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Press Release No. 11/284
July 18, 2011
An International Monetary Fund (IMF) mission headed by Hunter Monroe issued the following statement on Monday, July 18, 2011 at the end of its discussions in Montserrat:
“An IMF staff team visited Montserrat from July 12 to 18, 2011 to undertake the IMF’s first formal bilateral dialogue with the UK overseas territory of Montserrat, at the request of the Montserrat authorities. The team held productive discussions with the local authorities, the banking and business representatives, the opposition, and union representatives.
“Montserrat has a number of promising opportunities to enhance its growth prospects. The construction of a new capital and port, the keystone of the public investment program, would provide a focal point for public and private sector activity. The government is defining options to improve access to the island, and an investment program is underway to enrich the tourist experience taking advantage of Montserrat’s unique characteristics. The current approach for the mining of volcanic sands, the only export industry, needs improvement. It is being replaced with a sound and sustainable strategy; establishing a national consensus behind the strategy will be crucial. Lowering energy costs including through geothermal energy would transform the local economy.
“Improving the business environment will be essential to rebuilding a viable private sector. The mission noted progress in streamlining customs clearance and recommended establishing a one-stop shop for investors and joining the World Bank’s Doing Business indicators database to provide a diagnostic and benchmark for progress.
“The challenge for fiscal policy is to keep recurrent expenditure in line with recurrent revenue and to reduce dependence on external grants over time while carefully selecting public investment projects that will deliver future streams of income. The medium-term fiscal framework needs to be revised to reflect changes in economic circumstances. The mission welcome plans to improve tax administration, to simplify the tax system, and to improve the sustainability of the pension system.
“The economy’s exposure to two failed insurance companies which had been offering deposit-like products represents a significant challenge to the financial and public sectors as well as to affected individuals. The mission recommended that financial institutions with such impaired assets clean up their balance sheets and seek new capital as needed. The mission encourages the authorities to strengthen the regulation and supervision of the financial sector, including by regulating previously unsupervised institutions.
“The mission benefited from open and fruitful exchanges with representatives of the local authorities and the private sector and wishes to express its gratitude for the cooperation and kind hospitality.”
IMF EXTERNAL RELATIONS DEPARTMENT
Public Affairs Media Relations
E-mail: publicaffairs@imf.org Phone: 202-623-7100
Fax: 202-623-6278 Fax: 202-623-6772
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IMF visit reports prospects for Montserrat’s economic future
The IMF Article IV Consultation that Chief Minister Reuben T. Meade had announced in February while Britain’s Secretary of State Andrew was making a whirlwind visit to Montserrat began here on July 12 and lasted through the 18th. The team along with the chief minister and Governor Davis spoke to the local media on Monday evening.
The team in a statement on their findings sounded a positive outlook for Montserrat, the fact that the British Overseas territory depends on assistance of more than 50% to balance its recurrent budget.
“Montserrat has a number of promising opportunities to enhance its growth prospects,” mission chief Monroe began in his opening statement to the press. The four-man IMF team consisted of the Mission Chief, Hunter Monroe, Mico Mrkaic, and Ms. Arina Viseth from the Fund’s Western Hemisphere Department) and Fang Yang from the Finance Department.
Monroe outlined much of what government leaders who along with the Governor had been telling the people over the past few weeks in particular. He noted, “The construction of a new capital and port, the keystone of the public investment program, would provide a focal point for public and private sector activity,” while noting also, “the government is defining options to improve access to the island, and an investment program is underway to enrich the tourist experience taking advantage of Montserrat’s unique characteristics.”
He spoke of the sand-mining prospects, which he referred to as, “the only export industry,” but noted: “The current approach for the mining of volcanic sands, needs improvement.”
This will sound to many as a caution, but Monroe then cited the matter as being one that needs national consensus as he observed. “It is being replaced with a sound and sustainable strategy, he said as he noted, “establishing a national consensus behind the strategy will be crucial.”
He addressed matters relating to the fledgling, less than hesitant private sector. “Improving the business environment will be essential to rebuilding a viable private sector,” as he later noted its dependence on public sector initiatives for activity.
The mission noted what they referred to as challenging – the government’s fiscal policy, to keep recurrent expenditure in line with recurrent revenue and to reduce dependence on external grants over time. The chief suggestee, “…carefully selecting public investment projects that will deliver future streams of income,” noting, “The medium-term fiscal framework needs to be revised to reflect changes in economic circumstances.”
The mission welcomed the’ little spoken- of’ plans, to improve tax administration, to simplify the tax system, and to improve the sustainability of the pension system. They made reference to previous catastrophe of, “The economy’s exposure to two failed insurance companies, British American Insurance Co. (BAICO0 and Colonial Life Insurance Co. (CLICO).”
Mr. Monroe was asked what the difference between his mission’s visit to another country and his visit to Montserrat. He responded as follows: “The first crucial distinction is that Montserrat is an overseas territory of the UK, it is not a member of the IMF. Unlike members of the IMF it has not been participating in the annual or biannual Article IV consultations that all IMF members do. Another crucial distinction is that because Montserrat is not a member of the IMF it is not eligible to borrow from the IMF so there is no prospect of an IMF program with the IMF…”
The mission recommended that financial institutions with such impaired assets clean up their balance sheets and seek new capital as needed, while encouraging the authorities to strengthen the regulation and supervision of the financial sector, including by regulating previously unsupervised institutions, a matter that has been obtaining the attention of the East Caribbean Currency Union chiefs and the ECCB, evidenced in their recently concluded summit on the weekend.
The mission welcome plans to improve tax administration, to simplify the tax system, and to improve the sustainability of the pension system.
The mission recommended that financial institutions with such impaired assets clean up their balance sheets and seek new capital as needed. The mission encourages the authorities to strengthen the regulation and supervision of the financial sector, including by regulating previously unsupervised institutions.
Governor Davis responded to a question as to whether the mission may find that Montserrat can pose a risk to the UK with IMF, like being a little leaf on the branch economically to the UK Government. The Governor expressed his thought that this was not an appropriate question to put to the IMF, and asserted, ”the UK did not regard Montserrat as a risk.”
He pointed out the new Overseas Territories strategy that was being discussed in London talked about the OTs as being vibrant members of a broader UK family, while, the UK had clearly shown its willingness to invest in a strategic growth package which could move Montserrat nearer to economic self-sufficiency.
The Government in announcing the visit, had sought to explain the visit. In a release it noted: “Montserrat is not a member of the IMF but as an Overseas Territory of the UK is able to access its services through the United Kingdom’s membership, explaining further the benefits. “The ability to access this service and the information provided from the assessments made will, it is hoped, help the Government make better policy decisions and deliver more targeted programmes. It will also help the Government make the case to donor countries for support, especially at this point where evidence based justification is essential.”
At the press conference the Chief Minister sought further to justify the visit and explained, “Whereas we may feel we are doing certain things right, it is always useful to have an independent evaluator, to take another look to determine whether or not there are improvements which could be made. Coming out of this mission there will be recommendations in terms of what improvements – Some things which we are not doing right or some things we can do better…”
Eventually a report will be published and circulated at the wish of the relevant authorities. Hunter Monroe said that on their return to Washington, “we will prepare a staff report which will be circulated to our executive board for discussion approximately end of September , following the discussion the staff report could be published with the permission of the authorities and along with a summary of the views of our executive board on the discussions from the end of Montserrat,” he announced.
He said they had already, “laid out some of our recommendations and we’ve already had some indications that some of them are relevant and will be pursued.”
