Montserrat
Annual Economic and Financial Review: 2022

Overview

• The Montserrat economy contracted in 2022, as construction activity softened in tandem with a decline in public sector investments.
  
• Preliminary estimates indicate that the economy shrank by 1.2 per cent, in contrast to growth of 5.5 per cent in 2021.
• The economy is expected to rebound in 2023, barring any major shocks such as an escalation in the Russia-Ukraine war, a spike in global inflation, contraction in major source markets, and the emergence of new variants of the COVID-19 virus.
• Public sector debt to GDP is estimated to have declined relative to the previous year. As at 2022, the debt to GDP ratio stood at 4.7 per cent.

Snapshot of Economic and Financial Developments for 2022 - Montserrat

The Economy (Real Sector)

Montserrat’s economy is estimated to have contracted by 1.2 per cent in 2022, in contrast to growth of 5.5 per cent in the previous year (Figure 1). This outcome is explained primarily by reduced activity in the construction sector (75.0 cent) and its impact on associated industries (Figure 2). The softening in overall activity was partially mitigated by expansions in the tourism sector (104.0 per cent); transport, storage and communications (6.5 per cent); and whole and retail trade (5.0 per cent).

The decline in the construction sector was reflected in a reduction in the value of construction starts, which fell to $8.3m from $23.9m one year earlier. In addition, government’s capital expenditure contracted to $13.0m from $19.3m, as major public sector investments suffered from slow implementation rates.

As it relates to tourism, the sector showed strong growth as total visitor arrivals increased three-fold to 5,000 passengers, compared with 1,597 in the previous year (Figure 2). Stayover arrivals dominated the landscape, increasing to 4,028 from 1,591. Improvements were also seen in the other categories of visitors, including cruise ship and yacht passengers.

Despite the growth in stayover visitors, the lack of ferry services to Montserrat has slowed the recovery in its largest source market, the Caribbean. Accordingly, the number of Caribbean stay-over visitors as at December 2022 was 74.9 per cent lower than that of 2019.

Consumer Prices

Price pressures, as reflected in the end of period consumer price index, softened marginally in 2022, falling by 0.3 per cent in contrast to an increase of 5.2 per cent in 2021 (Figure 3). Lower prices for alcoholic beverages (8.2 per cent); housing, water, electricity, gas and other fuels (4.8 per cent); education (3.9 per cent); and food and non-alcoholic beverages (1.9 per cent) were the main contributors to the decline in prices. Moderating the overall fall in prices were costs related to transport (6.9 per cent) and clothing and footwear (6.3 per cent).

Government Operations

The government of Montserrat recorded an overall fiscal surplus after grants of $8.3m (4.4 per cent of GDP) in 2022, up from a $7.2m surplus (3.8 per cent of GDP) generated one year earlier (Figure 4).Driving the fiscal result was a 20.0 per cent increase in current grants funded by the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO) to $88.7m (47.4 per cent of GDP) compared with $73.9m (38.8 per cent of GDP) in 2021. In addition, current revenue rose by 3.3 per cent to $54.5m (29.1 per cent of GDP), relative to $52.8m (27.7 per cent of GDP) one year prior. This compares with growth in current expenditure of 2.7 per cent to $137.5m (73.4 per cent of GDP), relative to the $133.9m (70.3 per cent of GDP) spent in 2021.

The growth in current revenue was driven mainly by tax inflows, which rose by 4.9 per cent ($2.2m), with taxes on domestic goods and services being the largest contributor to the increase. By contrast, non-tax receipts fell by 7.0 per cent ($0.5m) over the period.

In respect of current expenditure, increased spending on goods and services ($2.3m) and transfers and subsidies ($2.4m), drove the expansion. However, a $1.1m decline in personal emoluments moderated the increase (Figure 6B). The aforementioned developments resulted in a current account surplus (after grants) of $5.7m (3.0 per cent of GDP) compared with a deficit of $7.2m (-3.8 per cent of GDP) in the prior year.

On the capital side, government spending declined by 32.8 per cent to $13.0m (6.9 per cent of GDP), compared with $19.3m (10.1 per cent of GDP) in 2021 as the implementation rate of key capital projects was subdued. In particular, progress on the Little Bay Port Development Project was slow and focused primarily on geotechnical studies and drilling, to inform the design process. The project is valued at EC$90.2m and is expected to be completed over an 18-month period, once construction begins.

Banking Developments (Monetary)

Consistent with the general slowdown in economic activity, domestic claims (credit) in Montserrat contracted by 35.3 per cent to $12.8m, after reaching a mark of $19.7m in 2021 (Figure 6). More specifically, credit to the private sector fell by 10.2 per cent ($9.0m), reversing the 1.5 per cent growth recorded one year earlier. Within the private sector, claims to businesses contracted by 40.5 per cent, while claims to households fell by 5.3 per cent. Meanwhile, the net deposit position of the central government improved marginally by 0.6 per cent to $70.1m.

By contrast, deposits in the banking system grew on aggregate. Broad money liabilities increased by 2.4 per cent, reversing the 2.2 per cent decline in the prior year. This development reflected increases in foreign currency deposits (15.5 per cent) and other deposits in national currency (1.1 per cent), which was moderated by a decline in transferrable deposits in national currency (4.0 per cent).

The asset quality of commercial banks in Montserrat improved over the year. Accordingly, the ratio of non-performing loans to gross loans fell by 52 basis points to 4.6 per cent, compared with 5.1 per cent in 2021 (Figure 10). Additionally, banks’ liquidity positions improved as the ratio of liquid assets to short-term liabilities rose by 2.4 percentage points to 86.5 per cent.

External Trade

Consistent with the ongoing economic recovery, Montserrat’s merchandise trade deficit is estimated to have widened by 17.2 per cent to $88.1m, following an expansion of 11.6 per cent in the previous year (Figure 11). Import payments rose to its highest level in over 5 years, surpassing the 2021 mark by 8.3 per cent to $106.0m, reflecting greater domestic demand and higher global commodity prices. By contrast, export receipts declined by 21.2 per cent to $17.9m compared with $22.8m one year earlier. In respect of services, total visitor expenditure more than doubled to $10.8m as the economy fully reopened and flights resumed.

Outlook

Economic activity in Montserrat is projected to be fairly robust in 2023 as the tourism sector continues to recover and some critical public sector projects get underway, such as the Little Bay Port Development. The latter, the biggest public sector project on the island, is envisaged to transform the transportation sector on the island, facilitating trade and reinvigorating the excursion and yachting segments of the tourism industry, with knock-on effects on other key sectors.

Selected Economic Indicators