04 January 2012

International Monetary Fund (IMF) Executive Board Concludes 2011 Article IV Consultation Discussions on Montserrat

Public Information Notice (PIN) No. 11/156

December 13, 2011

On November 28, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the first ever Article IV consultation discussions with United Kingdom–Montserrat–British Overseas Territory.

Montserrat has made enormous progress in its recovery from the 1995 eruption of a long dormant volcano, which remains intermittently active. The economy is sustained by grants from the UK. Low growth is expected in 2011 after sharp output contractions in 2009–10. Stress in the financial sector and slower than expected development of the major capital investment projects continue to limit prospects for growth.
The island has made enormous progress in its recovery, with generous support from the UK government, the European Union, and other donors. Nevertheless, the eruption has had a large and lasting demographic, economic and social impact.
Grants from the UK finance around half of expenditure. The ability to mobilize revenue domestically is constrained by the dominant role of government and donor activity which is not taxable. UK grants buffered the impact of the global crisis on Montserrat. The economy contracted in 2009–10 due in part to a small volcanic eruption and the passage of Hurricane Earl in 2010. Inflation remained low at around 2.5 percent in 2009–10. Although UK grants sustained expenditure in 2009, the fiscal stance in 2010 was contractionary. The fiscal stance and weak activity reflect in part implementation delays in key capital projects. The economic outlook hinges upon progress with major public capital projects, improving access to the island, and strengthening the private sector.
Read the full IMF Report here.