Carenage Harbor in St. George's, Grenada: economic activity in the country expanded by 3.9 percent in 2016, helped by strong construction activity and steady tourism demand (photo: Richard Cummins/Newscom)

Grenada Sets Stage for Sustainable Growth

May 23, 2017

The economy grew by about 3.9 percent in 2016—helped by strong construction activity and steady tourism demand. Despite recent progress, Grenada remains susceptible to external shocks, including from natural disasters and swings in tourism demand and commodity prices.

In June 2014, the IMF’s Executive Board approved a $22 million Extended Credit Facility to restore fiscal sustainability and improve Grenada’s growth prospects. Grenada just completed its final review and plans to move to surveillance-only engagement with the IMF.

In this interview, Nicole Laframboise, ending her stint as mission chief for Grenada, reflects on the government’s most significant achievements and the country’s remaining economic challenges, including how to preserve hard-won gains and spread the benefits of reform to all Grenadians.

Grenada’s progress under the IMF program has been impressive, particularly compared to its previous Fund-supported programs. What do you think contributed to this success?

What was different this time? First of all, there was broad ownership and consultation across the country on the government’s reform program. Grenada’s Committee of Social Partners and the Home Grown Monitoring Committee―representing trade unions, private companies, the Council of Churches, and nongovernment development organizations―were consulted regularly and involved in monitoring performance. They provided grassroots feedback to policymakers about how the program was affecting people in the country.

Second, Grenada benefited from extensive technical assistance from the IMF and its Caribbean Regional Technical Assistance Center, and from other development partners during the program. This assistance was targeted to areas with the biggest capacity gaps, and those that would best help the government achieve the program objectives.

Luck also played a helping hand. While the authorities worked hard throughout, Grenada benefited from some positive external forces, namely stronger growth in key export markets and a rebound in tourism to the Caribbean, as well as a recovery in agriculture.

Finally, when a government holds a full majority in Parliament, it helps get things done!

All of these factors helped sustain the reform momentum―right until the last review.

What have been the government’s most significant achievements?

The sizable reduction in the debt-to-GDP ratio is the most obvious and important accomplishment. Between 2014 and the end of this year, public debt as a share of GDP will have declined from 108 percent to 72 percent―that’s a substantial drop. Of this, about one quarter was due to the comprehensive debt restructuring, another quarter to fiscal adjustment, and about half was driven by growth in GDP.

Another key achievement is the overhaul of the fiscal policy framework, anchored by the fiscal responsibility law and backed up by an array of supporting fiscal laws, regulations, and budget practices. The government also set up a legal framework to prudently manage the inflows from the citizenship-by-investment program which, by the way, is the gold standard in the region for transparency. This rules-based fiscal framework should lock in discipline and encourage productive government spending for future generations.

Increased social spending―and improved targeting―are other important accomplishments. With support from the World Bank, the government has shifted to an improved beneficiary information system that better allocates resources to those most in need, with a cash transfer feature that has started to produce improvements in education attainment.

What was the biggest challenge to this program, for the government?

In my view, capacity constraints posed the biggest challenge to implementation of the program. Grenada is a micro economy, with a population of just over 100,000. It is hard for a country this size to have deep capacity in all the relevant specialized fields needed to overhaul the machinery of government.

Contrast that with the scope of the reforms undertaken, and you get some bottlenecks. This led to delays in implementing structural reform objectives and the debt restructuring. Still, an impressive number of reforms were implemented. I think the IMF showed sufficient flexibility on program deadlines to allow the government to get things done in time.

What are Grenada’s remaining economic and financial challenges?

There are still a lot of challenges.

First and foremost, public debt is still relatively high and the country is vulnerable to shocks, so they need to persevere on the current fiscal path and implement the reform of the public sector developed over the last six months. In addition to fiscal prudence, this reform will introduce greater efficiency into the economy and thereby strengthen competitiveness and growth.

Second, unemployment is high and needs urgent attention. Staff analysis pointed to structural issues related to skills shortages and mismatches and made suggestions on various labor market programs to address structural unemployment.

Efforts to revitalize the agriculture sector and continue improving the doing business environment should also top the agenda. Finally, the government has committed to reform of the pension system for public servants as well as the national scheme to ensure its long-term sustainability.

Anything else you would like to add?

All in all, it was an honor to work on Grenada at the Fund. More than the country’s natural beauty and lovely beaches, I will miss the hospitality and quiet dignity of the people.

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