Economy and Trade
The British territory of Montserrat is an island in the north-eastern Caribbean. It is situated 27 miles south-west of Antigua, 30 miles south-east of Nevis and 38 miles south-east of St Kitts. It is one of the last remaining British Overseas Territories in the region and a member of the Organization of Eastern Caribbean States (OECS). Around 4,500 people live on the island, which covers 40 square miles.
In July 1995, the Soufrière Hills volcano erupted, destroying the capital, Plymouth, and the economy, resulting in heavy dependence on assistance from the United Kingdom. The volcano remains intermittently active; a volcanic exclusion zone covers the southern half of the island and extends two kilometers offshore. Limited economic activity is carried out on the island, including mining and quarrying, construction, financial and professional services, and tourism. Per capita income in 2006 (the latest year for which figures are available) amounted to EC$22,803 (Eastern Caribbean dollars), equivalent to around US$8,477. Eastern Caribbean dollars are issued by the Eastern Caribbean Central Bank. The states and territories that use Eastern Caribbean dollars belong to the Eastern Caribbean Currency Union. The Eastern Caribbean dollar is pegged at EC$2.70 to US$1.
Economic Policy over 12 Months
Montserrat is an internally governed overseas territory, whose government is run by a governor appointed by the Crown, and by Executive and Legislative Councils. The focus of the island’s government has been on ensuring the safety of the population and rebuilding the island’s basic infrastructure. In spite of this, the government has given much attention to improving the financial regulatory and supervisory framework for the offshore sector.
Montserrat has the smallest financial sector of the six United Kingdom overseas territories. The volume of financial services activity has fallen significantly since the volcanic eruption, but there are still 11 licensed offshore banks, down from 15 in 2000. Two banks are licensed to operate in the domestic market, providing domestic and international banking services. These banks are the Royal Bank of Canada and an indigenous bank, the Bank of Montserrat. The volcanic eruptions effectively suspended financial sector supervision in the offshore sector between 1996 and 1999, with bank records becoming irretrievable.
In 2008, the government came under pressure from the United Kingdom to improve the regulation of its financial services sector. The Public Accounts Committee of the British parliament issued a report in May 2008, which warned that the United Kingdom’s remaining overseas territories were at risk of becoming centers for money laundering because of a dearth of qualified investigators to police their financial systems. The report singled out the Turks and Caicos Islands, Montserrat and Anguilla—all in the Caribbean—as most at risk from dubious financial practices because of poor quality regulatory standards. The report found that in Montserrat there are only 150 people working in the financial sector, and there is only one qualified person capable of investigating suspected fraud.
Economic Performance over 12 Months
In February 2009, an International Monetary Fund (IMF) mission to member countries in the Eastern Caribbean Currency Union predicted that economic activity in Montserrat would “slow considerably” in 2009 as construction and private-sector development are dampened by the global downturn. The IMF said that economic growth picked up to about 3.5% in 2008.
The IMF warned that Montserrat continues to face “a unique and challenging operating environment,” with “renewed volcanic activity, declining population, and inadequate external transport linkages” continuing to limit the British dependency’s growth potential. The IMF added that: “the economy relies heavily on budgetary aid from the United Kingdom and grants from donors to finance government services, and to meet its large reconstruction needs in infrastructure.”
“Key policy challenges are to maintain macroeconomic stability in this difficult global environment and to minimize economic disruption from volcanic activity through strengthening the disaster-mitigation process,” the IMF recommended.
The Eastern Caribbean Central Bank publishes a review of the Montserrat economy. The latest review, which covers the first half of 2008, found that economic activity had improved in the first half of 2008 relative to the corresponding period for 2007. It said that construction, mining and quarrying, and the wholesale and retail sectors drove this improvement.
The review found that the merchandise trade deficit had widened, due to an increase in import payments, but the government’s finances were in surplus, in contrast to a deficit in the corresponding period for 2007. Total outstanding public-sector debt fell by 9.7%, to US$10.1 million, during the first six months of 2008. Consumer prices rose by 3.3% in the first six months of 2008.
During the first six months of 2008, the net foreign assets of the banking system rose by 9.4%, to US$185.1 million. This was attributable partly to inflows of official grants. The net foreign assets of commercial banks increased by 12.6%, reflecting growth in assets held by banks and other institutions both outside and within the currency union.
Support for Inward Investment and Imports
The Montserrat Development Corporation (MDC), a limited-liability company owned by the government, establishes local and international business partnerships with the public and private sectors for improvement of the economic status of the island. It can provide information on investment opportunities and import policy.
The main features of Montserrat’s tax system are as follows:
The bulk of government revenue comes from direct taxation.
Resident individuals are assessable for personal income tax.
Capital gains are not subject to taxation.
Tax incentives are available.
For information on the tax incentives, please see the government website in More Info, covering the tax system.
GDP growth: −1% (2002 est.)
GDP per capita: US$3,400 (2002 est.)
CPI: 2.6% (2002 est.)
Exchange rate versus dollar: Eastern Caribbean dollars—US dollar 2.7 (fixed)
Unemployment: 6% (1998 est.)
Current account deficit/surplus N/A
Note: an estimated 8,000 refugees left the island following the resumption of volcanic activity in July 1995; some have returned (July 2008 est.)
Source: CIA World Factbook except where stated