Antigua: Country Economic Forecast: 11 Aug 2011

GDP decline of 5.6% in 2010 was worse than forecast, and inflation faster at around 3.5%. Last year's central budget deficit fell to 0.3% of GDP after restructuring of bilateral debt. But while growth resumed in H2, led by tourism (arrivals up nearly 3% in 2010), its weakness led in August to unveiling of a stimulus package - whose duty-free machine and raw-material imports, small-firm credit guarantees and other tax breaks will widen the deficit unless growth gathers pace. The fourth US$10.7mn IMF standby tranche was disbursed in March, but budget imbalances persist despite spending cuts and revenue rises. July's undersubscribed treasury bond issue highlighted solvency concerns, and the need for more public debt relief. Domestic debt rescheduling has added to banking sector strains: bad debts were up to 17.5% of the total in September 2010, and investment bank ABI went into ECCB administration in July 2011. But Bank of Antigua has now been recapitalised, and liquidators will use £20m in frozen UK assets of its bankrupt owner Stanford International Bank, recovered in March, to launch more actions for funds to compensate depositors. The current account deficit, down to 10% of GDP in 2010, will widen with recovery, as stimulus tariff cuts and tourism refurbishment incentives initially boost imports. External financing remains reliant on continued IMF help; and required state-sector cutbacks are a downside risk to growth in 2011-13