embarkation tax to EC$50 for residents and CARICOM nationals and to US$25 or EC$70 for non-CARICOM visitors. We have also expanded the Passenger Facility Charge to include in-transit passengers.

Mutually Agreed Targets and Benchmarks

These measures are expected to generate improvement in fiscal performance so that the country can attain mutually agreed targets and benchmarks. These fiscal targets and benchmarks will have to be met on a quarterly basis in order for Antigua and Barbuda to receive disbursements under the arrangement. They include:

1. achieving a balanced budget by the end of the programme;
2. strengthening capacity in the Inland Revenue and Customs and Excise departments to improve tax administration and increase revenue collection;
3. implementing the Finance Administration Act Regulations;
4. strengthening voucher management and cash management systems in the Treasury;
5. introducing the new Procurement Act;
6. commencing work on public sector and pension reforms

Achieving Debt Sustainability

This IMF-assisted programme also focuses on tackling the debt stock. The current stock of domestic and foreign debt remains an impediment to fiscal sustainability. With Antigua and Barbuda’s reputation for not paying its debt to both domestic and external creditors, we have little or no opportunity to access funding from any bilateral, multilateral or commercial creditor unless our nation’s credibility is restored. This engagement with the IMF will therefore allow us to:

1. Establish a sustainable debt service profile in keeping with the Government’s medium-term payment capacity.
2. Make arrangements for the payment of contractual principal and interest arrears owed to both domestic and external creditors and normalise relations with these creditors.
3. Ensure payment of the Government’s contributions to Social Security, Medical Benefits and the Board of Education and restructure debts owed to these and other statutory bodies.
4. Address the large stock of liabilities that, in some cases, have been ignored for years. This includes millions owed to local contractors and suppliers.
5. Improve the reputation of Antigua and Barbuda in the international capital markets, thereby helping the country’s efforts to rehabilitate its credit rating and increase future access to these markets.

These form the basis of the debt strategy being articulated by the Ministry of Finance and its debt advisors. This strategy will be presented to the Paris Club creditors later this year in order to solicit debt relief. The overall objective of the debt strategy is to eliminate the $1.6 billion stock of arrears, place the debt to GDP ratio on a sustained downward trajectory and reduce the amount of revenue spent on debt servicing to no more than 20 percent.

Impact of Fiscal Initiatives on Fiscal Accounts

We have already taken steps to implement the measures that will ensure attainment of the aforementioned fiscal targets and benchmarks. These actions have already begun to yield results on the fiscal accounts. In particular, there has been a 33 percent reduction in expenditure for the period January to April 2010 compared to January to April 2009. This is mainly due to:

1. 13 percent reduction in expenditure on wages and salaries
2. 44 percent reduction in expenditure on goods and services
3. 24 percent reduction in expenditure on transfers

This reduction in expenditure coupled with the revenue measures has led to a 43 percent improvement in the current account balance, a 79 percent improvement in the primary balance and a 67 percent improvement on the overall fiscal account. While this is a move in the right direction, it is imperative that the Government continue to take steps to ensure greater efficiency in expenditure management and to increase revenue through enhanced revenue administration. This means there will be sustained and significant efforts to improve tax compliance by strengthening capacity within the Inland Revenue and Customs and Excise departments to undertake tax audits, bring previously non-compliant operators into the tax net, and identify and address tax evasion and avoidance. The overall objective here is to ensure that the tax burden does not only fall on a few individuals and companies but that all taxpayers pay their fair share.

Administrative and Institutional Initiatives

In addition to these efforts on the revenue side, the Government will pursue administrative and institutional initiatives to reduce expenditure and ensure more effective use of scarce resources. These initiatives include the introduction of interim procurement procedures which require that ministries and departments receive approval from the Ministry of Finance before committing the government to any expenditure. The purpose of this arrangement is to ensure that no individual or government department acquires a good or service from a supplier or contractor without following proper procedure and without ensuring the resources are available to pay for the good or service.

The nearly $200 million in government debt to local suppliers and contractors was accumulated over many years of inappropriate acquisition of goods and services by various government departments and individuals. An essential element of the fiscal consolidation programme and the arrangement with the IMF is to ensure that, going forward, there is no accumulation of arrears to creditors or local suppliers and contractors. It is therefore critical for the government to make certain it has the resources to pay for goods and services before acquiring them. The non-accumulation of arrears is the single “conditionality” of the SBA. The Government cannot, during this engagement with the IMF, increase its stock of arrears or contract short term debt.

We have to pay promptly for goods and services contracted by the government, and we must make our contributions to Social Security, Medical Benefits and make payments due to other creditors in a timely manner. In order to ensure that we remain compliant with this requirement, the Government has adopted and announced the policy that any transaction or work undertaken by a supplier or contractor in the absence of a contract or prior authorisation from the Ministry of Finance will not be considered a legitimate obligation of the Government. Indeed, as announced in the 2010 Budget Statement, any good or service provided to a ministry or department outside of the appropriate procurement procedure will be considered a gift to the Government. Contractors and suppliers are therefore encouraged to note the procedures and, if in doubt, to contact the Office of the Financial Secretary for guidance and information.