Transcript of a Conference Call on Grenada's Economic Reform ProgramInternational Monetary Fund
May 3, 2006
Mr. Lennox Andrews, Permanent Secretary, Ministry of Finance, Industry and Planning, Government of Grenada
Mr. Abebe Aemro Selassie, IMF Mission Chief for Grenada and Deputy Division Chief, Caribbean I Division, IMF
Organized and moderated by:
Mr. Andreas Adriano, External Relations Officer, IMF
MR. ADRIANO: Good morning. This is the joint conference call on Grenada. We are having a little delay in the participation of Mr. Lennox Andrews, [Permanent Secretary in the Ministry of Finance], from Grenada. But we have Mr. Abebe Aemro Selassie, the IMF Mission Chief for Grenada, so if you want to start addressing some questions to him, you are welcome to do so.
QUESTIONER: I'm Paul Tennassee, host of a television program called Carib Nation, an international program at the University of District of Columbia. I also represent the World Confederation of Labor. My question is: how different is the PRGF that is being implemented in Grenada from that that is being implemented in Dominica and Guyana? I ask this particularly as there is a lot of discussion now about [giving] policy space to developing countries in the programs of the IMF and the World Bank.
MR. SELASSIE: Thank you. That's a useful question. I can say something productive here because I was the mission chief on Dominica before starting work on Grenada. I can say that the program that has been designed here has been designed specifically with Grenada's needs in mind. The Dominica program, as you may know, was introduced at the time when the government faced considerable fiscal crunch, and so the design elements were very different from the one that has been put together for Grenada.
In the Grenada case we had several things to take into account. The initial conditions in Grenada were very different from that in Dominica. Here there was a major hurricane in Ivan, which basically had a dual effect: one was to depress the government's revenues at the same time that there were tremendous spending needs.
So the design of the program that the government came up with last summer, working with the help of CARTAC [Caribbean Technical Assistance Center] was very much geared towards allowing considerable reconstruction expenditure in the near term. So the program design is, you know, considerably different from Dominica, where, for example, there was a fiscal crunch and they had to focus a lot more on making sure that spending need was consistent with the revenue. Here the program is very much designed on allowing as much reconstruction to take place as possible in the next couple of years, and the fiscal adjustment is relatively gradual.
Another difference from the Dominica program is that the debt restructuring process here, which you know was undertaken before the program even started. The government went out, approached their creditors, and conducted and completed a very successful debt restructuring process, which, again, is different than the process which Dominica followed.
So I think, you know, at a minimum in those two areas, but in many other aspects the design of the program in Grenada is very different.
QUESTIONER: Do you have any knowledge about the Guyana [PRGF] experience?
MR. SELASSIE: I'm afraid no. My knowledge on the Guyana program is fairly limited.
QUESTIONER: Okay. No problem.
MR. SELASSIE: You know, just to give you some background, although the name of the programs is the same -- I mean PRGF -- when the Fund team sits with the government team to help them design their program, the thing that's uppermost in our mind is the situation on the ground. I mean, for instance, what growth looks like. Also, you know, just because two countries have fiscal deficits, the causes of the fiscal deficits are not always similar. They can be very different. And generally there are other aspects, other needs.
In Grenada, one thing the government felt was very important was keeping the very diversified nature of the economy going. Traditionally, Grenada has had, a relatively broad-based economy. Both agriculture, with nutmeg and cocoa, and tourism have been prominent, but there has also been manufacturing and other services. So in the Grenada case, the government wanted to go back to the same diversified economic base that they had. So in designing their program, there was a lot of stress on the investment climate, for example. There was a lot of stress on including resources for the agricultural sector so that, you know, it could get back on its feet gradually following the damage that was done from Ivan.
So this is just to give you a bit of an insight into how we gave advice to the government, but more generally, sought to reflect the government's priorities in the way the program was prepared. And this is being implemented now.
MR. ADRIANO: We do have Mr. Andrews on the line now. Welcome, Mr. Andrews, to this conference.
We are live already with participants, but I believe you would like to make some opening remarks. So if you would like, please.
MR. ANDREWS: I want to say a very pleasant good morning to everyone who is listening to this conference. On behalf of the government and the people of Grenada, in particular on behalf of the Minister of Finance, who is unable to join us here because of pressing commitments, I wish to welcome everyone to this conference.
I also want to say a very special thanks to our friends at the International Monetary Fund who have collaborated with us to make this activity possible here this morning.
What we would like to do is precisely to inform you of the actions that we in Grenada have been taking to restore the economy and to rebuild the economy following the passage of Hurricanes Ivan and Emily. And, specifically, we want to zero in on the comprehensive reform program that we have designed here in Grenada and have already started to implement, and, in fact, that program has already received the blessing and the support from the International Monetary Fund.
I think by now the international community is fully aware that the economy of Grenada was destroyed by two hurricanes within a ten-month period. First, we had Hurricane Ivan in September 2004, which damaged the economy to the tune of US$900 million, which, in fact, represented twice the country's 2003 GDP. And then ten months afterwards, we had Hurricane Emily, which passed directly over Grenada, with winds of about 146 kilometers per hour and struck the few areas left relatively untouched by Ivan. The damages by Emily were estimated at US$50 million, just about 12 percent of the country's 2004 gross domestic product.
Well, of course, we in Grenada had to respond to these disasters, and, in fact, we have taken a number of steps first to restore the livelihoods of our people and at the same time to reconstruct the economic base of the country that was destroyed. And we had to do so in the shortest possible time.
Reconstruction is now well underway. We have made some advances, and we think the time is right, therefore, for us to now focus our attention on the longer-term challenges facing the economy. It is precisely because of this that we have put together and we have designed this comprehensive economic reform program, which has its base in a Poverty Reduction Strategy Paper that was prepared by the Minister of Finance in 2004. Of course, that Poverty Reduction Strategy Paper was the product of broad-based consultation with different groups here in Grenada.
This economic reform program was submitted to the International Monetary Fund in a Memorandum of Economic Policies. As I indicated before, just last month the Board of Directors of the IMF gave given its full blessing and approved this program.
Essentially, the program has four main components. One is to achieve sustained high economic growth over the medium term, that is, for the period 2006 to 2008. The second is to restore our fiscal and our debt sustainability. Indeed, the destruction of the economy has placed the country in very serious fiscal constraints. Thirdly, we need to reduce our vulnerabilities, not just to natural disasters, but also to ensure that there is financial stability within the economy. And, fourthly, the program will also seek to implement measures aimed at poverty alleviation.
I wish to inform you that this program was, in fact, launched by the Minister of Finance in his 2006 budget address to the nation in January of this year.
So, in summary, what this program seeks to do is to demonstrate to the international community the commitment of the government and people of Grenada to rebuild the economy, and for this there are some specific measures that are outlined in the program, geared towards restoring growth, strengthening government finances, reducing government debt stock and debt servicing, alleviating poverty, and ensuring that there is financial stability.
When we examined the extent of damage to the economy by the two hurricanes, we realized that rebuilding Grenada wasn't a matter that we could have done on our own. And, therefore, what we did, in fact, was to develop what can be called a `sharing the burden' approach in which we called on donors, on creditors, and the people of Grenada to contribute together to the rebuilding process. The donors, we asked to provide budgetary support to the process; the creditors, to support the government in its debt restructuring program; and the people of Grenada, through fiscal adjustment which would contribute to eliminating the large fiscal gaps associated with the extent of the damage to the economy.
I want to inform you that in this regard the response has been very good. First, the international community has been most generous and supportive, and already we have received about US$110 million in the form of grants.
Second, on November 15, 2005, we concluded a successful debt exchange with our commercial creditors, which has resulted in a lowering of debt service payments, at least for the next few years. That debt restructuring program is continuing and very soon we will be seeking further debt forgiveness from the Paris Club group [of creditors].
Third, we have already taken a number of key fiscal measures to close financial gaps and to demonstrate to the international community what the government and people of Grenada are doing to rebuild the economy. One of these measures includes a levy on incomes. That levy became effective as of January 1, 2006, and the revenue from that levy will be used to finance the reconstruction effort. And in October of 2005, retail fuel prices went up by 45 percent.
The centerpiece of government actions in the reform program is to rebuild the economy and to restore growth in the midst of macroeconomic stability. Agriculture, which is a major economic sector in Grenada, remains very much subdued. Tourism, which is the major foreign exchange earner for Grenada, still has not returned to its pre-Ivan levels. And we still do have a large number of our people living in, if I may say, very unsatisfactory conditions still, in very poor housing conditions. And all of these we still need to work on very much.
So, in closing, I just want to take this opportunity to express publicly our profound feelings of gratitude and thanks to the international community and to the many donor organizations who have responded and will continue to respond decisively to our needs after the hurricanes. We want to show to the international community that we are committed to the rebuilding of our country and all that we are asking is for the continued support in that regard. I thank you very much.
MR. ADRIANO: Thank you, Mr. Andrews. I will turn it now to Mr. Abebe Aemro Selassie for a few remarks.
MR. SELASSIE: Thank you. Mr. Andrews I think has quite nicely laid out key elements of the government's reform program. I just want to make a few remarks--first, on recent economic developments, and, second, on the reform program that has been adopted by the government.
First, on the economic backdrop to the adoption of this reform program: the backdrop is actually quite favorable. There are signs of a fairly strong recovery in economic output in 2005. Preliminary estimates provided by the statistics office suggest that growth might have reached as much as 5 percent last year, led by brisk activity in the construction sector. The boom in construction has more than offset the weakness in activity in agriculture and tourism.
Prospects for 2006 are also very good. Construction activity is still being sustained at a fairly rapid pace. The tourism sector is showing some signs of recovery, but as Mr. Andrews just noted, it remains well below pre-Ivan levels. Notwithstanding this, you know, it should be feasible to sustain growth at broadly similar levels as last year, that is, about 5 percent in 2006. And in 2007, activity should be given a positive boost by the hosting of the Cricket World Cup. So that, again, should sustain output at a fairly decent pace in 2007.
So, in sum, over the period over which the government has indicated intentions to implement this reform program, the economic backdrop is quite favorable and output should be at or above the historic rates of growth that Grenada has registered.
Just quickly on the reform program, you know what's striking, when one looks at the statistics for Grenada both on the public account and other elements of the government's policies over the last several years, is that in many respects this reform program was initiated well before Hurricane Ivan struck. Ivan, of course, you know, changed policies and priorities dramatically, but a lot of what is contained in the government's reform program launched by Minister Boatswain this January, was already there before Ivan.
One example, as Mr. Andrews mentioned, is the 2004 Poverty Eradication Strategy. It's also interesting to note that in 2003, for the first time in over a decade, the fiscal accounts in Grenada had generated a small primary surplus, so there was already a move towards addressing the high levels of debt that the country had accumulated through the 1990s.
On the current reform program, I just want to try and highlight some of the practical aspects of the program. You know, often when we talk about policies and priorities, one could lose sight of what tactically the program is trying to do. And here I want to briefly touch on a few things.
Mr. Andrews noted that an important element of the program is improving the investment climate. You know, this is born out of recognition that private investment has been quite anemic in recent years. For example, there have been few new major hotel projects that have been initiated in the last several years. So to improve the investment climate, the practical things that the government is hoping to do, for example, include facilitating the manner in which investors can acquire land, improving the land registry so that information is out there in the public as to who's owns pieces of land so if investors want to acquire land they can quickly know who's holding land and make bids to purchase land.
Related to this are a number of reforms to improve the transparency of the tax system and to provide incentives that are much more focused on eliciting investments rather than, you know, the blanket tax holidays that tend to be provided currently.
On the reforms to the public finances that Mr. Andrews noted, I want to just highlight that the objectives here are twofold: First is to improve the structure of public finances. Again, practical examples of this include improving tax administration so that it's both efficient and effective, so taxpayers understand what taxes they have to pay, and can pay them in a manner which is not cumbersome. On the spending side, the objective is to make sure that spending occurs in priority areas, areas which are consistent with what is discussed in the Poverty Eradication Strategy. But it's also going to be important to get the fiscal accounts back to a sustainable position, and the program that the government has put together should help do that. As you may know, public debt remains quite high, and the government is going to use the window of opportunity that has been provided by the commercial debt restructuring deal that was completed last year to put together a package of fiscal reforms to set the public accounts on a more sustainable trajectory.
Last, but not least, I want to note that the reform package seeks to advance the social development agenda. This is reflected in a number of ways in the government's program. As Mr. Andrews indicated, the Poverty Eradication Strategy, initially prepared in 2004, has been revised and updated to reflect the impact of Hurricanes Ivan and Emily. Addressing the emerging vulnerabilities, and the displacement of people, that assessments following Ivan and Emily have identified, are now included in the strategy.
Moreover, the fiscal reforms that are being undertaken are being undertaken in a manner that there will be sufficient allocation in the budget for vulnerable groups, particularly those displaced by Ivan and Emily, but also people affected by the higher international oil prices and the adjustment in domestic prices that took place last year.
More generally, the very architecture of the government's reform program envisages quite large capital investment spending, both in 2006 and 2007, to ensure that reconstruction following Ivan and Emily is completed, and the support that the agricultural sector in particular needs to get back on its feet is provided.
I'll end my remarks here and open the floor to questions.
MR. ADRIANO: Thank you, Mr. Selassie. Mr. Selassie and Mr. Andrews would be happy to take further questions now. We have a question from Felicia Persaud from Hard Beat News. Please go ahead.
QUESTIONER: Yes, this question is for Mr. Andrews. You mentioned two major aspects of the program are fiscal adjustment and poverty alleviation, and you added that the fiscal adjustment program includes levies and fuel price increases. Isn't this sort of contradictory? That is, wouldn't this belt tightening actually lead to further poverty in the population?
MR. ANDREWS: Well, there is merit in what you are saying, that on the one hand the fiscal measures may, in fact, lead to some form of belt tightening on the part of the population to the extent that the population now have to make a contribution, one, of a levy and then secondly there is higher fuel prices.
The issue, however, is that this is a demonstration on the part of the population to the international community of their commitment to making some sacrifice on their part to help to rebuild the economy. And therefore the people of Grenada are prepared to make that sacrifice. The people of Grenada, in my humble view, understand that there is need to do something to help ourselves, and that if we were to just sit and wait on the international community to provide for us there is a likelihood that we would not be getting anything. And, therefore, if we can demonstrate to the world that we are doing something to help ourselves, then there is a likelihood that the world will come and help us. It's a basic -- and a biblical statement -- that God helps those who help themselves.
So notwithstanding that, I think it's a commitment on the part of the population, and it's all in keeping with the need to close that fiscal gap--close that fiscal gap, which will require some sacrifice on the part of the population. The population understands that and they are prepared to do it and they are doing it. And I think that is good. That is good for the country.
I also want to make the point that while we have these measures, the government also has in place in the reform program a number of poverty alleviation measures geared towards cushioning the negative impact on, if I may say, the poorer sections of the population.
So, for example, with regard to the national reconstruction levy, the levy is applied on salaries above 1,000 Eastern Caribbean dollars per month, which amounts to, if my figure is right, about US$400 a month. That is to say that those persons whose salaries are less than US$400 a month are not asked to contribute to the levy. So that's one.
Also, the program makes reference to other poverty alleviation measures geared towards assisting the poor. I can refer to some assistance being provided to school children [whose bus fares] will be affected by the high oil prices. Likewise, the government has increased the monthly allowance that it provides to the elderly.
These are some of the measures that we have in place to counteract the negative effect that the program would have on, if I may say, the poorer section of the population.
MR. ADRIANO: I think Mr. Selassie would like to make a few remarks on this issue. Mr. Selassie?
MR. SELASSIE: Yes, thank you. Well, you know, Mr. Andrews has put it eloquently on balancing the need for fiscal adjustment versus mitigating any effect that this might have on vulnerable groups. As he stressed, the program very much has been designed to strike this balance and is being phased in over three years. So this is not a case where from year one there is belt tightening, but one where the fiscal stance is being improved very gradually over the next three years, exactly with a view to ensuring that there would be considerable reconstruction spending in the next couple of years, as I said earlier, but also to ensure that there are going to be resources to mitigate impacts on the poor.
You know, the fiscal reforms that are being pursued do make room for increased social expenditure. Mr. Andrews just pointed out some of those elements, but more generally, you know, the large capital budgets under the program do allow considerable spending on agriculture in particular, which is one of the areas that has been hit hard.
So, in sum, the program does include considerable safety nets to ensure that vulnerable groups are not affected by the fiscal reforms that the government is going to be pursuing.
MR. ADRIANO: Our next question is a follow-up from Paul Tennassee. Please go ahead.
QUESTIONER: Mr. Andrews, the PRGF and the PRSP hold out the promise that there would be ownership, not merely by government officials but the wider society, civil society. To what extent have the trade unions been involved and have they been on board in this program with the IMF? And my second question very quickly is: What is the status of the cricket stadium for the World Series? And how do you intend to finance it?
MR. ANDREWS: Thank you, sir. The trade unions have always been actively involved in the whole process, including the poverty reduction program that was developed in 2004. I indicated that it received wide consultation from, if I may say, the popular masses of the country, and that included the trade unions, nongovernment organizations, other community groups, and even the opposition party. In fact, the whole process was one of wide public consultation in which we went out to the different communities to get from them their views on what they would like to see put in that program.
Secondly, there is a practice in Grenada that whenever we prepare a budget, we consult with the population at length. That's a common practice. It's been happening annually. And, again, in the 2006 budget, we had that broad consultation with the population, and here again the trade unions were actively involved in providing input into what was in the budget, and, of course, they had involvement in what went into the reform program. So, in essence, the trade unions, have been involved.
Now, with regard to the cricket stadium, I would want to inform you that the cricket stadium is presently being rebuilt with a grant from the People's Republic of China. And the intention is to have it ready in time for the Cricket World Cup, which will be staged here in the Caribbean in 2007. I think you are aware that Grenada is going to stage some eight games in the second round.
So we have received a grant from the People's Republic of China, and they are, in fact, constructing this stadium presently.
MR. ADRIANO: Next question?
QUESTIONER: This is George Grant. Mr. Permanent Secretary, maybe a little over a month ago, I had the pleasure of attending a press conference with you and the IMF, and there was a great deal of optimism about this reform process. I want to point to a number of issues in particular.
First of all, we were successful in reconstructing our debt. We also have the possible cooperation of the Paris Club to look forward to. The IMF seems to be confident that this reform process is working, and we are collecting funds from the national reconstruction levy.
At the same time, as you heard mentioned this morning, there are people who are making sacrifices here in Grenada in terms of coping with the levy plus the high fuel prices. And I'm a little bit concerned about the impact which additional spending is likely to have on the reform process, and I'm talking about the additional spending in regards to Cricket World Cup.
My question, therefore, is: Are our creditors genuinely confident that the benefits to be derived from Cricket World Cup 2007 will, whether in the long term or short term, be able to offset the costs facing us?
MR. ANDREWS: Our creditors?
MR. ANDREWS: Well, it is difficult for me to speak on the behalf of our creditors. But one can get the sense that, to the extent that they participated in the main in the commercial debt restructuring -- we had 97.5 percent participation -- it is a demonstration of their confidence in the policies of the government to rebuild the economy, and it's also a demonstration on their part to do something to help the process.
So based on that, one gets a sense that there is likely to be some kind of confidence on the part of our creditors in the reconstruction effort. And, of course, the projects that we have in place to help to rebuild the economy are not just those related to the World Cup. It is my view that they may well consider these projects to be projects that can take the country forward in the future.
Apart from that, I think one can make reference to the latest rating that we would have received from Standard & Poor. Standard & Poor in their latest release gave Grenada a rating of C. A short-term rating of C would suggest that there is credibility in the country's reform program, in the country's effort, and to a large extent, therefore, provides a stable outlook for the economy moving forward. And since that information is available to our creditors, it can lead to some kind of confidence on their part in terms of the economy being able to turn around and come back on a footing of sustained economic growth and development.
QUESTIONER: But doesn't that contradict the article in the Barbados Nation written by Tony Best where Standard & Poor's did not seem at all impressed with Grenada spending as much as it is on the cricket World Cup?
MR. ANDREWS: Well, if you read Standard & Poor's statement, I think that there is balance: it is not just a one-sided statement. It demonstrated the positive and it also demonstrated the weaknesses. But at the same time, it provided a very stable and strong outlook for the economy.
So an individual writer may have his own view and his own interpretation on a particular statement, and that's fine. There's nothing wrong with that. I think in the long run what we have to do is to demonstrate that the plans, programs, the policies and measures that we have in place are working and will work so that we could get rid of all of those, if I may say, doubtful thoughts that exist about what we are doing to help rebuild the economy.
QUESTIONER: Okay. In that case, my final question: How does the IMF feel about Grenada's participation, its spending in Cricket World Cup? Are you confident that this is not going to have a negative impact on our finances?
MR. SELASSIE: I think it's important to note a couple of things. The stadium, which is the main outlay related to cricket in Grenada, is going to be constructed by grant resources being provided by the People's Republic of China, as Mr. Andrews pointed out a little while ago. And so that will not increase the country's debt.
Ultimately, you know, the extent to which the most is made out of this Cricket World Cup event will really depend on whether new infrastructure, new capacity is being added, for example, in the hotel sector, whether private investors are going to use this occasion to add a lot more rooms, to upgrade the rooms. Going forward, to the extent that those rooms are taken up, the tourism numbers increase and more activity is generated from having put these rooms in place. That will really determine the extent to which hosting the Cricket World Cup will have been worthwhile.
So, to reiterate, the short-term impact on the fiscal account is going to be muted, largely because this is grant financed, and then in the long haul, whether this Cricket World Cup will have a significantly positive effect will depend on the extent to which ancillary activities related to the hosting, such as additional capacity, are created and that additional capacity can be utilized by tourists going forward.
QUESTIONER: Mr. Selassie, you have just given Grenada $15.2 million in support for over the next three years. Are there any recommendations as to how best the country can utilize these kind of resources coming from the IMF?
MR. SELASSIE: Thank you. You know, the over the next couple years, the government has quite a number of spending needs, and the money that the Fund is providing basically is to support the overall reform package. So this money is going to be provided to help the government meet the spending needs that they've identified in the budget. We're not kind of earmarking the money to be allocated to this sector or that sector, but it is general budget support. So the government can use this to the priorities that it identifies.
MR. ANDREWS: I just want to emphasize that those resources are not earmarked. It's not a case where the resources are given on condition that you spend it in any specific area. It's a case where the government will decide how best it will utilize those resources for the development of the country -- essentially, it is going towards the reconstruction of the economy. It means that they can be spent on capital projects geared towards re-creating the infrastructure, and some will obviously go into agriculture, into tourism, and other areas the government sees fit that will help to rebuild the economy.
MR. ADRIANO: Okay, thank you very much to everyone who participated in this conference call on Grenada's reform program. Thank you very much and have a nice day.
MR. ANDREWS: Okay. Thanks very much for this opportunity.
MR. SELASSIE: Thank you, Lennox.
IMF EXTERNAL RELATIONS DEPARTMENT
|Public Affairs||Media Relations|