Grenada’s cash-strapped one-year old government of Prime Minister, Dr. Keith Mitchell has finally reached agreement with the Washington-based International Monetary Fund (IMF) on an agreement pertaining to its homegrown structural Adjustment Programme (SAP) to deal with the island’s severe fiscal situation.
The fund in a release issued said that it was making available US$21.9 million to the administration over a 3-year period to address the fiscal problems affecting the Grenadian economy.
The Mitchell government has stated publicly that it was spending an estimated $EC50 million monthly but was earning approximately EC$35 million in revenue, a deficit of $EC15 million.
For the 2014 fiscal year, the administration has announced a series of austerity measures to help raise revenue such as a doubling of the taxes on property, a widening of the income tax net, and adjusting the Customs Service Charge (CSC) to 6% percent from 5% in order to bolster the Treasury.
Prime Minister Mitchell has repeatedly stated that he needed to sign off on an agreement with the IMF in order to tap into US$100 million in grants and soft loans from donors such as the European Union (EU).
As a public service, THE NEW TODAY has decided to reproduce in full the text of a released issued March 14 by the fund on the agreement reached with the Mitchell government in St. George’s.
“The Government of Grenada has designed an ambitious program to correct the country’s fiscal imbalances and lift sustainable growth. To support the implementation of this program, the IMF staff and the Grenadian authorities have reached a staff level agreement on a program that can be supported by a three-year Extended Credit Facility arrangement in the amount equivalent to SDR14 million (about US$21.9 million or 120 percent of Grenada’s quota).
The agreement reached with the authorities is subject to approval of the IMF’s Executive Board and is contingent upon the timely completion of prior actions to be taken by the Grenadian authorities and obtaining the necessary financing assurances.
The main objectives of the program are to restore fiscal and debt sustainability, boost long-term growth through structural reforms, and safeguard the resilience of the financial sector.
The cornerstone of the program is a strong fiscal adjustment focused on curbing current spending and widening the revenue base, while maintaining space for infrastructure spending and social safety nets. The fiscal adjustment will be complemented by a comprehensive debt restructuring, which will aim to secure meaningful debt reduction, address financing shortfalls, and put Grenada’s public debt firmly on a downward path towards the Eastern Caribbean Currency Union (ECCU) regional target of 60 percent of GDP by 2020.
The support from official and private creditors for the debt restructuring will be critical for the country’s return to fiscal sustainability. Ambitious public financial management reforms will support the durability of the adjustment.
Another key element of the program is to bolster competitiveness and thus raise sustainable growth and reduce poverty. Reforms will focus on removing constraints to growth through the liberalization in the renewable energy and other strategic sectors, improving the investment environment, and putting in place the legal infrastructure for public private partnerships. Financial sector reforms will underscore the solvency of the system, as well as its regulation and supervision.
The success of Grenada’s program will require an extraordinary effort on the part of the authorities, other segments of the society, as well as broad international support. While the initial implementation period will be challenging, Grenada will emerge stronger and more dynamic from the program, and it will be better poised to generate growth and job creation going forward.”