WASHINGTON DC, United States — THE International Monetary Fund (IMF) Monday said that the economy of Antigua and Barbuda is experiencing its worst recession in decades and that gross domestic product (GDP) declined by seven per cent last year.

It said that the decline in GDP followed five years in which the local economy grew by an average six per cent.

The Washington-based financial institution, which last month concluded consultations with the Antigua and Barbuda government, said that following a decline in 2008, inflation has remained in the low single digits despite a 20 per cent increase in fuel prices and higher consumption taxes.

“The recession and associated fiscal crisis coincided with an already unsustainable fiscal situation and mounting problems in the financial sector,” the IMF said, pointing to the collapse of the Stanford Group, the largest private conglomerate, and of the Trinidad-based CL Financial Group.

“Following many years of accumulation of arrears to domestic and external creditors, the fiscal situation turned critical in 2009 as the recession led to a 20 per cent decline in tax revenue,” the IMF said, noting that primary expenditure rose by 4.5 per cent of GDP due to higher-than-budgeted current outlays.

“The overall fiscal deficit widened from six per cent of GDP in 2008 to about 19 per cent in 2009. With limited financing options, the government accumulated arrears amounting to about nine per cent of GDP to domestic and external creditors, bringing the total stock of arrears to about 53 per cent of GDP, or 45 per cent of the outstanding public debt, which totalled 115 per cent of GDP.”

It said that to contain the deterioration in the fiscal position, Antigua and Barbuda implemented revenue measures in mid-2009 amounting to about 1.5 per cent of GDP on an annualised basis. These included raising petroleum product prices in August, by an average of 20 per cent, while introducing a flexible and market-based petroleum-product pricing mechanism.

The IMF said the external current account deficit narrowed to 25 per cent of GDP in 2009, reflecting a decline in foreign direct investment (FDI) inflows.

“Aside from some financing from Venezuela, the deficit was financed mainly by a drawdown in commercial banks foreign asset position, a reduction in Antigua and Barbuda’s share of international reserves at the Eastern Caribbean Central Bank (ECCB), and the further accumulation of arrears on public external debt.”

The IMF said that the contraction of economic activity has resulted in a significant slowdown in private sector credit growth, while domestic bank lending rates have remained broadly stable.

However, non-performing loans fell sharply in 2009 as a percentage of total loans, reflecting the restructuring of loans to both government and the private sector.

The IMF has approved a three-year Stand-By Agreement (SBA) with the Baldwin Spencer administration in support of a comprehensive reform strategy aimed at restoring fiscal and debt sustainability.

The IMF said the reforms include a significant and sustained tightening of fiscal policy supported by a comprehensive debt restructuring and structural reforms to strengthen the Customs and Inland Revenue departments.

“The approved 2010 budget built on the fiscal measures taken in mid-2009, and features additional measures that are designed to shift the fiscal position to primary surplus of three per cent of GDP from a primary deficit of 11.5 per cent of GDP in 2009.

“These measures, which include prioritising capital and goods and services expenditure and a freeze on public sector wages, will be complemented by revenue measures aimed at returning the tax-to-GDP ratio to pre-crisis levels and bring the overall deficit to zero by 2012,” the IMF said.