PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: Operation Name First Programmatic Comprehensive Debt Framework Development Policy Loan Region LATIN AMERICA AND CARIBBEAN Country Antigua and Barbuda Sector Central government administration (100%) Operation ID P144512 Lending Instrument Development Policy Lending Borrower(s) Government of Antigua and Barbuda Implementing Agency Ministry of Finance, the Economy and Public Administration Parliament Drive, St. John's, Antigua Tel: 268-562-5261 Date PID Prepared May 6, 2013 Estimated Date of Appraisal September 16, 2013 Estimated Date of Board October 29, 2013 Approval Key development issues and rationale for Bank involvement Antigua and Barbuda is a small, highly vulnerable open economy. The economy mostly relies on remittances, tourism, financial and educational services and FDI flows. Like most small Caribbean economies, Antigua and Barbuda is limited in its capacity to diversify and hence is highly vulnerable to economic and natural disaster shocks. In 2009-11, Antigua and Barbuda suffered from its worst recession in decades as tourism revenues collapsed following the global financial crisis. GDP contracted by a cumulative 20 percent for the period 2009-2011. Successful fiscal reforms since 2010 have helped bringing the macro-fiscal situation to a stable position. Fiscal reforms underpinned by the IMF SBA helped to reduce the overall fiscal deficit of 18.2 percent of GDP in 2009 to 1.2 percent in 2012. In addition, Antigua and Barbuda entered into successful debt restructuring negotiations with bilateral donors in 2010, and managed to lower its debt-to-GDP ratio from 102 percent in 2009 to 89 percent in 2012. By 2018, the public debt-to-GDP ratio is projected to fall below 70 percent. As part of a strategy to address the country’s development challenges, the Government of Antigua and Barbuda (GoAB) has embarked on a National Economic and Social Transformation (NEST) Plan for the period 2010-2014, with the overall objectives of sustainable economic growth and fiscal consolidation. The GoAB is committed to addressing current challenges 1 through a range of reforms intended to both improve the sustainability of Government finances and facilitate increased private sector development. This combination facilitates the implementation of the plan within the four pillars of the Comprehensive Debt Framework (CDF), which the GoAB has found adequate for addressing the issues of debt sustainability in the country (Section II). The proposed operation is the first in a programmatic series of two development policy operations. The series of operations will provide resources to address the structural interdependent causes of high debt and low growth in small island states, while supporting vital reforms to move towards fiscal and debt sustainability. Proposed Objective(s) The Program Development Objective of the proposed Comprehensive Debt Framework DPL (CDF DPL) series is to support the Government in promoting private-sector led growth, creating fiscal space and building resilience to natural disasters, for increased development financing and medium-term debt sustainability. At the request of the Heads of Government of CARICOM countries, the World Bank has developed the Comprehensive Debt Framework to address the high debt challenge facing many small states, including the Caribbean countries. The framework is structured around four pillars to address the structural interdependent causes of high debt and low growth in small island states: (Pillar 1) promoting private-sector led growth; (Pillar 2) strengthening fiscal management; (Pillar 3) building resilience to natural disasters; and (Pillar 4) and debt resolution. Specifically, the operation supports the four key policy areas defined in the Comprehensive Debt Framework. The proposed DPL is closely linked to the NEST plan of the Government of Antigua and Barbuda. Preliminary Description The proposed operation is expected to be the first in a programmatic series of two operations to support the government's reform agenda in four areas: (i) promoting private-sector led growth; (ii) strengthening fiscal management; (iii) building resilience to natural disasters; and (iv) consolidating debt sustainability. The first component supports measures to promote new investments and strengthen the business environment, support tourism and agriculture, and restore financial sector stability. Together, the reforms are expected to contribute to greater private sector investment and develop a sound business environment in Antigua and Barbuda that will contribute to sustainable growth. The second component supports the Government’s efforts to reform the public service, improve the solvency of the social security and pensions systems, enhance public financial management, and increase revenue and tax efficiency. These reforms are expected to contribute to greater accountability in how public resources are spent, and ultimately help achieve greater efficiency, 2 which would be crucial in assuring that scarce resources achieve better results. The third component supports the creation of a comprehensive framework for building resilience to natural disaster. These measures are designed to reduce the base risk to external hazard shocks through a strengthened regulatory system, and ultimately develop a comprehensive risk financing strategy to avoid unexpected fiscal costs. Finally, the fourth component aims at strengthening the debt management capacity, to contribute towards medium-term debt sustainability. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts On balance, the overall poverty and distributional impact is expected to be neutral or slightly positive. The availability of data on poverty and income distribution in Antigua and Barbuda is extremely limited. However, based on the very limited information available, it is expected that a number of measures supported under the proposed operation will have a positive poverty and distributional impact. Supporting MSMEs will likely have a positive impact on lower income quintiles. Likewise, fostering growth in the tourism and agriculture industries is expected to be beneficial for those at the lower end of the income distribution. Jobs in agriculture (and, to a lesser extent, tourism) tends to be low skilled and seasonal, and lower income quintiles and women make up a significant share of those employed in these two sectors.1 On the other hand, the measures in the area of public sector, social security and government pension reform are expected to have a somewhat negative distributional and poverty impact. An estimated 25.4 percent of the population (31.3 percent of women) is employed by the government, including 22 percent of the poorest quintile. An adjustment in relative public sector salaries could result in a reduction in salaries for lower levels, which are more likely to include the poor. Changes in the social security system are likely to affect most segments of society, given that social security coverage in Antigua and Barbuda is relatively high, extending to approximately 72 percent of the estimated labor force, and between 70 and 90 percent of total formal sector employed. Environmental Aspects The policy actions supported under the proposed CDF DPL series are expected to result in significant net positive environmental impacts. Indeed, this stems from the positive impact of policy actions in the areas of agriculture, tourism development, the Environmental Management Act and the Disaster Risk Management Act. Nature conservation and sustainability measures are 1 Caribbean Development Bank (2007); Poverty Assessment for Antigua & Barbuda 3 prioritized by the GoAB. Policy actions in the areas of fiscal management, debt resolution and financial sector stability are not likely to have either positive or negative environmental impacts. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 10 Borrower/Recipient Total 10 Contact point World Bank Contact: Sona Varma Title: Sr. Country Economist Tel: (202) 458-0441 Email: svarma1@worldbank.org Borrower Contact: Ms. Rasona Davis Title: Deputy Permanent Secretary, Ministry of Finance, the Economy and Public Administration Tel: Email: rasona.davis@gmail.com For more information contact: The Info Shop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop 4