Press Release No. 09/434

Press Release: IMF Executive Board Completes Fourth Review Under PRGF Arrangement with Grenada and Approves US$6.2 Million Disbursement

December 1, 2009

The Executive Board of the International Monetary Fund (IMF) completed on November 25, 2009 the fourth review of Grenada’s economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review allows for the immediate disbursement of an amount equivalent to SDR 3.9 million (about US$6.2 million), bringing total disbursements to SDR 14.7 million (about US$23.5 million).

The Executive Board also approved the request to modify a quantitative performance criterion by relaxing the target for end-November 2009 domestic arrears older than 60 days because of delays in external disbursements, a waiver on the performance criterion on the primary balance excluding grants at end-December 2008, and completion of the financing assurances review.

The three-year PRGF with Grenada was approved on April 17, 2006 (see Press Release No. 06/75), and in July 2008 was augmented to SDR 12.0 million (about US$19.2 million) to help mitigate the impact of food and fuel price shocks and extended by one year to April 16, 2010 (see Press Release No. 08/169). The arrangement was augmented again to SDR 16.4 million (about US$26.2 million) in June 2009 (see Press Release No. 09/200) to help mitigate the impact of the global downturn and financial turmoil.

Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, made the following statement:

“The impact of the global crisis on Grenada’s economy has been more pronounced than initially envisaged. Falling tourism receipts, foreign direct investment, and remittances have led to a marked decline in output, a rise in unemployment, and revenue shortfalls in 2009. The authorities have continued to implement steadfastly their PRGF-supported program, focusing macroeconomic policies on coping with the short-term impact of the external shocks, while laying the foundation for sustainable and broad-based economic growth. Implementation of the structural reform agenda and a cautious debt management policy will be essential.

“The government is pursuing medium-term fiscal consolidation to place public debt on a sustainable trajectory. Steps have been taken to prioritize capital spending, restrain wage growth, and increase the efficiency of spending on goods and services, while protecting social spending to mitigate the impact of the crisis on the most vulnerable groups. The government is committed to moving forward expeditiously with the drafting of a Poverty Reduction Strategy Paper.

“The banking sector has remained resilient, and important progress has been made in strengthening the capacity for nonbank financial supervision and regulation. The authorities have cooperated closely with regional governments to contain the fallout from the financial difficulties associated with the Trinidad and Tobago-based CL Financial Group.

“Grenada remains at high risk of debt distress. Any additional borrowing would need to be assessed carefully so as not to undermine progress toward debt sustainability. The authorities are committed to strengthening debt management capacity further and regularizing financial relations with external creditors. The authorities intend to keep their SDR allocation as a shared reserve cushion at the Eastern Caribbean Central Bank, as a buffer against risks stemming from financial stresses in the region.

“The authorities have made important progress on structural reforms. Preparations to introduce a value-added tax in early 2010, which is expected to enhance the coverage and buoyancy of the tax system, are firmly on track. To preserve external competitiveness, the government is pressing ahead with measures to improve the business and investment climate and implementing reforms to expand and diversify external receipts.

“The authorities have taken steps to ensure the accuracy of data provided to the Fund. These include a strengthening of procedures for reconciliation of monetary survey and ministry of finance data on credit to the central government,” Mr. Kato said.