Antigua and Barbuda. Figure 1: Sectoral Contribution to GDP Growth (%) Years

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1 Antigua and Barbuda 1. RECENT ECONOMIC PERFORMANCE A. Overview In 2007, Antigua and Barbuda s rate of economic growth moderated, following the exceptional performance in 2006, due to a slowdown in the pace of expansion in the construction sector. Preliminary national accounts data indicate that real GDP grew by 6.1%, compared with 12.2% in The construction sector, which benefited from a carryover of preparatory work associated with hosting CWC 2007 and a return of investors confidence, provided the main impetus to this performance (Figure 1). In the tourism sector, total visitor arrivals to the end of October 2007 rose by 34.7% to 529,596, with cruiseship passenger and stay-over arrivals increasing by 56.7% and 1.2%, respectively. Other sectors contributing to the good economic performance in 2007 included transportation; communications; and wholesale and retail trades. The CPI to the end of September 2007 increased by 2%, on a year-on-year basis, mainly on account of higher prices for food; electricity; alcoholic beverages; and tobacco. In the private sector, wage and salary awards were moderate, while in the public sector, government workers were awarded a 10% pay increase at the end of the year. As regards Central Government s fiscal operations, the recurrent account and overall deficits widened because of increased spending associated with hosting CWC 2007 and several one-off payments, including back pay to public servants and the voluntary separation package for government workers. During the first nine months of the year, commercial bank liquidity remained high. As a result, there was some downward pressure on interest rates. In the BOP, the current account deficit widened, mainly due to an increase in the merchandise deficit. Increased inflows on the capital and financial account more than offset the deficit on the merchandise account. However, the overall BOP surplus for the year was less than in B. Sectoral Performance (i) Tourism Tourism is Antigua and Barbuda s most important productive sector activity as indicated by its direct and indirect contributions to the economy. Overall, it is responsible for about 40% of all employment, 85% of foreign exchange earnings, 70% of GDP (directly and indirectly) and 52% of total investment. Preliminary national accounts data suggest that the hotel and restaurants sector, which is used as a proxy for the tourism sector, increased its value-added by 3% in Figure 1: Sectoral Contribution to GDP Growth (%) % Contribution to GDP Growth 100% 80% 60% 40% 20% 0% -20% Other Transport Hotels and Restaurants Government Services Banking and Insurance Construction Years Source: Eastern Caribbean Central Bank Angtigua and Barbuda CDB Annual Economic Review

2 2007, compared with 2.5% in Total tourist arrivals to the end of October 2007 increased by 34.7% to 713,177 from 529,596 for the same period in 2006, with a strong performance in cruiseship passenger arrivals reflecting the increased marketing effort of the Ministry of Tourism. Cruiseship passenger arrivals increased by 56.7% to 500,385 from 319,327 for the same period in Figure 2 provides a summary of stay-over and cruise arrivals together with visitor expenditure for the period The growth in stay-over arrivals was much more visitors to Antigua and Barbuda from CARICOM. Estimated tourist arrivals for the year totalled 918,214, an increase of 26.5% over Stay-over arrivals are estimated at 259,679 for the year, refl e cting a 2.7% increase compared to Cruise-passenger arrivals are estimated to have risen by 39.6% to 658,535 in 2007 from 471,623 in This especially strong performance in the cruiseship sector is associated with an estimated 11.4% increase in the number of cruiseship calls to 392 from 352 in Figure 2: Visitor Arrivals by Categorty and Gross Expenditure Number of Visitor Arrivals 700, , , , , , , $millions stayover cruise Gross Visitor Expenditure ($ mn) Source: Caribbean Tourism Organisation subdued than that of cruiseship passenger arrivals. As at the end of October 2007, stay-over arrivals increased by 1.2% to 212,792 from 210,269 for the comparable period a year earlier. Except for March, stay-over arrivals declined by an average of 4.7% during the first five months of the year. In March, stay-over arrivals rose by 11.5% on account of Antigua and Barbuda s hosting of CWC 2007 matches. Between July and October, stay-over arrivals strengthened significantly, with the numbers increasing by 5.9% per month. This robust growth in stay-over arrivals in the second half of the year reflected the opening of two new major hotels. Stay-over arrivals from the US, as at the end of October 2007, rose by 4% to 64,149, infl u enced by an increase in airlift to Antigua and Barbuda. Stay-over arrivals from Europe also rose by 7.7% to 92,800 during the same period, influenced by the depreciation of the US Dollar (to which the Eastern Caribbean Dollar is pegged) against the Pound Sterling and the Euro, and increased airlift out of continental Europe. Stayover tourist arrivals from Canada and other locations, including the Caribbean, declined by 4.4% and 11.5%, respectively, during this period. Higher regional airfares had a significant impact on the number of stay-over (ii) Agriculture In 2007, output growth from the agricultural sector rose to 3.3% from 2.9% in The fishing sub-sector grew by 5%, reflecting the impact of the new facilities in St. John s, the capital, and contributed $15.3 mn, or almost 52% of the value of the sector s output. Modest growth rates of about 2% were recorded in the crops and livestock sub-sectors. In 2007, the sector benefited from purchases of produce by the Government of Antigua and Barbuda s (GOAB) school meals programme. Though the agriculture sector s contribution to total GDP is small, GOAB regards it as being important for food security; social welfare; and employment. The sector employs about 8% of the workforce. In 2007, the Ministry of Agriculture, Lands and Fisheries and the Inter-American Institute for Cooperation in Agriculture started a project to examine ways of increasing the sector s output. (iii) Manufacturing The manufacturing sector in Antigua and Barbuda is small, and accounted in 2007 for less than 3% of GDP. The sector s output includes alcoholic and non-alcoholic beverages; construction material; paints and varnishes; 26 CDB Annual Economic Review 2007 Antigua and Barbuda

3 garments; handicrafts; condiments; and jams and jellies for the domestic and regional markets. In 2007, the sector grew by 7.5%, compared with 5% in 2006, reflecting the positive spillover effects of the boom in public and private sector construction activity. (iv) International Financial and Business Services Antigua and Barbuda s offshore fi n ancial and business services sector consists of over 8,000 International Business Companies (IBCs), which provide direct employment for more than 700 persons. The sector includes ordinary IBCs; banks; insurance; trust; Internet gaming companies; and a ship registry. In 2007, total government revenue from licences and fees from the offshore fi n ancial and business services sector was estimated at $15.1 mn. GOAB s priority for the sector has been to ensure a strong regulatory framework which is in keeping with the highest international standards. Efforts are being continued to strengthen legislation and, where necessary, introduce new legislation. In 2007, GOAB introduced new legislation to place all financial services, including non-bank financial institutions, under the control of the Financial Services Regulatory Commission. This should allow for greater control and more effective enforcement of anti-money-laundering and anti-terrorist fi n ancing legislation. GOAB is also pursuing a number of initiatives to further diversify the sector. In 2007, several laws were passed to improve the jurisdiction s attraction for wealth management. These laws included the International Trust Act; the International Foundation Act; and the International Limited Liability Company Act. The offshore gaming industry has faced many challenges in recent years. Despite these challenges, GOAB continues to support the industry. Since 2002, the industry has suffered from the impact of the US Authorities ban on the cross-border provision of internet gaming services. As a result, employment and revenue produced from the industry have fallen significantly. In 2001, about 3,500 persons were directly employed in the Antigua and Barbuda offshore gaming industry. With the restrictions imposed by the US Authorities, employment declined steadily, and now stands at fewer than 350. GOAB took action against the US Authorities at the WTO because of the losses in employment and revenue suffered as a result of its ban on cross-border gambling services, and was successful. However, the US Authorities failed to comply with the WTO rulings, and have since sought to withdraw commitments under the General Agreement on Trade in Services with respect to crossborder internet gaming services. GOAB continued to use the WTO dispute settlement mechanism to arrive at a suitable resolution and to seek compensation for the losses experienced as a result of the dispute. In 2007, GOAB sought the right to impose $3.4 bn in retaliatory measures against US intellectual property rights. GOAB had considered it not practicable or effective to suspend concessions or other obligations under the General Agreement on Trade in Services because its imports of services from the US were insufficient to absorb the level of suspension of concessions to which it was entitled. As a result, it sought to obtain suspension of obligations under the Agreement on Trade-Related Aspects of Intellectual Property Rights. In late December, the WTO awarded GOAB the right to target $21 mn per annum against US intellectual property rights. (v) Construction The construction sector grew by 10% in 2007, following exceptionally strong growth of 35% in The sector s expansion in 2007 was driven by private and public sector projects including housing and apartment complexes; new tourist accommodation properties; and roads. The increase in construction sector activities was reflected in the growth in planning applications to the Development Control Authority (DCA) for residential construction. As at October 2007, the DCA had received 633 applications for residential construction, about 20% more than in the previous year. It is estimated that the number of residential planning applications increased to about 756 by the end of the year. The DCA also received 117 planning applications for commercial construction projects as of October It is estimated that by yearend, there were 140 commercial applications, two and one half times greater than the number of applications submitted in C. Prices, Wages and Employment The CPI, year-on-year to the end of September 2007 rose by 2%, compared with 2.4% for the same period in Increases were registered in the sub-indices for Food; Fuel and Lighting; Alcoholic Beverages and Tobacco; Transportation and Communications. Of these sub-indices, the Alcoholic Beverages and Tobacco; Food; and Fuel and Lighting reported increases of 11.9%, 6%, and 3.4%, respectively. The increase in the Foods subindex, which accounts for 21.4% of the total basket of goods and services, contributed to over three-fifths of the 2% increase in the CPI. The Fuel and Lighting sub-index, which accounts for about 6% of the basket of goods and services, rose because of higher electricity costs, since GOAB maintained prices of liquid petroleum gas, diesel and gasoline unchanged throughout the period by allowing its revenue receipts from the Petroleum Consumption Tax to fall. The overall rate of increase Angtigua and Barbuda CDB Annual Economic Review

4 in the CPI was further moderated by declines in prices paid for Clothing and Footwear; Furniture Supplies; and Miscellaneous Goods. Figure 3 provides a summary of selected CPIs for the period Despite the modest rate of increase in the CPI, the increase in international food and fuel prices posed a significant challenge to GOAB. Given the high degree of openness of the economy, there is little that GOAB can do to mitigate the effects of external price increases without affecting its tax revenue. In 2007, GOAB introduced several measures to mitigate the impact of the higher import prices on the economy. One such measure was the decision to cushion the public from higher international fuel prices by foregoing revenues, estimated at close to 1% of GDP, from the tax on domestic fuel consumption. Also, when the Antigua and Barbuda Sales Tax (ABST), a value-added-type tax, was introduced in January 2007, GOAB included a large list of zero-rated items, many of which were food items. In the final quarter of the year, GOAB re-examined the tax structure on many commodities and effective December 15, 2007, reduced the customs service tax on a range of essential items from 10% and 5% to 2.5%. The customs service tax was also removed from many basic food items. Figure 3: Consumer Price Index review, GOAB announced in the 2008 Budget that the minimum wage per hour would be increased to $2.78 from $2.22 as of January 1, Official employment data were not available for the year. Even so, other indicators, such as the rate of expansion in the construction sector; the number of work permits issued by the Department of Labour; and data from the CPA suggest that labour market conditions tightened in Census figures for 2001 had indicated an unemployment rate of around 8.5%. However, the Antigua and Barbuda CPA, conducted in late 2005 and early 2006, reported an unemployment rate of 4%, indicating that labour market conditions were approaching full employment. D. Fiscal Policy and Debt Operations Preliminary data on Central Government s operations for fiscal year 2007 indicate an overall deficit of $108.8 mn (9.9% of GDP) compared with $65.3 mn (6.5% of GDP) in Recurrent revenue grew by 12.5% to $251.1 mn, while recurrent expenditure increased by 31.8% to $313.8 mn (28.6% of GDP). Total expenditure 25 % Change Years All Items All Items less Food All Items less Energy Food Energy Source: Statistics Division, Ministry of Finance and the Economy Partial data from the Labour Department suggest that private sector wage awards remained modest, in the range of 3-4% in In the public sector, Central Government workers were awarded a 10% pay increase in December 2007, the first contracted pay increase to public servants since GOAB had undertaken to review the minimum wage, and established a Minimum Wage Committee to conduct the review in The fi n dings and recommendations of the Committee were presented to GOAB in Following an extensive was $387.7 mn (35.3% of GDP), or 28.4% above the $302 mn (31.1% of GDP) reported in The overall deficit was financed from domestic and external sources (including grants) and from the build-up of payments arrears. In 2007, the major source of revenue growth was indirect taxes, which increased by 19.5% to $196.9 mn (17.9% of GDP). Direct tax receipts fell by 13.5% to $40.7 mn (3.7% of GDP) in 2007 from $47 mn (4.7% of GDP) in the previous year. This fall was principally because of a 28 CDB Annual Economic Review 2007 Antigua and Barbuda

5 Figure 4: Central Government Operations % of GDP Years Recurrent Revenue Recurrent Expenditure Recurrent Account Balance Capital Expenditure Primary Balance Overall Balance (before debt write off) Source: Ministry of Finance and the Economy decline in receipts from the corporation tax which had benefited in 2006 from the recovery of over $13.3 mn in arrears. The recently introduced personal income tax increased revenue receipts by 21.1% to $18.9 mn (1.7% of GDP). Indirect tax receipts benefited from the introduction of the ABST in January 2007 which replaced the hotel taxes; telecommunications tax; the restaurant and catering services tax; and the consumption tax. Receipts from the ABST totalled $68.5 mn in 2007, compared with $49.1 mn in revenue receipts yielded in 2006 from the taxes it replaced. Revenue receipts from import duties and the customs service charge increased by 8% and 15% respectively to $32.9 mn and $34 mn in 2007, reflecting the buoyant economic conditions. Overall, revenue receipts as a percentage of GDP continued upwards as a result of GOAB s fiscal initiatives and strong economic growth (Figure 4). In 2007, total expenditure grew by 28.4% to $387.6 mn, with recurrent expenditure accounting for $313.8 mn (28.6% of GDP) and capital expenditure $73.8 mn (6.7% of GDP). Recurrent expenditure increased by 31.8%, while capital expenditure declined slightly. Recurrent expenditure growth was mainly caused by several one-off items, including the paying of voluntary severance, accumulated back pay and expenses associated with hosting CWC Expenditure on personal emoluments increased by 52% to $150.2 mn (13.6% of GDP), mainly because of GOAB s payment of the severance package and accumulated back pay. Payments for goods and services rose by 104.8% to $90.3 mn (8.2% of GDP), refl e cting CWC expenditures. It is expected that the ratio of recurrent expenditure to GDP will return to trend in 2008 because some of the outlays in 2007 were of a temporary nature. This notwithstanding, the need for further fiscal adjustment clearly remains a major macroeconomic issue. At the end of December 2007, Antigua and Barbuda s public sector debt stood at $1,112.8 mn (100.8% of GDP). This represented an increase of $90.4 mn, or 8.8%, over the total at the end of December External debt increased by 20.4% to $615.4 mn (55.7% of GDP), while domestic debt declined by 2.7% to $497.3 mn (45.1% of GDP). The largest part of GOAB s domestic debt is payments arrears to the Social Security Board and Medical Benefits Scheme. Figure 5 provides a summary of Central Government debt over the period E. The Banking System During the first nine months of 2007, the ratio of liquid assets to liabilities and the loans to deposit ratio declined slightly compared to the same period in 2006, and liquidity in the commercial banks remained high. As a result of the high liquidity in the commercial banks, there were marginal downward movements in interest rates. The weighted average deposit rate declined to 3.44% from 3.54% at the beginning of the year, and the weighted average lending rate decreased to 10.35% from 10.4%. The weighted average interest rate spread increased marginally to 6.91 percentage points. The rate of growth of the narrow money supply M 1 contracted by 1.9%, compared with growth of 4.3% during the same period in M 1 declined to $233.1 mn at the end of September 2007 from $237.7 mn at the beginning of the year. Private sector demand deposits rose by 0.4% to $185.1 mn. However, this small growth in private sector demand deposits was offset by a 9.8% contraction in currency held by the public. Conversely, the rate of growth in the broad money supply M 2 increased by 8.4%, compared with 7% in the same period in M 2 increased to $994.1 mn by the end of September 2007 from $916.9 mn at the beginning of the year. This growth in M 2 was credited to a 12% increase in quasi money. Savings, time and foreign currency deposits increased by 6%, 15.6% and Angtigua and Barbuda CDB Annual Economic Review

6 Figure 5: Antigua and Barbuda Central Government Debt Source: Ministry of Finance and the Economy 22%, respectively, to $321 mn, $348.3 mn and $91.6 mn. The buoyant economic conditions and inflows of funds from Foreign Direct Investment (FDI) were mainly responsible for the growth in the M 2. Figure 6 provides a summary of the growth in money supply and domestic credit for the period Domestic credit expanded by 8.8% to $764.4 mn during the first nine months of 2007, compared with 6% for the comparable period in 2006, the expansion being attributable mainly to net private sector demand for credit since net credit to GOAB fell by 10.7% during the period to $64.7 mn. Commercial bank loans to GOAB rose by 11.8% to $144.8 mn during the first nine months of the year, but this growth was offset by a 26.6% increase in deposits. Over the same period, the net deposit position of the non-financial public enterprises increased by 6.6% to $89.6 mn. An analysis of credit by economic activity during the first nine months of 2007 indicates that lending for tourism, construction and professional services increased significantly because of buoyant economic conditions. Commercial bank loans for tourism-related activities increased by 43.7% to $87.3 mn, reflecting mainly new investment in additional rooms. Similarly, credit to the construction sector increased by 23.3% to $79.7 mn, contributing to strong growth in the sector. Credit for professional services rose by 23.6% to $115.1 mn over the same period. Commercial bank lending for personal use increased by 11.2% to $444.4 mn, with most of this increase being directed into home construction and renovation and for other personal uses. The net foreign assets of the monetary system declined by 11.6% during the first nine months of 2007 to $303.3 mn because of an increase in the commercial Figure 6: Antigua and Barbuda Growth in Money Supply and Domestic Credit Source: ECCB 30 CDB Annual Economic Review 2007 Antigua and Barbuda

7 banks foreign liabilities to $309.2 mn from $168 mn at the beginning of the year. For the comparable period in 2006, the net foreign assets position of the commercial banks had increased by 21.5% to $319.7 mn. The decline in the commercial banks net foreign assets in 2007, partially reflected the drawdown of assets held with banks and other institutions outside the Eastern Caribbean Currency Union (ECCU) to meet the increased demand for domestic credit. F. External Sector Preliminary data indicate that the current account of the BOP deteriorated in 2007, with the deficit widening by 26.1% to $346.8 mn (31.6% of GDP) from $275.1 (27.4% of GDP) mn in This widening in the current account deficit contributed to a 45.9% decline in the overall surplus to $10.5 mn (1% of GDP) from $15.3 mn (1.5% of GDP) a year earlier. The deterioration in the current account balance was attributed to an increase in the deficit on the goods and services account to $311.2 mn (28.3% of GDP) from $248.3 mn (24.7% of GDP) in On the merchandise account, the deficit increased by 12.3% to $526.9 mn (47.9% of GDP) from $ mn (46.7% of GDP) in Merchandise exports increased slightly in 2007 to $26.1 mn (2.4% of GDP), while imports rose by 12.3% to $596.7 mn (54.3% of GDP), the growth in merchandise imports reflecting the buoyant economic conditions. as they transferred surplus funds abroad to earn better returns. Foreign direct investment remained high despite a small decline to $331.7 mn (30.2% of GDP) from $337.3 mn (30.5% of GDP) in the previous year. Figure 7 provides a summary of the BOP for the period MAJOR POLICY ISSUES A. Weak Fiscal Performance and High Public Sector Debt GOAB has experienced large fi s cal defi c its for over two decades. This has resulted in the accumulation of a high public sector debt (including arrears). The current administration, which came to office in 2004, introduced a fiscal reform programme that was aimed at achieving fi s cal and debt sustainability over the medium term. Under the fiscal reform programme, GOAB re-introduced the personal income tax in 2005; introduced the valueadded-tax based ABST; and a revised property tax in Under the fiscal reform programme, measures were taken to reduce discretionary tax waivers and to increase the efficiency of the Customs and Excise and Inland Revenue departments. GOAB also introduced a voluntary severance and early retirement programme as part of its public sector reform initiative to reduce the Central Government s workforce and expenditures on personnel emoluments. In addition, expenditure Figure 7: Antigua and Barbuda Balance of Payments Source: ECCB In 2007, the surplus on the capital and financial account increased by 29.9% to $365.2 mn from $281.1 mn (25.6% of GDP) in 2006, mainly because of $50.2 mn in capital inflows to the commercial banks. The capital inflows to the commercial banks in 2007 were mainly because of the drawdown of funds held overseas to facilitate the increase in domestic demand for credit. In the previous year, the commercial banks had experienced a net outflow of $64.6 mn (6.4% of GDP) controls in the line ministries and departments were strengthened by the computerisation of the government accounts, using the Freebalance Software Platform. The effects of these policies are seen in the improvement in the recurrent account balance in recent years (Figure 4). In 2008, the fiscal reform programme is expected to focus on improving the efficiency of the Customs and Excise and Inland Revenue Departments; reorganising Angtigua and Barbuda CDB Annual Economic Review

8 the Treasury; and completing the voluntary separation and early retirement package. It is expected that these measures will lead to an improvement in the recurrent account, moving it into surplus in Further fiscal consolidation will cause Central Government s fi s cal operations to improve significantly over the mediumterm. The primary balance, a significant determinant of fiscal sustainability, is expected to reach a surplus of 2.8% of GDP in 2010, though the overall balance is expected to remain in deficit. In 2004, GOAB started to implement its debt reduction strategy, based on the re-negotiation of bilateral external debts that were significantly in arrears. This approach was quite successful, and GOAB was able to reduce its external debt by over $225 mn. In 2006, with assistance from the Canadian International Development Agency (CIDA), GOAB contracted a firm of proven capability to develop a comprehensive debt reduction strategy. The strategy seeks to establish a debt service profile consistent with GOAB s payment capacity and to help normalise relations with creditors. At the end of 2005, GOAB s public sector debt stood at $1,018.3 mn (117% of GDP), down from $1,033.4 mn (137% of GDP) at the beginning of At the end of 2007, the debt is estimated to have declined to $1,113.3 mn (100.8% of GDP), which is still high. In 2008, GOAB will establish new guidelines to improve the efficiency of its borrowing and debt operations. GOAB s priority will be to regularise its obligations to the Social Security Board; Medical Benefits Scheme; and the Board of Education. As from January 2008, GOAB will be making full payments to the three statutory bodies. In addition, GOAB plans to regularise the outstanding arrears to the three institutions. GOAB will be working closely with the contracted firm to complete implementation of the debt strategy in B. Weak Socio-economic Database In Antigua and Barbuda, the institutional capacity of the Statistics Division to collect socio-economic data is weak. For many years the Statistics Division has not been able to meet its goals for the compilation and dissemination of statistics. The lack of orderly production of statistics was caused by the poor organisation of the office; lack of effective guidelines to produce core statistics; and the absence of guidelines with respect to collaboration with other sources of statistical data within government. Given the present weakness in the Statistics Division, GOAB has applied to CDB for technical assistance to engage the services of a statistician to reorganise and develop the capacity of the division so that it would be able to produce and disseminate relevant socio-economic statistics, and contribute to more effective decision-making. C. Lack of Economic Diversification Antigua and Barbuda s economic base is narrow and dependent on the tourism sector for foreign exchange earnings, employment and revenue generation. In the past, GOAB has targeted offshore fi n ancial services and Internet gaming as areas for expansion. Recent unfavourable international developments, particularly relating to Internet gaming, have presented the offshore fi n ancial services sector with considerable challenges. In 2007, the Antigua and Barbuda Investment Authority (ABIA) was established as a one-stop shop for investors. While GOAB would like to attract investment in as many areas as possible, ABIA will initially focus on four main areas of investment: tourism; financial services; health and wellness; and education and business support. As of the end of November 2007, ABIA had facilitated over $50 mn in foreign and local investments. D. Crime In recent years, there has been an upsurge in serious criminal activity in Antigua and Barbuda. This has become a major concern to GOAB and persons resident in Antigua and Barbuda. A particular concern has been the increase in the number of gun-related crimes. The use of Antigua and Barbuda for the transhipment of drugs has been blamed for the increase in gun-related crime. This situation has also been complicated by the arrival of criminal deportees from North America and a large influx of migrant labour. GOAB does not see increasing the penalties as being the only answer to the upsurge in violent crime. GOAB has started a programme to build confidence in the delivery of justice. This programme will entail legislative reforms in the areas of committal proceedings at the magistrates court; criminal procedures in the high court; a centralised prosecution unit; and an integrated registry. A new Evidence Act and a new Juries Act will be introduced. Criminal legislation will be amended to make the importation and possession of drugs with intent to sell and the possession of illegal firearms indictable offences to be tried by jury and with tougher prison sentences. GOAB also intends to strengthen its existing border controls to allow for higher scrutiny of persons entering the country. Legislation addressing the issue of criminal deportees will be introduced with respect to non-nationals. To improve security, a master plan has been developed to strengthen law enforcement. The master plan will include the reform of the police service; establishment of community-based policing in high 32 CDB Annual Economic Review 2007 Antigua and Barbuda

9 crime areas; and the introduction of community street lighting programmes. To allow for a more rapid response to reports of crime, a new telecommunications network will be introduced in This network will be shared by the police, the military and the emergency medical services. The police will also benefit from the use of new fi n ger-printing equipment in Furthermore, GOAB s crime and violence prevention measures will include several rehabilitation initiatives, such as the introduction of classes based on the school curriculum for juveniles and young adults. E. Poverty The first Antigua and Barbuda CPA was completed in 2007 with assistance from CDB. The CPA had three main objectives: (i) to assess the current living conditions affecting the welfare of people in Antigua and Barbuda; (ii) to identify policies, strategies and action programmes that would reduce the extent and severity of poverty; (iii) to develop recommendations and a programme of action which sets out the strategic options for addressing critical issues that emerge from the poverty assessment. The CPA was undertaken in late 2005 and early It found that the indigence line, the level of expenditure necessary to provide the minimum nutrition required for maintaining good health, at the time stood at $917 per annum. It was estimated that 3.7% of the population was indigent. The poverty line was estimated at $2,366 per annum. The CPA found that an estimated 18.3% of the population was below the poverty line. To assess the number of persons who were at risk of falling into poverty should an unanticipated event take place, such as a natural disaster, the vulnerability line was set at 125% of the poverty line. An additional 10% of the population was thought to be vulnerable. The CPA concluded that a cumulative total of 28.3% of the population was estimated to be at risk, i.e. vulnerable, poor or indigent. The gini coeffi c ient, which is a measure of income inequality, was estimated at 48%. This is considered relatively high, even by Caribbean standards. Over the past three years, GOAB has introduced several measures to help the poor, such as providing school uniform grants; school meals; and increases in the minimum pension. The information obtained from the CPA will be used by GOAB to develop a poverty reduction strategy (PRS) that will provide a structured approach to the targeting of programmes. F. Human Resource Development Antigua and Barbuda s education and health sectors compare favourably with other countries in the Caribbean. Nevertheless, GOAB would like to further improve the performance of students. In addition, GOAB recognises that the general level of skills training needs to be improved. The recent influx of labour from other Caribbean countries to Antigua and Barbuda has resulted in their children placing significant strains on the education system, particularly in St John s, the capital city. In 2008, GOAB expects to start a programme of construction and expansion within the education sector. GOAB intends to secure funding for the construction of two new schools in Antigua and the expansion of one in Barbuda. These projects will reduce the over-crowding in secondary schools. GOAB is committed to providing health care to all persons resident in Antigua and Barbuda. At present, the country has 98% immunisation coverage against diseases; an average life expectancy of 76.1 years; and an infant mortality rate of 16 per 1,000 live births. Despite the achievements of the health care system, the incidence of chronic non-communicable diseases (hypertension, diabetes, cardio-vascular diseases and obesity) continues to increase. Lifestyle-related diseases have considerable socio-economic implications for the population and GOAB. In 2008, GOAB will be introducing programmes of preventative medicine and healthy lifestyle choices. GOAB will also be placing emphasis on primary health care by continuing to refurbish established community clinics and by building new ones. The importance of secondary health care is also recognised, and GOAB expects to open the new Mount St. John s Hospital in 2008, equipped with state-of-the-art facilities. GOAB continues to implement its HIV/AIDS reduction strategy by undertaking public information programmes; voluntary counselling; and providing antiretroviral therapy. While there have been some notable successes, particularly in the reduction of mother-to-child transmission, the number of infected persons continues to increase, although at a slower pace than before. G. Environment GOAB has to preserve a delicate balance between its economic development goals and environmental sustainability. This is a significant challenge since the need to expand economic activity and create employment opportunities can place significant pressures on the environment. In 2007, GOAB started work on rehabilitating the north-west coastline, which has suffered from beach erosion in recent years. In Barbuda, GOAB placed a ban on sand mining. GOAB is also actively seeking fi n ance to develop a central sewerage system for St. John s to improve the environment of down-town St. John s as well as reduce wastewater runoff into the harbour. Angtigua and Barbuda CDB Annual Economic Review

10 2. PUBLIC SECTOR INVESTMENT PROGRAMME The major development objectives of GOAB are the achievement of self-sustaining growth and the improvement of the quality of life of all Antiguans and Barbudans. As a result, Antigua and Barbuda s PSIP is increasingly being driven by the need to improve and upgrade the country s economic and social infrastructure. Over the last three years, with assistance from the Caribbean Regional Technical Assistance Centre, GOAB has developed a mechanism for overseeing the implementation of the PSIP in the Planning Division of the Ministry of Finance and the Economy. The system has improved significantly since it was first started, but still does not provide full coverage of all public sector projects. Currently, work on the PSIP is limited to the Central Government and some state-owned enterprises (SOEs). It is, however, envisaged that the PSIP system will soon be adopted by all public sector bodies (including the SOEs). Planned expenditure on the PSIP for the period is $367.7 mn, of which $242.5 mn represents ongoing projects and $125.2 mn new projects. The planned PSIP, including the projects for which financing has not been raised, is expected to average 7.9% of GDP. During , the PSIP will be dominated by infrastructure projects in the transportation sector. These include the V.C. Bird International Airport Redevelopment Project; the construction and reconstruction of roads and drains; and the construction of a new car park and bus terminal. These and other projects in the transportation sector are expected to account for $261.7 mn, or about 70% of total expenditure on the PSIP for the period. (Figure 8.) In the productive sectors, a total of $13.9 mn of the PSIP will be allocated to the agriculture, fisheries and forestry sector. The largest project in the sector, accounting for $10.5 mn, will be for the development of Source: Planning Division, Ministry of Finance and the Economy a fishing port in Barbuda. Other projects in the sector include the building of irrigation dams and feeder roads; renovation of buildings at the central cotton station; and the acquisition of a sampling gin. The PSIP also contains an allocation of $3 mn for the development of the ICTs sector through the Connect Antigua Initiative and for the development of an ICTs policy and strategy. Additionally, GOAB intends to introduce a project to strengthen its capacity to regulate the telecommunications sector. Expenditure on Social Services is expected to total $73.7 mn over the period Major social services projects include the Sir Vivian Richards Cricket Stadium; Mount St. John s Hospital; Affordable Housing; and St. John s Sewerage Scheme. Other social services projects include the strengthening of technical and vocational education; construction of a learning resource centre at the Antigua State College; and the construction of a new public library. Expenditure on General Public Services is mainly concentrated on the construction and refurbishment of various public buildings, including government offices; Government House; police stations; and the Office of Disaster Preparedness. Expenditure on the PSIP in 2007 totalled $76.6 mn, and was dominated by outlays on the construction and renovation of roads and the completion of the Sir Vivian Richards Cricket Stadium, which was used for the CWC 2007 games. In 2008, expenditure on the PSIP is expected to increase to $159.2 mn before reducing to $83.3 mn in 2009 and $50.6 mn in MEDIUM-TERM ECONOMIC PROSPECTS Over the medium term, Antigua and Barbuda s economic prospects remain good. In 2008, mainly because of the contraction in construction activity, the rate of economic growth is expected to fall to 2.1% before recovering to 4.1% in 2009 and 4.5% in Economic activity in 2008 will be principally driven by an increase in stayover arrivals. Output from the hotel and Figure 8: Public Sector Investment Programme restaurant sector is expected to strengthen considerably because several new and 10% Transportation refurbished hotel properties will open or 4% become fully operational. The increase Environment 4% in the number of available rooms will be 4% Housing complemented by extra airlift from North America and Europe. It is also expected 8% Other Social Services that the hosting of the regional 2020 cricket tournament, scheduled to take place in the 70% Administration and fi r st quarter of 2008, should significantly Planning boost regional tourist arrivals despite the Other Projects high cost of travel. 34 CDB Annual Economic Review 2007 Antigua and Barbuda

11 While it is expected that a downturn in the US will affect arrivals from that country, it is difficult to gauge the extent of the impact because of the lead times associated with the tourism industry. However, the depreciation of the US dollar against the Pound Sterling and the Euro is likely to have a positive effect on stay-over arrivals from Western Europe, provided that the slowdown there is not substantial. The construction sector, which is strongly influenced by developments in tourism, is expected to contract slightly in 2008, compared to growth of 10% in 2007, but is expected to recover in The rate of decline in construction sector activity in 2008 is expected to be limited because several new tourism projects are expected to start in late 2008 and early Over the medium term, GOAB s fiscal performance will be a particular concern as it is projected to remain weak. Over the period, GOAB will use extra revenues derived from the reformed tax system to service its debt and to maintain a sustainable PSIP. However, despite the effects of the tax reform and the voluntary severance programme on future revenue and expenditure, Central Government s fiscal operations are projected to experience large overall deficits to 2010 because of the high levels of expenditure on transportation and other economic infrastructure. It is expected, nevertheless, that the debt strategy being developed will have a favourable impact on the fiscal accounts over the medium term. Antigua and Barbuda s medium-term BOP projections suggest that its imputed reserves are likely to increase. The current account deficit, which is mainly driven by developments on the merchandise account, is expected to decline due to a fall in imports of construction materials following the completion of some large tourism projects. The overall BOP will be driven by net inflows on the capital and financial account. Between 2008 and 2010, it is projected that the net surplus on the capital and financial account will decline because of a falloff in official capital flows and foreign direct investment due to the expected slowdown in global economic activity. Angtigua and Barbuda CDB Annual Economic Review