WASHINGTON– The International Monetary Fund (IMF) said Tuesday that despite two consecutive financial arragements with Grenada, totaling more than US$28 million, the island missed the key programme objectives of securing a sustainable fiscal position and a higher growth path.
The IMF said that Grenada during the period 2006-11 had received US$15.2 million in assistance under its Poverty Reduction and Growth Facility (PRGF) arrangement and a successor US$13.3 million Extended Credit Facility (ECF) arrangement that was approved in April 2010.
The IMF said on January 13, this year, its executive board discussed the ex post assessment (EPA) of the longer term programme engagement in Grenada and “broadly agreed with the staff’s assessment that engagement with the Fund under two consecutive arrangements during 2006-2011 had helped Grenada cope with major shocks and advance key reforms, including the introduction of a value-added tax and improved financial regulations.
“Nonetheless, they considered that the overall economic performance under the Fund-supported programmes had proved uneven, and the key program objectives of securing a sustainable fiscal position and a higher growth path had largely been missed.”
The Washington-based financial institution said against this background, the IMF has drawn “lessons that should inform the design of future programmes with Grenada and comparable small economies”
It said the IMF executive directors highlighted the importance of choosing programme objectives that are consistent with extensive capacity and institutional constraints and the critical need of securing programme ownership by country authorities.
The IMF said a new programme “along these lines could benefit Grenada by catalyzing external financing and helping restore fiscal sustainability.
“Strong prior actions would strengthen the credibility of the authorities’ objectives and boost the likelihood of their achievement.”
The IMF agreed that a new programme should support urgently needed fiscal consolidation, promote faster and more inclusive growth, and focus on a few macro-critical reforms.
“In this regard, ambitious steps to enhance competitiveness and the private sector’s participation in the economy would be critical.
“Fiscal adjustment and reform, possibly including debt restructuring, would also be necessary to create space for priority spending and put the public finances on a sound footing. Greater emphasis on regional collaboration and further technical assistance from the Fund and other development partners would also be important,” the IMF added.
The IMF said Grenada’s engagement with it in the past played an important role in supporting the small island economy after it was buffeted by major adverse shocks.
“Fund support catalyzed substantial donor aid in the wake of unprecedented damage from two hurricanes and provided additional resources when the global crisis hit. Key reforms were also advanced, including the implementation of a VAT (Value Added Tax) and strengthening of the non-bank regulatory framework. Nevertheless, a series of adverse shocks, in particular the global recession, took a heavy toll on growth which declined during Grenada’s engagement with the IMF,” the IMF said.
Late last year, Prime Minister Dr. Keith Mitchell told nationals that while the international community was willing to restructure the island’s debt, the country would have to make sacrifices.
Mitchell, whose New National Party (NNP) came to office in February last year, said Grenada was unable to pay its creditors and was seeking the assistance of the international community to restructure its debt.
Since then there have been several activities aimed at finding a solution to restructuring the debt that is estimated at more than two billion EC dollars (One EC Dollar = US$0.37 cents)
The government has appointed the London-based White Oak Advisory, which describes itself as an independent financial advisory firm providing specialist, high-level and impartial advice to governments and other clients on matters relating to sovereign finances and sovereign debt, to advise it.
“It is now time for Grenada to confront the fact that it cannot continue to pay its debts on current terms, and that the restoration of growth requires the debt overhang to be resolved. We need a fresh start, and it is therefore imperative that we approach our creditors promptly to discuss an orderly restructuring of our liabilities,’ Mitchell said.