• IMF mission concludes visit to Grenada to conduct fifth review of Extended Credit Facility (ECF) supported program.
• Grenada’s performance under the program remains very strong, with continued progress towards restoring fiscal sustainability.
• After two years of strong growth, real GDP is expected to moderate to a more sustainable rate of 3 percent in 2016.
An International Monetary Fund (IMF) team led by Nicole Laframboise visited Grenada from September 7–14, 2016 to conduct discussions on the fifth review of Grenada’s IMF-supported program under the Extended Credit Facility (ECF).
The ECF arrangement was approved on June 26, 2014 for an amount of SDR 14.04 million (US$19.64 million) or 120 percent of Grenada’s quota at the IMF at the time of the approval of the arrangement.
The first, second, third and fourth reviews were completed on December 12, 2014, June 29 and November 25, 2015, and May 18, 2016, respectively. Total resources of SDR 10.04 million (about US$14 million) have been disbursed to Grenada under the arrangement.
At the conclusion of the visit, Ms. Laframboise made the following statement:
“Since the Fourth Review and the 2016 Article IV Consultation concluded in May 2016, Grenada has continued to make progress toward restoring fiscal and debt sustainability.
Economic growth remains strong, debt has been further reduced, and the balance of payments position has strengthened.
The government continues to build on the sound foundation developed over the past two years, in particular the strengthened fiscal framework that should lock in budget discipline for future generations.
“The path to debt sustainability and sustained growth is at an important juncture. The country is looking now to test its fortified fiscal framework in the context of the 2017 budget process, important wage negotiations, and the endpoint of the Fund-supported program on the horizon.
In this respect, the commitment to medium term goals will be important over time to ensure that the fiscal progress achieved so far endures, and to broaden the reach of the benefits of the Home Grown program.
“ After two years of strong growth, real GDP is expected to moderate to a more sustainable rate of 3 percent in 2016. Activity this year has been driven by tourism and construction, and some pick up in domestic demand, while agriculture output is experiencing the negative impact of drought effects.
Grenada experienced deflation on average during 2013-15, due largely to lower energy prices, but CPI inflation is picking up and is projected at 2 percent in 2016.
The external current account deficit is forecast to narrow to 14.4 percent of GDP in 2016 due to lower oil prices and a continued recovery in tourism. The current account deficit is expected to be adequately financed by tourism-related FDI and private capital inflows.
“Performance under the program remains very strong. Staff assessed that the government met four performance criteria (PC) at end-June and are awaiting further information to assess performance under the fifth PC.
The government met all of the program indicative targets, including for the first time the floor on social spending under the World Bank-supported SEED program.
“The government achieved a primary surplus (fiscal balance excluding interest payments) in the first half of 2016 of 3.0 percent of GDP, putting the country well on its way to meeting the target of 3.5 percent of GDP by end-2016, as stipulated in the Fiscal Responsibility Act (FRA).
Tax revenues have performed well and expenditures are being kept under control. The Government is also following through on the performance monitoring of state-owned enterprises so as to boost the efficiency and quality of their operations.
“Grenada continues to work toward restructuring remaining outstanding debts. As a percentage of GDP, public debt was reduced from a peak of 108 percent in 2013 to 85 percent at end-June 2016.
“More Grenadians are actively seeking work and employment has expanded slightly, but unemployment remains stubbornly high at 29 percent. Focused policies are needed to address skills gaps and improve job search tools in order to address underlying structural unemployment. The goal is to both improve the labour supply response and strengthen incentives for employment creation.
“Looking ahead, the policy resolve demonstrated so far will be needed to safeguard fiscal progress to date and achieve the country’s medium term debt reduction goals.
The government agreed with staff that the 2017 budget should adhere to the parameters set in the FRA, including the ceiling on the public wage bill. In support of this goal, the authorities are undertaking discussions to prepare and implement a strategy that will keep the wage bill within the limit set by law and agreed under the Fund-supported program while ensuring fair compensation for public servants.
The strategy should include a timetable for consultations with stakeholders and cover key reforms needed to ensure sustainable management of the public wage bill. Follow-through on this important reform would be critical to safeguard the progress made in recent years.
“Staying the course will lead to improved economic opportunities for the people of Grenada, so we encourage Grenada to press ahead on its reform path over the medium-term.
The IMF remains committed to supporting the Government of Grenada in its pursuit of fiscal sustainability and stronger growth.
The team is grateful for the warm welcome extended to us by the Grenadian authorities and representatives of the private sector, labour, civil society, and financial institutions, and for the very constructive discussions.”
The team met with the Prime Minister and Minister of Finance and Energy, Dr. The Rt. Hon. Keith C. Mitchell; the Minister of Communication, Works, Physical Development, Public Utilities and ICT, Hon. Gregory Bowen; the Minister of Economic Development, Trade, Planning, Cooperatives and International Business, Hon. Oliver Joseph; the Cabinet Secretary, Beryl Isaac; the Permanent Secretary of the Ministry of Finance, Mike Sylvester; the Executive Director of the Grenada Authority for the Regulation of Financial Institutions, Angus Smith; other senior officials, representatives of the private sector, labor, and civil society, and the Monitoring Committee for the Home-Grown Program. A representative from the Eastern Caribbean Central Bank, the Caribbean Development Bank and the World Bank accompanied the team during the visit.