Barbuda's banking system face effects of economic contraction

On October 31, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Antigua and Barbuda. Antigua and Barbuda is recovering gradually from a deep recession.

A sharp contraction in tourism activity and foreign direct investment led to an economic contraction of over 20 percent in the last three years. For 2012, real gross domestic product (GDP) is expected to grow by 1 percent, based on a modest recovery in tourism, and construction activity related to government initiatives.

Weak domestic demand has kept core inflation subdued, and a spike in headline inflation early in 2012, related to the lagged pass-through of high international fuel prices in 2011, has been reversed. Headline inflation is expected to end the year at around the long-term average of 3 percent.

The external current account deficit shrank substantially during the crisis along with the contraction in domestic demand and tighter external financing, but with the recovery is expected to widen marginally, from 10¾ percent of GDP in 2011 to 11 ½ percent of GDP in 2012.

The banking system felt the effects of the economic contraction. Credit to the private sector has contracted, and the share of non-performing loans has risen.

Profitability has weakened with declining credit quality and tighter liquidity at indigenous banks. Nevertheless, the overall banking system remains relatively well capitalized and liquid, providing adequate buffers. In July 2011 the Eastern Caribbean Central Bank intervened the Antigua and Barbuda Investment Bank (ABIB) and has held the bank in conservatorship pending resolution.

However, progress on the resolution of ABIB and other financial sector measures has been slower than expected. Fiscal consolidation has progressed despite a very difficult environment. Government revenues have fallen with the decline in economic activity, although they are expected to recover slightly in 2012 due to authorities' reforms in Inland Revenue Department.