Press Release: IMF Executive Board Approves US$4.4 million in Emergency Assistance for Grenada
November 16, 2004
The Executive Board of the International Monetary Fund (IMF) has approved SDR 2.93 million about (US$4.4 million) in emergency assistance for Grenada. The amount approved is available immediately to help the government deal with the devastating effects of Hurricane Ivan-one of the strongest storms ever in the Caribbean-which passed directly over Grenada in September.
The damage caused by Hurricane Ivan is estimated at over 200 percent of GDP. Tourism and agriculture, the two major sources of foreign exchange earnings, have been hit hard. The economy is projected to contract by over 3 percent in 2004, compared to a pre-hurricane projection of 4 percent growth.
With its tax base and sources of foreign exchange earnings impaired, Grenada faces large financing gaps for 2004-05. These gaps will need to be filled, in part, through support from the international community. A donors' conference was held in Washington, D.C., on October 4, 2004, and a follow-up pledging session is scheduled for November 19 in Grenada.
The IMF provides emergency assistance to member countries hit by natural disasters to help them meet immediate balance of payments financing needs, and maintain or restore macroeconomic stability. The emergency loan, which currently carries a charge of 3.4 percent, will be repaid in eight equal quarterly installments over 3.25 to 5 years from the disbursement date. In January 2003, emergency assistance had been approved to help Grenada deal with the effects of tropical storm Lili (see Press Release No. 03/10).
At the conclusion of the Executive Board's discussion on Grenada, Agustín Carstens, Deputy Managing Director and Acting Chair, said:
"The IMF extends its deepest sympathy to the people of Grenada at this difficult time following the devastation of Hurricane Ivan. The government, with the support of the international community, is responding swiftly to the situation. They have redirected budget allocations to the pressing needs of rehabilitation and reconstruction. They have also set up an independent agency to coordinate the reconstruction effort and a reconstruction fund that would be subject to independent audits.
"The hurricane has set back the government's efforts to address fiscal imbalances. Prior to the hurricane, Grenada had been making progress in addressing these imbalances, in part through a comprehensive review of tax policies and a medium-term fiscal strategy to bring debt down to more manageable levels. However, with the tax base and foreign exchange earnings impaired by the hurricane, Grenada now faces larger fiscal and balance of payments financing gaps.
"While external support provided by multilateral and bilateral sources, including emergency assistance from the IMF, will help with the near-term situation, a comprehensive strategy is needed to ensure the success of the reconstruction efforts and spur economic growth. In this regard, it is very encouraging that the authorities intend to develop a medium-term policy framework aimed at restoring fiscal and debt sustainability and promoting structural reforms to enhance growth prospects in Grenada.
"As part of this medium-term policy framework, the authorities have outlined several revenue-enhancing measures, including re-introduction of a value added tax, strengthening of the customs department, reduction of government guarantees, and rationalization of the tax incentive regime. In addition, the authorities intend to reform the public service to improve efficiency, and to rationalise and re-prioritise public expenditure.
"The authorities' firm resolve to implement a comprehensive medium-term economic strategy, together with the continued support from the international community, should help Grenada's economy to rebound," Mr. Carstens said.