BRADES, Montserrat, January 4th, 2012 – Montserrat is being encouraged to reduce its dependence on recurrent and capital grants to fuel its economy and has been urged to maintain momentum with ongoing reforms by the Executive Board of the International Monetary Fund (IMF).

This recommendation forms part of the recently released Public Information Notice (PIN) from the Article IV Consultation which was conducted in 2011 at the request of the Government of Montserrat. The consultation was concluded on November 28, 2011.

In its assessment, the board welcomed Montserrat’s significant progress in recovering from the eruption of the volcano, which remains intermittently active. At the same time, they noted that in many respects the island’s economy is still out of equilibrium, as it adapts to living with the volcano while exploiting related opportunities. They supported the authorities in their efforts with support from the United Kingdom to gradually reduce dependence on external grants.

“Directors welcomed the development of a strategy for addressing financial vulnerabilities and the initial progress in implementing it. They supported pre-emptive action to minimize costs and risks and preparation of an action plan spelling out the roles of the key players. They urged the authorities to further improve regulation and supervision of the nonbank financial sector and bringing the building society under the purview of the Financial Services Commission.

“Directors agreed that reducing dependence on recurrent and capital grants should be a key objective of fiscal policy. They urged the authorities to reach agreement with the United Kingdom on a revised fiscal framework and timetable for reforms in light of implementation delays in key projects and the current economic environment.

Directors commended the authorities’ progress in improving tax administration and urged them to maintain momentum with reforms including by introducing a single Taxpayer Identification Number and integrating IT systems.

“Directors encouraged the authorities to take advantage of a range of opportunities to promote long-run growth. They noted that improving access to the island would remove an important bottleneck that impedes economic growth generally and tourism in particular. In addition, construction of a new capital would provide a focal point for private and public activity.

They suggested that the short-run priority should be to accelerate the investment program by overcoming implementation constraints and obtaining grant financing. Directors welcomed steps toward putting in place a sound framework for the mining of volcanic sands which would facilitate exports while addressing negative externalities.

“Directors underscored that ensuring a reliable energy supply and minimizing its cost would be essential for faster growth. They encouraged the authorities to continue improving energy generating capacity and fully exploring the possibility to develop geothermal energy sources.

“Directors welcomed the Montserratian authorities’ decision to propose the first ever Article IV Consultation Discussions, which had helped provide context for the 2011 Eastern Caribbean Currency Union Common Policies Discussions, and hoped that the close dialog developed would continue,” the report read.

Grants from the UK finance around half of Montserrat’s 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 economic outlook hinges upon progress with major public capital projects, improving access to the island, and strengthening the private sector.

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies.

With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements.

PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

*************************
DISCLAIMER

This article was posted in its entirety as received by SKNVibes.com. This media house does not correct any spelling or grammatical error within press releases and commentaries. The views expressed therein are not necessarily those of SKNVibes.com, its sponsors or advertisers