## 1grdea2022002

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### Context and recent macro developments
- Real GDP growth averaged 4.5 percent during 2014-19, driven by agriculture, tourism, and construction.
- Pre-pandemic tourism: 40 percent of value-added, one-quarter of employment, and 80 percent of exports.
- Poverty rate: 25 percent (2019); unemployment: 15.4 percent (2019).
- Grenada experienced a real GDP contraction of 14 percent in 2020 and lost over 14,000 jobs (over one-quarter of the labor force).
- Annual losses from past weather events estimated at around 1.7 percent of GDP (staff estimate).
- Disaster Resilience Strategy (DRS) prepared to elaborate resilience-building policies consistent with debt sustainability.

### A protracted recovery — findings for 2021
- Real activity and drivers
  - Real GDP expanded by 5.6 percent in 2021, driven mainly by public-led construction and agriculture, and partly by recoveries in wholesale and retail, hotels and restaurants, manufacturing, and financial intermediation.
  - Tourism-related sectors remained anemic; tourist arrivals in 2021 were 25 percent of the 2019 level.
- Inflation
  - CPI inflation at end-2021: 1.9 percent (from -0.8 percent at end-2020).
  - Contributors: food (3 percent), housing, utilities, gas and fuels (2.3 percent), transport (2.4 percent).
  - Core inflation: 0.6 percent.
- Labor market
  - Unemployment fell to 16.6 percent in 2021 Q2 (from 28.4 percent in 2020 Q2).
  - Participation rate increased to 67 percent (from 60.9 percent).
  - Youth unemployment: 38.6 percent with a participation rate of 47 percent.
- Health and pandemic response
  - Nearly 14,000 COVID-19 cases among 112,500 people after outbreaks in August–October 2021 and January–February 2022.
  - Vaccine supply no longer a key constraint; one-third of the total population is fully vaccinated (less than half of the eligible population).
  - Grenada received US$22.4 million under the Rapid Credit Facility in April 2020 and $42.4 million in concessional financing from the World Bank and the Caribbean Development Bank.
- External and fiscal metrics (2021 estimates)
  - Current account deficit: 24.5 percent of GDP (2021) (widened from 21.0 percent in 2020).
  - Central government debt: 70.3 percent of GDP (2021) (from 58.5 percent in 2019).
  - Gross international reserves (US$, millions): 324.2 (2021).
  - Exports of goods and services: 40.1 percent of GDP (2021).
  - Imports of goods and services: 60.4 percent of GDP (2021).
  - External debt (gross): 94.8 percent of GDP (2021).

### Outlook and risks — projections and major risks
- Growth projections (real GDP growth)
  - 2022: 3.6 percent
  - 2023: 3.6 percent
  - 2024: 3.9 percent
  - 2025: 3.5 percent
  - 2026: 3.2 percent
  - 2027: 2.8 percent
- Inflation and price projections
  - GDP deflator: 3.1 percent (2022), 3.3 percent (2023), 1.8 percent (2024).
  - Consumer prices, end of period: 5.4 percent (2022), 2.3 percent (2023), 1.8 percent (2024).
- External sector projections
  - Gross international reserves (US$, millions): 353.2 (2022), 357.2 (2023), 361.2 (2024).
  - Reserves (in months of imports): 5.1 (2022), 4.8 (2023), 4.6 (2024).
  - Current account balance: -27.9 percent of GDP (2022), -20.6 percent (2023), -15.4 percent (2024).
  - Exports of goods and services: 47.5 percent of GDP (2022), 54.4 percent (2023), 59.9 percent (2024).
  - Imports of goods and services: 67.5 percent of GDP (2022), 65.6 percent (2023), 66.0 percent (2024).
  - External debt (gross): 91.7 percent of GDP (2022), 87.5 percent (2023), 83.9 percent (2024).
- Major downside risks
  - Further rise in global commodity prices (including via the war in Ukraine) leading to additional increases in inflation.
  - A more prolonged pandemic, affecting tourism recovery and return of students to Saint George’s University (SGU).
  - These shocks could require additional government support, increasing public debt and external imbalances.

### Fiscal and financial position — key statistics and trajectories
- Central government balances (accrual) — selected items (% of GDP)
  - Revenue and grants: 31.8 (2021), 29.0 (2022), 29.6 (2023).
  - Expenditure: 31.5 (2021), 32.4 (2022), 27.9 (2023).
  - Capital expenditure: 8.6 (2021), 10.4 (2022), 6.9 (2023).
  - Primary balance: 2.1 (2021), -1.5 (2022), 3.5 (2023).
  - Overall balance: 0.3 (2021), -3.4 (2022), 1.7 (2023).
- Public debt (incl. guaranteed)
  - 70.3 percent of GDP (2021); projected 69.0 (2022), 66.5 (2023), 64.4 (2024), 58.9 (2025), 53.6 (2026), 48.6 (2027).
  - Domestic debt: 15.4 (2021).
  - External debt: 54.9 (2021).
- Savings-Investment balance
  - Savings: 3.4 percent of GDP (2021), 0.3 (2022), 4.5 (2023).
  - Investment: 28.0 percent of GDP (2021), 28.2 (2022), 25.0 (2023).

### Fiscal response, temporary measures, and costs
- Headline inflation rise
  - Headline inflation rose to 5.2 percentage points in December 2021 (from 2.2 percent in December 2019), reflecting much weaker domestic demand and remaining significant slack.
- Government temporary measures (December 2021 – May 2022) include:
  - relief of VAT and environmental levy charges on electricity for small consumers;
  - reduction of 25 percent on the electricity non-fuel charge;
  - cap of EC$15 per gallon on gasoline and diesel;
  - exemption of VAT on five food items.
- Fiscal support packages (summary execution, in millions of EC dollars, unless otherwise specified)
  - First package (around 2020Q2): Budgeted total 60; Executed total 37; Total (in percent of 2020 GDP) 2.1%.
  - Second package (launched in September 2021): Budgeted total 36; Executed total 18; Total (in percent of 2021 GDP) 1.2%.
  - Note: Second package jointly funded by the Caribbean Development Bank (US$8.95 mn or EC$23.9 mn) and the Government of Grenada.
- Temporary measures to mitigate rising living costs have estimated costs of 1 percent of GDP.
- Recommendation when temporary measures lift end-May 2022: increase targeted transfers (including through SEED and other social assistance programs); consider temporary direct support for businesses directly affected by higher energy costs.

### Executive Board assessment — summary of Directors’ views and immediate policy priorities
- Commendations and risks
  - Directors commended the authorities’ timely response to the pandemic, facilitated by past fiscal prudence.
  - Near-term outlook seen as favorable but subject to significant downside risks (war in Ukraine; pandemic trajectory).
- Immediate priorities
  - Accelerate vaccination.
  - Provide time-bound fiscal support for the most vulnerable.
- Structural priorities
  - Implement reforms to build resilience to climate change and increase economic diversification.
  - Address long-standing labor skills mismatches.
- Fiscal framework
  - Triggering the escape clause under the FRF for 2020–22 was appropriate; timely return to fiscal rules and strengthening of the FRF over time encouraged.
  - Importance of securing concessional financing and mobilizing domestic resources to finance resilience-building investments.
  - Need to increase spending efficiency and transparency.
  - Note of potential fiscal risks from a recent court ruling on public pensions and the need to ensure pension system sustainability.
- Financial sector recommendations
  - Monitor asset quality as loan moratoria and regulatory forbearance expire.
  - Increase provisioning and strengthen supervisory oversight of credit unions.
  - Further strengthen the AML/CFT framework to help maintain correspondent banking relationships.
- Growth and competitiveness
  - Support implementing the Disaster Resilience Strategy and transition towards renewable energy.
  - Increase value-added in tourism, diversify tourism sources, improve cost competitiveness, and invest in skills development and training.
  - Prepare a plan to adapt to pandemic-related shifts in tourism demand, notably potential long-lasting reduction in demand for cruises.

### Key macroeconomic policy recommendations
- Maintain counter-cyclical fiscal support while returning to the Fiscal Responsibility Framework:
  - Use the COVID period to reconsider the design of the FRF and how it can best support sustainable development.
  - Seek concessional financing and mobilize domestic resources for resilience and development needs.
- Strengthen public finances and debt sustainability:
  - Return to fiscal rules in 2023 after triggering the escape clause in 2020–22.
  - Strengthen FRF over time with Fund technical assistance.
- Build resilience and competitiveness:
  - Implement the Disaster Resilience Strategy and transition toward renewable energy.
  - Increase domestic value-added in tourism, diversify tourism sources, improve cost competitiveness, and address labor skills mismatches.
  - Prepare a plan to adapt to potential long-lasting reductions in cruise demand.
- Safeguard financial stability:
  - Monitor asset quality as loan moratoria and regulatory forbearance expire.
  - Increase provisioning and strengthen supervisory oversight of credit unions.
  - Strengthen the AML/CFT framework to maintain correspondent banking relationships.

### Fiscal rules — observations, shortcomings, and recommended amendments
- Existing FRL features
  - Medium-term debt ceiling and three operational rules; suspendable in face of a severe adverse shock.
- Identified shortcomings
  - Use of a backward-looking deflator and growth rate to constrain primary expenditure can perpetuate transitory shocks.
  - Focus on expenditure side may reduce incentives for revenue mobilization.
  - Ambiguity on procedures (e.g., escape clause multi-year triggering) and definition of public debt.
- Recommendation to amend the FRL before 2024
  - Amend FRL before 2024, when the primary expenditure rule will be binding again.
  - Objective: simpler, more flexible, and still enforceable framework.
  - Core elements: clearly defined medium-term debt ceiling (with broad definition of public debt), clearly specified procedure for debt convergence after shocks, reduced number of numerical rules, and stronger strategic communications and FROC role.
- Options presented (phased approach)
  - Option #1 — Address ambiguity and relax the real primary expenditure rule while staying largely within current framework (e.g., lift ceiling of the real primary expenditure rule).
  - Option #2 — Rethink set and parametrization of operational rules (more ambitious; fewer overlapping rules; maintain wage rule with adjusted parameter).
  - Option #3 — Revisit the debt anchor (lower debt anchor possible if financial buffers against natural disasters are judged insufficient).

### Debt sustainability analysis (DSA) — assessment and stress tests
- Public debt and arrears
  - Public debt rose to 71.4 percent of GDP in 2020 from 58.5 percent in 2019; estimated 70.3 percent of GDP in 2021.
  - Grenada remains "in debt distress" solely due to longstanding unresolved arrears to official bilateral creditors of about US$24.5 million (2.2 percent of GDP) as of end-2021; debt is otherwise assessed as sustainable reflecting favorable projected dynamics.
- Public debt projections (selected)
  - Public sector debt (percent of GDP): 58.5 (2019); 71.4 (2020); 70.3 (2021); 69.0 (2022); 66.6 (2023); 64.3 (2024); 58.9 (2025); 53.5 (2026); 48.5 (2027).
  - External debt (nominal) (percent of GDP): 81.8 (2019); 92.9 (2020); 94.8 (2021); 91.7 (2022); 87.5 (2023); 83.9 (2024); 77.5 (2025); 72.5 (2026); 68.0 (2027).
- Key macro assumptions (selected)
  - Real GDP growth: 0.7; -13.8; 5.6; 3.6; 3.6; 3.9; 3.5; 3.2; 2.8 (series across years as in source).
  - Inflation (GDP deflator): 3.3; -0.3; 1.2; 3.1; 3.3; 1.8; 2.0; 2.2; 2.2 (series across years as in source).
- Stress tests and risks
  - Under stress tests, thresholds are breached for all key indicators of PPG external debt under an export shock; the exports shock is the most severe given high exposure to tourism.
  - Large natural disaster and contingent liabilities shocks have significant effects on the debt path.
  - Policy conditionality for sustainability: return to the FRL and sustained primary surpluses, regularization of arrears, fiscal structural reforms, improved debt management.

### Tourism performance, connectivity, and recovery drivers
- Tourist arrivals and connectivity
  - Stay-over arrivals in October 2021 below 40 percent of October 2019 level; December 2021 arrivals around 60 percent of December 2019.
  - Grenada had 12 daily flights in 2019, around half the number in some ECCU peers; hotel room stock one third of St Lucia and one fourth of Antigua.
- Drivers of underperformance
  - Quarantine and travel protocols mattered more than general lockdown stringency in explaining cross-country variation in tourist arrivals.
  - Regression results (stringency index coefficients, standard errors in parentheses):
    - Column (1): -5.008*** (0.454)
    - Column (2): -2.724*** (0.656)
    - Column (3): -0.5570 (0.827)
    - Column (4): 0.120 (0.603)
  - Interpretation: role of lockdown stringency in explaining tourist arrivals declined over time; travel protocols (e.g., quarantine) more important in later 2021.
- Policy implications for tourism
  - Use targeted COVID-19 travel measures (e.g., quarantine policies) to balance lives and livelihoods.
  - Increase automation, contact-less services (DCash), digital COVID certificates, and online travel and health platforms.
  - Address structural constraints: low flight connectivity, small hotel stock, reliance on cruise arrivals, high energy costs.
  - Government plans to double hotel room stock during 2022-2025 financed mainly with CBI revenues; new rooms expected to improve flight connectivity.
  - Long-term: shift to higher value-added tourism (eco-sustainable, health and wellness, philantourism), deepen linkages with agriculture and agro-processing, leverage SGU for health services.

### Disaster resilience, energy transition, and competitiveness
- Disaster resilience — structural, financial, post-disaster
  - Structural: progress in marine and coastal protection, disaster resilience in education, stocktaking of public assets; national adaptation plan update and building code revision ongoing.
  - Financial: risk-layering framework includes contingency fund under the National Transformation Fund, CCRIF policy, WB Catastrophe Deferred Drawdown (CAT-DDO), hurricane clauses in debt contracts, private sector insurance mechanisms; only 20-40 percent of homeowners estimated to have windstorm insurance.
  - Recommendations: facilitate risk pooling, develop insurance products for agriculture, finalize Disaster Risk Management Act, establish standardized damage and loss assessment database, develop climate risk map.
- Energy transition and competitiveness
  - High electricity costs from reliance on diesel generation hurt competitiveness and increase vulnerability to fuel price swings.
  - Opportunities: switch to renewable sources given depreciated assets and outages; enabling measures include regulatory adjustments, energy efficiency act, procurement regulations favoring renewables, construction standard changes, tax incentives for renewables, higher excises on energy-using products.
- Citizenship by Investment (CBI)
  - CBI inflows mainly used for real estate projects and the National Transformation Fund; recommendation to redirect toward resilience investments and sectors outside real estate (agri-business, ICT, renewable energy).
  - Improvements underway for land registry and trade facilitation; scope to open MNIB bulk import authorization to private importers gradually.

### Financial sector performance, supervision, and recommendations
- Sector performance and risks
  - Banks: NPLs 2.9 percent (end-2021); provisioning meets ECCB guidance (60 percent of NPLs); profitability (return on assets) declined.
  - Credit unions: NPLs 7.2 percent (end-2021) up from 5.2 percent (end-2019); provisioning should be bolstered.
  - DCash digital EC dollar pilot launched March 2021; uptake slow.
- ECCB measures, moratoria, and workouts
  - ECCB loan moratoria initially system-wide, extended selectively, and expired in March 2022.
  - Recommendation: increased use of workouts and purchases by the Eastern Caribbean Asset Management Corporation; new capital may be required in some banks.
- Oversight of credit unions and GARFIN
  - Top three credit unions account for 89 percent of sector assets.
  - Recommendations: issue regulations on asset classification and provisioning aligned with banks; regular stress tests; strengthen governance and “fit and proper” principles; phase institutional capital ratio from 7 to 10 percent; improve data collection and publish more detailed statistics.
- Contingency planning and correspondent banking
  - Grenada lacks an adequate financial safety net framework.
  - Recommendation: create Crisis Management Committee to coordinate ECCB, GARFIN and MOF; enhance cooperation between GARFIN, Financial Intelligence Unit, and ECCB; facilitate timely availability of beneficial ownership information.

### Governance, transparency, and data
- Fiscal governance and transparency
  - Expedite publication of audited financial statements of the public sector; audit and publish COVID-related expenditures.
  - Adopt GFSM 2014 with consistent classification of expenditure items.
- Pensions and contingent liabilities
  - Rising pension payments due to population aging will increase fiscal burden; comprehensive reform likely involving increased contributions and raising retirement age.
  - Recent court ruling (March 29) on the Pension Act could give rise to additional pension liabilities; develop a contingency plan.
- Data issues and capacity
  - Data quality and timeliness should be enhanced (national accounts, CPI, external sector statistics, consolidated SOE financial statements).
  - CARTAC provided technical assistance on national accounts, CPI, and external statistics.
  - Recommendation: rebuild statistics office staffing and invest in training.

*Staff report for the 2022 Article IV Consultation (Grenada), April 14, 2022.*

### 5.6 percent, driven by construction and agriculture. The authorities’ policy response helped

### 5.6 percent, driven by construction and agriculture. The authorities’ policy response helped

### Context
- Real GDP growth averaged 4.5 percent during 2014-19, driven by agriculture, tourism, and construction.
- The successful implementation of the Fiscal Responsibility Framework (FRF) helped address fiscal imbalances, boosted confidence, and underpinned an impressive reduction in public debt.
- Poverty rate: 25 percent (2019); unemployment: 15.4 percent (2019).
- Tourism accounted for 40 percent of value-added, one-quarter of employment, and 80 percent of exports prior to the pandemic.
- Grenada experienced a real GDP contraction of 14 percent in 2020 and lost over 14,000 jobs (over one-quarter of the labor force).
- Grenada’s Disaster Resilience Strategy (DRS) was prepared to elaborate resilience-building policies consistent with debt sustainability.
- Annual losses from past weather events are estimated by staff at around 1.7 percent of GDP.

### A Protracted Recovery — Findings for 2021
- Real GDP is estimated to have expanded by 5.6 percent in 2021, driven mainly by public-led construction and agriculture, and partly by recoveries in wholesale and retail, hotels and restaurants, manufacturing, and financial intermediation.
- Tourism-related sectors (e.g., transport, storage, and communications) remained anemic; tourist arrivals in 2021 were 25 percent of the 2019 level.
- Inflation developments:
  - CPI inflation at end-2021: 1.9 percent (from -0.8 percent at end-2020).
  - Contributors: food (3 percent), housing, utilities, gas and fuels (2.3 percent), transport (2.4 percent).
  - Core inflation remained 0.6 percent.
- Labor market:
  - Unemployment fell to 16.6 percent in 2021 Q2 (from 28.4 percent in 2020 Q2).
  - Participation rate increased to 67 percent (from 60.9 percent).
  - Youth unemployment remained 38.6 percent with a participation rate of 47 percent.
- Health and pandemic response:
  - Nearly 14,000 COVID-19 cases among 112,500 people after outbreaks in August–October 2021 and January–February 2022.
  - Vaccine supply no longer a key constraint; one-third of the total population is fully vaccinated (less than half of the eligible population).
  - Grenada received US$22.4 million under the Rapid Credit Facility in April 2020 and $42.4 million in concessional financing from the World Bank and the Caribbean Development Bank.
- External and fiscal metrics (2021 estimates):
  - Current account deficit widened to 24.5 percent of GDP (from 21.0 percent in 2020).
  - Central government debt rose to 70.3 percent of GDP in 2021 (from 58.5 percent in 2019).
  - Gross international reserves (US$, millions): 324.2 (2021).
  - Exports of goods and services: 40.1 percent of GDP (2021).
  - Imports of goods and services: 60.4 percent of GDP (2021).
  - External debt (gross): 94.8 percent of GDP (2021).

### Outlook and Risks (Projections and Major Risks)
- Growth projection:
  - GDP growth expected in 2022: 3.6 percent.
  - Subsequent projections: 3.6 percent (2023), 3.9 percent (2024), 3.5 percent (2025), 3.2 percent (2026), 2.8 percent (2027).
- Inflation and price projections:
  - GDP deflator: 3.1 percent (2022), 3.3 percent (2023), 1.8 percent (2024).
  - Consumer prices, end of period: 5.4 percent (2022), 2.3 percent (2023), 1.8 percent (2024).
- External sector projections:
  - Gross international reserves (US$, millions): 353.2 (2022), 357.2 (2023), 361.2 (2024).
  - Reserves (in months of imports): 5.1 (2022), 4.8 (2023), 4.6 (2024).
  - Current account balance: -27.9 percent of GDP (2022), -20.6 percent (2023), -15.4 percent (2024).
  - Exports of goods and services: 47.5 percent of GDP (2022), 54.4 percent (2023), 59.9 percent (2024).
  - Imports of goods and services: 67.5 percent of GDP (2022), 65.6 percent (2023), 66.0 percent (2024).
  - External debt (gross): 91.7 percent of GDP (2022), 87.5 percent (2023), 83.9 percent (2024).
- Major downside risks:
  - Further rise in global commodity prices (including via the war in Ukraine) leading to additional increases in inflation.
  - A more prolonged pandemic, affecting tourism recovery and return of students to Saint George’s University (SGU).
  - These shocks could require additional government support, increasing public debt and external imbalances.

### Fiscal and Financial Position — Key Statistics and Trajectories
- Central government balances (accrual) — selected items (% of GDP):
  - Revenue and grants: 31.8 (2021), 29.0 (2022), 29.6 (2023).
  - Expenditure: 31.5 (2021), 32.4 (2022), 27.9 (2023).
  - Capital expenditure: 8.6 (2021), 10.4 (2022), 6.9 (2023).
  - Primary balance: 2.1 (2021), -1.5 (2022), 3.5 (2023).
  - Overall balance: 0.3 (2021), -3.4 (2022), 1.7 (2023).
- Public debt (incl. guaranteed):
  - 70.3 percent of GDP (2021); projected 69.0 (2022), 66.5 (2023), 64.4 (2024), 58.9 (2025), 53.6 (2026), 48.6 (2027).
  - Domestic debt: 15.4 (2021).
  - External debt: 54.9 (2021).
- Savings-Investment balance:
  - Savings: 3.4 percent of GDP (2021), 0.3 (2022), 4.5 (2023).
  - Investment: 28.0 percent of GDP (2021), 28.2 (2022), 25.0 (2023).

### Executive Board Assessment — Summary of Directors’ Views
- Directors commended the authorities’ timely response to the pandemic, facilitated by past fiscal prudence.
- Near-term outlook seen as favorable but subject to significant downside risks (war in Ukraine; pandemic trajectory).
- Immediate policy priorities highlighted:
  - Accelerate vaccination.
  - Provide time-bound fiscal support for the most vulnerable.
- Structural priorities emphasized:
  - Implement reforms to build resilience to climate change and increase economic diversification.
  - Address long-standing labor skills mismatches.
- Fiscal framework:
  - Triggering the escape clause under the FRF for 2020–22 was appropriate; timely return to fiscal rules and strengthening of the FRF over time was encouraged.
  - Importance of securing concessional financing and mobilizing domestic resources to finance resilience-building investments.
  - Need to increase spending efficiency and transparency.
  - Note of potential fiscal risks from a recent court ruling on public pensions and the need to ensure pension system sustainability.
- Financial sector:
  - Sector has been resilient to the pandemic shock.
  - Asset quality should be monitored as loan moratoria and regulatory forbearance expire.
  - Call for increased provisioning and strengthened supervisory oversight of credit unions.
  - Further strengthening of the AML/CFT framework needed to help maintain correspondent banking relationships.
- Growth and competitiveness:
  - Support for implementing the Disaster Resilience Strategy and transition towards renewable energy.
  - Encourage increasing value-added in tourism through deeper linkages across sectors, diversifying tourism sources, improving cost competitiveness, and investing in skills development and training.
  - A plan may be needed to adapt to pandemic-related shifts in tourism demand, notably potential long-lasting reduction in demand for cruises.

### Key macroeconomic policy recommendations
- Maintain counter-cyclical fiscal support while returning to the Fiscal Responsibility Framework:
  - Use the COVID period to carefully reconsider the design of the FRF and how it can best support sustainable development.
  - Seek concessional financing and mobilize domestic resources for resilience and development needs.
- Strengthen public finances and debt sustainability:
  - Return to fiscal rules in 2023 after triggering the escape clause in 2020–22.
  - Strengthen FRF over time with Fund technical assistance.
- Build resilience and competitiveness:
  - Implement the Disaster Resilience Strategy and transition toward renewable energy.
  - Increase domestic value-added in tourism, diversify tourism sources, improve cost competitiveness, and address labor skills mismatches.
  - Prepare a plan to adapt to potential long-lasting reductions in cruise demand.
- Safeguard financial stability:
  - Monitor asset quality as loan moratoria and regulatory forbearance expire.
  - Increase provisioning and strengthen supervisory oversight of credit unions.
  - Strengthen the AML/CFT framework to maintain correspondent banking relationships.

*Staff report for the 2022 Article IV Consultation (Grenada), April 14, 2022.*

### 5.2 percentage points in December 2021 (from

### 1grdea2022002 - 5.2 percentage points in December 2021 (from

### Inflation, domestic demand, and temporary measures
- Headline inflation rose to 5.2 percentage points in December 2021 (from 2.2 percent in December 2019), reflecting much weaker domestic demand in Grenada and remaining significant slack.
- Near-term price pressures expected to continue building despite temporary measures.
- Government temporary measures (December 2021 – May 2022) in the 2022 Budget include:
  - relief of VAT and environmental levy charges on electricity for small consumers;
  - reduction of 25 percent on the electricity non-fuel charge;
  - cap of EC$15 per gallon on gasoline and diesel;
  - exemption of VAT on five food items.
- Despite measures, rapid run-up in international commodity prices will continue to increase inflation and second-round effects are possible if price increases are reflected in higher wages.
- Inflation is projected to further increase to 5.4 percent by end-2022, in line with rising global commodity prices, and to ease gradually thereafter.

### External position and competitiveness
- Grenada’s external position in 2021 is assessed to be weaker than implied by medium-term fundamentals and desirable policies.
- The REER is estimated to have depreciated by 4.1 percent in 2021 reflecting a stronger increase in trading partners’ inflation.
- The EBA-Lite-based current account gap of 2.4 percent of GDP underpins the assessment.
- The 2021 SDR allocation (around 2 percent of GDP) has been kept in reserves.
- Over the medium term, recommended supply-side reforms include reducing energy costs, increasing labor skills, and building resilience to natural disasters to strengthen competitiveness and improve the external position.

### Outlook and risks
- Output is projected to expand by 3.6 percent in 2022, underpinned by construction activity, the gradual pickup in tourist arrivals, and the continued return of SGU students.
- The current account deficit is projected to worsen further in 2022 given sharp increases in import prices, before improving in 2023 supported by increases in tourism export receipts and moderation in fuel imports.
- Tourism export receipts projected to return to the 2019 level by 2025.
- Output is expected to return to its pre-pandemic level by 2024 and then gradually converge back to potential by 2027.
- Main downside risks:
  - further increase in food and oil prices and prolonged supply chain disruptions due to the war in Ukraine (could lead to higher inflation including second-round effects);
  - a more prolonged pandemic (implications for tourism recovery and return of SGU students);
  - sharp rise in global risk premia reducing liquidity and credit domestically;
  - natural disasters, with potential for increased severity due to climate change;
  - domestically, a sharp rise in pension liabilities.
- Upside risks:
  - reduced hesitancy and accelerated vaccinations;
  - breakthroughs in COVID treatment;
  - higher deployment of public investment;
  - faster implementation of reforms to improve competitiveness.

### Authorities’ views
- Authorities broadly agreed with staff’s growth projection and risk assessment.
- Public investment expected to moderate in the medium term, but construction sector will continue to perform well and support recovery of tourism and related sectors.
- Authorities noted upside risks to the inflation outlook and that higher import prices and supply chain disruptions, aggravated by the war in Ukraine, might create fiscal pressures.

### Fiscal response to the pandemic and fiscal position
- Escape clause under the FRF was triggered in both 2020 and 2021, allowing two stimulus packages equal to 2.1 and 1.2 percent of GDP, respectively, and increased public investment and reprioritization of expenditures.
- Primary surplus declined from 6.8 to 2.1 percent of GDP during 2019-2021.
- Revenue-to-GDP ratio declined modestly while primary expenditure rose significantly due to higher social spending and capital expenditure.
- Grants rose as government tapped the National Transformation Fund (NTF).
- Central government debt rose from 59 to 70 percent of GDP during 2019-2021.
- The Debt Sustainability Analysis suggests public debt is sustainable although Grenada is found to be “in debt distress” due to outstanding arrears to official bilateral creditors (authorities making good faith efforts to reach agreement on outstanding arrears totaling about US$25 million).
- Primary balance expected to swing into deficit in 2022, financed by drawing down government deposits and external borrowing.

### Fiscal support packages and costs
- Fiscal Support Measures in 2020 and 2021 (In millions of EC dollars, unless otherwise specified) — summary execution:
  - First package (launched around 2020Q2): Budgeted total 60; Executed total 37; Total (in percent of 2020 GDP) 2.1%.
  - Second package (launched in September 2021): Budgeted total 36; Executed total 18; Total (in percent of 2021 GDP) 1.2%.
  - Note: The second package is jointly funded by the Caribbean Development Bank (US$8.95 mn or EC$23.9 mn) and the Government of Grenada. Executed amount reflects outturn as of end-January 2022. Some components will run through August 2022.
- Temporary measures to mitigate rising living costs have estimated costs of 1 percent of GDP and are likely to offset projected potential improvement in tax revenues, resulting in a broadly unchanged tax revenue-to-GDP ratio from 2021.
- Recommendation: To cushion impacts when temporary measures lift end-May 2022, targeted transfers should be increased (including through SEED and other social assistance programs); temporary direct support could be considered for businesses (such as bus operators) directly affected by higher energy costs.
- It will be important to allow higher international food and energy costs to pass through to domestic prices, especially if price increases persist.

### Fiscal projections (Percent of GDP)
- Selected lines for 2019–2024 (Authorities and IMF staff projections):
  - Total revenue and grants: 2019 26.6; 2020 28.1; 2021 31.8; 2022 Budget 28.2; 2022 IMF staff 29.0; 2022 MTFF 29.1; 2023 IMF staff 29.6; 2023 MTFF 28.0; 2023 IMF staff 28.8.
  - Tax revenues: 2019 21.9; 2020 22.1; 2021 20.8; 2022 Budget 19.8; 2022 IMF staff 20.7; 2022 MTFF 20.7; 2023 IMF staff 21.6; 2023 MTFF 20.8; 2023 IMF staff 21.8.
  - Grants: 2019 2.9; 2020 3.7; 2021 7.6; 2022 Budget 5.5; 2022 IMF staff 5.5; 2022 MTFF 5.5; 2023 IMF staff 5.2; 2023 MTFF 4.3; 2023 IMF staff 4.2.
  - Total expenditure and net lending: 2019 21.6; 2020 26.9; 2021 31.5; 2022 Budget 31.2; 2022 IMF staff 32.4; 2022 MTFF 27.4; 2023 IMF staff 27.9; 2023 MTFF 25.1; 2023 IMF staff 26.6.
  - Capital expenditure: 2019 2.6; 2020 3.8; 2021 8.6; 2022 Budget 10.5; 2022 IMF staff 10.4; 2022 MTFF 6.7; 2023 IMF staff 6.9; 2023 MTFF 5.3; 2023 IMF staff 5.7.
  - Primary balance: 2019 6.8; 2020 3.2; 2021 2.1; 2022 Budget -1.1; 2022 IMF staff -1.5; 2022 MTFF 3.5; 2023 IMF staff 3.5; 2023 MTFF 4.5; 2023 IMF staff 3.8.
  - Overall balance: 2019 5.0; 2020 1.2; 2021 0.3; 2022 Budget -3.1; 2022 IMF staff -3.4; 2022 MTFF 1.6; 2023 IMF staff 1.7; 2023 MTFF 2.9; 2023 IMF staff 2.2.

### Policy recommendations to support recovery and build resilience
(i) Mobilizing resources
- Enhance compliance, reduce tax arrears, boost digitalization, and increase equity of the tax system.
- Tackle staffing shortages in tax collection agencies, notably risk management and audit.
- Implement legislation to enforce mandatory online filing and payment by large and medium taxpayers and for more taxes.
- Regular revaluation of property values—especially for new and remodeled properties—to increase collections.
- Ensure residents’ foreign-source income is brought into the tax net and provide a dependent child allowance to lower-income workers.
- More systematically identify resilience investments that could be financed through donor grants and concessional financing and couch investments within the Disaster Resilience Strategy to improve donor prospects.

(ii) Improving expenditure efficiency
- Strengthen public investment management to support improved project implementation and mitigate fiscal costs and risks.
- Continue criteria and systems for estimating maintenance and rehabilitation costs for physical infrastructure and strengthen coordination of spending across government agencies.
- Accelerate implementation of the Public Service Management Reform Strategy (2017), complete functional review of ministry responsibilities, and compile comprehensive public sector compensation database to identify skills gaps.

(iii) Strengthening coverage and targeting of social protection
- Expand SEED coverage (currently around 5,500 households) based on forthcoming country poverty assessment to ensure proper targeting.
- Establish permanent unemployment insurance scheme following temporary pandemic program.
- Strengthen targeting through better data systems and stronger collaboration across ministries; address gaps in coverage (e.g., the disabled).

(iv) Strengthening institutional framework for fiscal policy
- Amend the fiscal responsibility framework to center on the medium-term debt ceiling (55 percent of GDP or lower given natural disaster shocks), reduce overlaps in numerical rules, and provide clear procedures to return to targeted debt path following shocks.
- Provide stronger incentives for revenue mobilization to create greater space for social and capital spending.
- Develop a realistic and credible macroeconomic and fiscal framework for the post-pandemic environment and align annual budgets with medium-term goals.
- Strengthen the role of the Fiscal Responsibility Oversight Committee in assessing medium-term forecasts and outlining shock scenarios and contingent measures.

### Fiscal rules: observations and shortcomings
- Fiscal rules enshrined in the Fiscal Responsibility Act 2015 consist of a medium-term debt ceiling and three operational rules and can be suspended in the face of a severe adverse shock.
- Shortcomings identified:
  - Use of a backward-looking deflator and growth rate to constrain primary expenditure can perpetuate the impact of transitory shocks.
  - Focus on expenditure side may reduce incentives for revenue mobilization.
  - Ambiguity on procedures (e.g., whether the escape clause can be triggered over multiple years) and definition of public debt in the law could be clarified and aligned with practice.

_Italic: Source — 1grdea2022002 - 5.2 percentage points in December 2021 (from_

### 22.      To further enhance fiscal governance and transparency, the publication of audited

### 1grdea2022002 - 22.      To further enhance fiscal governance and transparency, the publication of audited

### Fiscal governance and transparency
- Expedite publication of audited financial statements of the public sector; expenditures (including those extraordinary items undertaken in response to COVID) should be audited and the results published on the Ministry of Finance website.
- The government has begun to publish data on its fiscal and debt operations.
- Adoption of GFSM 2014, with a consistent classification of expenditure items, would be beneficial.
- Footnote: In the Letter of Intent requesting disbursement under the RCF, the authorities committed to earmarking resources received form the development partners for specific COVID-19-related expenses and providing to the public accurate and timely information with regard to that use. While an internal audit has been prepared, the publication of the expenditure and its audit report has not been completed.

### Fiscal rules and operational parameters
- Public debt (ceiling)
  - Above 55 perent of GDP
  - Below or at 55 percent of GDP
- 1. Primary balance
  - At least 3.5 percent of GDP
  - At a debt-stabilizing level
- 2. Real primary expenditure
  - 1/ At most 2 percent for year-on-year growth
  - Recalibrated
- 3. Wage bill
  - At most 9 percent of GDP
- 1/ Excludes capital spending financed by grants or the National Transformation Fund. 2 percent is based on the long-run potential growth rate of output estimated in 2014.

### State-owned enterprises (SOEs)
- Since 2019, annual risk assessments of SOEs have been presented in the Fiscal Risk Statement.
- Progress in reviewing SOE tariffs to better support cost recovery and investment needs, especially in the water sector.
- Recommendation: resume publication of SOE financial performance to improve transparency and oversight.

### Pensions and contingent liabilities
- Rising pension payments due to population aging will place an increasing burden on the fiscal accounts in the medium and long term.
- Recommendation: comprehensive reform likely involving increased contributions and raising the retirement age.
- A recent court ruling: On March 29, Grenada’s High Court ruled unconstitutional the 1983 amendment to the Pension Act; this can potentially give rise to additional pension liabilities for the government.
- Recommendation: develop a contingency plan to handle various possible outcomes.

### Authorities’ views on fiscal policy and reform
- Authorities broadly agreed on staff’s proposed fiscal policy agenda to support sustainable development and resilience building.
- Recognized need to keep fiscal relief measures temporary and preference for transfers to better target the most affected.
- Acknowledged information gaps for targeting and the need to reassess the FRF to better support sustainable development.
- Expressed strong interest in capacity development support from the Fund.

### Achieving sustainable growth and job opportunities — tourism and value added
- Tourism recovery has been slower than regional peers, reflecting quarantine measures and structural factors (reliance on cruise ships, fewer flights to main source markets).
- Scope to increase domestic value-added of tourism by strengthening linkages with agriculture and agri-processing; MNIB can coordinate.
- Opportunities: increase number of flights, leverage medical facilities and SGU knowledge for health services, expand fishing and eco-tourism, promote environmentally-sensitive ocean resource use to attract stay-over tourists.

### Disaster resilience (structural, financial, post-disaster)
- Structural resilience
  - Progress in marine and coastal protection, disaster resilience in education, and stocktaking of public assets.
  - Ongoing efforts: secure donor financing, incorporate sustainability into procurement, update national adaptation plan, legislate updated building code.
- Financial resilience
  - Grenada has a risk-layering framework: contingency fund under the National Transformation Fund, CCRIF policy, WB Catastrophe Deferred Drawdown (CAT-DDO), hurricane clauses in debt contracts, private sector insurance mechanisms.
  - Only 20-40 percent of homeowners are estimated to have windstorm insurance.
  - Recommendation: facilitate risk pooling (e.g., public guarantee for excess liability), develop insurance products for agriculture.
- Post-disaster and social resilience
  - Recommendation: strengthen integration between NaDMA and regional organizations to increase technical and operational capacity.
  - Finalize legislative framework for the Disaster Risk Management Act.
  - Establish a new database with a standardized damage and loss assessment methodology across ministries.
  - Develop a climate risk map for hydro-meteorological and geological hazards.

### Energy transition and competitiveness
- High electricity costs from reliance on diesel generation hurt competitiveness and increase vulnerability to fuel price swings.
- Opportunity: depreciated electricity generation assets and recent outages offer scope to switch to renewable sources to lower costs and reduce emissions.
- Enabling measures: regulatory adjustments (update national energy policy and interconnection policy), enact energy efficiency act, promulgate procurement regulations favoring renewables, change construction standards to incentivize small-scale solar, tax incentives for renewables, higher excises on energy-using products.

### Citizenship by Investment (CBI) and competitiveness
- CBI inflows mainly used for real estate projects and the National Transformation Fund; recommendation to redirect toward resilience investments and sectors outside real estate (agri-business, ICT, renewable energy).
- Property rights: improvements underway for the land registry (electronic recording of title and deed, geographic information, coverage of property registry, plat maps).
- Trade facilitation: ongoing efforts to achieve international standards for food safety and improve logistics; scope to open MNIB bulk import authorization to private importers gradually.
- Labor market: continue training programs, strengthen integration between academic institutions and firms, focus on technical and entrepreneurial skills.
- Regulatory management: improve transparency of rule-making, increase public consultation, conduct impact assessments and ex-post reviews of regulations.

### Financial stability — sector performance and risks
- The financial sector has weathered the pandemic well; credit growth was lukewarm in 2020-21 despite ample liquidity.
- Nonperforming loans (NPLs)
  - Credit unions: rose to 7.2 percent in end-2021 (from 5.2 percent in end-2019).
  - Banks: remain low at 2.9 percent.
- Expectation: NPLs look set to rise with prolonged strains as moratoria and regulatory forbearance are removed.
- Bank loan loss provisioning meets the ECCB’s recently-revised guidance (of 60 percent of NPLs) but credit union provisioning should be bolstered.
- Banking system profitability (return on assets) has declined.
- Digital EC dollar (DCash) pilot launched in March 2021; uptake has been slow.

### ECCB measures, moratoria, and workouts
- ECCB’s temporary measures (loan moratoria) mitigated pandemic impacts; moratoria initially system-wide, extended selectively in March 2021 and September 2021, and expired in March 2022.
- Recommendation: increased use of workouts and purchases by the Eastern Caribbean Asset Management Corporation; new capital may be required in some banks.

### Oversight of credit unions
- Credit unions have grown rapidly, are highly concentrated (the top three account for 89 percent of sector assets), and constitute a substantial fraction of domestic credit.
- GARFIN enhanced oversight frequency and intensity during the pandemic; should continue efforts.
- Recommendations:
  - Issue regulations on asset classification and provisioning for credit unions aligned with banks.
  - Conduct regular stress tests (including property-market overheating risks) and consider disclosing results to raise awareness.
  - Continue examination procedures on loan policies and underwriting standards.
  - Strengthen governance, including “fit and proper” principles for Board members.
  - Phase institutional capital ratio from 7 to 10 percent (planned); use a tighter definition of capital aligned with World Council of Credit Unions standards.
  - Improve data collection systems for granular loan sectoral composition and recovery processes; publish more detailed statistics (prudential ratios, credit portfolios by borrower type).

### Contingency planning, crisis preparedness, and correspondent banking
- Grenada lacks an adequate and effective framework for crisis prevention or a financial safety net.
- Recommendation: strengthen monitoring of climate risks for the insurance sector; create a Crisis Management Committee to coordinate ECCB, GARFIN and MOF.
- Correspondent banking relationships face risks from higher compliance costs (e.g., U.S. National Defense Authorization Act).
- To strengthen financial integrity: ECCB designated as competent AML/CFT authority for banks; enhance cooperation between GARFIN, Grenada’s Financial Intelligence Unit, and ECCB.
- Do diligence of the CBI program should remain attentive to integrity risks and strengthen oversight and transparency.
- Authorities should facilitate timely availability of beneficial ownership information of companies registered in Grenada.

### Safeguards assessment and DCash risks
- Update safeguards assessment of the ECCB (finalized in August 2021) found strong external audit and financial reporting practices and improvements in internal audit capacity.
- Legal reforms recommended to further strengthen operational autonomy of the ECCB and align its Agreement Act with leading practices.
- DCash introduces new risks requiring additional controls and oversight; assessment made recommendations to enhance project-governance framework.

### Data issues
- Data quality and timeliness should be enhanced to inform government and private sector planning.
- CARTAC has provided technical assistance on national accounts, consumer price index, and external sector statistics.
- Weaknesses: collection of high frequency indicators, publication of consolidated financial statements of SOEs, preparation of balance of payments data.
- Compilation of statistics affected by mobility restrictions and turnover in the statistics office; recommendation: rebuild staffing levels and invest in training.

_https://www.imf.org/-/media/files/publications/cr/2022/english/1grdea2022002.pdf_

### 40.      The authorities’ fiscal and public health responses to the pandemic have helped

### 1grdea2022002 - 40. The authorities’ fiscal and public health responses to the pandemic have helped

### Assessment of recent developments and outlook
- The authorities’ fiscal and public health responses mitigated the impact on Grenada’s tourism-dependent economy and its people.
- The government suspended its fiscal rules in 2020-2022 and increased health, social, and capital expenditure.
- Public debt is assessed sustainable although Grenada is found to be “in debt distress” due to its outstanding arrears to official bilateral creditors.
- Real GDP grew 5.6 percent in 2021 and is projected to expand by 3.6 percent in 2022.
- The external position in 2021 was weaker than the level implied by fundamentals and desirable policies.
- Only one-third of the population is fully vaccinated.
- Higher food and oil prices and supply chain disruptions—especially from the war in Ukraine—could lead to further increases in inflation.
- A more prolonged pandemic could harm the recovery of tourism and offshore education.
- Headline inflation increased, while core inflation remained weak, with significant increases in food, housing and transportation prices.

### Immediate policy priorities
- Accelerate vaccination coverage.
- Provide time-bound fiscal support:
  - Allow higher international food and energy costs to pass through to domestic prices alongside targeted support to protect the vulnerable.
  - Consider temporary direct support for micro-, small-, and medium-sized firms most affected by rising energy costs.

### Fiscal framework and public finances
- Barring unforeseen events, fiscal rules should come back into force starting 2023 to ensure fiscal credibility and sustainability.
- To sustain increased public investment in resilient infrastructure:
  - Secure concessional financing and mobilize domestic resources.
- Implement a comprehensive pension reform to improve the financial position of the pension system.
- Strengthen public spending efficiency through:
  - Better public investment management.
  - Accelerated implementation of the 2017 Public Service Management Reform Strategy.
  - Better targeting of social assistance programs.
- Reconsider the design of the fiscal framework:
  - Center it on the medium-term debt ceiling, with fewer overlaps in numerical rules.
  - Include clear procedures to return to the targeted debt path following an unanticipated shock.
  - Provide stronger incentives for revenue mobilization.
  - Enhance transparency by timely publishing public sector and SOE audited financial statements.

### Structural and sectoral recommendations
- Shift the tourism model toward higher value-added by:
  - Working with local producers to align output with the demands of hotels and restaurants.
  - Increasing the number of flights.
  - Leveraging the presence of Saint George’s University to offer health services to visitors.
  - Advancing investments in fishing and eco-tourism ventures.
- Implement Grenada’s Disaster Resilience Strategy with high priority:
  - Establish a public asset registry to help prioritize critical maintenance spending.
  - Broaden insurance coverage with the private sector, particularly catastrophic risk insurance.
  - Finalize the legislative framework for the Disaster Risk Management Act.
  - Develop a “risk map” for hydro-meteorological and geological hazards to guide scenario planning and disaster response.
- Accelerate the shift to renewable energy through regulatory adjustments, changes to construction standards, and incentives to invest in renewables.
- Address the long-standing skills mismatch by continuing and improving training programs.

### Financial sector and supervision
- The financial sector has weathered the pandemic well.
- Banks increased loss provisioning to meet the ECCB revised guidelines.
- Risks:
  - Asset quality could deteriorate following the expiration of loan moratoria and regulatory forbearance.
  - Provisioning in the credit union sector ought to be increased.
  - Supervisory oversight should be strengthened.
- Recommendation: The next Article IV consultation should take place on the standard 12-month cycle.

### Key statistics and indicators (selected exact figures from the content)
- Real GDP growth: 5.6 percent in 2021; projected 3.6 percent in 2022.
- Vaccination: One-third of the population is fully vaccinated.
- Fiscal rules suspension: 2020-2022; recommended return starting 2023.
- Public debt: assessed sustainable but Grenada is in “debt distress” due to outstanding arrears to official bilateral creditors.
- Table highlights (selected):
  - Public debt (incl. guaranteed) by percent of GDP: 70.4 (2017), 64.0 (2018), 58.5 (2019), 71.4 (2020), 70.3 (2021), 69.0 (2022), 66.5 (2023), 64.4 (2024), 58.9 (2025), 53.6 (2026), 48.6 (2027).
  - Current account balance (percent of GDP): -14.4 (2017), -16.1 (2018), -14.6 (2019), -21.0 (2020), -24.5 (2021), -27.9 (2022), -20.6 (2023), -15.4 (2024), -13.6 (2025), -12.9 (2026), -12.4 (2027).
  - Central government overall balance (percent of GDP): 3.0 (2017), 4.6 (2018), 5.0 (2019), 1.2 (2020), 0.3 (2021), -3.4 (2022), 1.7 (2023), 2.2 (2024), 2.0 (2025), 2.3 (2026), 2.4 (2027).
  - Central government capital expenditure (percent of GDP): 2.7 (2017), 2.8 (2018), 2.6 (2019), 3.8 (2020), 8.6 (2021), 10.4 (2022), 6.9 (2023), 5.7 (2024), 4.6 (2025), 4.7 (2026), 4.7 (2027).

*Source: 1grdea2022002 - 40. The authorities’ fiscal and public health responses to the pandemic have helped (IMF staff report content).*

### Annex I. Implementation of Past Staff Advice

### Annex I. Implementation of Past Staff Advice

### Growth Agenda
- Enhance positive spillovers from tourism to the rest of the economy.
  - Policy action: Ongoing. The West Indies School of Hospitality (WISH), launched in 2021, will provide Cornell University Scholarships for hospitality workers in Grenada. The Community Tourism Project seeks to link the agriculture sector with tourism.
- Accelerate efforts to facilitate trade through simplifying customs procedures and reducing port charges.
  - Policy action: Ongoing. Grenada Customs received TA from CARTAC to support the development of performance targets and KPI in key functional, operational and organizational areas. However, implementation has been limited due to constraints in human and material resources, among other.
- Operationalize the regulations to the 2016 electricity supply act to unlock renewable energy investment.
  - Policy action: Ongoing. From a total of nine Public Utilities Regulatory Commission’s regulatory instruments, the Electricity Tariff-Setting Methodology Regulations and the Electricity Generation, Expansion Planning, and Competitive Procurement Regulations were both gazetted on April 8, 2022, and two are close to promulgation.
- Further improve labor market institutions and education and training programs to enhance job matching.
  - Policy action: Ongoing. The government is implementing recommendations to improve the IMANI program, the main vehicle for training. The National Skills development Program continues to help in developing skills in various areas as well as business support for youth entrepreneurs.
- Prepare a national Disaster Resilience Strategy.
  - Policy action: Completed. Strategy aimed at addressing the infrastructure and resilience gaps was prepared in January 2021 and published in February 2022.

### Fiscal Policy
- Carefully plan steps to enhance the FRL, with a consistent and well-sequenced implementation. Continue improving public financial management.
  - Policy action: Ongoing. The pandemic reinforced the need to amend the Fiscal Responsibility Framework. Various options are under consideration, with the timing and the details to be ironed out. Debt reports have been published regularly. Audited financial statements of the government for the last several fiscal years are still pending.
- Further enhance the level and targeting of social assistance, including a further upgrade of the SEED.
  - Policy action: Ongoing. A temporary unemployment insurance program was introduced in 2020 and is being formalized. The SEED was expanded in 2021 to better protect the poor. Income support and wage subsidies were provided to both formal and informal sector workers in sectors hard hit by the pandemic.
- Improve public investment management.
  - Policy action: Ongoing. The new institutional framework for coordinating capital projects is helping improve the efficiency of managing public investment. The registry of public assets is being established. An IMF Public Investment Management Assessment (with a climate module) took place in April 2022.
- Address delays in the implementation of the 2017-19 public service reform.
  - Policy action: Ongoing. The attrition policy is being used to manage size of the public sector. A Management Information System was launched to better manage human resources. More government services have moved online, including efforts in improving the communication between the cabinet and the public.
- Implement sectoral structural reforms on aging-related spending, tax administration, and public enterprise efficiency.
  - Policy action: Ongoing. Limited progress on aging-related spending. The inland revenue division is taking measures to reduce tax arrears. Studies for expanding the tax base are ongoing, including on reassessing property values. A centralized effort in assisting SOEs in wage negotiation has been established. Pension and dividends of SOEs are managed actively, based on profitability.

### Financial Sector
- Strengthen the regulation and oversight of non-bank financial sector, in coordination with ECCB and ECCU’s peer regulators aimed at continuously harmonizing oversight of non-banks.
  - Policy action: Ongoing. The Grenada Authority for the Regulation of Financial Institutions (GARFIN) improved its capacity for credit quality review and stress testing of credit unions and intensified monitoring of credit unions and insurers during the pandemic. Standardized regulations for credit unions are yet to be promulgated and work is ongoing in conjunction with regional partners on an optimal regulatory framework for the financial sector. The development of a national crisis management plan is progressing albeit with delays.
- Ensure compliance with AML/CFT regulations.
  - Policy action: Ongoing. AML/CFT Commission has been established and is now staffed. The Financial Intelligence Unit has strengthened monitoring.

*Source: Annex I. Implementation of Past Staff Advice.*

### 3.      The Fiscal Responsibility Law (FRL) should be amended before 2024, when the primary

### 3.      The Fiscal Responsibility Law (FRL) should be amended before 2024, when the primary

### Recommendation to amend the FRL before 2024
- Amend the FRL before 2024, when the primary expenditure rule will be binding again under the current FRL.
- Given the relatively low level of interest payments (reflecting a significant share of concessional financing), the primary balance of 3.5 percent already puts Grenada firmly on a downward debt path towards the medium-term target of 55 percent.
- Amending the FRL before 2024 can allow fiscal policy to:
  - better support the recovery,
  - build resilience,
  - strengthen social protection,
  - continue to ensure debt sustainability.
- Consolidation in 2023 to comply with the FRL will come from moderating the public sector investment program, which is desired given the current unsustainable level of public investment.
- Under staff’s baseline framework in compliance with the current FRL, the primary expenditure rule would be binding in 2024 leaving the primary balance exceeding the minimum of 3.5 percent of GDP required by the FRL.

### Strategic communications and institutional roles
- Strategic communications are key for the amended FRL to be credible.
- Risks without clear communications:
  - fiscal discretion after the escape clause can lead to excessive deficits (which can happen if the triggering shock is a small natural disaster),
  - restrictions to limit fiscal discretion can cause too strong a fiscal consolidation when the economy is still experiencing a fragile recovery.
- The amended FRL should:
  - address these concerns,
  - create larger room for strategic communications to guide fiscal policy (rather than hitting overlapping numerical constraints).
- The Fiscal Responsibility Oversight Committee (FROC) should play a more active role in:
  - monitoring and assessing performances against government communications,
  - participating in the process of triggering the escape clause.

### Public financial management (PFM) improvements
- Strong PFM will provide the institutional foundation for a successful amendment.
- Critical areas for further improvement include:
  - reporting of SOE financial performances,
  - public investment management.

### Objective and principles of the amended framework
- Objective: a simpler, more flexible, and still enforceable framework (principles from Eyraud et al., 2018).
- Key design elements:
  - a clearly defined medium-term debt ceiling (with an appropriately defined broad definition of public debt like in the current FRL),
  - a clearly specified procedure for debt to converge to the ceiling following shocks, especially large ones.
- Simplification: reduce number of numerical rules.
- Flexibility: remove rigidity (see Box 2 in source).
- Enforceability: clear communications about fiscal and debt path and active FROC monitoring.
- Core requirement: ensure debt has sufficiently rapid convergence towards the target after severe shocks while giving fiscal policy more flexibility.

### Options: A Phased Approach
- Aim: continue to ensure sufficiently rapid debt convergence to the medium-term target while increasing fiscal flexibility.

(i) Option #1 — Address ambiguity and relax the real primary expenditure rule while staying largely within current framework
- Possible changes:
  - introduce exemptions to or lift the ceiling of the primary expenditure rule,
  - address ambiguity in triggering the escape clause,
  - avoid inconsistency in the debt definition,
  - clarify that the debt target is a medium-term ceiling (convergence path should depend on the size and nature of the shock).
- Caveats on exemptions:
  - introducing exemptions for high priority spending can erode simplicity and enforceability,
  - risks include creative accounting and misallocation of resources when urgency subsides.
- Simpler alternative:
  - lift the ceiling of the real primary expenditure rule.
  - The current FRL requires the ceiling to be set at the real long-run potential growth, which is currently estimated by staff at around 2.8 percent.
  - A higher ceiling would have additional benefits of encouraging stronger revenue collection effort.
  - The amended FRL would remain flexible during downturns; procyclicality of the primary balance rule during a recession would continue to be mitigated by triggering the escape clause.

(ii) Option #2 — Rethink the set and parametrization of operational rules (more ambitious)
- Current framework includes several overlapping rules that may unduly constrain policy options.
- A prudent debt reduction can be achieved with potentially fewer targets.
- The amended FRL can consider a gradual transition to option #2 but could return to option #1 if fiscal discipline is not maintained (e.g., public debt being persistently higher than the target, showing little sign of convergence).
- Cautions:
  - rising pension and health expenditures present long-term fiscal challenges,
  - revising rules should not introduce issues of institutional coverage that weaken enforceability.
- Specific rule considerations:
  - Wage rule:
    - has anchored wage negotiation and contributed to restoration of fiscal discipline before the pandemic,
    - keeping the wage rule is desired for maintaining fiscal discipline, though its parameter can be adjusted after public service reform.
  - Real primary expenditure rule:
    - question whether to drop it altogether,
    - an appropriately defined floor on the primary balance can be sufficient to ensure debt converges to below the ceiling.
  - Primary balance rule:
    - if fiscal discipline is sufficiently established, the primary balance rule floor could be set more flexibly (e.g., low after a large shock without triggering escape clause, higher when faster convergence is needed).

### Modeling trade-offs and key findings (GIMF model simulations)
- Model used: IMF’s Global Integrated Monetary and Fiscal (GIMF) model calibrated to four regions—Grenada, rest of the ECCU, the United States and rest of the World.
- Simulations based on historical distribution of annual GDP, inflation and natural disaster shocks over the last two decades.
- Crucial assumption: any fiscal rule is credible, debt is sustainable, and understood by all agents.
- Key findings:
  - Primary balance rules do not necessarily lead to excessive pro-cyclicality during downturns when compared with an expenditure rule, with a potential gain of faster debt convergence.
  - When judging trade-offs of growth and speed of debt convergence, it is crucial to define which types of spending (or revenue) can be adjusted to comply with the rule.
  - Adjusting spending with higher multipliers leads to greater growth volatility.
  - Primary balance rules that use transfers as adjustors achieve similar growth outcomes as expenditure rules but avoid debt overshoot often implied by expenditure rules.
  - For Grenada, the primary balance rule does not necessarily lead to “excessive” fiscal consolidation at the expense of output growth when compared with the expenditure rule.
  - Avoiding excessive build-up in debt after an adverse shock (thus reducing later consolidation) and reprioritizing expenditures to minimize growth impact are more crucial.
  - Mild shocks that do not trigger the escape clause require assessment of how they affect growth and debt for economies like Grenada.
  - If climate shocks lead to large expenditure needs for rebuilding, debt overshooting under an expenditure rule could be a concern.
- Comparative result:
  - A primary balance rule that adjusts general transfers is superior to one that adjusts public investment because adjusting public investment leads to significant GDP volatility given its higher multiplier and higher debt volatility.

(iii) Option #3 — Revisit the debt anchor
- The debt anchor can be revisited, with caveat that a lower debt anchor should be achieved within a reasonable timeframe to be credible.
- A lower debt anchor is desired if the financial buffer against severe natural disasters is considered insufficient.
- Grenada has a Disaster Resilience Strategy including buildup of significant financial buffers, but insurance instruments may not always provide sufficient payments during downturns.
- Rebuilding rapidly after a severe natural disaster can imply significant borrowing need.

### Natural disaster consideration and debt ceiling implications
- Using an IMF Fiscal Affairs Department tool (Gbohoui and Akanbi, 2022) incorporating natural disaster shocks:
  - considering natural disaster shocks can lead to a lower medium-term debt ceiling by around 10 percentage points of GDP.
  - Under assumption that 70 percent of debt is undesirably high and Grenada should minimize probability of exceeding this level, the medium-term debt anchor is shown to be significantly below 55 percent once large natural disaster borrowing needs are considered.
- Natural disasters are often large, asymmetric supply shocks that:
  - lower output,
  - increase inflation,
  - deteriorate fiscal and current account balances due to support for vulnerable households and reconstruction spending.
- The appropriate debt ceiling depends on:
  - extent of scarring or persistence of subdued growth due to natural disasters,
  - prevalence of natural disasters,
  - size of financial buffers (government self-insurance, insurance policies, disaster clauses in debt securities, access to grants conditional on disasters, and private self-insurance).

### Conclusion and recommended first steps
- Grenada successfully restored fiscal discipline with the Fiscal Responsibility Framework, reducing public debt close to the medium-term debt target of 55 percent on the verge of the pandemic.
- The FRL does not fully account for unprecedented challenges presented by the pandemic, which requires fiscal policy to support resilience building, economic transformation, and social protection.
- The FRL should be amended to:
  - maintain credibility through sufficiently rapid convergence towards the medium term,
  - provide more flexibility to fiscal policy.
- Achieving this will require strategic thinking and planning.
- As a first step, authorities could consider addressing current shortcomings within the existing framework without creating more exemptions than in the current FRL.
  - Raising the ceiling of the primary expenditure rule can address rigidity.
  - Strengthen strategic communications to achieve flexibility and enforceability.
  - Revisit operational rules and reconsider the debt anchor to better manage trade-offs and preserve counter-cyclicality despite large shocks.

*Source: Content unit 1grdea2022002*

### 8.9 days before the pandemic, while average

### 1grdea2022002 - 8.9 days before the pandemic, while average

### Tourist arrival dynamics and recent recovery
- Stay-over tourist arrival in Grenada was below 40 percent of the level in October 2019 in October 2021, while Jamaica, Bahamas, St. Lucia and Antigua and Barbuda were significantly above 60 percent in October 2021.
- Arrival convergence and recovery:
  - Arrivals in December 2021 reached around 60 percent of the level in December 2019.
  - The convergence between Grenada and Antigua and Barbuda in December 2021 coincided with removal of the quarantine requirement for tourists into Grenada at end-November; Antigua and Barbuda had removed quarantine in August 2021.
- Cruise dependency and visitor composition:
  - Grenada has relatively high reliance on cruise ship arrivals compared with stay-over arrivals (figures in the source illustrate cruise vs stay-over visitor shares and numbers).

### Key drivers examined for Grenada’s underperformance
- Pent-up demand exposure:
  - Using the ratio of tourist arrival over October 2019 (October as start of high season), Grenada had much fewer arrivals from the U.S. and the U.K. compared with the average in ECCU and especially Antigua and Barbuda and St. Lucia (despite a similar level of vaccination in St. Lucia).
  - Grenada received a stronger recovery of tourist arrival from other regions than the ECCU average, Antigua and Barbuda, and St. Lucia.
- Flight connectivity:
  - In 2019, Grenada had 12 daily flights, around half of the number in other ECCU countries like Antigua and Barbuda and St. Lucia.
  - Hotel room stock: Grenada’s number of hotel rooms is one third of the stock in St Lucia and one fourth of the stock in Antigua.
  - During summer 2021, tourist arrival hovered around 20 percent of the 2019 level while flight connectivity recovered to around 50 percent of the pre-pandemic level; Grenada did not see the same further pick-up in flight connectivity observed in other ECCU peers.
- Hotel prices:
  - The “week at the beach” index (proxy for hotel prices) does not show a salient advantage for Grenada; Grenada hotel prices had a sharper decline than other ECCU countries in the first year of the pandemic, suggesting hotel price rigidity is unlikely the main factor behind underperformance.
- Lockdown stringency vs travel protocols:
  - A regression analysis for eight Caribbean countries (ABW, BHS, BLZ, BRB, DMA, GUY, JAM, and TTO) found that lockdown stringency was statistically insignificant in explaining variation in tourist arrivals during January-October 2021, implying travel protocols (e.g., quarantine requirements) mattered more than general lockdown measures.
- Curfew:
  - Curfew times did not seem to differ between Grenada and St. Lucia; curfew time was similar between Antigua and Barbuda and Grenada in August 2021 despite sharply different tourist arrivals.

### Regression findings: Stringency index and tourist arrivals
- Regression specification note: dependent variable is logarithm of stay-over tourist arrival; independent variable is the stringency index (Oxford government response tracker), controlling for country and time fixed effects.
- Estimated coefficients on Stringency index (with standard errors in parentheses):
  - Column (1): -5.008*** (0.454)
  - Column (2): -2.724*** (0.656)
  - Column (3): -0.5570 (0.827)
  - Column (4): 0.120 (0.603)
- Observations and fit statistics:
  - Observations: 164, 164, 78, 78
  - R-squared: 0.711, 0.901, 0.879, 0.950
- Interpretation:
  - For the full sample covering 2020M1–2021M11, the stringency index coefficient is large and significant; for the subperiod 2021M1–2021M10 the coefficient is small and statistically insignificant, suggesting the role of lockdown stringency in explaining cross-country differences in tourist arrival declined over time.

### Implications and policy recommendations
- Targeted COVID-19 measures:
  - Travel protocols (quarantine restrictions) appear more important than general lockdowns in affecting tourist arrivals; tourists in all-inclusive hotels are more sensitive to quarantine restrictions than to curfews.
  - Targeted responses balancing lives and livelihoods are critical for small island economies like Grenada.
- Short-to-medium term nimbleness in tourism:
  - Adopt higher use of automation, contact-less payments and services (DCash), digital COVID certificates and online travel and health platforms, and real-time information provision in tourism services (as recommended by IMF (2021)).
  - Invest in information and communication technology and its infrastructure to support these measures.
- Address pre-existing structural challenges accelerated by the pandemic:
  - Constraints include low flight connectivity, small stock of hotel rooms, heavy reliance on cruise ship arrivals, and high energy costs.
  - Government plans to double existing hotel room stock during 2022-2025 through new hotels and expansion of existing ones, financed mainly with CBI revenues; new rooms are expected to also improve flight connectivity.
- Niche and value-added tourism, longer term:
  - Increase value added of tourism focusing on niche-oriented tourists (eco-sustainable tourism, health and wellness, “philantourism”) to raise sectoral value chains and reduce dependence on cruise arrivals.
  - Use cruise arrivals as advertisement to raise destination visibility; explore homeporting and provisioning for cruise ships to leverage flight connectivity.
  - Improve integration between cruise/hotel sectors and local agriculture and agro-processing.
  - Consider using CBI flows to finance tourism projects that enhance competitiveness, diversification, or move up the value chain beyond real estate projects.
  - Leverage the presence of SGU to offer reliable and quality health services to certain types of tourists, including retirees.

*Source: IMF staff analysis and country authorities as presented in the chapter.*

### References

### 1grdea2022002 - References

### References cited
- Balasundharam, Vybhavi, and Robin Koepke, 2021, “Diversion of Tourism Flows in the Asia & Pacific Region: Lessons for COVID-19 Recovery,” IMF Working Paper 21/224.  
- Asian Development Bank, 2021, “Overcoming Covid-19 In Bhutan: Lessons from Coping with The Pandemic in A Tourism-Dependent Economy,” Asian Development Bank, December 2021.  
- World Travel & Tourism Council, 2021, “Digital Solutions for Reviving International Travel: The role of Interoperability,” World Travel & Tourism Council, November 2021.  
- World Travel & Tourism Council, 2021, “Trending in Travel: Emerging consumer trends in Travel and Tourism in 2021 and beyond,” World Travel & Tourism Council, November 2021.  
- Horwath HTL Market Report: The Caribbean. September 2019.

### Fund relations — membership and resources (As of March 31, 2022)
- Membership Status: Joined 8/27/75; Article VIII.  
- General Resources Account (SDR Million; Percent of Quota):  
  - Quota 16.40               100.00  
  - Fund holdings of currency 15.23                 92.84  
  - Reserve Tranche Position 1.18    7.16  
- SDR Department (SDR Million; Percent of Allocation):  
  - Net cumulative allocation 26.88                 100.00  
  - Holdings 15.59                   57.97  
- Outstanding Purchases and Loans (SDR Million; Percent of Quota):  
  - RCF Loans 16.40         100.00  
  - ECF Arrangements 11.02                                    67.2

### Latest financial arrangements (dates and amounts)
- ECF: Approval Date 06/26/14; Expiration Date 05/26/17; Amount Approved 14.04 (SDR Million); Amount Drawn 14.04 (SDR Million).  
- ECF: Approval Date 04/18/10; Expiration Date 04/17/13; Amount Approved 8.78 (SDR Million); Amount Drawn 2.53 (SDR Million).  
- ECF (formerly PRGF): Approval Date 04/17/06; Expiration Date 04/13/10; Amount Approved 16.38 (SDR Million); Amount Drawn 16.38 (SDR Million).  
- RCF outright loan: Date of Commitment 04/28/20; Date Approved 04/30/20; Amount Drawn/Expired 16.40 (SDR Million); Amount (SDR Million) 16.40.

### Overdue obligations and projected payments to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming principal and charges/interest by year:  
  - 2022: Principal 2.20; Charges/Interest 0.03; Total 2.23  
  - 2023: Principal 2.81; Charges/Interest 0.04; Total 2.84  
  - 2024: Principal 2.81; Charges/Interest 0.04; Total 2.84  
  - 2025: Principal 3.64; Charges/Interest 0.04; Total 3.68  
  - 2026: Principal 4.28; Charges/Interest 0.04; Total 4.32

### Exchange rate arrangement and safeguards
- Exchange rate arrangement: currency board; Grenada participates in the Eastern Caribbean Currency Union (ECCU); common currency pegged at EC$2.70 per U.S. dollar since July 1976.  
- Article VIII: Grenada has accepted the obligations of Article VIII, Sections 2, 3, and 4.  
- Safeguards Assessment: ECCB subject to full safeguards assessment on a four-year cycle; update in August 2021 found strong external audit and financial reporting practices, recommended legal reforms to strengthen operational autonomy and governance related to the DCash digital currency project.

### Article IV and technical assistance overview
- Article IV Consultation: last concluded June 12, 2019; Grenada is on a 12-month cycle.  
- Technical Assistance providers: CARTAC and the IMF; focus areas included Public Financial Management (PFM), Tax Administration, Financial Stability Supervision and Regulation, Macroeconomic framework and statistics.  
- Specific PFM and related TA highlights: reform of SOEs and statutory bodies; cash forecasting and commitment control; transition to GFSM 2014 chart of accounts; PEFA assessment; roadmap to IPSAS accruals; strengthening Fiscal Responsibility Law.  
- Tax administration TA highlights: establishment of Large and Medium Taxpayer Unit; Design, Planning and Monitoring Section; new IT-enabled business model (2020); compliance risk management support (2021).  
- Financial stability TA highlights: support to GARFIN on risk-based supervision, reinsurance review, contingency planning, retail lending portfolio reviews, stress testing for credit unions (2021).  
- Macroeconomic statistics TA highlights: support to develop quarterly GDP by activity, rebasing to 2018 prices, compilation of supply and use tables, development of PPI and CPI update, BPM6 BOP and IIP implementation.

### Inventory of TA missions (selected entries)
- 01/11/2016–01/15/2016: Public Financial Management.  
- 03/21/2016–03/25/2016: Improving Balance of Payments Statistics.  
- 04/18/2016–04/22/2016: Tax Administration.  
- 06/09/2016–06/17/2016: Improving External Sector Statistics.  
- 06/09/2016–06/17/2016: Medium-Term Debt Management Strategy.  
- 07/06/2016–07/19/2016: Managing the Public Wage Bill.  
- 08/15/2016–08/26/2016: Improving GDP estimates by expenditure.  
- 4/24/2017–4/28/2017: Developing Methodology for new Producer Price Index.  
- 7/24/2017–7/28/2017: Balance of Payments Statistics.  
- 9/18/2017–9/22/2017: Review and Assessment of the Adequacy of Reinsurance Contracts/Treaties.  
- 10/23/2017–10/27/2017: Developing a Stress Testing Framework for Credit Union Sector.  
- 11/13/2017–11/24/2017: Improving Annual & Quarterly GDP Methodology.  
- 11/27/2017–12/1/2017: Risk-focused Examinations of Retail Lending Portfolios at Credit Union.  
- 4/16/2018–4/20/2018: Strengthening BOP & New IIP.  
- 4/23/2018–4/27/2018: Developing Financial Health and Stability Indicators for the Insurance Sector.  
- 4/24/2018–5/2/2018: Revenue Administration Diagnostic Mission.  
- 5/29/2018–5/30/2018: Review of Tax Administration Reform Priorities and FAD Recommendations.  
- 10/8/2018–10/12/2018: Contingency Planning for Crisis Preparedness and Management.  
- 1/30/2019–2/11/2019: Strengthening the Fiscal Responsibility Law.  
- 2/11/2019–2/15/2019: Improving External Sector Statistics.  
- 4/1/2019–4/12/2019: Improving the Source Data and Compilation Methodologies Used for GDP Estimates.  
- 2/17/2020–2/28/2020: Compilation of Supply and Use Tables.  
- 2/24/2020–2/28/2020: Strengthening Risk Management in Customs.  
- 4/20/2020–4/24/2020: Strengthening Annual Balance of Payments Statistics.  
- 6/22/2020–6/26/2020: Strengthening Program Development and Compliance Risk Management Framework.  
- 2/8/2021–2/12/2021: Strengthening Balance of Payments/IIP data.  
- 3/22/2021–4/1/2021: Price Statistics (Consumer prices).  
- 4/11/2021–4/24/2021: Compliance Risk Management Strategy for the Inland Revenue Division.  
- 6/14/2021–6/18/2021: Developing Performance Targets and KPI.  
- 7/19/2021–7/23/2021: Follow up on Stress Test for Credit Unions.  
- 2/7/2022–2/11/2022: Developing Quarterly Balance of Payments Data.  
- 2/21/2022–3/4/2022: Rebasing annual and quarterly GDP by economic activity to 2018 prices.

### Relations with other financial institutions (As of March 31, 2022)
- World Bank: https://financesapp.worldbank.org/en/countries/Grenada/  
- Caribbean Development Bank: https://www.caribank.org/countries-and-members/borrowing-members/grenada

### Statistical issues — assessment of data adequacy for surveillance
- General: Data provision has some shortcomings, but is adequate for surveillance.  
- National Accounts: Significant delays in receiving and processing survey data for GDP compilation; quarterly GDP by production developed with a lag; CSO working to rebase annual and quarterly GDP by economic activity to 2018 prices and plans release in the second half of 2022; no GDP estimates by expenditure currently.  
- Prices and high frequency statistics: Regular data on consumer prices, retail sales, agricultural production and purchases, motor vehicle registrations, total cargo handled, fish production and exports, industrial production, imports of construction material, and water and electricity production. CPI methodology updated in 2010; CPI basket being updated using the 2018/19 Household Budget Survey (HBS); CPI+ system to replace PIPS; no PPI or export/import price indices yet, CSO intends to develop a PPI for certain sectors.  
- Labor statistics: Introduction of annual Labor Force Survey in 2013 (completed 2014 and 2015); quarterly Labor Force Survey started in 2018; population census being conducted and will be finished in 2022; regular wage data limited except partial National Insurance Scheme data; CSO working with ILO to improve coverage.  
- Government finance statistics: Central government reporting improved with monthly data provided in Fund economic classification format with lags of about 4–6 weeks; donor-financed capital spending often not available until year-end; no consolidated public-sector accounts; PFM Act of 2015 requires public enterprises to submit annual financial statements within three months of fiscal year-end.  
- Monetary statistics: Monthly monetary statistics compiled and reported by ECCB since July 2006 using SRF forms; April 2007 ROSC found incomplete institutional coverage (mortgage companies, finance companies, building societies, credit unions excluded), accrued interest not incorporated, valuation adjustments included in other liabilities; ECCB implementing new reporting system for commercial banks. Grenada reports some Financial Access Survey (FAS) indicators including the two indicators adopted by the UN to monitor Target 8.10.1 of the SDGs.  
- Financial Sector Surveillance: ECCB reports quarterly all Grenada’s core and additional FSIs for deposit takers, covering commercial banks only.  
- External Sector Statistics: BPM6-compliant BOP and IIP were released in July 2017 for 2014–16 and 2013–16 respectively; subsequent releases added preliminary/estimated data for 2017 and 2018 and revised series; ongoing work to improve tourism expenditure estimates and release consistent historical BPM6-compliant series for 2000-13; CSO working to improve timeliness and comprehensive external debt statistics.  
- External and domestic debt statistics: Central government external debt database comprehensive; capacity upgrades needed to improve reliability and eliminate possibility of errors; RGSM maintains detailed domestic securities database; monthly stock information on privately placed domestic securities available but no reliable future projections; improved data availability on government-guaranteed debt and public enterprises; private sector external debt data available from commercial banks.

### Data standards and reporting
- Data Standards and Quality: Grenada participated in GDDS since March 2001 but most metadata not updated since late 2002; has not fully implemented e-GDDS as it lacks a National Summary Data Page (NSDP).  
- Reporting to STA: International Financial Statistics includes exchange rates, international liquidity, monetary statistics, prices, balance of payments, national accounts, and population. Authorities do not report fiscal data for publication in IFS. ECCB provides data for the Balance of Payments Yearbook. Grenada has not provided fiscal data for the GFS Yearbook; ECCB disseminates Grenada’s quarterly GFS data in its Economic and Financial Review.

### Table of Common Indicators Required for Surveillance (As of February 28, 2022) — selected entries preserved verbatim
- Exchange Rates: Fixed Rate; Data of latest observation NA; Date Received NA; Frequency of Data NA; Frequency of Reporting NA; Frequency of Publication NA.  
- International Reserve Assets and Reserve liabilities of the Monetary Authorities: Data of latest observation 09/2021; Date Received 11/2021; Frequency of Data M; Frequency of Reporting M; Frequency of Publication M.  
- Reserve/Base Money: 09/2021; 11/2021; M; M; M.  
- Broad Money: 09/2021; 11/2021; M; M; M.  
- Central Bank Balance Sheet: 09/2021; 11/2021; M; M; M.  
- Consolidated Balance Sheet of the Banking System: 09/2021; 11/2021; M; M; M.  
- Interest Rates: 09/2021; 11/2021; M; M; M.  
- Consumer Price Index: 1/2022; 3/2022; M; M; M.  
- Revenue, Expenditure, Balance, and Composition of Financing – Central Government: Data of latest observation 12/2021; Date Received 2/2022; Frequency M; Frequency of Reporting M; Frequency of Publication Q.  
- Stocks of Central Government and Central Government-Guaranteed Debt: 10/2021; 11/2021; A; A; A.  
- External Current Account Balance: 2020; 11/2021; A; A; A.  
- Exports and Imports of Goods and Services: 2020; 11/2021; M; A; A.  
- GDP/GNP: 2020; 08/2021; A; A; A.  
- Gross External Debt: 10/2021; 11/2021; M; Q; A.  
- International Investment Position: 2020; 11/2021; A; A; A.

Notes included in table:
- 1 Grenada is a member of the Eastern Caribbean Currency Union, in which the common currency of all member states (E.C. dollar) is pegged to the U.S. dollar at US$1 = EC$2.70.  
- 2 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.  
- 3 Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.  
- 4 Foreign, domestic banks, and domestic nonbank financing.  
- 5 Currency and maturity composition are provided annually.  
- 6 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA); Not Applicable (n.a.).

### Debt sustainability analysis — key findings (excerpt)
- Title: Grenada: Joint Bank-Fund Debt Sustainability Analysis.  
- Risk of external debt distress: In debt distress.  
- Overall risk of debt distress: In debt distress.  
- Granularity in the risk rating: Sustainable.  
- Application of judgement: No.  
- Note: Grenada remains in external public debt distress solely due to longstanding unresolved arrears to official bilateral creditors of about US$24.5 million (2.2 percent of GDP) as of end-

*Prepared by the staffs of the International Monetary Fund and the International Development Association; document excerpts as presented in the source PDF.*

### 2021. However, debt is assessed as sustainable reflecting favorable projected debt dynamics

### 1grdea2022002 - 2021. However, debt is assessed as sustainable reflecting favorable projected debt dynamics

### Public debt assessment and trajectory
- Public debt rose to 71.4 percent of GDP in 2020 from 58.5 percent in 2019, due chiefly to the pandemic-induced collapse in GDP.
- Public debt resumed its pre-pandemic downward trend in 2021 to reach an estimated 70.3 percent of GDP.
- A further marginal decline in public debt is expected in 2022.
- Debt is assessed as sustainable reflecting favorable projected debt dynamics from substantial fiscal surpluses that are supported by the return to the Fiscal Responsibility Law (FRL) in 2023.
- Going forward, continued adherence to the FRL and regularization of arrears will be needed to maintain a sustainable debt trajectory and upgrade the risk rating.
- Debt-to-GDP should be further reduced and kept at levels needed to withstand the existing vulnerabilities to external shocks and natural disasters.

### Public debt coverage (definition and gaps)
- Public debt in this DSA is defined as the sum of central government debt (including arrears on principal and interest and overdue membership fees to international organizations) and government-guaranteed debt.
- Non-guaranteed debt of SOEs and limited liability companies (notably PDV Grenada’s Petrocaribe-related debt) is excluded from the central government debt stock.
- Non-guaranteed SOE debt is estimated at around 16 percent of GDP at end-2021, including 12.4 percent of GDP for the Petrocaribe arrangement.
- Until recently, gaps and time lags in public enterprise reporting hampered complete coverage; comprehensiveness and timeliness of SOE debt data have substantially improved but expanding the perimeter to a consolidated public sector presentation remains unfeasible at present.

### Contingent liability stress test and calibration
- The contingent liability stress test accounts for:
  - The estimated stock of non-guaranteed SOE debt (around 16 percent of GDP at end-2021, with 12.4 percent of GDP from PDV Grenada).
  - Ongoing PPPs (current PPP capital stock remains at zero, so the related contingent liability shock is set to zero).
  - Financial markets contingent liabilities set at the minimum value of 5 percent of GDP (the average cost to the government of a financial crisis in LICs since 1980).
- Grenada’s FRL caps PPP-related government liabilities at 5 percent of GDP.
- Other elements not covered are either zero (no central bank debt borrowed on behalf of the government) or need to be firmed up when developing a comprehensive consolidated non-financial public sector debt presentation.

### Background on debt composition and portfolio characteristics
- Pre-pandemic (2014–19) public debt declined from 94.3 percent of GDP in 2014 to 58.5 percent of GDP in 2019, supported by solid growth averaging 4.5 percent and robust primary surpluses averaging 4.7 percent of GDP.
- In 2020–21 total external debt rose driven by external public debt dynamics; composition shifted towards longer maturities and external sources due mainly to strong pandemic support from multilateral organizations.
- In 2020 Grenada benefited from a deferral of debt service of US$1.4 million or 0.1 percent of GDP under the G20 Debt Service Suspension Initiative.
- Central government metrics (2020 vs 2019):
  - Average time to maturity around 9 years in 2020.
  - Average time to re-fixing roughly unchanged at 8.9 years in 2020 (paragraph notes central government metrics).
  - Average effective interest rate on central government debt declined from 3.2 to 3.0 percent in 2020.
  - Share of multilateral debt increased to around 45 percent.
  - Share of foreign exchange debt increased to 71.5 percent in 2020 from 69.1 percent in 2019.

### Portfolio risks and refinancing profile
- Interest rate risk: moderate; average time to re-fixing of 8.6 years with 21 percent of the portfolio subject to a change in interest rates in one year; this risk resides predominantly in the domestic portfolio where 31 percent of this debt is subject to re-fixing in one year.
- Refinancing risk: average time to maturity of 9 years (exceeds the set target of greater than 8 years).
- Foreign exchange risk: only moderate as most foreign currency debt is denominated in U.S. dollars to which the EC dollar is pegged.

### External and domestic arrears
- External arrears are broadly unchanged despite authorities’ efforts to resolve remaining non-Paris Club arrears; these arrears are a legacy from the 2014 debt restructuring and reflect private sector and non-Paris Club holdouts.
- Arrears of about US$25 million owed to non-Paris Club official bilateral creditors (including Trinidad and Tobago, Algeria, and Libya) remain to be regularized.
- Authorities report progress in negotiations as of early 2022, particularly with Trinidad and Tobago (high-level discussions and an escrow account opened) and informal discussions with Algeria in late 2021.
- Commercial arrears largely pertain to holdouts of the 2012 USD restructured bonds; authorities continue to engage commercial creditors to reach a resolution.
- Reported arrears (year-end, US$ million and percent of GDP):
  - Total arrears: 43.9 (3.6 percent of GDP) in 2019; 41.6 (4.0 percent of GDP) in 2020; 41.2 (3.7 percent of GDP) in 2021 (est).
  - External arrears equal total arrears in the table: 43.9 (3.6 percent) in 2019; 41.6 (4.0 percent) in 2020; 41.2 (3.7 percent) in 2021 (est).
  - Bilateral (non-Paris Club) arrears: 22.9 (1.9 percent) in 2019; 22.8 (2.2 percent) in 2020; 24.5 (2.2 percent) in 2021 (est).
  - Commercial arrears: 10.1 (0.8 percent) in 2019; 10.1 (1.0 percent) in 2020; 10.3 (0.9 percent) in 2021 (est).
  - Unpaid contributions to organizations: 10.9 (0.9 percent) in 2019; 8.7 (0.8 percent) in 2020; 6.4 (0.6 percent) in 2021 (est).

### Macroeconomic performance and medium-term projections
- Historical and recent performance:
  - Real GDP growth averaged 4.5 percent between 2014-19.
  - The pandemic produced a sharper contraction of real GDP in 2020 and a slower recovery in 2021 than anticipated in the 2020 RCF; tourism receipts were weaker-than-expected leading to a higher current account deficit in 2019–21.
  - Fiscal outturns were favorable in 2020–21, with stronger-than-expected revenues including grants more than compensating larger spending.
- Selected macro assumptions and projections (as presented in Text Table 5 and Box 1):
  - Real GDP growth: various cells shown (sample entries include 3.9, 0.0, -2.5, 3.4, 3.4, 2.7, 2.8) corresponding to historical, 2020 RCF, 2022 AIV, and projections periods.
  - Inflation rate (GDP deflator): entries include 2.0, 1.0, 1.4, 2.0, 2.4, 2.1, 2.2.
  - Non-interest current account deficit: entries include 13.9, 18.8, 23.0, 10.8, 15.5, 10.0, 11.1.
  - Growth of exports of G & S (USD terms): entries include 19.4, 4.4, -1.2, 8.5, 14.0, 5.0, 4.7.
  - Net FDI: entries include -11.2, -9.4, -12.4, -13.1, -11.9, -12.9, -13.8.
  - Primary deficit: entries include 2.0, -3.6, -4.0, -3.6, -3.1, 0.6, 0.0.
  - Revenue and grants: entries include 24.2, 26.0, 28.8, 26.2, 28.6, 25.7, 28.3.
  - Primary (non-interest) expenditure: entries include 22.2, 22.5, 24.8, 22.5, 25.5, 26.3, 28.3.
- Projections and structural assumptions (Box 1):
  - Real GDP growth projected to expand by 3.6 percent in 2022.
  - Economy expected to reach pre-pandemic output level by 2024; output expected to converge to potential by 2026 and remain around that level thereafter.
  - Long-term potential growth assumed at 2.8 percent.
  - Inflation expected to increase to 5.4 percent in 2022 and slowly converge back to 2 percent over the long-term; GDP deflator expected to rise by 3.1 percent in 2022.
  - Primary surplus expected to rise significantly in 2023 with the return to the FRL; continued compliance with the FRL starting in 2023 is assumed until debt is sustainably below 55 percent of GDP, which is projected to be the case in 2027.
  - Primary fiscal surpluses are expected to overperform the FRL’s 3.5 percent of GDP floor on average through 2027 but then turn into small primary deficits thereafter to fill the investment gap estimated by the government’s Disaster Resilience Strategy (DRS) at around 4 percent of GDP annually.
  - Gross reserves expected to hover around 5 months of imports after jumping in 2021 due to the SDR allocation.
  - The future annual fiscal cost of natural disasters is assumed at ½ percent of GDP.

### Risks and policy priorities
- Risks are tilted to the downside and uncertainty is especially high.
- Key downside risks include:
  - The evolution of the pandemic and its effects on tourism.
  - Natural disasters and climate change.
  - Persistent inflationary pressures that could raise borrowing costs via tighter global financial conditions and erode real growth.
  - Prospective monetary tightening in major economies that could reverse recovering FDI and threaten sustainable financing of development projects, including the DRS.
- Policy priorities and measures noted:
  - Return to the FRL in 2023 and adherence thereafter to achieve substantial primary surpluses and a sustainable debt path.
  - Regularization of external arrears (including about US$25 million to non-Paris Club official bilateral creditors).
  - Pairing back public investment in 2023 while supporting public construction activity earlier to underpin recovery.
  - Tax administration and spending containment measures in the medium-term recovery plan expected to bring long-term revenue gains with insignificant contractionary impacts on growth.
  - Increased access to donor financing and implementation of the DRS to identify financing and capacity needs and coordinate development partner support.
  - Ongoing reforms to promote renewable energy and energy efficiency to reduce exposure to energy price swings and strengthen long-term balance of payments and competitiveness.

*International Monetary Fund staff; April 14, 2022.*

### 9. Financing assumptions have been updated based on most recent data. The latest financing

### 9. Financing assumptions have been updated based on most recent data. The latest financing

### Short-term financing and disbursements
- Latest financing projections from the World Bank’s International Development Association (IDA) program and existing Caribbean Development Bank (CDB) projects have been incorporated.
- Remaining disbursements from the loan extended by the Export-Import Bank of China will take place in 2022-23.
- The loan from the Export-Import Bank of China amounts to US$69 million, with US$24 million already disbursed in 2021.
- As a result, external financing is projected to increase in the short term and be sufficient to cover the high level of debt service in 2022.

### Medium- and long-term financing composition
- In the long run, the government is assumed to mainly rely on concessional loans from the World Bank and CDB for external financing.
- Commercial external debt is projected to rise in importance after 2035.
- Domestic financing sources are assumed to also play a larger role as the market matures.

### Fiscal projection realism and assumptions
- Realism tools indicate that short-term growth is conservatively forecasted, given the projected fiscal adjustment and in the context of the recovery from the pandemic.
- Policy-based fiscal adjustment is not envisioned in the projection period.
- The projected fiscal path incorporates:
  - potential enhancement of tax administration,
  - wage bill containment, and
  - public purchases streamlining.
- The fiscal projection lies just shy of the top quartile of the distribution of past adjustments of the primary fiscal deficit and is consistent with the authorities’ determination to return to the FRL.
- The expected return of tourism and the other efficiency measures will support the adjustment, while remaining relatively growth friendly.
- The improved long-term outlook results in lower projected external debt and public debt to GDP ratios relative to the previous DSA after 2030.

### Country classification and scenario design
- Grenada continues to be assessed at medium debt-carrying capacity.
  - The composite index (CI) is estimated at 3.03 and based on the October 2021 World Economic Outlook (WEO) and 2020 World Bank CPIA data.
- CI score components and contributions (as presented):
  - CPIA coefficient 0.385; 10-year average value 3.60; contribution 1.394 (46%).
  - Real growth rate coefficient 2.71; 10-year average value 9? (table shows 2.92?) contribution 0.083% (note: preserve table entries exactly as in source).
  - Import coverage of reserves coefficient 4.05; 10-year average value 246; contribution 6.703 (31.89%).
  - Import coverage of reserves^2 coefficient -3.99; 10-year average value 21.81; contribution -0.87 (-29%).
  - Remittances coefficient 2.02; 10-year average value 5.86; contribution 0.124%.
  - World economic growth coefficient 13.52; 10-year average value 3.13; contribution 0.421 (4%).
  - CI Score 3.03 (100%) → CI rating: Medium.

- Scenario stress tests include:
  - Standard-DSA alternative scenarios.
  - Three tailored scenarios:
    - “Contingency liability” shock capturing SOE and PDV debt risks.
    - Extreme “natural disaster” scenario calibrated to estimated growth effects of 2017 hurricane Maria on Dominica (total damage from Maria for Dominica is similar to that of hurricane Ivan for Grenada in 2004).
    - “Commodity” shock capturing a possible price shock to exports of goods and services, with the resulting price gap reverting only gradually to baseline.
- Fiscal response in the natural disaster scenario assumes:
  - an increase of expenditures by a total of 5 percent in the two years following a hurricane, or
  - 2.5 percentage points in the first two years to cover reconstruction costs.

### External debt dynamics and stress-test outcomes
- External PPG debt-to-GDP ratio is projected to trace a downward path in the baseline scenario.
- Thresholds under the baseline scenario are breached for:
  - the present value of debt to GDP ratio, and
  - the debt service-to-revenue ratio.
- Under stress tests, thresholds are breached for all key indicators of PPG external debt under an export shock.
- The present value of debt-to-GDP remains above its threshold under all stress tests.
- The most severe shock is the “exports” shock due to high exposure to tourism (exports).
  - For the present value of debt-to-exports, debt service-to-exports ratio, and debt service-to-revenue ratio, the exports shock is the most extreme.
- Large natural disaster and contingent liabilities shocks have significant effects on the debt path.
- The effect of a natural disaster has a protracted effect on the debt path in part due to its interaction with the export shock.

### Risk assessment for external debt
- Risks to external debt sustainability are high.
- Under the exports shock, all benchmarks are breached.
- The export shock is applied on top of the already sharp contraction in exports due to COVID-19 and should be interpreted with caution.
- Staff concurs with the mechanical assessment that risks are high.

### Overall public debt distress assessment
- The total PPG Debt-to-GDP ratio is projected to gradually decline up to 2027 and broadly stabilize thereafter.
- Due to remaining unresolved arrears to official bilateral creditors, Grenada’s DSA rating stands unchanged at “in debt distress”.
- Key drivers of the projected decline in PPG debt-to-GDP in the next few years are sizable primary surpluses and GDP growth as reflected in the updated macroeconomic assumptions.
- The PV of debt-to-GDP ratio would return to below benchmark in the baseline scenario after 2026, reflecting continued access to concessional financing.
- Debt is projected to stabilize below the FRL target of 55 percent of GDP after 2027 as a cushion against large shocks, including natural disasters.
- Under the most severe scenario as implied by the growth shock, all benchmarks are breached.
- Staff notes the design of the growth shock in the template is overly onerous and conservative given the exceptional and sizable temporary collapse in tourism during 2020.

### Risk rating, vulnerabilities and policy recommendations
- Current assessment: Grenada remains in external debt distress, but its debt is assessed as sustainable, conditional on:
  - the authorities’ strong commitment to the FRL,
  - fiscal structural reforms, and
  - further improvement in debt management.
- Supporting factors for sustainability:
  - authorities’ strong past record of debt reduction,
  - availability of liquid financial assets (e.g., SDR allocation and government deposits).
- Policy recommendations and priorities:
  - Fully regularize external arrears to official bilateral creditors to tangibly improve the country’s DSA rating.
  - Continue public debt reduction through:
    - maintaining the FRL’s rules-based framework,
    - pursuing fiscal structural reforms, and
    - further improving debt management capacity.
  - Mobilize domestic resources by:
    - enhancing tax compliance,
    - reducing tax arrears,
    - boosting digitalization, and
    - increasing the equity of the tax system.
  - Improve debt reporting and monitoring, including:
    - enhancing timeliness of SOE debt coverage,
    - including information on SOE above-the-line operations,
    - further IT and data management enhancements in the Ministry of Finance.
  - Review the situation and status of Petrocaribe debt to improve analysis of risks to Grenada’s debt profile.
  - Operationalize the National Transformation Fund’s link to natural disasters with adequate financing.
  - Implement the Disaster Resilience Strategy (DRS) and the DRM Bill to consolidate resources and improve cushions against natural disasters.
  - Optimize and better use existing disaster risk financing instruments to ensure complementarity between risk retention and risk transfer instruments.

### Disaster risk management and financial layering
- Grenada has developed extensive legal and institutional DRM frameworks and mainstreamed disaster risk reduction into national planning (examples cited: National Hazard Mitigation Policy 2003 and Plan 2006, Grenada Blue Growth Coastal Master Plan, National Adaptation Plan 2017-2021).
- Resilience building has been incorporated across infrastructure sectors, land, agroforestry, agriculture, fishing, food security, water, mangrove, marine, coral, health, and zone management.
- Surveillance and evaluation procedures for outbreaks and response mechanisms for public emergency events have been established.
- Implementation capacity remains a significant impediment; development partners provide technical and capacity assistance.
- Financial instruments and arrangements:
  - Hurricane clauses in some restructured bonds could release up to EC$45 million in funds in the event of a major natural disaster (amounts smaller for smaller events, depending on triggers).
  - Insurance from CCRIF, the contingency fund under the National Transformation Fund, and other savings provide additional layers of protection.
  - Instruments are in place but not used efficiently and need optimization.
  - The Disaster Resilience Strategy and the DRM Bill under preparation aim to consolidate resources and improve efficiency.

*Source: IMF staff summary of the DSA and related sections in the Grenada country report.*

### 23. The authorities agreed with staff’s debt sustainability assessment. The effort to regularize

### 1grdea2022002 - 23. The authorities agreed with staff’s debt sustainability assessment. The effort to regularize

### Authorities' assessment and actions
- The authorities agreed with staff’s debt sustainability assessment.
- The effort to regularize bilateral official arrears is ongoing, and the authorities are making payments consistent with 2015 Paris Club agreement into an escrow account concerning the largest of such debts ( to Trinidad and Tobago).
- The authorities indicated that the staff's financing assumptions are broadly in line with the government's Medium-Term Debt Strategy.
- The authorities stressed that their commitment to the FRL underpins and strengthens the assessment that debt is sustainable.

### External Debt Sustainability — Baseline scenario (selected indicators)
- External debt (nominal) (In percent of GDP):
  - 2019: 81.8
  - 2020: 92.9
  - 2021: 94.8
  - 2022: 91.7
  - 2023: 87.5
  - 2024: 83.9
  - 2025: 77.5
  - 2026: 72.5
  - 2027: 68.0
  - 2032: 57.8
  - 2042: 45.6
  - Selected later years: 105.2 (2032? table shows many entries — preserved above as in table order)
- Of which: public and publicly guaranteed (PPG) (percent of GDP):
  - 2019: 44.0
  - 2020: 55.2
  - 2021: 54.9
  - 2022: 56.0
  - 2023: 54.1
  - 2024: 51.7
  - 2025: 49.6
  - 2026: 47.0
  - 2027: 44.9
  - 2032: 35.9
  - 2042: 26.5
- Change in external debt (percent of GDP): -4.2; 11.1; 1.8; -3.1; -4.2; -3.6; -6.4; -5.0; -4.5; -1.6; -1.0 (series as in table)
- Identified net debt-creating flows (percent of GDP): -3.4; 20.1; 6.3; 13.9; 6.4; 0.6; -1.2; -2.0; -2.7; -2.7; -3.3; 0.7; 0.1
- Non-interest current account deficit (percent of GDP): 13.1; 19.4; 23.0; 26.5; 18.9; 13.7; 11.9; 11.3; 10.8; 11.0; 11.6; 15.3; 13.4
- Net FDI (negative = inflow, percent of GDP): -14.7; -14.3; -12.2; -10.8; -11.1; -11.6; -12.1; -12.6; -13.1; -13.6; -14.8; -12.0; -12.6
- PV of PPG external debt-to-GDP ratio (selected years): 49.5; 50.7; 49.4; 47.6; 46.0; 43.8; 42.1; 34.3; 25.6
- PV of PPG external debt-to-exports ratio (selected years): 123.6; 106.6; 90.8; 79.4; 74.5; 71.5; 68.8; 57.0; 43.5
- PPG debt service-to-exports ratio (selected years): 7.8; 16.7; 15.6; 13.6; 9.8; 8.6; 8.7; 8.5; 8.3; 6.8; 6.1
- PPG debt service-to-revenue ratio (selected years): 17.9; 27.6; 25.9; 27.5; 21.9; 21.0; 21.8; 21.3; 20.7; 16.6; 14.5
- Gross external financing need (Million of U.S. dollars): 33.5; 124.1; 191.1; 265.4; 168.9; 99.9; 75.8; 59.5; 44.5; 32.2; 12.1

Key macroeconomic assumptions (selected)
- Real GDP growth (percent): 0.7; -13.8; 5.6; 3.6; 3.6; 3.9; 3.5; 3.2; 2.8; 2.8; 2.8; 2.0; 3.2
- GDP deflator in US dollar terms (change in percent): 3.3; -0.3; 1.2; 3.1; 3.3; 1.8; 2.0; 2.2; 2.2; 2.2; 2.2; 1.8; 2.3
- Effective interest rate (percent) 5/: 1.8; 1.8; 1.8; 1.6; 1.9; 2.1; 2.1; 2.3; 2.3; 2.5; 2.7; 1.7; 2.2
- Growth of exports of G&S (US dollar terms, in percent): 6.5; -36.3; 6.0; 26.6; 22.4; 16.7; 8.7; 4.7; 5.0; 4.9; 5.0; 11.2; 9.8
- Growth of imports of G&S (US dollar terms, in percent): 6.2; -19.2; 14.6; 19.5; 4.1; 6.4; 5.4; 3.5; 4.1; 5.1; 5.1; 6.0; 6.2
- Grant element of new public sector borrowing (in percent): 12.0; 17.8; 13.9; 13.1; 15.0; 12.6; 11.4; 9.2; 13.3 (selected entries as in table)
- Government revenues (excluding grants, percent of GDP): 23.8; 24.5; 24.1; 23.5; 24.4; 24.6; 24.7; 24.5; 24.5; 24.8; 24.6; 22.3; 24.6
- Nominal GDP (Million of US dollars): 1,213; 1,043; 1,115; 1,192; 1,275; 1,350; 1,425; 1,502; 1,579; 2,023; 3,318
- Nominal dollar GDP growth: 4.0; -14.0; 6.9; 6.8; 7.0; 5.8; 5.6; 5.4; 5.1; 5.1; 5.1; 3.9; 5.6

Memorandum items (selected)
- PV of external debt (percent of GDP): 89.4; 86.4; 82.8; 79.8; 73.8; 69.3; 65.2; 56.3; 44.7
- In percent of exports (PV of external debt): 222.9; 181.8; 152.2; 133.1; 119.6; 113.1; 106.5; 93.4; 76.1

Notes and definitions included in the DSA (selected)
- 1/ Includes both public and private sector external debt.
- 2/ Endogenous debt dynamics derived using formula with r, g, ρ, Ɛ, α (as in table footnote).
- 3/ Residual includes exceptional financing, changes in gross foreign assets, valuation adjustments; for projections includes contribution from price and exchange rate changes.
- 4/ Exceptional financing: for 2020 includes all sources under the RCF; for 2021+ includes Eximbank China lending to an SOE.
- 5/ Effective interest rate defined as current-year interest payments divided by previous period debt stock.
- 6/ Aid flows defined as grants, concessional loans, and debt relief.
- 7/ Grant-equivalent financing includes grants and grant-equivalent on new borrowing.
- 8/ Assumes PV of private sector debt equivalent to face value.
- 9/ Historical averages generally derived over past 10 years; projection averages over first projection year and next 10 years.

### Public Sector Debt Sustainability — Baseline scenario (selected indicators)
- Public sector debt (percent of GDP):
  - 2019: 58.5
  - 2020: 71.4
  - 2021: 70.3
  - 2022: 69.0
  - 2023: 66.6
  - 2024: 64.3
  - 2025: 58.9
  - 2026: 53.5
  - 2027: 48.5
  - 2032 / later: 44.9; 41.6; 78.2; 53.8 (table contains long series; above preserved initial sequence)
- Of which: external debt (percent of GDP): 44.0; 55.2; 54.9; 56.0; 54.1; 51.7; 49.6; 47.0; 44.9; 44.9; 35.9; 26.5; 55.7; 45.2 (selected)
- Change in public sector debt (percent of GDP): -2.2; 12.9; -1.1; -1.3; -2.4; -2.3; -5.4; -5.4; -5.0; -0.7; -0.1
- Identified debt-creating flows (percent of GDP): -7.8; 8.4; -4.9; 0.3; -5.3; -5.9; -5.9; -5.7; -5.3; -0.7; -0.1; -4.4; -2.9
- Primary deficit (percent of GDP): -6.8; -3.2; -2.1; 1.5; -3.5; -3.8; -4.2; -4.3; -4.2; 0.0; 0.1; -2.6; -1.7
- Revenue and grants (percent of GDP): 26.6; 28.1; 31.8; 29.0; 29.6; 28.8; 28.2; 28.0; 28.0; 28.3; 28.1; 25.6; 28.5
- Primary (noninterest) expenditure (percent of GDP): 19.8; 24.9; 29.7; 30.4; 26.1; 25.0; 24.0; 23.7; 23.8; 28.3; 28.2; 23.0; 26.8
- PV of public debt-to-GDP ratio (selected): 64.9; 63.7; 61.9; 60.2; 55.2; 50.3; 45.7; 43.3; 40.6
- PV of public debt-to-revenue and grants ratio (selected): 204.3; 219.8; 209.1; 208.9; 195.8; 179.4; 163.5; 153.2; 144.7
- Debt service-to-revenue and grants ratio (percent): 32.7; 45.4; 37.9; 36.7; 23.1; 23.4; 25.3; 23.8; 19.1; 21.7; 31.8
- Gross financing need (percent of GDP): 1.9; 9.6; 9.9; 13.0; 3.6; 2.8; 2.8; 2.2; 1.0; 6.0; 9.1

Key fiscal and macro assumptions (selected)
- Real GDP growth (percent): 0.7; -13.8; 5.6; 3.6; 3.6; 3.9; 3.5; 3.2; 2.8; 2.8; 2.8; 2.0; 3.2
- Average nominal interest rate on external debt (percent): 3.2; 3.1; 2.8; 2.6; 3.0; 3.2; 3.3; 3.4; 3.5; 3.9; 4.6; 3.1; 3.4
- Average real interest rate on domestic debt (percent): -3.2; 3.1; 1.5; -0.5; -0.5; 1.0; 0.9; 0.4; -0.2; 1.0; 2.3; -1.2; 0.1
- Inflation rate (GDP deflator, percent): 3.3; -0.3; 1.2; 3.1; 3.3; 1.8; 2.0; 2.2; 2.2; 2.2; 2.2; 1.8; 2.3
- Growth of real primary spending (deflated by GDP deflator, percent): -2.1; 8.7; 25.5; 6.3; -11.2; -0.2; -0.8; 2.0; 3.1; 2.8; 2.7; 3.7; 3.0
- Primary deficit that stabilizes the debt-to-GDP ratio (percent): -4.6; -16.0; -1.0; 2.8; -1.1; -1.5; 1.2; 1.1; 0.8; 0.7; 0.3; -7.2; 0.6
- PV of contingent liabilities (not included in public sector debt): 0.0 across reported years

Notes and definitions in public DSA (selected)
- 1/ Coverage: central government, government-guaranteed debt. Definition of external debt is Residency-based.
- 2/ Reflects financing to SOEs from Exim Bank China and World Bank.
- 3/ Residual includes fluctuations of government bank deposits.
- 4/ Underlying PV of external debt-to-GDP ratio under public DSA differs from external DSA; differences depend on exchange rate projections.
- 5/ Debt service defined as interest plus amortization of medium/long-term and short-term debt.
- 6/ Gross financing need defined as primary deficit plus debt service plus stock of short-term debt at end of last period and other flows.
- 7/ Primary deficit that stabilizes debt-to-GDP ratio defined per table footnote.
- 8/ Historical averages: past 10 years; projection averages: first projection year and next 10 years.

### Stress tests, sensitivity analysis, and scenario outcomes
- Figure and table summaries indicate multiple stress tests (bound tests, tailored tests, alternative scenarios) covering indicators through 2022–2032.
- Table 3: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2022–2032 (selected highlights):
  - Baseline PV of debt-to-GDP ratio (percent) by year: 51; 49; 48; 46; 44; 42; 40; 38; 36; 35; 34
  - Alternative scenario A1 (key variables at historical averages) increases ratios in many years (e.g., 51; 47; 47; 49; 49; 52; 57; 61; 64; 68; 72; 76)
  - Bound tests and tailored tests (e.g., B1 Real GDP growth, B2 Primary balance, C1 Combined contingent liabilities, C2 Natural disaster) produce higher breaches of thresholds in several indicators; bold values in table indicate breaches of thresholds.
- Table 4: Sensitivity Analysis for Key Indicators of Public Debt, 2022–2032 (selected highlights):
  - Baseline PV of Debt-to-GDP ratio (percent): 64; 62; 60; 55; 50; 46; 45; 45; 44; 44; 43
  - Tailored tests such as Natural disaster show sharp increases (e.g., values rising to 98; 95; 92 in later years under C2 for some indicators).
- Figures note that "Most extreme shock" for several indicators is driven by Exports or Growth in specific tests.
- Stress-test assumptions:
  - All additional financing needs generated by shocks are assumed to be covered by PPG external MLT debt in the external DSA.
  - Default terms of marginal debt are based on baseline 10-year projections.
  - The most extreme stress test defined as the test yielding highest ratio in or before 2032; one-off breaches handled per methodological note.

### Drivers of debt dynamics and realism tools (high-level)
- Figures decompose contributions to change in PPG external debt into components: nominal interest rate, real GDP growth, price and exchange rate changes, current account + FDI, and an observed residual including unexpected changes and exceptional financing.
- Realism tools compare projected government and private investment contributions to real GDP growth against previous DSA vintages and show projected fiscal adjustment paths under varying fiscal multipliers.

*Source: Country authorities; and staff estimates and projections as presented in the provided DSA tables and figures.*

### 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### Statement by Mr. Jennings and Ms. Smith on Grenada May 4, 2022

### COVID-19 Developments
- Authorities’ response described as "swift and comprehensive" leveraging fiscal buffers built prior to COVID-19.
- Public health measures: new Public Health Regulations, upgraded health facilities, procurement of personal protective equipment and vaccines, public awareness campaigns.
- Social support measures:
  - Supplementary Budget in April 2020 to facilitate temporary payroll and income support for formal and informal sector workers.
  - Temporary unemployment benefit program implemented.
  - Lending facility at the Grenada Development Bank (GDB) and relaxed terms for small hotels and businesses.
  - Temporary deferrals on Corporate Income Tax and instalment payments on the Annual Stamp Tax.
- COVID-19 epidemiology (March 2020 to November 2021):
  - Cases totaled 14,024.
  - Deaths amounted to 218.
  - New cases peaked at nearly 300 in December 2021 (Omicron).
- Vaccination: inoculation rate of approximately 34 percent of the eligible population as of end-April (2022); slower rollout attributed to vaccine hesitancy; measures to increase public education and easy access to vaccines.

### Real GDP and Inflation
- Real GDP:
  - 2020: 13.8 percent contraction in real GDP.
  - 2021: real GDP growth rebounded to 5.6 percent.
  - Staff projection for 2022–2023: growth expected to be sustained at a lower rate of 3.6 percent.
- Unemployment:
  - Reached a low of 15.1 percent in Q4 2019.
  - Climbed to approximately 28.4 percent in 2020.
  - Narrowed to 16.6 percent in Q2 2021; expected to continue to fall gradually.
- Inflation:
  - Averaged less than 1.0 percent in recent years pre-pandemic.
  - 2020: average -0.7 percent.
  - 2021: 1.2 percent.
  - Expected period average in 2022: 4.4 percent.
- Policy measures to protect vulnerable households and moderate energy/food price impacts:
  - 25 percent reduction in the electricity non-fuel charge per kWh for targeted support.
  - Removal of VAT and environmental levy on electricity bills for low energy consumers of less than 500 kWh.
  - Cap of EC$15 per gallon on gasoline and diesel.
  - VAT exemptions on a few staple food items.
- Growth drivers noted: strengthened construction activity, agricultural output, wholesale and retail, financial intermediation, return to in-person classes at Saint George’s University, planned public investment projects, approved privately funded developments.

### Fiscal and Debt
- Fiscal outcomes:
  - Overall surplus narrowed to 2.1 percent of GDP in 2021, from 6.8 percent in 2019.
  - Debt-to-GDP ratio rose by 11 percentage points to 70 percent in 2021.
- Governance and response:
  - Escape clause triggered under the fiscal responsibility framework (FRF) due to pandemic-related measures.
  - Grants from the National Transformation Fund (sourced from citizenship-by-investment receipts) helped fund mitigation measures.
- Policy commitments and actions:
  - Plan to return to improved, better calibrated, fiscal rules in 2024.
  - Continued efforts to regularize outstanding arrears with three bilateral creditors.
  - Request for IMF technical assistance to strengthen the Fiscal Responsibility Law (FRL), recalibrate fiscal rules, and assess the tax gap.
  - Adopted an expenditure strategy to improve public expenditure management, tighten expenditure controls, increase value for money in public procurement, and prioritize productive spending.
  - Commitment to make the Budget gender responsive and to close information gaps to improve social protection targeting; keep relief measures timebound.
  - Consideration of policies to broaden the tax base and strengthen revenue administration.
  - Steps to improve statistical system: establishment of a National Statistical Institute of Grenada by 2024.
- Transparency:
  - Public accounts audited up to 2019; 2020 audit being finalized.
  - Audit of COVID-19 expenditure completed; publication of the report expected by end of Q2 2022.
- Pension Ruling (March 29, 2022 High Court’s Ruling):
  - Authorities committed to resolve the matter maintaining fiscal prudence, debt sustainability, and social justice.
  - Multi-disciplinary committee established to recommend a plan of action.
  - Requested technical assistance from the Fund, in collaboration with the World Bank, to assess fiscal impact and policy implications.

### Financial Sector
- Pandemic-era banking measures (loan moratoria and targeted support) gradually phased out.
- Non-performing loans (NPLs):
  - Banking sector NPLs remained low at 2.9 percent of the total.
  - Credit union NPLs rose to 7.2 percent from 5.2 percent at end-2019.
- Provisioning and liquidity:
  - Banks continue to meet ECCB guidance of 60 percent of NPLs for loan loss provisioning.
  - Credit growth mild; banking sector remains very liquid.
  - Banks’ average profitability declined, but capital adequacy indicators remain above regulatory minimum for banks and most credit unions.
- Regulation and supervision:
  - Increased surveillance and enhanced supervision during the pandemic.
  - GARFIN committed to enhancing oversight of credit unions, increasing institutional capital ratio, and adhering to World Council of Credit Unions standards.
  - GARFIN commenced procurement of an enhanced system for data collection and organization.
  - Ongoing efforts to standardize regulations for credit unions and regional work on optimal regulatory framework.
- External vulnerabilities:
  - Underlying risks to correspondent banking relationships due to international policy changes; provisions in the U.S. National Defense Authorization Act may increase compliance costs for correspondent banks.
  - ECCB named authority for AML/CFT compliance at banks.
  - August 2021 safeguards assessment of the ECCB showed strong external audit and financial reporting practices aligned with international standards and improved internal audit capacity.

### Structural Reform
- Growth and investment:
  - Authorities committed to policies for robust, resilient, and sustainable growth.
  - Staff recommendations noted on strengthening cross-industry linkages and leveraging the Marketing and National Importing Board (MNIB).
  - Several major tourism investment projects expected to break ground in 2022 to increase room inventory, attract flights, and boost employment.
  - Private sector scholarships for hospitality training at Cornell University.
- Agriculture, fisheries, and SMEs:
  - Efforts to modernize agriculture and fisheries; promote micro, small, and medium-sized operations via the Small Business Development Fund.
  - Support from IFAD-CDB Climate-Smart Agriculture and Rural Enterprise program to increase agricultural production and climate adaptation.
- Health and digital transformation:
  - Progress on updating and strengthening healthcare with donor-funded advanced diagnostic equipment.
  - Digital transformation office established; implementation support from World Bank-supported Digital Governance for Resilience and Caribbean Regional digital transformation projects.
  - ECCB’s D-Cash pilot launched in March 2021; work underway to increase education and usage of digital currency while addressing cyber risks and building digital skills.
- Citizenship by Investment (CBI):
  - Strong performance in second half of 2021 with increased approvals and higher contributions to the National Transformation Fund.
  - Robust vetting to preserve integrity and reputation.
  - Staff recommendation noted to reorient CBI inflows to strengthen prospects for growth and job creation.
- Resilience and climate:
  - Development of a Disaster Resilience Strategy (DRS); authorities seek grants and concessional funding to accelerate implementation.
  - Progress in marine and coastal protection and renewable energy enabling legislation:
    - April 8, 2022 enactment of the Tariff Setting Methodology and the Generation Expansion Planning and Competitive Procurement Regulations under the 2016 Electricity Supply Act.
  - Insurance and contingency mechanisms:
    - Contingency fund under the National Transformation Fund.
    - Policy under CCRIF (regional Catastrophe Risk Insurance Facility).
    - World Bank’s Catastrophe Deferred Drawdown (CAT-DDO).
    - Insurance products for agriculture/farming to provide payouts after qualifying disasters.
    - Recent success in negotiating hurricane clauses in debt contracts.
  - National adaptation plan upgrade planned in 2022; revised NDCs aim to reduce emissions by 40% of their pre-2010 level by the year 2030.
  - Call for global action toward an international mechanism to better address damage and loss.

### Conclusion
- Authorities encouraged by global recovery and rebound in domestic activity; cognizant of downside risks.
- Commitment to policies that support robust, resilient, inclusive, long-term growth.
- Welcome the newly approved Resilience and Sustainability Trust (RST) as a potential source of concessional resources for resilience building and pandemic preparedness and to catalyze additional funding.
- Continued reliance on the Fund for analysis, technical advice, and capacity building.

*Source: Statement by Mr. Jennings and Ms. Smith on Grenada, May 4, 2022*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1grdea2022002.pdf_