## 1grdea2020001

## Source details

**Canonical URL:** [1grdea2020001](https://www.imf.org/-/media/files/publications/cr/2020/english/1grdea2020001.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2020/english/1grdea2020001.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2020/english/1grdea2020001.pdf.json)

---

### Context and overview
- Grenada is a tourism-dependent economy; tourism accounts for over 80 percent of Grenada’s total exports.
- Tourism essentially came to a halt in March 2020 due to the global COVID-19 pandemic, with ripple effects on other sectors.
- The economy is projected to contract by over 9 percent in 2020. Local outbreaks (14 reported cases) could cause deeper and more prolonged contraction.
- Grenada entered the crisis with a solid fiscal position and strong macroeconomic performance prior to COVID-19.

### Request for Fund support and IMF staff position
- Authorities request financial assistance under the Rapid Credit Facility (RCF) exogenous shock window.
- Requested disbursement: SDR 16.4 million, equivalent to 100 percent of quota.
- IMF staff supports the RCF request.
- Rationale: urgent balance of payments need that, if not addressed, will result in immediate and severe economic disruption.
- Proposed access of 100 percent of quota is 20 percent of the estimated BOP need (after accounting for the already disbursed World Bank Development Policy Credit operation of US$20 million of early-2020).

### Macroeconomic performance pre-COVID-19
- Growth averaged almost 5 percent in 2014-19 (well above the 20-year historical average of 2¾ percent).
- Fiscal consolidation 2014-17: an adjustment of 9½ percent of GDP reduced central government debt-to-GDP from 108 percent in 2013 to 59 percent in 2019.
- DSA (2019 Article IV) conclusion: if not for remaining arrears to three official bilateral creditors, Grenada’s debt was sustainable.
- Authorities intend to push ahead with a comprehensive Disaster Resilience Strategy (DRS).

### Recent developments (pre- and early-COVID-19)
- External current account estimated deficit: 15¾ percent of GDP in 2019.
- Fiscal reserves: around 8½ percent of GDP at end-2019 and remained broadly at these levels during Q1 2020.
- Domestic financial sector buffers in 2019:
  - Banks: capital and liquidity significantly above regulatory norms; NPLs 2.2 percent of loans.
  - Credit unions: deposits and assets increased by 14 percent and 15 percent respectively in 2019; NPLs steady at 5¼ percent of loans.
- Unemployment: 15 percent in Q1 2019.

### Impact of COVID-19 — staff projections and estimates
- Tourism exports could decline by around 50 percent year-on-year in 2020, with a near cessation of arrivals in Q2 and Q3.
- Most students at St. George’s University left the country; resumption of classes not expected for some time.
- Growth projection for 2020: decline sharply to -9.2 percent.
- Recovery assumptions:
  - Modest recovery beginning in Q4 2020; growth projected at about 6¼ percent in 2021.
- Projected balance-of-payments (BOP) need in 2020: around US$110 million, or 10 percent of GDP.
- Fiscal projections for 2020 (staff estimates):
  - Primary fiscal balance: expected to decline to -0.7 percent of GDP in 2020 (from a surplus of 6.8 percent in 2019).
  - Total revenue and grants: projected to fall by ½ percent of GDP; import tax inflows decline sharply, partly offset by increased grants.
  - Primary spending: projected to increase by around 7 percent of GDP due to enhanced health and broader economy support.
  - Gross public financing need: expected to surge to around 12½ percent of GDP in 2020.
  - End-2019 government deposits: 8½ percent of GDP.
  - Identified financing (2020, percent of GDP): Revenue and grants 26.5; Disbursements 4.2 (External 1.0; Domestic 3.2); Financing surplus/gap 2.3/1.0 (as presented).
  - Memo: Gross financing need 1/ = 1.9/12.4 (note: defined as the sum of the primary deficit and debt service; methodological differences with DSA).

### Authorities’ immediate policy measures (selected)
- March 20, 2020 package of mostly fiscal measures estimated at 2 percent of GDP (assuming measures in place for 3 months):
  - Increased health care spending (initial increase estimated at 0.2 percent of GDP).
  - Government payroll support to affected sectors and individuals.
  - Expansion of government employment programs and unemployment benefits.
  - Reduced or deferred payment of some taxes and social contributions.
- Supplementary budget approved April 17 includes 2.2 percent of GDP in contingencies for health and related spending and social protection.
- The authorities invoked the Fiscal Responsibility Law’s “public health epidemic” escape clause temporarily.
- Health-related COVID-19 spending (in million of EC$):
  - Isolation Facilities: 0.5
  - Equipment and Supplies: 2.9
  - Other line items: 0.7 and 2.1
  - Total: 6.1
- Financial sector measures:
  - ECCB relief program for commercial bank customers: (i) loan moratoria for 6 months, extendable upon review; and (ii) waiver of late fees and charges to eligible customers.
  - ECCB encouraged alternative banking service channels and reduction of disincentives (e.g., fees).
  - Government negotiated a conditional moratorium on principal and interest payments with financial institutions, initially for a 3-month period.

### Liquidity strategy (prior action) and fiscal management
- Prior action satisfied: a robust liquidity strategy was announced to backstop risks from the COVID-19 outbreak.
- Elements announced:
  - Government invoked FRL’s escape clause, announced costing of March 20 measures in the supplementary budget, and outlined follow-up contingency steps.
  - Cabinet adopted principles for fiscal liquidity management until end-2020 or until the medical emergency is lifted.
  - Principles: government liquidity to be used primarily to finance 2020 budget outlays, COVID-related emergency spending, or spending on additional significant adverse shocks; defer less urgent spending to post-emergency period.
- Prime Minister (also Minister of Finance) announced commitment to these elements on April 17.

### Financial-stability and supervisory measures
- Authorities should intensify efforts to secure financial stability in parallel with the ECCB’s measures.
- GARFIN recommendations:
  - step up monitoring; identify risks; conduct stress testing; develop contingency plans; require high-frequency reporting; review business-continuity plans; provide guidance on supervisory expectations.
- If shock persists, GARFIN could:
  - provide temporary adjustments to capital and liquidity requirements; encourage financial institutions to reach out to distressed borrowers.
- Deepen collaboration with ECCB and national supervisors.
- Risk-based AML/CFT supervision should be enhanced to reduce pressure on CBRs and remittances.

### Return to FRL core parameters and rebuilding buffers
- Once COVID-19 crisis dissipates:
  - withdraw FRL’s escape clause (timing dependent on shock duration);
  - require that primary surpluses return to, or rise above, the 3½ percent of GDP floor;
  - aim for sustained debt reduction toward the 55 percent of GDP debt threshold.
- Strategy measures:
  - fiscal adjustment measures, if needed;
  - recalibration of the spending growth rule to internalize withdrawal of temporary outlays used for COVID-19;
  - continued PFM improvements and efficient asset/liability management;
  - operationalization of a broader definition of public debt under the FRL.

### Disaster Resilience Strategy (DRS)
- Draft DRS (March 2020) envisions a 15-year plan around 3 pillars:
  - (i) scale up public investment in resilient infrastructure;
  - (ii) adequate saving funds and insurance mechanisms within a layered framework to protect against natural disasters;
  - (iii) contingency plans and social protection programs to manage post-disaster response.
- Pillars to be embedded in a sustainable macro-fiscal framework and underpinned by increased donor support.
- DRS could be augmented and re-balanced to deal with other major shocks such as medical emergencies.

### Debt sustainability, arrears, and risk assessment
- DSA findings:
  - DSA suggests public debt is sustainable despite the DSA’s “in debt distress” rating, which results from remaining unresolved arrears to official bilateral creditors of some 1.8 percent of GDP.
  - Debt ratio would rise from 59 to 68¾ percent of GDP in 2020 due to the large contraction and fiscal deterioration; subsequent economic recovery should reverse the rise.
  - FRL’s key 55 percent of GDP debt threshold would be reached by 2024 on current projections.
- Arrears and contingent liabilities:
  - Arrears of 1.8 percent of GDP remain with three official bilateral creditors: Algeria, Libya, and Trinidad and Tobago.
  - SOE debt estimated at around 5 percent of GDP at end-2019 (excluding Petrocaribe-related obligations).
- Specific contingent risk: a judgment requires payment of US$71.5 million or 6 percent of GDP for a 50 percent stake in Grenlec (timing and modality depend on appeals/agreement/enforcement).
- Risks to debt dynamics:
  - natural disasters;
  - a more prolonged impact of COVID-19;
  - a one-off increase in debt from Grenlec-related payment if debt-financed.

### Financing of Balance of Payments Need — key figures (2020)
- Million USD / Percent of GDP:
  - BOP Need: 110.0 / 9.9
  - Available financing: 59.4 / 5.3
  - Drawdown of FX reserves: 59.4 / 5.3
  - Additional financing: 50.6 / 4.6
    - RCF: 22.3 / 2.0
    - World Bank COVID-19 Support: 2.5 / 0.2
    - CDB (assumed): 7.1 / 0.6
    - Other (World Bank, other donors, ECCB): 18.7 / 1.7
- Source: MoF, ECCB, and Fund staff estimates.

### Disbursement, safeguards, and repayment capacity
- RCF disbursements: made to the ECCB and transferred to the Grenadian government for fiscal financing and COVID-19 emergency spending.
- Authorities commit to collaborating with IMF staff on a safeguards assessment; ECCB subject to safeguards assessment every four years (most recent completed in 2016).
- ECCB will provide central bank audit reports and has authorized external auditors to hold discussions with Fund staff.
- Authorities commit to holding all foreign exchange from the IMF disbursement at the ECCB, pending use.
- Repayment capacity and risk mitigation:
  - Including the proposed RCF disbursement, total outstanding credit from the Fund as of April 27 would amount to SDR 30½ million, equivalent to 186 percent of quota.
  - Repayment obligations to the Fund would remain below 0.6 percent of exports of goods and services, and less than 2 percent of net international reserves.

### Staff recommendations and policy advice
- Support measures should be effective, targeted, and temporary.
- Measures must be embedded in a comprehensive fiscal plan with a robust financing strategy.
- Increased health spending should be allocated to areas most effective at containing the outbreak.
- Policy support measures and employment programs should ensure compatibility with social distancing.
- All support measures need to be fully costed, minimizing off-budget fiscal operations.
- Ministry of Finance should act as centralized gatekeeper for assessment of fiscal costs with accountability for monitoring, managing, and reporting actual and contingent liabilities.
- Fiscal response should rely on efficient cash flow and liquidity management.
- Contingency plans should be prepared for more severe scenarios with prompt activation based on high-frequency monitoring of fiscal and financial data.
- Fiscal liquidity buffers should be deployed to enhance social protection, particularly for the most vulnerable, including in the informal economy.
- Enhanced monitoring of financial sector vulnerabilities is needed, including AML/CFT to preserve correspondent banking relationships (CBRs), and capacity for prompt action to ameliorate crisis effects.
- Authorities should follow through on plans to return to the FRL’s core parameters after the economy recovers and pursue a comprehensive DRS and other shock resilience measures.

### Real sector, external sector, and fiscal projections (selected numbers)
- Real GDP growth (staff projections):
  - 2016: 3.7
  - 2017: 4.4
  - 2018: 4.1
  - 2019: 3.0
  - 2020: -9.2
  - 2021: 6.3
  - 2022: 5.3
  - 2023: 3.9
  - 2024: 3.0
  - 2025: 2.7
- Output gap (percent of potential GDP):
  - 2020: -6.4
  - 2021: -2.4
  - 2022: 0.0
  - 2023: 0.8
  - 2024: 0.6
  - 2025: 0.3
- Current account balance (percent of GDP):
  - 2016: -11.0
  - 2017: -14.4
  - 2018: -15.9
  - 2019: -15.8
  - 2020: -27.4
  - 2021: -17.2
  - 2022: -14.3
  - 2023: -12.8
  - 2024: -11.6
  - 2025: -11.0
- Exports of goods and services (percent of GDP):
  - 2019: 51.9
  - 2020: 29.0
  - 2021: 43.2
  - 2022: 47.2
  - 2023: 49.0
  - 2025: 50.9
- Central government revenue and grants (percent of GDP):
  - Revenue: 2019: 23.7; 2020: 21.9; 2021: 22.6; 2022: 23.2; 2023: 23.6; 2024: 23.6; 2025: 23.6
- Total revenue and grants (EC$ millions):
  - 2019: 849.1; 2020: 871.9; 2021: 775.4; 2022: 831.5; 2023: 910.0; 2024: 973.3; 2025: 1,011.0
- Primary balance (percent of GDP):
  - 2019: 6.8; 2020: -0.7; 2021: 4.6; 2022: 6.0; 2023: 6.7; 2024: 6.9; 2025: 3.0
- Overall balance (percent of GDP):
  - 2019: 5.0; 2020: -2.9; 2021: 2.5; 2022: 3.8; 2023: 4.6; 2024: 5.0; 2025: 1.4
- Public sector debt (incl. guaranteed) (percent of GDP):
  - 2019: 59.1; 2020: 68.7; 2021: 67.2; 2022: 63.7; 2023: 57.3; 2024: 49.5; 2025: 45.8
- Central government operations (EC$ millions) highlights for 2020:
  - Total revenue and grants: 871.9
  - Revenue: 757.0
  - Tax revenue: 718.7
  - Grants: 93.5
  - Total expenditure and net lending: 704.5
  - Current expenditure: 617.7
  - Interest payments: 63.2
  - Capital expenditure and net lending: 120.1
  - Primary balance: 207.8
  - Overall balance: 144.5

### Debt, Fund credit, and repayment indicators
- Proposed RCF (stock) details (2020):
  - In percent of quota: 100.0
  - In millions of SDRs: 16.4
  - In millions of US$: 22.4
  - In percent of GDP: 2.0
- Existing Fund credit (stock) in percent of quota:
  - 2019: 89.0
  - 2020: 80.7 (baseline existing credit before RCF)
- Outstanding Fund credit (including proposed disbursement) as of April 27:
  - Total outstanding credit would amount to SDR 30½ million, equivalent to 186 percent of quota.
- Fund obligations:
  - Repayment obligations to the Fund would remain below 0.6 percent of exports of goods and services, and less than 2 percent of net international reserves.

### Stress tests and adverse scenarios (DSA summaries)
- Mechanical risk rating under external DSA: High.
- Mechanical risk rating under public DSA: High.
- Prolonged Covid-19 scenario assumptions: assumes 5 percentage points lower real GDP growth in 2021 compared to the baseline and a one year delay in recovery thereafter; exports, imports and FDI as a share of GDP remain at their 2020 level.
- Selected sensitivity outputs:
  - External debt (nominal) (percent of GDP): 2020: 101.9; 2021: 102.2; 2022: 98.2; 2023: 91.9; 2024: 84.5; 2025: 80.2.
  - Gross external financing need (Million of U.S. dollars): 2020: 259.2; 2021: 117.1; 2022: 75.5; 2023: 44.5; 2024: 3.3; 2025: -13.1.
- Stress tests indicate breaches under several adverse scenarios.

### Authorities’ views, actions taken, and medium-term commitments
- Authorities emphasized severity of the shock and urgency of the BOP need; cited prudent pre-COVID fiscal management enabling easing via the FRL’s escape clause.
- Actions taken:
  - supplementary budget for 2020 approved on April 17;
  - announced plans to use development partner aid for essential COVID-19-related spending;
  - committed to tight government liquidity management, maintaining adequate buffers, and refraining from non-emergency spending for remainder of 2020.
- Medium-term plans and commitments:
  - return to FRL core parameters once significant recovery occurs;
  - support growth while safeguarding macroeconomic stability;
  - use fiscal reserve buffers to backstop macroeconomic and financial stability;
  - continue progress on a comprehensive DRS and implement the 2020-35 national sustainable development plan;
  - continue efforts to regularize outstanding arrears to official bilateral creditors.

### Lending into Arrears — staff assessment (summary)
- Algeria consented to IMF financing on April 22, 2020; consent had not been received from Libya as of the supplement.
- Staff examined the three Lending into Arrears criteria with respect to Libya’s claims and concluded all three criteria are satisfied:
  - Criterion 1: Prompt Fund support is essential and the member is pursuing appropriate policies.
  - Criterion 2: Debtor is making ‘good faith’ efforts to reach agreement with the creditor (documented outreach and offers comparable to Paris Club terms).
  - Criterion 3: Providing financing despite arrears will not unduly hinder future mobilization of official financing.

_Staff report: Grenada — Executive Summary (April 21, 2020); Supplementary information (April 27, 2020); Statements dated April 28, 2020._

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and overview
- Grenada is a tourism-dependent economy; tourism accounts for over 80 percent of Grenada’s total exports.
- Tourism essentially came to a halt in March 2020 due to the global COVID-19 pandemic, with ripple effects on other sectors.
- The economy is projected to contract by over 9 percent in 2020. Local outbreaks (14 reported cases) could cause deeper and more prolonged contraction.
- Grenada entered the crisis with a solid fiscal position and strong macroeconomic performance prior to COVID-19.

### Request for Fund support
- Authorities are seeking financial assistance under the Rapid Credit Facility (RCF) exogenous shock window.
- Grenada is requesting a disbursement of SDR 16.4 million, equivalent to 100 percent of quota.
- IMF staff supports this request.

### Macroeconomic policies and prior performance
- Growth averaged almost 5 percent in 2014-19 (well above the 20-year historical average of 2¾ percent).
- An impressive fiscal adjustment of 9½ percent of GDP during 2014-17 reduced central government debt-to-GDP from 108 percent in 2013 to 59 percent in 2019.
- The DSA in the 2019 Article IV report concluded that—if not for remaining arrears to three official bilateral creditors—Grenada’s debt was sustainable.
- The authorities intend to push ahead with a comprehensive Disaster Resilience Strategy (DRS) to build resilience to natural disasters.

### Recent developments (pre- and early-COVID-19)
- External current account estimated deficit: 15¾ percent of GDP in 2019.
- Fiscal reserves were around 8½ percent of GDP at end-2019 and remained broadly at these levels during Q1 2020.
- Domestic financial sector buffers in 2019:
  - Banks: capital and liquidity significantly above regulatory norms; NPLs 2.2 percent of loans.
  - Credit unions: deposits and assets increased by 14 percent and 15 percent respectively in 2019; NPLs steady at 5¼ percent of loans.
- Unemployment: 15 percent in Q1 2019.

### Impact of COVID-19 (staff projections and estimates)
- Tourism exports could decline by around 50 percent year-on-year in 2020, with a near cessation of arrivals in Q2 and Q3.
- Most students at St. George’s University left the country; resumption of classes not expected for some time.
- Growth projection for 2020: decline sharply to -9.2 percent.
- Modest recovery assumed beginning in Q4 2020; growth projected at about 6¼ percent in 2021.
- Projected balance-of-payments (BOP) need in 2020: around US$110 million, or 10 percent of GDP.
- Fiscal projections for 2020 (staff estimates):
  - Primary fiscal balance expected to decline to -0.7 percent of GDP in 2020 (from a surplus of 6.8 percent in 2019).
  - Total revenue and grants projected to fall by ½ percent of GDP; import tax inflows decline sharply, partly offset by increased grants.
  - Primary spending projected to increase by around 7 percent of GDP due to enhanced health and broader economy support.
  - Gross public financing need expected to surge to around 12½ percent of GDP in 2020.
  - End-2019 government deposits: 8½ percent of GDP.
  - Identified financing (2020, percent of GDP): Revenue and grants 26.5; Disbursements 4.2 (External 1.0; Domestic 3.2); Financing surplus/gap 2.3/1.0 (as presented).
  - Memo: Gross financing need 1/ = 1.9/12.4 (note: defined as the sum of the primary deficit and debt service; methodological differences with DSA).

### Risks
- Major risk: greater-than-expected depth and duration of the pandemic, producing more prolonged halt in tourism and extended domestic supply- and demand-side disruptions.
- Grenada’s vulnerability to natural disasters could interact with the COVID-19 shock and be particularly challenging.
- A more adverse scenario would raise external and fiscal financing needs due to:
  - Underestimation of COVID-19 impact and uncertainty over trade and tax elasticities.
  - Potential contraction in imports further undercutting tax revenues.
  - Increased need for private sector support, including possible support to the financial sector for liquidity and solvency.
- Additional pressures could come from a sudden stop in government and/or private sector financing flows.
- Specific contingent risk: a recent judgment requires the government to pay a foreign investor US$71.5 million or 6 percent of GDP for a 50 percent stake in Grenlec; timing and modality depend on appeals, agreement, or enforcement.

### Authorities’ policies to address the crisis
- March 20, 2020 package of mostly fiscal measures estimated at 2 percent of GDP (assuming measures in place for 3 months):
  - Increased health care spending (initial increase estimated at 0.2 percent of GDP).
  - Government payroll support to affected sectors and individuals.
  - Expansion of government employment programs and unemployment benefits.
  - Reduced or deferred payment of some taxes and social contributions.
- Supplementary budget approved April 17 includes 2.2 percent of GDP in contingencies for health and related spending and social protection.
- The authorities invoked the Fiscal Responsibility Law’s “public health epidemic” escape clause temporarily.
- Health-related COVID-19 spending (in million of EC$) as provided:
  - Isolation Facilities: 0.5
  - Equipment and Supplies: 2.9
  - [other line items shown as] 0.7 and 2.1
  - Total: 6.1
- Financial sector measures:
  - ECCB relief program for commercial bank customers: (i) loan moratoria for 6 months, extendable upon review; and (ii) waiver of late fees and charges to eligible customers.
  - ECCB strongly encouraged alternative banking service channels and reduction of disincentives (e.g., fees).
  - Government negotiated a conditional moratorium on principal and interest payments with financial institutions, initially for a 3-month period.

### Staff recommendations and policy advice
- Support measures should be effective, targeted, and temporary.
- Measures must be embedded in a comprehensive fiscal plan with a robust financing strategy.
- Increased health spending should be allocated to areas most effective at containing the outbreak.
- Policy support measures and employment programs should ensure compatibility with social distancing.
- All support measures need to be fully costed, minimizing off-budget fiscal operations.
- The Ministry of Finance should act as an effective gatekeeper for centralized assessment of fiscal costs with accountability for monitoring, managing, and reporting actual and contingent liabilities.
- Fiscal response should rely on efficient cash flow and liquidity management.
- Contingency plans should be prepared for more severe scenarios with prompt activation based on high-frequency monitoring of fiscal and financial data.
- Fiscal liquidity buffers should be deployed to enhance social protection, particularly for the most vulnerable, including in the informal economy.
- Enhanced monitoring of financial sector vulnerabilities is needed, including AML/CFT to preserve correspondent banking relationships (CBRs), and capacity for prompt action to ameliorate crisis effects.
- Authorities should follow through on plans to return to the FRL’s core parameters after the economy recovers and pursue a comprehensive DRS and other shock resilience measures.

_Staff report: Grenada — Executive Summary (April 21, 2020)_

### 13.      The prior action on the announcement of a robust liquidity strategy has been satisfied.

### 13.      The prior action on the announcement of a robust liquidity strategy has been satisfied.

### Liquidity strategy (prior action)
- The prior action has been satisfied: a robust liquidity strategy was announced to backstop risks from the COVID-19 outbreak.
- Elements of the liquidity strategy:
  - (i) the government invokes the FRL’s escape clause, announces a costing of the March 20 measures in the supplementary budget, and outlines follow-up contingency steps for the COVID-19 emergency;
  - (ii) in parallel, the Cabinet adopts a conclusion that outlines principles of management of fiscal liquidity until end-2020 or until the medical emergency is lifted (whichever is later);
  - (iii) such principles state that government liquidity would be used primarily to finance outlays envisioned under the 2020 budget, further steps on COVID-related emergency spending, or spending on additional significant adverse shocks (e.g., a natural disaster), deferring less urgent spending for a post-emergency period.
- The Prime Minister, who is also the Minister of Finance, announced a plan committing to these elements on April 17, in the context of his presentation of the supplementary budget to parliament.

### Financial-stability and supervisory measures
- Authorities need to intensify efforts to secure financial stability in parallel with the ECCB’s measures to safeguard banking system stability.
- GARFIN (national supervisor for non-banking institutions) recommended actions:
  - step up monitoring;
  - identify risks;
  - conduct stress testing;
  - develop contingency plans;
  - require high-frequency reporting;
  - review institutions’ business-continuity plans;
  - provide guidance on supervisory expectations.
- If the shock persists or risks materialize, GARFIN could, while refraining from generalized forbearance measures:
  - provide temporary adjustments to capital and liquidity requirements;
  - encourage financial institutions to reach out to distressed borrowers to offer temporary relief.
- Deepen collaboration with the ECCB and national supervisors to inform monitoring and coordinated response.
- Government should be ready to use fiscal buffers, in tandem with the ECCB’s toolkit and resources, to backstop financial sector stability.
- Risk-based AML/CFT supervision should be enhanced to reduce pressure on CBRs and remittances.

### Return to FRL core parameters and rebuilding buffers
- Once the COVID-19 crisis dissipates:
  - withdraw the FRL’s escape clause (timing dependent on shock duration);
  - require that primary surpluses return to, or rise above, the 3½ percent of GDP floor;
  - aim for sustained debt reduction toward the 55 percent of GDP debt threshold.
- Strategy support measures:
  - fiscal adjustment measures, if needed;
  - recalibration of the spending growth rule to internalize withdrawal of temporary outlays used for COVID-19;
  - continued PFM improvements and efficient asset/liability management to support budget processes and improved control of contingent liabilities;
  - operationalization of a broader definition of public debt under the FRL.

### Disaster Resilience Strategy (DRS)
- Draft DRS (March 2020) envisions a 15-year plan around 3 main pillars:
  - (i) scale up public investment in resilient infrastructure;
  - (ii) adequate saving funds and insurance mechanisms within a layered framework to protect against natural disasters;
  - (iii) contingency plans and social protection programs to manage post-disaster response.
- Pillars to be embedded in a sustainable macro-fiscal framework and underpinned by increased donor support.
- DRS could be augmented and re-balanced to deal with other major shocks such as medical emergencies.

### Debt sustainability findings
- DSA suggests Grenada’s public debt is sustainable despite the DSA’s “in debt distress” rating.
  - The “in debt distress” rating results from remaining unresolved arrears to official bilateral creditors of some 1.8 percent of GDP and is unrelated to underlying debt dynamics.
- Debt trajectory:
  - debt ratio would rise from 59 to 68¾ percent of GDP this year due to the large contraction and fiscal deterioration;
  - subsequent economic recovery should reverse the rise;
  - FRL’s key 55 percent of GDP debt threshold would be reached by 2024 on current projections.
- Risks to debt dynamics:
  - natural disasters;
  - possibility of a more prolonged impact of COVID-19;
  - a one-off increase in debt from a Grenlec-related payment if debt-financed.
- Authorities are working to strengthen resilience to natural disasters within an integrated DRS to bolster economic performance and reduce long-term risk to the debt-to-GDP ratio.

### Modalities of IMF support and RCF request
- Authorities request financial support of 100 percent of quota (SDR 16.4 million) under the RCF.
- Rationale:
  - Grenada meets RCF eligibility;
  - urgent balance of payments need that, if not addressed, will result in immediate and severe economic disruption;
  - not feasible at this stage to put in place an upper-credit-tranche Fund program due to urgent needs and high uncertainty regarding COVID-19.
- Staff assessment:
  - access of 100 percent of quota under the RCF is appropriate;
  - Grenada does not currently have an IMF arrangement;
  - access of 100 percent of quota is within applicable access limits under the PRGT;
  - proposed access of 100 percent of quota is 20 percent of the estimated BOP need (after accounting for the already disbursed World Bank Development Policy Credit operation of US$20 million of early-2020).
- Intended use and expected additional support:
  - expected to be filled by drawing on authorities’ international reserves and donor support;
  - World Bank emergency financing of $2.5 million for COVID-19-related spending is included;
  - additional support expected from the Caribbean Development Bank (CDB), the ECCB, the World Bank, and several other donors (extent and modalities yet to be fully determined).

### Financing of Balance of Payments Need — key figures (2020)
- Million USD / Percent of GDP
  - BOP Need 110.0 9.9
  - Available financing 59.4 5.3
  - Drawdown of FX reserves 59.4 5.3
  - Additional financing 50.6 4.6
    - RCF 22.3 2.0
    - World Bank COVID-19 Support 2.5 0.2
    - CDB (assumed) 7.1 0.6
    - Other (World Bank, other donors, ECCB) 18.7 1.7
- Source: MoF, ECCB, and Fund staff estimates.

### Disbursement, safeguards, and repayment capacity
- RCF disbursements will be made to the ECCB and transferred to the Grenadian government for fiscal financing and COVID-19 emergency spending.
- Authorities commit to collaborating with IMF staff on a safeguards assessment; ECCB is subject to safeguards assessment every four years (most recent completed in 2016).
- ECCB will provide central bank audit reports and has authorized external auditors to hold discussions with Fund staff.
- Authorities commit to holding all foreign exchange from the IMF disbursement at the ECCB, pending use.
- Repayment capacity and risk mitigation:
  - Including the proposed disbursement under the RCF, total outstanding credit from the Fund as of April 27 would amount to SDR 30½ million, equivalent to 186 percent of quota.
  - Repayment obligations to the Fund would remain below 0.6 percent of exports of goods and services, and less than 2 percent of net international reserves.
  - Authorities commit to proper targeting and management of IMF funds and to providing accurate and timely public information on use.

### Authorities’ views
- Authorities emphasized severity of the shock and urgency of the BOP need.
- They considered tourism decline in 2020 could be more pronounced and recovery more gradual than staff assumptions.
- They cited prudent fiscal management and adherence to fundamental rules enabling easing of policy stance via the FRL’s escape clause.
- Actions taken:
  - supplementary budget for 2020 approved on April 17;
  - announced plans to use development partner aid for essential COVID-19-related spending;
  - committed to tight government liquidity management, maintaining adequate buffers, and refraining from non-emergency spending for remainder of 2020.
- Longer-term plans:
  - comply with and upgrade policy frameworks;
  - support growth while safeguarding macroeconomic stability;
  - use fiscal reserve buffers to backstop macroeconomic and financial stability;
  - return to FRL core parameters once significant recovery occurs;
  - continue progress on a comprehensive disaster resilience strategy and implement the 2020-35 national sustainable development plan.

### Staff appraisal
- COVID-19 interrupted a positive economic trajectory; financing need is urgent while shock duration is uncertain.
- Risks include prolonged recovery for tourism, education, and other sectors, drying up of external financing, and high vulnerability to natural disasters.
- Grenada’s strong fiscal and macroeconomic position prior to the COVID-19 emergency mitigates risks.
- Authorities are committed to maintaining macroeconomic stability, adhering to the FRL, and mobilizing donor grants for climate resilience and DRS capacity gaps.

*Source: IMF staff report (chapter/section content).*

### 27.      Staff supports the authorities’ request for a disbursement under the Rapid Credit

### 1grdea2020001 - 27. Staff supports the authorities’ request for a disbursement under the Rapid Credit Facility

### Request and IMF staff recommendation
- Staff supports the authorities’ request for a disbursement under the Rapid Credit Facility in the amount of SDR 16.4 million (100 percent of quota).
- The request for a disbursement in the amount of 100 percent of quota is justified by the depth and severity of the COVID-19 shock that has created an urgent BOP need.
- Utilizing this disbursement as direct budget support is motivated by the pressing healthcare and social needs faced by the country.
- The proposed disbursement is consistent with Grenada’s debt sustainability and capacity to repay the Fund.

### Real sector and short-term outlook
- After 5 years of above-average growth, the economy is set to contract sharply in 2020 as a result of COVID-19.
- Staff projects Real GDP growth:
  - 2016: 3.7
  - 2017: 4.4
  - 2018: 4.1
  - 2019: 3.0
  - 2020: -9.2
  - 2021: 6.3
  - 2022: 5.3
  - 2023: 3.9
  - 2024: 3.0
  - 2025: 2.7
- Output gap (percent of potential GDP) projections:
  - 2020: -6.4
  - 2021: -2.4
  - 2022: 0.0
  - 2023: 0.8
  - 2024: 0.6
  - 2025: 0.3
- Tourism and offshore education account for over 50 percent of GDP and have halted; staff projects GDP will decline by some 9.2 percent in 2020 with a subsequent quick and robust recovery (staff projection), while authorities expect a more gradual recovery.

### External sector and balance of payments
- Current account balance (in percent of GDP):
  - 2016: -11.0
  - 2017: -14.4
  - 2018: -15.9
  - 2019: -15.8
  - 2020: -27.4
  - 2021: -17.2
  - 2022: -14.3
  - 2023: -12.8
  - 2024: -11.6
  - 2025: -11.0
- Exports of goods and services (percent of GDP):
  - 2019: 51.9
  - 2020: 29.0
  - 2021: 43.2
  - 2022: 47.2
  - 2023: 49.0
  - 2025: 50.9
- Imputed reserves expected to decline and be slightly above 3 months of imports by end-2020 (implied adequacy noted previously as above 3 months).

### Fiscal developments and projections
- Central government revenue and grants (in percent of GDP):
  - Revenue: 2019: 23.7; 2020: 21.9; 2021: 22.6; 2022: 23.2; 2023: 23.6; 2024: 23.6; 2025: 23.6
  - Total revenue and grants (EC$ millions): 2019: 849.1; 2020: 871.9; 2021: 775.4; 2022: 831.5; 2023: 910.0; 2024: 973.3; 2025: 1,011.0
- Tax revenue (in percent of GDP): 2019: 21.9; 2020: 20.2; 2021: 20.9; 2022: 21.6; 2023: 21.9; 2024: 21.9; 2025: 21.9
- Primary balance (percent of GDP):
  - 2019: 6.8
  - 2020: -0.7
  - 2021: 4.6
  - 2022: 6.0
  - 2023: 6.7
  - 2024: 6.9
  - 2025: 3.0
- Overall balance (percent of GDP):
  - 2019: 5.0
  - 2020: -2.9
  - 2021: 2.5
  - 2022: 3.8
  - 2023: 4.6
  - 2024: 5.0
  - 2025: 1.4
- Public sector debt (incl. guaranteed) (percent of GDP):
  - 2019: 59.1
  - 2020: 68.7
  - 2021: 67.2
  - 2022: 63.7
  - 2023: 57.3
  - 2024: 49.5
  - 2025: 45.8
- Central government operations (EC$ millions) highlights for 2020:
  - Total revenue and grants: 871.9
  - Revenue: 757.0
  - Tax revenue: 718.7
  - Grants: 93.5
  - Total expenditure and net lending: 704.5
  - Current expenditure: 617.7
  - Interest payments: 63.2
  - Capital expenditure and net lending: 120.1
  - Primary balance: 207.8
  - Overall balance: 144.5
- The authorities invoked the Escape Clause pursuant to Article 10 of the Fiscal Responsibility Law (FRL) to allow relaxation of the fiscal stance for 2020; the primary balance expected to move from a surplus of 6.8 percent of GDP in 2019 to a deficit of -0.7 percent of GDP in 2020.

### Financial sector indicators
- Banks’ asset quality has remained strong with low NPLs; provisioning has continued to increase.
- Liquidity has been increasing and reached high levels; reflected in the low yield of assets.
- Profitability:
  - Declining in foreign banks.
  - Increasing in indigenous banks.
- Capital buffers have slightly declined but remain considerably above the regulatory minimum.
- Selected indicators (2010Q4–2019Q4 trends presented in staff charts):
  - Return on average assets (Commercial, Foreign, Indigenous banks) tracked.
  - Nonperforming loans and provisioning ratios tracked with recent increases in provisions relative to NPLs.
  - Regulatory capital/Risk-weighted assets remain above regulatory minimum.

### Debt sustainability, arrears, and capacity to repay the Fund
- Proposed Rapid Credit Facility (stock) details:
  - In percent of quota: 2020: 100.0
  - In millions of SDRs: 2020: 16.4
  - In millions of US$: 2020: 22.4
  - In percent of GDP: 2020: 2.0
- Existing Fund credit (stock) (in percent of quota):
  - 2019: 89.0
  - 2020: 80.7 (baseline existing credit before RCF)
- Outstanding Fund credit (end of period) (in millions of SDRs and US$) tracked across 2016–2025.
- Indicators of capacity to repay:
  - Existing Fund credit in percent of quota: 2016: 131.3; 2017: 122.3; 2018: 101.2; 2019: 89.0; 2020 (with RCF): 180.7 (outstanding percent of quota including proposed disbursement)
  - Fund obligations based on existing and prospective credit (percent of exports, debt service, GDP, and Imputed Net International Reserves) are presented in Table 4.
- Risk of external debt distress:
  - External public debt classified as “in debt distress” due to remaining unresolved arrears to official bilateral creditors of some 1.8 percent of GDP, but debt remains sustainable (conclusion unchanged from 2019 DSA).
  - The risk rating for external debt was “moderate” in the May 2019 DSA and is now “high” due to threshold breaches of the debt-services-to-exports ratio for 2020-2023, essentially due to the COVID-19 shock.
- Key DSA projections and thresholds:
  - Public sector debt (percent of GDP): baseline 2020: 68.7; 2021: 67.2; 2022: 63.7; 2023: 57.3; 2024: 49.5; 2025: 45.8.
  - PV of PPG external debt-to-GDP and PV-to-exports ratios and PPG debt service-to-exports and debt service-to-revenue ratios are provided in the DSA tables.
- Arrears and contingent liabilities:
  - Arrears of 1.8 percent of GDP remain with three official bilateral creditors: Algeria, Libya, and Trinidad and Tobago.
  - SOE debt estimated at around 5 percent of GDP at end-2019 (excluding Petrocaribe-related obligations).
  - Fully regularizing external arrears would help tangibly improve the country’s DSA rating.
- Risks to debt dynamics:
  - Possibility of a more prolonged impact of COVID-19.
  - Possible delays in the return to the FRL’s core parameters.
  - Natural disasters.
  - A one-off increase in debt if Grenlec-related payment obligations are met by debt issuance.

### Stress tests and alternative scenarios (DSA summaries)
- Mechanical risk rating under external DSA: High.
- Mechanical risk rating under public DSA: High.
- Prolonged Covid-19 scenario assumptions: assumes 5 percentage points lower real GDP growth in 2021 compared to the baseline and a one year delay in recovery thereafter; exports, imports and FDI as a share of GDP remain at their 2020 level.
- Selected DSA sensitivity outputs (examples):
  - External debt (nominal) (percent of GDP): 2020: 101.9; 2021: 102.2; 2022: 98.2; 2023: 91.9; 2024: 84.5; 2025: 80.2.
  - Gross external financing need (Million of U.S. dollars): 2020: 259.2; 2021: 117.1; 2022: 75.5; 2023: 44.5; 2024: 3.3; 2025: -13.1.
  - Public sector debt baseline and stress test panels indicate breaches under several adverse scenarios, with detailed tables for 2020–2030 (Table 3 and Table 4).

### Authorities’ policy response and medium-term strategy
- Immediate public health and containment measures:
  - Travel restrictions instituted pre-first case; first confirmed case on March 22, 2020.
  - Detection protocols at ports of entry, COVID-19 awareness campaign, closure of educational institutions, emergency orders restricting movement, and a 21-day lockdown implemented.
- Fiscal and economic response:
  - Reallocated resources to facilitate emergency health spending.
  - Launched an economic stimulus package targeted at households and businesses most affected.
  - Reprioritized the 2020 budget to boost social programs and capital spending.
  - Authorities intend to drawdown some fiscal buffers to close part of the financing gap.
  - Liquidity management strategy prioritizes government liquidity up until end-2020 to finance 2020 budget outlays, additional COVID-related spending, and spending on additional adverse shocks; defer less urgent spending to post-emergency period.
- Use of RCF resources (authorities’ stated intent if request proceeds and is approved):
  - Use liquidity to support economic recovery, including support for households and businesses to help minimize permanent damage.
- Medium-term commitments:
  - Authorities committed to sound macroeconomic policies to promote robust, sustained, and inclusive growth; create fiscal space and build buffers; and strengthen financial sector stability and resilience.
  - Suspension of fiscal rules will be lifted once the pandemic abates and significant economic recovery occurs; authorities will resume policies to put debt back on a downward trajectory and rebuild fiscal buffers.
  - Continue work on regularizing outstanding arrears to official bilateral creditors.
  - Eager to resume development of their disaster resilience strategy (DRS) with staff support and propose to expand DRS scope to include medical emergencies such as COVID-19.

### Additional staff and authority statements
- Statement by the Staff Representative (April 28, 2020):
  - Noted G20 COVID-19 Debt Service Relief Initiative (announced April 15, 2020); authorities considering participation; eligible debt service between May 1 and December 31, 2020 to be quantified and appears relatively small.
  - Authorities established a Task Force for rebuilding the Grenadian economy with stakeholders and pledged to meet transparency obligations under Public Debt Management Act 28 of 2015, Public Finance Management Act 17 of 2015, and the Fiscal Responsibility Act 29 of 2015.
- Statement by Ms. Levonian and Mr. Sylvester on Grenada (April 28, 2020):
  - Authorities thanked the Fund for timely emergency support under the RCF and the decision to augment access to 100 percent of quota (about US$22.3 million).
  - Emphasized pre-COVID strong performance: 2014-19 average real GDP growth almost 5 percent; inflation low and stable; unemployment decline from 28.9 percent to 15.2 percent; public debt declined by some 49 percentage points to 59 percent of GDP by end-2019; reserves remained above the benchmark of 3 months of import cover.
  - Noted severe blow from COVID-19 to tourism- and education-dependent economy; precipitous decline in revenues in April 2020 with mounting spending pressures; authorities more pessimistic than staff about the scale and magnitude of the fallout and project a more gradual recovery.
  - Authorities invoked FRL escape clause and expect public debt to rise by approximately 10 percentage points to around 69 percent of GDP in 2020.

*Prepared by the staffs of the International Monetary Fund and the International Development Association. April 21, 2020 (with statements dated April 28, 2020).*

### Conclusion

### Conclusion

### COVID-19 impact and policy context
- The COVID-19 pandemic is eroding the hard-won gains achieved by the Grenadian authorities in the recent past.
- The authorities have deployed the limited tools at their disposal, but these tools are clearly insufficient.
- To mount a decisive and comprehensive response, they need a level of support that far exceeds what is currently available from domestic sources.
- Financing from the Fund would play a catalytic role in mobilizing the much-needed support from other donors.

### Request for Fund support
- The authorities would highly value the support of the Fund, in particular, a disbursement under the RCF, and other development partners.
- Financing from the Fund is sought to address balance of payments needs arising from the sharp contraction of exports and the need to bolster spending to contain the pandemic and support the economy.

### Lending into Arrears — staff assessment of the three criteria (Annex I)
- Context and timing:
  - Algeria consented to IMF financing on April 22, 2020.
  - As of the supplement, consent had not been received from Libya.
  - Staff examined application of the three criteria under the Lending into Arrears policy (see BUFF/15/113) with respect to Libya’s claims.
  - Staff assessment concludes all three criteria are satisfied.

- Criterion 1 — Prompt Fund support is essential and the member is pursuing appropriate policies:
  - The Fund’s prompt financial support is considered essential to address Grenada’s balance of payments problems arising from the sharp contraction of exports and the need to bolster spending to contain the pandemic and support the economy.
  - Once the current crisis dissipates, the Grenadian authorities will unwind the temporary measures to cushion the pandemic impact and return the focus of policies to building resilience to natural disasters and safeguarding macro-financial stability.

- Criterion 2 — Debtor is making ‘good faith’ efforts to reach agreement with the creditor:
  - During the 2014-17 ECF arrangement, the Grenadian authorities reached out bilaterally to the Libyan authorities to restructure the debt owed and to regularize arrears, and they offered to engage in a substantive dialogue and have sought a collaborative process with Libya to reach an agreement.
  - The Grenadian authorities repeatedly:
    - sent direct letters to the Libyan authorities,
    - approached the office of Libya’s Executive Director at the IMF, and
    - provided the relevant information on a timely basis.
  - The Grenadian authorities are committed to continue making their good faith efforts until all the remaining arrears are resolved.
  - The terms the Grenadian authorities have consistently offered to the Libyan authorities are terms comparable to the Paris Club rescheduling negotiated in November 2015.
  - Accordingly, these terms do not imply a contribution that is disproportionate relative to contributions provided by other official bilateral creditors.

- Criterion 3 — Decision to provide financing despite arrears will not unduly hinder future mobilization of official financing:
  - The contribution sought from Libya does not account for the majority of financing contributions required from official bilateral creditors.
  - Libya does not appear to have a strong track record of providing contributions in the context of Fund-supported programs, having undertaken only 5 HIPC restructurings out of its total 18 Completion-Point debtors.
  - In staff’s view, providing financing to Grenada despite the arrears is not expected to have an undue negative effect on the Fund's ability to mobilize future financing packages, given strong support from the international community in the context of the Fund-supported program for Grenada and the Grenadian authorities’ efforts to resolve this in a timely manner.

_ GRENADA — REQUEST FOR DISBURSMENT UNDER THE RAPID CREDIT FACILITY—SUPPLEMENTARY INFORMATION (April 27, 2020) _

---


_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1grdea2020001.pdf_