Antigua: Country Economic Forecast: 28 Jul 2010

The IMF approved a three-year US$118m standby loan in June, ensuring continued financing for the current account and fiscal deficits. This should help the economy to stabilise after the GDP decline of almost 9% in 2009. But the package is conditional on fiscal deficit and debt reduction, largely through public spending cuts, reinforcing the forecast of a further small 1% decline in GDP this year this year and comparatively weak growth in 2011. Budget implementation is in doubt after the High Court in July upheld opposition ALP calls to annul three of last year’s election results, endangering the ruling UPP majority. If the appeal court affirms this, the UPP (with nine seats to the ALP’s seven) will have to re-run the contests or call an early election. The Fund argues that reducing debt service costs, improving financial service regulation after the Stanford affair and reducing bureaucracy and social security costs can restore the trend growth rate to 4% by 2015. Barring natural disasters, we expect this rate to be regained in 2012, but sustaining it will require significant growth of tourism, other services and import-substituting industry. The government has stepped up pressure on the US to review its internet gaming ban, challenged by the WTO in 2007 but so far upheld by the Obama administration. Despite Caricom support, threatened trade sanctions against the US would backfire, likely costing the economy more than the US$21m a year compensation mandated by the WTO.