Annual Economic and Financial Review -December 2018

2018 Annual Economic and Financial Review

MONTSERRAT

External Sector Developments

The net foreign assets (NFA) in the banking system grew by 4.6 per cent to $309.6m . This increase was largely attributable to a 4.1 per cent expansion in the net foreign assets of commercial banks, which totalled $174.4m. The rise in net external assets of commercial bank was fuelled by an increase of 14.6 per cent in net assets held with institutions external to the Currency Union. At the same time, Montserrat’s imputed share of Central Bank’s reserves grew by 5.3 per cent to $135.2m due to an increase of their assets. Liquidity in the banking system remained high and stable in 2018. The ratio of liquid assets to total deposits and liquid liabilities was 84.6 per cent well above the minimum prudential benchmark of 25.0 per cent. The surplus liquidity condition is further evidenced by a ratio of loans and advances to total deposit of 29.0 per cent at the end of the review period, below the prudential guidelines of 75.0 per cent to 85.0 per cent. The ratio of non-performing loans to gross loans fell to 4.9 per cent from 5.7 per cent, below the ECCB’s recommended limit of 5 per cent.

The merchandise trade deficit totalled $77.3m (46.0 per cent of GDP) in 2018, compared with a deficit of $66.0m (40.8 per cent of GDP) in 2017.

This expansion of the trade deficit resulted from an increase of 12.3 per cent in the import bill, coupled with a 7.9 per cent reduction in the export earnings. The larger import bill was primarily influenced by higher payments for the imports of mineral fuels and related materials, manufactured goods, and miscellaneous manufactured articles. Export earnings decreased by $1.3m to $14.7m due to a 14.4 per cent ($2.0m) reduction in domestic exports. The main categories that contributed to the decline in domestic exports

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