Montserrat
Economic and Financial Review: 2022 Half-Year (2022H1)

Overview

Snapshot of Economic and Financial Developments for 2022H1

The Economy (Real Sector)

Montserrat’s economy is estimated to have contracted during the first six months of 2022, compared with the same period one year earlier. Reduced activity in the construction sector and its impact on associated industries was the primary driver of this outcome.

In the case of the public sector, capital expenditure is estimated to have declined to $3.8m from $10.9m one year earlier, while in the private sector, the value of construction starts fell from $15.0m to $4.7m.

The downturn in overall activity was partially mitigated by the ongoing recovery in the tourism sector. Based on data for the first half of the year, total visitor arrivals almost tripled to 1,511 compared with 525 in 2021, but fell well below the five-year (2017 to 2021) average of 8,787 (Figure 1). Stayover arrivals dominated the landscape, increasing to 1,469 from 522 in the previous year. Additionally, the number of excursionists rose to 36 from 3 in 2021.

Consumer Prices

Inflationary pressures intensified in Montserrat in the first half of 2022, driven by higher costs for energy and food (Figure 2). The Consumer Price Index (period average) rose by 4.5 per cent as at June 2022, doubling the 1.5 per cent increase recorded over the comparable period in the prior year. Higher prices for food; clothing; housing, utilities, gas and fuels; transport; and communication were the main contributors to the spike in prices.

Government Operations

The government of Montserrat recorded an overall fiscal surplus of $9.2m (after grants) during the first half of 2022, in contrast to the $1.3m deficit recorded one year earlier (Figure 3). This outcome also outperformed the five-year average deficit of $11.9m.

Driving the fiscal result was a 6.1 per cent increase in current revenue to $27.1m, after recording a decline of 0.1 per cent in the comparable period of 2021. Tax revenue accounted for the largest share of the increase, rising by $0.9m, with taxes on goods and services and on international trade and transactions recording the largest gains (Figure 4). Non-tax receipts grew by $0.7m. Additionally, current grants, provided by the UK government for budget support, rose by $14.9m to $48.4m over the period.

Similarly, current expenditure increased by 2.0 per cent to $68.8m, primarily driven by greater outlays for goods and services (Figure 5). By contrast, the government recorded smaller expenditures on personal emoluments, interest payments, and transfers and subsidies.

Figure 4: Half-Year Trends in the Composition of Revenue and Expenditure

On the capital side, the government recorded a smaller capital expenditure of $3.8m, relative to the $10.9m spent in the first half of 2021. This development was partially influenced by the slow implementation of some projects, affected by supply chain issues as well as the finalization of contracts.

Banking Developments (Monetary)

Domestic claims (credit) contracted by 38.7 per cent to $12.6m in the first half of 2022, following the 47.0 per cent decline recorded over the comparable period in 2021 (Figure 6).

Consistent with this development, credit to the private sector fell by 5.2 per cent ($4.7m), reversing the 3.6 per cent growth recorded one year earlier. Additional analysis shows claims to both households and businesses were negatively impacted, contracting by 5.3 per cent and 4.1 per cent, respectively.

Meanwhile, the public sector did not record any outstanding obligations to financial institutions, but saw a 6.6 per cent increase in its deposits to $74.2m over the review period.

Figure 6:Claims to Selected Sectors

Consistent with the general slowdown in economic activity, deposits in the banking system fell on aggregate (Figure 7). Broad money liabilities decreased by 4.6 per cent, after expanding by 4.1 per cent in the previous year. This development partially reflected a contraction in transferable deposits² (Figure 7B) of 29.2 per cent, relative to the marginal gains in other (savings) deposits (1.3 per cent) and foreign currency deposits (2.2 per cent).

Figure 7: Domestic Deposit Trends

Commercial banks’ asset quality, represented by non-performing loans as a percentage of gross loans, deteriorated to 7.4 per cent from 4.9 per cent one year earlier, exceeding the ECCB benchmark of 5.0 per cent. However, liquidity in the banking system improved, with the ratio of liquid assets to total deposits increasing by 10 basis points to 75.2 per cent, considerably above the ECCB’s minimum benchmark of 20.0 per cent (see Figure 8).

External Trade

The merchandise trade deficit is estimated to have widened by 10.8 per cent to $40.3m in the first half of the year, following the 16.8 per cent expansion in the previous year (Figure 9). This outcome reflected a $0.4m increase in import payments, coupled with a $3.6m decline in export receipts. A fall in the re-exports of machinery and transport equipment drove the reduction in export receipts.

Outlook

Economic activity in Montserrat is projected to register modest growth in 2022 as the tourism sector continues to recover and some critical public sector projects get underway, such as the Little Bay port as well as the completion of the airport tower.

Notwithstanding, the positive projection could potentially be derailed by some developing headwinds, which could dampen economic prospects for the rest of the year and over the medium term. These risks are varied and include, among others:

Selected Economic Indicators