## 2023. Downside risks include an economic slowdown of key tourist source markets,

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### Recent developments
- Economy and employment
  - Economy contracted by 13.8 percent in 2020, recovered in 2021 and 2022.
  - Stayover tourist arrivals averaged 87 percent of their 2019 level in 2022.
  - Cruise ship arrivals around 55 percent of their 2019 level.
  - Agricultural production fell by nearly one-quarter in 2022.
  - Employment remains 9 percent below its level prior to the pandemic; youth and female workers hardest hit.
- Inflation and relief measures
  - Inflation rose to 2.9 percent by end-2022.
  - Pass-through from global food and fuel prices muted by a cap on fuel prices and reductions in VAT on electricity and some food items.
  - Strong increase in food prices suggests inflation faced by poorer households may be higher than the headline.
- Fiscal position and public debt
  - Public debt fell from nearly 100 percent of GDP in 2014 to below 60 percent of GDP in 2019.
  - 2.6 percent of GDP primary surplus in 2022; public debt fell to 64.6 percent of GDP.
  - High court ruling in March resulted in retroactive pension payments of 2.3 percent of GDP.
  - Total cost of relief measures, including tax expenditures, was 2.6 percent of GDP.
  - Outstanding arrears to official bilateral creditors amount to 3.1 percent of GDP.
- External sector
  - Current account deficit estimated to have widened to 17.3 percent of GDP in 2022 (from 13.2 percent in 2021).
  - REER depreciated by 3.5 percent in 2022.
  - EBA-Lite-based current account gap of 3.4 percent of GDP; international reserves at adequate levels.
- Financial sector
  - Credit union NPLs rose to 9.7 percent of total loans in 2022Q3, falling to 8.4 percent in 2022Q4.
  - Bank NPLs edged up to 3.6 percent of loans in 2022Q4.
  - Loan loss provisioning in banks meets the ECCB’s 60 percent requirement but is insufficient in credit unions.
  - Capital adequacy ratios remain above regulatory minimum except for one credit union.
  - Liquidity levels remain ample among banks but have deteriorated in credit unions.
  - DCash (pilot CBDC launched March 2021) has had low uptake.

### Outlook and risks
- Near-term staff projections
  - Real economy projected to expand 3.9 percent in 2023.
  - Inflation projected to reach 3.2 percent by end-2023.
  - Current account balance expected to improve modestly to -14.8 percent of GDP.
  - Primary fiscal balance projected to rise to 3.6 percent of GDP in 2023.
  - Public debt projected to be on a firm downward path to 55 percent of GDP by 2025.
- Medium-term outlook
  - Tourism and public investment remain key drivers; output projected to gradually converge to potential by 2028 and remain around that level thereafter.
  - CBI inflows projected to taper off following strong increases in 2022–23.
- Key downside risks
  - Economic slowdown of key tourist source markets (the U.S. and U.K.).
  - High import costs for construction materials weighing on construction activity.
  - Renewed upswing in global food and fuel prices.
  - Abrupt decline in revenues from the Citizenship-by-Investment (CBI) program.
  - More frequent and severe natural disasters.
  - An unfavorable ICSID arbitration result could negatively affect the fiscal position.
- Key upside risks
  - Stronger-than-expected tourism recovery.
  - Larger domestic spillovers from capital expenditures.
  - Rapid implementation of reforms to improve competitiveness.
  - Accelerating the move to renewable energy.
- CBI-related developments noted
  - February 2023 U.S. legislation requires people who earned Grenada citizenship through the CBI program to live in Grenada for three years before eligibility for the E-2 investment visa.
  - March 2023 Grenada suspended processing new Russian and Belarusian applications.
  - These developments expected to negatively impact Grenada’s CBI revenues in the coming years.

### Policy advice and recommendations (overview)
- Fiscal framework and credibility
  - Return to and prioritize existing fiscal rules after the escape clause (2020–22).
  - 2023 budget commits to returning to the fiscal rules; planned amendment of the Fiscal Responsibility Framework (FRA) should:
    - Simplify the rules.
    - Make the medium-term fiscal framework (MTFF) more effective in providing forward guidance.
    - Enhance accountability and oversight.
  - Authorities plan to raise the primary balance to 3.6 percent of GDP in 2023 via modest reductions in public investment, phasing out subsidies to food and fuel, and lower pension payments.
- Expenditure and social protection
  - Phase down untargeted relief measures as initial food and fuel price spike dissipates.
  - Roll back broad-based price controls on petroleum products and the reduction in the petroleum tax; replace with targeted transfers.
  - Improve targeting and effectiveness of social assistance:
    - Improve eligibility determination for SEED and other social programs.
    - Update poverty data with the census and labor force surveys.
    - Strengthen the central beneficiary management system.
    - Move to cashless payments.
  - Design permanent unemployment insurance program with periodic reviews to avoid adverse labor incentives.
- Public financial management and resilience
  - Increase public expenditure efficiency to support critical spending, particularly on building climate resilience.
  - Implement government’s Disaster Resilience Strategy.
- Financial sector oversight
  - Strengthen regulation and supervision of credit unions.
  - Intensify oversight if downside risks materialize.
- CBI program governance
  - Continue to improve vetting and approval processes used for the CBI program.
- Structural reforms
  - Deepen reforms to raise competitiveness, improve gender equality, accelerate renewable energy, and build disaster resilience.
- Debt sustainability and risk management
  - Strong commitment to the FRA (even as amendments proceed).
  - Improve debt management.
  - Implement pension and national insurance scheme reforms.
- Contingent policy responses if shocks materialize
  - Implement targeted transfers to the vulnerable.
  - Reduce lower-priority spending.
  - Intensify financial sector oversight.

### Fiscal framework and debt anchor (detailed recommendations)
- Revise the Fiscal Responsibility Act (FRA) to underpin debt sustainability and include a medium-term debt anchor.
- Broaden public debt coverage to include debt of all state-owned enterprises (SOEs) and statutory bodies, as well as PPP-related contingent liabilities.
- Proposed debt anchors and timing:
  - Debt anchor of 65 percent of GDP (or 50 percent of GDP for the central government and government guaranteed debt) with the target to be reached by 2030.
  - Alternative: debt target of 60 percent of GDP reached by 2032 (to build further buffers against severe natural disasters).
- Fiscal rule implication:
  - Imply a primary balance floor of 1.1 percent of GDP that would provide some space to increase capital expenditures.
- MTFF and operational rules:
  - MTFF should set a primary balance floor for the current budget and two subsequent years consistent with reducing debt to the debt target; lay out multiyear revenue projections and expenditure ceilings; provide ex-post analysis; require timeline for Cabinet approval, submission to Parliament, and publication (including publishing a draft MTFF by end-June).
  - As transition, MTFF publication/submission by end-June could be delayed for a few years to gain experience.
- Simpler rules, accountability, and oversight:
  - Remove rules limiting primary expenditures and wage spending from the FRA to provide spending flexibility.
  - Tighten circumstances for invoking the escape clause and require provisions on how fast debt should return to its medium-term path after a shock.
  - Minister of Finance accountable under a “comply or explain” provision to meet the MTFF primary balance floor; if not met, Minister must identify corrective policies for following year’s MTFF.
  - Fiscal Responsibility Oversight Committee (FROC) should validate macro assumptions, assess fiscal risks, advise on escape clause triggers and recovery plans; over time FROC could provide independent macro forecasts and independently cost policy initiatives; FROC should report regularly to Parliament and attend hearings; periodic assessments by the Auditor General encouraged.
- Contingency fund and fiscal transparency:
  - Strictly implement plan to save 10 percent of the CBI inflows into the contingency fund.
  - A contingency fund capitalized by government’s undrawn SDR holdings would provide insurance for major shocks.
  - Improve transparency: clarify central government definition; publish audited financial statements of government and SOEs; publish aggregate debt statistics; improve data on CBI flows and usage.
  - Over medium term adopt GFSM2014.

### Key fiscal statistics (selected fiscal aggregates in percent of GDP; exact figures preserved)
- 2020: Total revenue and grants 28.1; Tax revenues 22.1; Non-tax revenues 2.4; Grants 3.7; Total expenditure and net lending 26.9; Wages, salaries and allowances 9.3; Goods and services 4.7; Transfers and contribution to NIS 7.1; Capital expenditure 3.8; Interest payments 2.0; Primary balance 3.2; Overall balance 1.2.
- 2021: Total revenue and grants 32.1; Tax revenues 21.0; Non-tax revenues 3.4; Grants 7.7; Total expenditure and net lending 31.7; Wages, salaries and allowances 9.8; Goods and services 5.2; Transfers and contribution to NIS 6.3; Capital expenditure 8.7; Interest payments 1.8; Primary balance 2.1; Overall balance 0.3.
- 2022 (Est.): Total revenue and grants 33.8; Tax revenues 22.2; Non-tax revenues 4.6; Grants 7.0; Total expenditure and net lending 32.8; Wages, salaries and allowances 8.2; Goods and services 4.0; Transfers and contribution to NIS 8.5; Capital expenditure 10.6; Interest payments 1.7; Primary balance 2.6; Overall balance 1.0.
- 2023 (Budget): Total revenue and grants 32.1; Tax revenues 21.2; Non-tax revenues 8.9; Grants 1.9; Total expenditure and net lending 30.3; Wages, salaries and allowances 8.9; Goods and services 4.5; Transfers and contribution to NIS 6.1; Capital expenditure 9.0; Interest payments 1.8; Primary balance 3.6; Overall balance 1.8.
- 2024 (IMF staff MTFF): Total revenue and grants 30.5; Tax revenues 22.4; Non-tax revenues 6.1; Grants 2.0; Total expenditure and net lending 28.4; Wages, salaries and allowances 9.0; Goods and services 4.0; Transfers and contribution to NIS 6.6; Capital expenditure 7.3; Interest payments 1.5; Primary balance 3.6; Overall balance 2.1.
- 2025 (IMF staff MTFF): Total revenue and grants 31.8; Tax revenues 21.2; Non-tax revenues 8.6; Grants 1.9; Total expenditure and net lending 29.7; Wages, salaries and allowances 8.7; Goods and services 4.4; Transfers and contribution to NIS 6.0; Capital expenditure 9.0; Interest payments 1.6; Primary balance 3.6; Overall balance 2.1.
- 2023 (IMF staff): Total revenue and grants 29.9; Tax revenues 22.0; Non-tax revenues 5.9; Grants 1.9; Total expenditure and net lending 28.0; Wages, salaries and allowances 8.7; Goods and services 4.0; Transfers and contribution to NIS 6.7; Capital expenditure 6.9; Interest payments 1.6; Primary balance 3.6; Overall balance 1.9.
- 2024 (MTFF): Total revenue and grants 32.8; Tax revenues 21.2; Non-tax revenues 9.6; Grants 1.9; Total expenditure and net lending 29.0; Wages, salaries and allowances 8.4; Goods and services 4.3; Transfers and contribution to NIS 6.1; Capital expenditure 9.0; Interest payments 1.3; Primary balance 5.1; Overall balance 3.7.
- 2025 (IMF staff MTFF): Total revenue and grants 29.6; Tax revenues 21.9; Non-tax revenues 5.7; Grants 1.9; Total expenditure and net lending 27.6; Wages, salaries and allowances 8.4; Goods and services 4.0; Transfers and contribution to NIS 6.9; Capital expenditure 6.7; Interest payments 1.6; Primary balance 3.6; Overall balance 2.0.

### Tax policy, revenue administration, and public investment
- Revenue administration and tax policy
  - Improve risk-based internal auditing for customs administration.
  - Invest in retraining and retooling staff at customs and domestic revenue administrations.
  - Improve measurement of the tax gap, increase digitalization, and improve compliance; a TADAT assessment can help identify priorities.
  - Update tax incentive framework; convert tax holidays to accelerating depreciation or possibly full expensing of capital spending.
  - Any amnesty for tax arrears should be accompanied by measures to reinforce compliance.
- Public investment management and PPPs
  - Ministry of Mobilization, Implementation, and Transformation should address project implementation bottlenecks and increase oversight.
  - Implement PIMA/C-PIMA high-priority recommendations to strengthen project appraisal and determine minimum maintenance requirements and costs for key infrastructure assets.
  - Review procurement to increase transparency and accountability.
  - Develop a PPP framework with clear guardrails to manage fiscal risks.

### Pensions, social insurance, and public service reforms
- Pensions and NIS
  - High court ruling reinstated the public pension scheme closed in 1985, creating large retroactive and prospective pension liabilities.
  - Annual average cost of paying these additional liabilities: 1¼ percent of GDP over the next 20 years.
  - Recommendation: Starting in 2024, establish a single pension scheme for new entrants.
  - NIS issues:
    - Contribution rate 11 percent; frontloaded accrual schedule with first ten years (500 weeks) earning a 30 percent replacement rate and 1 percent accrual for every 50 weeks thereafter up to 60 percent ceiling.
    - Reserve estimated to be exhausted between 2032 and 2034.
    - Without reform, projected new prospective payments rise from about 0.8 percent of GDP annually through 2025 to about 3.4 percent of GDP by 2060.
  - Authorities’ planned reforms: raise pensionable age from 60 to 65 and contribution rate from 11 to 16 percent (both by 2031); staff view these will help but be insufficient to restore actuarial balance.
  - Further reform options: extend reference wage years to at least 20 years; replace ad hoc benefit adjustments with predictable price indexation; apply uniform accrual rates; reduce administrative costs; incentivize self-employed participation.
- Public service provision and payroll
  - Step up review of public services to assess resource allocation and retrain public workers.
  - Eliminate differential treatment of public sector workers based on labor contract nature.
  - Conduct comprehensive wage review and payroll audits.

### Financial sector, credit unions, and AML/CFT (selected)
- Credit unions and financial stability
  - Credit unions account for one-fifth of deposits and one-third of loans; 84,000 members.
  - Total assets grew by 13.4 percent annually during 2013–19; banks grew 4.9 percent annually.
  - Three largest credit unions jointly accounted for 88 percent of total loans in 2022Q4.
  - Loan purposes (percent): housing, home furnishing, land purchase 48.7 (2021) and 45.9 (2020); vehicle 6.1 (2021) and 6.7 (2020); business 4.7 (2021) and 6.3 (2020); other 40.5 (2021) and 41.1 (2020).
  - NPLs delinquent more than 90 days rose from 4.5 percent in 2019Q4 to 9.7 percent in 2022Q3, then fell to 8.4 percent in 2022Q4.
  - Concerns: profitability decline, limited business opportunities, mandate limits on charging fees, limited access to securities and central bank operations, no deposit insurance, vulnerabilities to liquidity shocks.
- Regulatory and supervisory recommendations for credit unions
  - GARFIN should tighten lending standards and provisioning requirements and provide a tighter definition of capital (aligned with banks).
  - Implement clearer regulatory guidelines, periodic stress testing, enforce corrective actions.
  - Require improved internal risk management, quicker recognition of loan losses, stronger debt collection, and strategies to reduce legacy NPLs.
  - Implement risk-based supervisory templates (recently updated with CARTAC support) and improve governance and risk management.
  - Consider publishing more details on prudential ratios, provisioning, and loan composition by sector and type.
- AML/CFT and CBI
  - CFATF mutual evaluation (July 2022) identified weaknesses in understanding ML/TF risk associated with legal persons and the CBI program; deficiencies in verification of basic and beneficial ownership information.
  - Authorities recently staffed the AML/CFT committee; recommended actions:
    - Strengthen measures to mitigate misuse of legal persons.
    - Enhance verification arrangements for basic and beneficial ownership information.
    - Improve vetting and approval processes for the CBI program.
    - Continue engagement with Europe and the U.S. to address national security concerns arising from Grenada’s CBI program.
- Safeguards and DCash
  - Updated safeguards assessment of the ECCB (finalized August 2021) found strong external audit and financial reporting practices; recommended legal reforms to strengthen ECCB operational autonomy.
  - DCash issuance introduces new risks requiring additional controls; recommended enhancing project-governance framework.

### External sector assessment (Annex II) — key findings and projections
- Overall assessment
  - Grenada’s external position in 2022 preliminarily assessed as weaker than the level consistent with medium-term fundamentals and desirable policies.
  - Increase in import values only partially compensated by tourism rebound, widening the current account deficit.
- NIIP and liabilities (2022)
  - NIIP deficit -151.5 percent of GDP.
  - Gross Assets 111.1 percent of GDP.
  - Debt Assets 80.7 percent of GDP.
  - Gross Liabilities 262.6 percent of GDP.
  - Debt Liabilities 85.2 percent of GDP.
  - FDI 167 percent of GDP; other investment (mostly loans) 85 percent of GDP.
- Current account and REER
  - Current account estimated to have increased to 17.3 percent of GDP in 2022 from 13.2 percent in 2021.
  - REER depreciated by 3.5 percent in 2022; REER gap 8.8 percent (EBA-Lite CA model with elasticity -0.4); EBA-Lite REER model points to gap of -19 percent.
- Capital flows and CBI
  - CBI revenues have averaged about 5 percent of GDP since 2014.
  - In 2022 FDI rose to 14.1 percent of GDP, partly due to increased CBI investment; expected to moderate in 2023.
  - FDI projected to average 12.3 percent over medium term; CBI inflows could be volatile.
- Reserves and FX cover
  - Imputed reserves increased by 9 percent from 2021 to 2022.
  - Imputed reserves covered 5 months of imports and 30 percent of broad money, unchanged from 2021.
  - Grenada received 16.4 million SDRs (about US$22.8 million) in 2021 from general SDR allocation.

### Debt sustainability, DSA, and arrears
- DSA headline assessments
  - Risk of external debt distress: In debt distress.
  - Overall risk of debt distress: In debt distress.
  - Granularity in risk rating: Sustainable.
  - Grenada remains in public debt distress solely due to unresolved arrears to official bilateral creditors of about US$37.6 million (3.1 percent of GDP) as of end-2022.
  - Public debt rose to 71.4 percent of GDP in 2020; estimated 64.6 percent of GDP in 2022; projected decline expected in 2023 onward.
- Public debt coverage and contingent liabilities
  - Definition: central government debt (including arrears and overdue membership fees) and government-guaranteed debt; excludes non-guaranteed SOE debt (PDV Grenada’s debt excluded).
  - Stock of non-guaranteed SOE debt estimated at 16.2 percent of GDP in 2022; PDV Grenada accounts for 10.8 percent of GDP of this stock.
  - FRA caps PPP-related government liabilities at 5 percent of GDP.
- Key statistics and arrears (selected)
  - Unresolved arrears to official bilateral creditors: US$37.6 million (3.1 percent of GDP) as of end-2022.
  - Public debt (central government): 2019 58.5 percent; 2020 71.4 percent; 2021 71.2 percent; 2022 64.6 percent.
  - Public Sector debt total: 2019 62.7 percent; 2020 76.3 percent; 2021 76.7 percent; 2022 70.0 percent.
  - External debt (percent of GDP): 2019 45.1; 2020 56.5; 2021 57.8; 2022 53.0.
  - Nominal GDP (EC$ millions): 2019 3,276.4; 2020 2,817.2; 2021 2,985.3; 2022 3,232.4.
- Debt portfolio improvements (2022)
  - Average time to maturity for external debt around 10 years.
  - Average time to re-fixing of external debt portfolio increased marginally to 9.9 years.
  - Average effective interest rate on all central government debt declined from 2.8 to 2.5 percent in 2022.
  - Share of external debt held by multilateral creditors increased to 67.3 percent in 2022 from 64.7 percent in 2021.
- Arrears resolution
  - Repayment agreement reached with State of Libya on US$5 million in arrears (October 2022).
  - Negotiations with Trinidad and Tobago include opening an escrow account; limited progress with Algeria.

### Crisis preparedness, disaster-risk financing, and resilience
- Disaster-risk financing architecture
  - Hurricane clauses in restructured bonds could release up to EC$45 million following a major hurricane (amounts lower for smaller events).
  - World Bank CAT DDO renewed in 2023.
  - Insurance from CCRIF, contingency fund under the National Transformation Fund, and other savings provide additional layers.
- Efficiency and legal frameworks
  - Instruments exist but are not used efficiently; Disaster Resilience Strategy and DRM Act expected to consolidate resources and improve cushions against natural disasters.
- Debt management capacity and transparency
  - Further reforms needed in data management and IT enhancements (DeMPA 2018).
  - MoF plans to amend FRA in second half of 2023 to better monitor SOEs, statutory bodies, and PPP-related liabilities.
  - Transparency around CBI program should be strengthened to improve reporting and asset/liability management.

### Risk Assessment Matrix (selected risks and policy responses)
- Conjunctural risks
  - Intensification of regional conflict(s): Relative Likelihood: High; Impact: Medium. Policy response: Provide targeted transfers; increase value-added of tourism; monitor financial sector with ECCB.
  - Abrupt global slowdown or recession: Relative Likelihood: Medium; Impact: High. Policy response: Accelerate structural reforms; increase value-added of tourism; monitor financial sector.
  - Commodity price volatility: Relative Likelihood: Medium; Impact: Medium. Policy response: Targeted support to vulnerable; accelerate shift to renewables.
  - Systemic financial instability: Relative Likelihood: Medium; Impact: Medium. Policy response: Intensify monitoring of asset quality; ensure adequate provisioning; conduct stress testing.
- Structural risks
  - Deepening geo-economic fragmentation: Relative Likelihood: High; Impact: Medium. Policy response: Accelerate structural reforms; gradually reduce reliance on CBI.
  - Extreme climate events: Relative Likelihood: Medium; Impact: High. Policy response: Continue Disaster Resilience Strategy; build financial buffers; accelerate renewables.
  - Cyberthreats: Relative Likelihood: Medium; Impact: Low. Policy response: Enhance digital security; prepare contingency plans.
- Domestic risks
  - CBI revenues decline due to lower attractiveness: Relative Likelihood: Medium; Impact: Medium. Policy response: Improve AML/CFT framework; communicate with EU and US regulators.
  - Persistently high NPLs of credit unions: Relative Likelihood: Medium; Impact: Medium. Policy response: Accelerate reforms to resolve NPLs; improve credit access.

### Competitiveness, labor, gender, and data priorities
- Tourism and agriculture
  - Increase airlift and expedited border processes have diversified tourist source countries.
  - Promote sports, nautical, eco-adventure, health and wellness, and community-based tourism; develop linkages with domestic agriculture and fisheries.
  - Boost agricultural productivity and resilience to adverse weather events.
- Gender and labor markets
  - Female labor force participation persistently below male participation by 10–11 percentage points during 2010–19.
  - Closing the gender gap could boost labor force participation by about 3½ percentage points from around 67 percent in 2021.
  - Results suggest women are 12 percent less likely than men to participate in the labor force (Probit model).
  - Policy recommendations: incentivize female participation via transparent pay practices, invest in care facilities, focus training/apprenticeship programs on technical and entrepreneurial skills, align minimum wage adjustments with productivity gains.
- Data and statistics priorities
  - Resume the labor force survey and publish 2022 Census data.
  - Update CPI weights.
  - Improve CBI statistics by publishing flows and usage.
  - Collect and disseminate high frequency indicators.
  - Timely appointment of a new Central Statistics Office director is a priority.
  - Central government monthly data provided to ECCB/IMF with lags of about 4–6 weeks; coverage of rest of public sector improved but no consolidated public-sector accounts.
  - Adopt GFSM2014 over the medium term.

### Staff appraisal — concise summary of key findings and actions
- Fiscal buffers built over past decade allowed swift pandemic response; targeting of relief could have been improved.
- Growth projected at 3.9 percent in 2023 with near-term downside risks from tourist source markets, renewed food and fuel price increases, natural disasters, or abrupt CBI revenue declines.
- External position weaker than implied by fundamentals; imputed reserves assessed as adequate.
- Public debt on downward path and assessed sustainable, but Grenada remains “in debt distress” due to outstanding arrears of about US$37.6 million to official bilateral creditors.
- Immediate priorities: return to fiscal rules, reduce untargeted relief, improve targeting of social assistance, simplify FRA via MTFF, operationalize contingency fund, publish audited public and SOE financial statements, regularize arrears, and advance pension/NIS reforms.
- Financial sector: tighten lending standards and provisioning for credit unions; improve governance, debt collection, supervisory capacity, and financial literacy; encourage use of ECCU regional credit bureau when operational.
- Competitiveness and resilience: increase domestic value-added of tourism, promote gender equality, improve labor skills, implement Disaster Resilience Strategy, and expedite transition to renewable energy with concessional financing and regulatory improvements.

*GRENADA, INTERNATIONAL MONETARY FUND, June 28, 2023*

### 2023. Downside risks include an economic slowdown of key tourist source markets,

### 1grdea2023001 - 2023. Downside risks include an economic slowdown of key tourist source markets,

### Recent developments
- Economic recovery and sectoral performance
  - Economy contracted by 13.8 percent in 2020, recovered in 2021 and 2022.
  - Stayover tourist arrivals averaged 87 percent of their 2019 level in 2022.
  - Cruise ship arrivals around 55 percent of their 2019 level.
  - Agricultural production fell by nearly one-quarter in 2022.
  - Employment remains 9 percent below its level prior to the pandemic, with youth and female workers hardest hit.
- Inflation and relief measures
  - Inflation rose to 2.9 percent by end-2022.
  - Pass-through from global food and fuel prices was muted by a cap on fuel prices and reductions in VAT on electricity and some food items.
  - Strong increase in food prices suggests inflation faced by poorer households may be higher than the headline.
- Fiscal position and public debt
  - Public debt fell from nearly 100 percent of GDP in 2014 to below 60 percent of GDP in 2019.
  - There was a 2.6 percent of GDP primary surplus in 2022 and public debt fell to 64.6 percent of GDP.
  - A high court ruling in March resulted in retroactive pension payments of 2.3 percent of GDP.
  - Total cost of relief measures, including tax expenditures, was 2.6 percent of GDP.
  - Outstanding arrears to official bilateral creditors amount to 3.1 percent of GDP.
- External sector
  - Current account deficit estimated to have widened to 17.3 percent of GDP in 2022 (from 13.2 percent in 2021).
  - REER depreciated by 3.5 percent in 2022.
  - EBA-Lite-based current account gap of 3.4 percent of GDP; international reserves at adequate levels.
- Financial sector
  - Credit union non-performing loans (NPLs) rose to 9.7 percent of total loans in 2022Q3, falling to 8.4 percent in 2022Q4.
  - Bank NPLs edged up to 3.6 percent of loans in 2022Q4.
  - Loan loss provisioning in banks meets the ECCB’s 60 percent requirement but is insufficient in credit unions.
  - Capital adequacy ratios remain above regulatory minimum except for one credit union.
  - Liquidity levels remain ample among banks but have deteriorated in credit unions.
  - DCash (pilot CBDC launched March 2021) has had low uptake.

### Outlook and risks
- Near-term projections (staff projections)
  - Real economy projected to expand 3.9 percent in 2023.
  - Inflation projected to reach 3.2 percent by end-2023.
  - Current account balance expected to improve modestly to -14.8 percent of GDP.
  - Primary fiscal balance projected to rise to 3.6 percent of GDP in 2023.
  - Public debt projected to be on a firm downward path to 55 percent of GDP by 2025.
- Medium-term outlook
  - Tourism and public investment remain key drivers; output projected to gradually converge to potential by 2028 and remain around that level thereafter.
  - CBI inflows projected to taper off following strong increases in 2022–23.
- Key downside risks
  - Economic slowdown of key tourist source markets (the U.S. and U.K.).
  - High import costs for construction materials weighing on construction activity.
  - Renewed upswing in global food and fuel prices.
  - Abrupt decline in revenues from the Citizenship-by-Investment (CBI) program.
  - More frequent and severe natural disasters.
  - An unfavorable ICSID arbitration result could negatively affect the fiscal position.
- Key upside risks
  - Stronger-than-expected tourism recovery.
  - Larger domestic spillovers from capital expenditures.
  - Rapid implementation of reforms to improve competitiveness.
  - Accelerating the move to renewable energy.
- CBI-related developments noted
  - February 2023 U.S. legislation requires people who earned Grenada citizenship through the CBI program to live in Grenada for three years before eligibility for the E-2 investment visa.
  - March 2023 Grenada suspended processing new Russian and Belarusian applications.
  - These developments expected to negatively impact Grenada’s CBI revenues in the coming years.

### Policy advice and recommendations
- Fiscal framework and fiscal credibility
  - Return to and prioritize the existing fiscal rules to preserve fiscal credibility after the escape clause (2020–22).
  - 2023 budget commits to returning to the fiscal rules; planned amendment of the Fiscal Responsibility Framework should:
    - Simplify the rules.
    - Make the medium-term fiscal framework more effective in providing forward guidance on fiscal policy.
    - Enhance accountability and oversight.
  - Authorities plan to raise the primary balance to 3.6 percent of GDP in 2023 via modest reductions in public investment, phasing out subsidies to food and fuel, and lower pension payments.
- Expenditure and social protection
  - Spending on untargeted relief measures should decline as the initial food and fuel price spike dissipates.
  - Broad-based price controls on petroleum products and the reduction in the petroleum tax should be rolled back and replaced with targeted transfers.
  - Steps to structurally improve effectiveness and targeting of social assistance programs:
    - Improve eligibility determination for SEED and other social programs.
    - Update poverty data with the census and labor force surveys.
    - Strengthen the central beneficiary management system.
    - Move to cashless payments.
  - Savings from better targeting should increase transfers to the vulnerable.
  - Design of the permanent unemployment insurance program should be periodically reviewed to avoid discouraging labor force participation or incentivizing informality.
- Public financial management and resilience
  - Increase public expenditure efficiency to support critical spending, particularly on building climate resilience.
  - Implement government’s Disaster Resilience Strategy to mitigate impact of natural disasters.
- Financial sector oversight
  - Regulation and supervision of credit unions need strengthening.
  - More intense financial sector oversight if downside risks materialize.
- CBI program governance
  - Continue to improve vetting and approval processes used for the CBI program.
- Structural reforms
  - Deeper focus on addressing structural challenges to:
    - Raise competitiveness.
    - Improve gender equality.
    - Accelerate transition towards renewable energy.
    - Build disaster resilience.
- Debt sustainability and risk management
  - Managing risks to debt sustainability requires:
    - Strong commitment to the fiscal responsibility framework (even as amendments proceed).
    - Further improvements in debt management.
    - Implementing pension and national insurance scheme reforms.
- Contingent policy responses if shocks materialize
  - Implement targeted transfers to the vulnerable.
  - Reduce lower-priority spending.
  - Intensify financial sector oversight.

*GRENADA, INTERNATIONAL MONETARY FUND, June 28, 2023*

### 15.      To better serve the country’s development needs, the institutional framework for

### To better serve the country’s development needs, the institutional framework for fiscal policies should be enhanced.

### Fiscal framework and debt anchor
- Recommendation to revise the Fiscal Responsibility Act (FRA) to underpin debt sustainability and include a medium-term debt anchor.
- Broadening public debt coverage to include the debt of all state-owned enterprises (SOEs) and statutory bodies, as well as PPP-related contingent liabilities.
- Proposed debt anchors and timing:
  - Debt anchor of 65 percent of GDP (or 50 percent of GDP for the central government and government guaranteed debt) with the target to be reached by 2030.
  - Alternative: debt target of 60 percent of GDP reached by 2032 (to build further buffers against severe natural disasters).
- Fiscal rule implication:
  - This would imply a primary balance floor of 1.1 percent of GDP that would provide some space to increase capital expenditures.

### Medium-Term Fiscal Framework (MTFF) and operational rules
- MTFF should play a central role and should:
  - Set a primary balance floor for the current annual budget and for the two subsequent years consistent with reducing debt to the debt target.
  - Lay out multiyear revenue projections and expenditure ceilings consistent with the targeted primary balance.
  - Provide an ex-post analysis of budgetary outcomes.
  - Require a timeline for approval by the Cabinet, submission to Parliament, and publication of the MTFF (including publishing a draft MTFF by end-June).
- As a transition measure, submission to Parliament and publication of the end-June MTFF could be delayed for a few years to gain experience.

### Simpler rules, accountability, and oversight
- Remove rules limiting primary expenditures and wage spending from the FRA to provide spending flexibility and incentive to mobilize revenues for key areas (public investment and social protection).
- Tighten circumstances for invoking the escape clause and require provisions on how fast debt should return to its medium-term path after a shock.
- Strengthened accountability:
  - Minister of Finance accountable under a “comply or explain” provision to meet the MTFF primary balance floor.
  - If the primary balance floor is not met, the Minister must identify corrective revenue and expenditure policies for the following year’s MTFF.
- Enhanced oversight:
  - Fiscal Responsibility Oversight Committee (FROC) should validate macroeconomic assumptions, assess fiscal risks, and advise on escape clause triggers and recovery plans.
  - Over time, FROC could provide independent macroeconomic forecasts and independently cost policy initiatives.
  - Government should facilitate FROC access to timely information; FROC should report regularly to Parliament and attend hearings; periodic assessments by the Auditor General encouraged.

### Contingency fund and fiscal transparency
- Contingency fund:
  - Strictly implement plan to save 10 percent of the CBI inflows into the contingency fund to smooth expenditures and provide resources for future generations.
  - A fully operationalized contingency fund capitalized by the government’s undrawn SDR holdings would provide insurance for major shocks.
- Fiscal transparency:
  - A summary of COVID-related expenditure was published in May 2023.
  - Further improvements: clarify definition of the central government; publish audited financial statements of the government and SOEs; publish aggregate debt statistics; improve data on CBI flows and usage.
  - Over the medium term, adopt GFSM2014.

### Key fiscal statistics (selected fiscal aggregates in percent of GDP; exact figures preserved)
- 2020: Total revenue and grants 28.1; Tax revenues 22.1; Non-tax revenues 2.4; Grants 3.7; Total expenditure and net lending 26.9; Wages, salaries and allowances 9.3; Goods and services 4.7; Transfers and contribution to NIS 7.1; Capital expenditure 3.8; Interest payments 2.0; Primary balance 3.2; Overall balance 1.2.
- 2021: Total revenue and grants 32.1; Tax revenues 21.0; Non-tax revenues 3.4; Grants 7.7; Total expenditure and net lending 31.7; Wages, salaries and allowances 9.8; Goods and services 5.2; Transfers and contribution to NIS 6.3; Capital expenditure 8.7; Interest payments 1.8; Primary balance 2.1; Overall balance 0.3.
- 2022 (Est.): Total revenue and grants 33.8; Tax revenues 22.2; Non-tax revenues 4.6; Grants 7.0; Total expenditure and net lending 32.8; Wages, salaries and allowances 8.2; Goods and services 4.0; Transfers and contribution to NIS 8.5; Capital expenditure 10.6; Interest payments 1.7; Primary balance 2.6; Overall balance 1.0.
- 2023 (Budget): Total revenue and grants 32.1; Tax revenues 21.2; Non-tax revenues 8.9; Grants 1.9; Total expenditure and net lending 30.3; Wages, salaries and allowances 8.9; Goods and services 4.5; Transfers and contribution to NIS 6.1; Capital expenditure 9.0; Interest payments 1.8; Primary balance 3.6; Overall balance 1.8.
- 2024 (IMF staff MTFF): Total revenue and grants 30.5; Tax revenues 22.4; Non-tax revenues 6.1; Grants 2.0; Total expenditure and net lending 28.4; Wages, salaries and allowances 9.0; Goods and services 4.0; Transfers and contribution to NIS 6.6; Capital expenditure 7.3; Interest payments 1.5; Primary balance 3.6; Overall balance 2.1.
- 2025 (IMF staff MTFF): Total revenue and grants 31.8; Tax revenues 21.2; Non-tax revenues 8.6; Grants 1.9; Total expenditure and net lending 29.7; Wages, salaries and allowances 8.7; Goods and services 4.4; Transfers and contribution to NIS 6.0; Capital expenditure 9.0; Interest payments 1.6; Primary balance 3.6; Overall balance 2.1.
- 2023 (IMF staff): Total revenue and grants 29.9; Tax revenues 22.0; Non-tax revenues 5.9; Grants 1.9; Total expenditure and net lending 28.0; Wages, salaries and allowances 8.7; Goods and services 4.0; Transfers and contribution to NIS 6.7; Capital expenditure 6.9; Interest payments 1.6; Primary balance 3.6; Overall balance 1.9.
- 2024 (MTFF): Total revenue and grants 32.8; Tax revenues 21.2; Non-tax revenues 9.6; Grants 1.9; Total expenditure and net lending 29.0; Wages, salaries and allowances 8.4; Goods and services 4.3; Transfers and contribution to NIS 6.1; Capital expenditure 9.0; Interest payments 1.3; Primary balance 5.1; Overall balance 3.7.
- 2025 (IMF staff MTFF): Total revenue and grants 29.6; Tax revenues 21.9; Non-tax revenues 5.7; Grants 1.9; Total expenditure and net lending 27.6; Wages, salaries and allowances 8.4; Goods and services 4.0; Transfers and contribution to NIS 6.9; Capital expenditure 6.7; Interest payments 1.6; Primary balance 3.6; Overall balance 2.0.

### Tax policy and revenue administration
- Improve risk-based internal auditing for customs administration.
- Invest in retraining and retooling staff at customs and domestic revenue administrations.
- Improve measurement of the tax gap, increase digitalization, and improve compliance; a TADAT assessment can help identify priorities.
- Update tax incentive framework based on reassessment of rationales, costs, and benefits; convert tax holidays to accelerating depreciation or possibly full expensing of capital spending.
- Any amnesty for tax arrears should be accompanied by measures to reinforce compliance and prevent recurrence.

### Public investment management and PPPs
- Ministry of Mobilization, Implementation, and Transformation should address bottlenecks in project implementation and increase oversight.
- Implement PIMA/C-PIMA high-priority recommendations to strengthen project appraisal and determine minimum maintenance requirements and costs for key infrastructure assets.
- Review procurement process to increase transparency and accountability.
- Develop a framework for public-private partnerships including clear guardrails to manage fiscal risks.

### Pensions and social insurance (Box 1)
- High court ruling reinstated the public pension scheme that was closed in 1985, creating large retroactive and prospective pension liabilities.
- Annual average cost of paying these additional liabilities: 1¼ percent of GDP over the next 20 years.
- Recommendation: Starting in 2024, establish a single pension scheme for new entrants to ensure sustainability.
- National Insurance Scheme (NIS) issues:
  - Contribution rate 11 percent; generous, frontloaded accrual schedule with first ten years (500 weeks) earning a 30 percent replacement rate and 1 percent accrual for every 50 weeks thereafter up to 60 percent ceiling.
  - Reserve estimated to be exhausted between 2032 and 2034.
  - Without reform, projected new prospective payments rise from about 0.8 percent of GDP annually through 2025 to about 3.4 percent of GDP by 2060.
- Authorities’ planned reforms: raise pensionable age from 60 to 65 and contribution rate from 11 to 16 percent (both by 2031); staff view these will help but be insufficient to restore actuarial balance.
- Further reform options: extend reference wage years from best 5 years to at least 20 years; replace ad hoc benefit adjustments with a predictable price indexation formula; apply uniform accrual rates; reduce administrative costs; incentivize self-employed participation.

### Public service provision and payroll
- Step up review of public services to assess resource allocation and retrain public workers.
- Eliminate differential treatment of public sector workers based on labor contract nature.
- Conduct a comprehensive wage review and payroll audits to ensure wage grid reflects current labor market conditions and supports sustainable compensation management.

### Financial stability and credit unions
- Credit unions account for one-fifth of deposits and one-third of loans; they have 84,000 members and support financial inclusion.
- Rapid expansion: total assets grew by 13.4 percent annually during 2013–19, outpacing banks at 4.9 percent annually.
- Sector concentration: three largest credit unions (out of ten) jointly accounted for 88 percent of total loans in 2022Q4.
- Loan purposes: housing, home furnishing, land purchase 48.7 (2021) and 45.9 (2020); vehicle 6.1 (2021) and 6.7 (2020); business 4.7 (2021) and 6.3 (2020); other 40.5 (2021) and 41.1 (2020).
- NPL dynamics: NPLs delinquent more than 90 days rose from 4.5 percent in 2019Q4 to 9.7 percent in 2022Q3, then fell to 8.4 percent in 2022Q4.
- Concerns: profitability decline, limited business opportunities, mandate limits on charging fees, limited access to securities and central bank operations, no deposit insurance, vulnerabilities to liquidity shocks.

### Regulatory and supervisory recommendations for credit unions
- GARFIN should:
  - Tighten lending standards and provisioning requirements and provide a tighter definition of capital (aligned with banks).
  - Implement clearer regulatory guidelines, periodic stress testing, and enforce corrective actions.
  - Require improved internal risk management practices and debt collection efforts; require quicker recognition of loan losses and strategies to reduce legacy NPLs.
  - Implement risk-based supervisory templates (recently updated with CARTAC support) and improve governance and risk management.
  - Consider publishing more details on prudential ratios, provisioning, and loan composition by sector and type.

### Crisis preparedness, climate risks, and regional cooperation
- GARFIN should strengthen crisis preparedness and incentivize resilience to climate-related shocks by:
  - Enhanced collaboration with the ECCB to accelerate a national crisis management plan for system-wide risks.
  - Incorporate: (i) reporting structure for granular monitoring of physical climate risks and transmission channels; (ii) regular risk assessments and stress tests on major climate events; (iii) drawing on ECCB initiatives to incorporate climate risks into reporting, regulatory, and supervisory frameworks.

### Access to credit and financial literacy
- Encourage financial institutions to leverage the ECCU regional credit bureau when operational.
- Improve financial literacy through school curricula and community outreach.
- Improve smaller firms’ access to credit by using the regional partial credit guarantees scheme, providing training on business planning and financial statements, and streamlining business loan applications.

*Source: IMF staff analysis and recommendations as presented in the extracted chapter.*

### 24.      A strengthened AML/CFT framework would mitigate risks associated with the CBI

### 1grdea2023001 - 24.      A strengthened AML/CFT framework would mitigate risks associated with the CBI

### AML/CFT risks and CBI program
- The CFATF’s mutual evaluation report (published in July 2022) identified weaknesses in Grenada’s understanding of the ML/TF risk associated with legal persons and the CBI program.
- Deficiencies noted include verification of basic and beneficial ownership information.
- Recent staffing of the AML/CFT committee; recommended actions for the authorities:
  - Strengthen measures to mitigate the misuse of legal persons.
  - Enhance arrangements for the verification of basic and beneficial ownership information.
  - Improve the vetting and approval process used for the CBI program.
  - Continue engagement with counterparts in Europe and the U.S. to address national security concerns arising from Grenada’s CBI program.

### Safeguards assessment for the ECCB and DCash risks
- An updated safeguards assessment of the ECCB, finalized in August 2021, found strong external audit and financial reporting practices aligned with international standards.
- Recommended legal reforms to further strengthen operational autonomy of the ECCB and align its Agreement Act with leading practices.
- The issuance of DCash introduces new risks requiring additional controls and oversight; the assessment recommended enhancing the related project-governance framework.

### Financial sector regulation and supervisory views
- Authorities acknowledged the need to step up regulation and supervision of credit unions.
- Financial system remains liquid; limited availability of bankable projects constrained bank credit growth.
- GARFIN’s strengthened enforcement of corrective actions helped reduce NPLs from the peak level in 2022Q3.
- Authorities’ priorities and actions:
  - Raise loan loss provisioning requirements for credit unions.
  - Work with non-bank regulators in the region on provisioning and supervision.
  - Continue capacity development for climate-risk assessment with CARTAC support and enhance a risk-based supervisory approach.

### Enhancing competitiveness: tourism, agriculture, gender, and skills
- Tourism and airlift:
  - Increased airlift and expedited border processes have increased the number of flights and diversified source countries of tourists.
  - Scope to promote sports, nautical, eco-adventure, health and wellness, and community-based tourism.
  - Developing linkages with domestic agriculture and fisheries would increase domestic value added of tourism.
- Agriculture:
  - Measures to boost agricultural productivity and build resilience to adverse weather events are critical to securing future production.
- Gender and labor markets:
  - Evidence of a gender pay gap and a female participation gap (Box 3).
  - Authorities’ Gender Equality Policy and Action Plan piloted gender budgeting; a gender budget statement was incorporated into the budget in 2023 with gender-focused outcome indicators.
  - Policy recommendations:
    - Incentivize female labor force participation by promoting transparent pay practices and investing in care facilities.
    - Training and apprenticeship programs (including a reformulated Imani program) to focus on technical and entrepreneurial skills, better connect academic institutions with employers, and facilitate transition to employment.
    - Planned adjustments in the minimum wage should be consistent with identified productivity gains and supported by efforts to facilitate job searching.
- Box 3 key quantitative points:
  - Female labor force participation was persistently below male participation by 10–11 percentage points during 2010–19.
  - Closing the gender gap in labor force could boost labor force participation by about 3½ percentage points from around 67 percent in 2021 (latest available data).
  - Results suggest women are 12 percent less likely than men to participate in the labor force (Probit model).

### Building resilience: energy transition and disaster resilience
- Energy transition:
  - Transition to renewable energy is being accelerated.
  - Enhancing the regulatory framework—including the National Energy Policy and the Grenada Electricity Sector Grid Code—would smooth absorption of renewable generation and reduce permitting and connection delays.
  - Concessional financing from multilaterals and climate funds can catalyze private capital for renewables.
  - Better communication about environmental impact of geothermal drilling would help foster public support and incentivize private capital.
- Disaster resilience:
  - 2023 budget included a Climate Budget Tagging pilot (with World Bank support) identifying around 2 percent of GDP in climate-rated projects.
  - Coverage renewed for Caribbean Catastrophe Risk Insurance Facility and a World Bank Catastrophe Deferred Drawdown Option facility.
  - Recommendation to update regulations following approval of the Disaster Management Bill to strengthen technical and operational capacity of the National Disaster Management Agency.

### Data issues and priorities
- Data provision broadly adequate for surveillance but has weaknesses that hamper economic analysis.
- Priorities:
  - Resume the labor force survey and publish 2022 Census data to improve analysis of employment, poverty, and gender equality.
  - Update CPI weights to ensure headline inflation reflects households’ experience.
  - Improve CBI statistics by publishing flows and usage of resources.
  - Collect and disseminate high frequency indicators.
  - Timely appointment of a new Central Statistics Office director should be a priority.
- Authorities agreed further progress is needed and noted delays in auditing government financial statements due to capacity constraints.

### Staff appraisal—key findings, projections, and policy recommendations
- Fiscal buffers built over the past decade allowed swift response to the pandemic and higher energy and food prices, but targeting of relief could have been improved.
- Growth and risks:
  - Real GDP is projected to expand by 3.9 percent in 2023.
  - Near-term downside risks: slowdown in tourist source markets, renewed food and fuel price increases, a natural disaster, or abrupt decline in CBI revenues.
  - Upside: stronger tourism demand from advanced economies and front-loaded investment impacts.
- External and debt assessment:
  - External position assessed to be weaker than implied by fundamentals and desirable policies; estimated imputed reserves assessed as adequate.
  - Public debt is on a downward path and assessed to be sustainable, but Grenada remains “in debt distress” due to outstanding arrears of about US$37.6 million to official bilateral creditors.
- Fiscal rule and transparency priorities:
  - Immediate priority: return to fiscal rules to preserve credibility.
  - Reduce spending on relief measures as initial food and fuel price spike dissipates; focus on structurally improving effectiveness and targeting of social assistance programs.
  - Use planned amendment of the Fiscal Responsibility Framework to simplify fiscal rules, institute a more effective MTFF, and enhance accountability and oversight.
  - Establish clarity on speed of debt return to medium-term path post-shock and fully operationalize a contingency fund.
  - Enhance transparency by publishing public sector and SOE audited financial statements and improving data on CBI flows and usage.
- Tax and spending efficiency:
  - Increase efficiency of tax system and public spending.
  - Update tax incentive framework based on reassessment of rationales, costs, and benefits.
  - Strengthen public investment management to address project implementation bottlenecks and improve procurement transparency and accountability.
- Social insurance and public sector reforms:
  - Improve NIS sustainability via phased increase in contributory rate and pensionable age; implement quickly.
  - Design new pension system for new public service entrants to be actuarially sound.
  - Guide regularization of public sector workers by thorough review of job functions and retraining where needed.
  - Conduct comprehensive wage review and payroll audits to align wage grid with labor market conditions.
- Financial sector resilience measures:
  - Tighten lending standards and provisioning requirements for credit unions; enforce corrective actions for noncompliant institutions.
  - Strengthen credit unions’ debt collection, internal governance, and risk management.
  - Improve supervisory capacity via more granular information, better analytical capacity, and well-designed stress testing.
  - Improve financial literacy and encourage use of the ECCU regional credit bureau when operational.
- Competitiveness and resilience recommendations reiterated:
  - Increase domestic value-added of tourism, promote gender equality, and improve labor skills.
  - Implement Disaster Resilience Strategy and expedite transition to renewable energy with concessional financing and improved regulatory framework.

*Source: 1grdea2023001 - 24.      A strengthened AML/CFT framework would mitigate risks associated with the CBI*

### 46.      It is recommended that the next Article IV consultation take place on the standard

### 1grdea2023001 - 46.      It is recommended that the next Article IV consultation take place on the standard

### Recommendation on Article IV timing
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Macroeconomic overview and key findings
- Real GDP level continues staying above the ECCU average.
- Tourist arrivals have been catching up and exceeded the ECCU average, following a collapse in 2020.
- The current account deficit has been broadly in line with the ECCU average.
- Fiscal position stays stronger than the ECCU average.
- Public debt developments since the onset of the pandemic have been in line with the regional average and financed largely by external creditors.
- Sources for figures: ECCB, country authorities and IMF staff calculations.

### Real sector developments
- The economy continued to rebound in 2022, with a narrowing output gap driven by construction and tourism-related sectors.
- Stay-over arrivals rebounded strongly, especially from the U.S., and, to a lesser extent, U.K.
- Tourist arrivals are back to pre-pandemic levels and above the regional averages.
- Inflation picked up, driven by fuel and food prices, in line with most ECCU countries.

### External sector developments
- Imports edged down in early 2022; exports also edged down.
- The current account deficit widened in 2022 due to a larger trade balance deficit, financed by FDI, capital transfers and other investment (mainly official loans).
- Reserves remain adequate relative to the size of external debt.
- The REER is depreciating, in contrast to NEER, reflecting widening inflation differentials with trading partners.

### Fiscal sector developments and projections (selected)
- Decisive and bold fiscal actions were taken to address the fallout of the pandemic, which, along with the decline in output, resulted in substantial increases in public debt across the region.
- Tax revenue picked up in 2022 thanks to the robust economic recovery and higher import values.
- Extra spending on court-ordered pension payout was offset by a lower wage bill due to difficulties filling vacancies.
- Strong CBI revenues and grant contributed to an upswing in capital spending, which, together with stronger growth and tax revenues, helped improve the fiscal balance and public debt.

Selected fiscal numbers and projections (percent of GDP or EC$ as indicated)
- Total revenue and grants: 2022 33.7 percent of GDP; 2023 30.5 percent of GDP.
- Revenue: 2022 26.7 percent of GDP; 2023 28.5 percent of GDP.
- Total expenditure and net lending: 2022 32.7 percent of GDP; 2023 28.4 percent of GDP.
- Primary balance: 2022 2.6 percent of GDP; 2023 3.6 percent of GDP.
- Overall balance: 2022 1.0 percent of GDP; 2023 2.1 percent of GDP.
- Public Debt (percent of GDP): 2022 64.6; 2023 61.1; 2024 58.3; 2025 55.0; 2026 51.9; 2027 49.3; 2028 47.1.
- Central government totals (millions of EC$): Total revenue and grants 2022 1,088.4; 2023 1,053.9. Total expenditure and net lending 2022 1,057.6; 2023 981.0. Public Debt 2023 2,115.

### Real GDP, inflation and output gap (selected series)
- Real GDP growth (annual percent change): 2018 4.4; 2019 0.7; 2020 -13.8; 2021 4.7; 2022 6.4; 2023 3.9; 2024 3.8; 2025 3.5; 2026 3.2; 2027 2.7; 2028 2.7.
- Consumer prices, end of period (annual percent change): 2018 1.4; 2019 0.1; 2020 -0.8; 2021 1.9; 2022 2.9; 2023 3.2; 2024 2.8; 2025 2.0; 2026 2.0; 2027 2.0; 2028 2.0.
- Output gap (percent of potential GDP): 2018 8.3; 2019 6.7; 2020 -10.0; 2021 -7.9; 2022 -4.3; 2023 -2.9; 2024 -1.7; 2025 -0.7; 2026 -0.1; 2027 -0.1; 2028 0.0.

### Balance of payments and external financing (selected)
- Current account balance (millions of USD): 2018 -150.5; 2019 -123.1; 2020 -171.4; 2021 -146.2; 2022 -207.2; 2023 -189.1; 2024 -180.5; 2025 -175.9; 2026 -186.9; 2027 -188.1; 2028 -193.9.
- Current account (percent of GDP): 2018 -12.9; 2019 -10.1; 2020 -16.4; 2021 -13.2; 2022 -17.3; 2023 -14.8; 2024 -13.2; 2025 -12.2; 2026 -12.3; 2027 -11.8; 2028 -11.5.
- Exports of goods and services (millions USD): 2018 621.3; 2019 662.0; 2020 428.6; 2021 534.9; 2022 633.7; 2023 750.4.
- Tourism receipts (millions USD): 2018 521.9; 2019 560.3; 2020 185.5; 2021 232.4; 2022 502.0; 2023 605.9.
- Imports of goods and services (millions USD): 2018 646.7; 2019 676.9; 2020 544.7; 2021 622.3; 2022 752.3; 2023 810.7.
- Trade balance for goods and services (percent of GDP): 2018 -2.2; 2019 -1.2; 2020 -11.1; 2021 -7.9; 2022 -9.9; 2023 -4.7.
- Net income (percent of GDP): 2018 -9.9; 2019 -9.8; 2020 -7.1; 2021 -8.0; 2022 -8.3; 2023 -9.7.

### Monetary and financial sector developments (selected)
- Credit growth continued to be modest, with credit unions outpacing commercial banks.
- NPLs rose during the pandemic, especially for credit unions.
- Banks prudently kept a high level of provisioning; the financial system maintained ample liquidity.
- After a gradual decline, interest income as a share of gross income was still high; capital remained adequate but had been persistently lower than the regional average.

Selected monetary aggregates and indicators
- Broad money (M2) annual growth: 2018 5.9 percent; 2019 2.9 percent; 2020 9.1 percent; 2021 8.5 percent; 2022 9.9 percent; 2023 5.7 percent; 2024 4.3 percent.
- Credit to private sector (annual percent change): 2018 2.8; 2019 1.4; 2020 3.1; 2021 3.8; 2022 2.1; 2023 5.2; 2024 4.8.
- Net foreign assets (end-period, millions of EC$): 2018 1,315.0; 2019 1,400.2; 2020 1,720.7; 2021 1,919.1; 2022 2,212.0; 2023 2,322.9.
- Broad money (millions of EC$): 2018 2,368.9; 2019 2,437.0; 2020 2,658.8; 2021 2,884.7; 2022 3,170.0; 2023 3,352.0.
- Money (millions of EC$): 2022 1,436.0; 2023 1,401.8.
- Quasi-money (millions of EC$): 2022 1,734.0; 2023 1,950.2.

### Selected public finance detail (central government, EC$)
- Total revenue and grants (millions of EC$): 2022 1,088.4; 2023 1,053.9; 2024 1,103.8.
- Tax revenue (millions of EC$): 2022 714.9; 2023 773.4; 2024 814.3.
- Nontax revenue 1/ (millions of EC$): 2022 149.0; 2023 212.7.
- Grants 1/ (millions of EC$): 2022 224.5; 2023 67.8.
- Total expenditure and net lending (millions of EC$): 2022 1,057.6; 2023 981.0; 2024 1,032.5.
- Capital expenditure and net lending (millions of EC$): 2022 340.2; 2023 252.6; 2024 254.8.
- Primary balance (millions of EC$): 2022 84.5; 2023 124.6; 2024 132.0.
- Overall balance (millions of EC$): 2022 30.8; 2023 72.9; 2024 71.3.
- Public Debt (millions of EC$): 2022 2,087; 2023 2,115; 2024 2,153.

Note on accounting classification:
- 1/ Nonrefundable contributions under the Citizenship-by-Investment (CBI) program that were used to finance investment projects are recorded under grants before 2023 but recorded under non-tax revenue starting 2023.
- 2/ Public debt series includes the impact of the debt restructuring agreement for the 2025 bonds.

### Implementation of past staff advice (Annex I) — status of 2022 Article IV recommendations
Growth agenda (status)
- Increase domestic value-added in the tourism sector. Ongoing. The government has streamlined entry and exiting process and is working on product enhancement, including promoting sporting and sustainable tourism.
- Accelerate the shift to renewable energy. Ongoing. The authorities approved the National Energy Policy 2023–35 and are initiating an exploratory geothermal drilling project.
- Provide training programs and improve their effectiveness to address skills mismatch. Ongoing. The government is transforming the IMANI program into a full-fledged skills training and apprenticeship program. National Skills Development Program continues.
- Implement Disaster Resilience Strategy. Ongoing. The Disaster Risk Management Bill is approved by the parliament. CCRIF has been renewed.

Fiscal policy (status)
- Increase targeted transfer to cushion price increases and sustain higher social spending. Ongoing. A scaled-down package of relief measures was introduced in 2023. The higher level of social spending achieved during the pandemic was sustained in 2022. Temporary freight cap was rolled back as transportation disruptions eased.
- Review the Fiscal Responsibility Act in the post-pandemic context, supported by IMF TA. Ongoing. An IMF TA on amending the FRA was conducted in April. A revised FRA is expected approved by the cabinet and the parliament in the second half of 2023.
- Mobilizing resources (enhance compliance, reduce tax arrears, boost digitalization, and increase equity). Ongoing. Authorities strengthened the large and medium taxpayer program and expanded capacity to analyze risk and anomalies.
- Improve public investment management; identify resilience investment for donor/concessional financing. Ongoing. The 2023 budget included the first Climate Budget Tagging pilot exercise (with WB support).
- Expedite publication of audited financial statements and publish SOE financial performance. Ongoing. Audited government statements for 2017–22 and SOE financial performance reports are pending.
- A comprehensive reform to the National Insurance Scheme (NIS). Ongoing. The retroactive payment of public pension liabilities was made in November 2022. A Pension Reform Committee was set up; phased-in increases in pensionable age and contribution under the NIS were announced.

Financial sector (status)
- Strengthen oversight of credit unions. Mixed. GARFIN is improving the risk-based supervisory framework with CARTAC support; national crisis management plan development is delayed.
- Ensure compliance with AML/CFT regulations. Ongoing. AML/CFT regulations are being enhanced to minimize risks to the CBI program. The Financial Intelligence Unit has continued to strengthen monitoring.

*Source: 1grdea2023001.*

### Annex II. External Sector Assessment

### Annex II. External Sector Assessment

### Overall Assessment
- Grenada’s external position in 2022 was preliminarily assessed as weaker than the level consistent with medium-term fundamentals and desirable policies.
- The increase in import values was only partially compensated for by the tourism rebound, leading to a widening of the current account deficit.

### Potential Policy Responses
- Return to the fiscal rules to restore buffers.
- Protect the most vulnerable from the burden of higher inflation by improving efficiency and targeting of social protection programs.
- Support external rebalancing with structural reforms to unleash growth potential and enhance competitiveness, including:
  - increasing value added of tourism,
  - improving gender equality,
  - addressing skills mismatch,
  - accelerating renewable energy,
  - building resilience.

### Foreign Assets and Liabilities: Position and Trajectory
Background and composition (2022):
- Net international investment position (NIIP) deficit edged down from -154.6 percent of GDP in 2021 to -151.5 percent of GDP in 2022.
- Most assets were held as:
  - currency and deposits: 22 percent of total assets,
  - portfolio investment: 33 percent of total assets,
  - reserve assets: 27 percent of total assets.
- On the liability side:
  - FDI: 167 percent of GDP,
  - other investment (mostly loans): 85 percent of GDP,
  - FDI and other investment jointly accounted for 96 percent of total liabilities.
- Long-term general government loans constitute nearly half of other investment.

Assessment:
- The level of the NIIP in 2022 does not constitute a significant concern for external debt sustainability.
- The projected narrowing of the current account deficit will help improve the NIIP in the medium term.
- The large share of FDI and general government loans in total liabilities mitigates potential risks and is expected to persist.

Key 2022 stock figures (% GDP):
- NIIP: -151.5
- Gross Assets: 111.1
- Debt Assets: 80.7
- Gross Liabilities: 262.6
- Debt Liabilities: 85.2

### Current Account
Background:
- The current account deficit averaged around 10.8 percent of GDP during 2015–19.
- It is estimated to have increased to 17.3 percent of GDP in 2022 from 13.2 percent of GDP in 2021.
- Main driver: an increase in imports of 9 percentage points of GDP due to higher international prices (particularly food and fuel) and import volumes (demand recovery and large public investment), only partially offset by higher tourism receipts.

Assessment:
- The external position in 2022 was weaker than the level consistent with medium-term fundamentals and desirable policies.
- The deterioration of the current account balance is mainly explained by the impact of COVID on tourism and higher import bills.
- There were no exchange rate movements or significant changes in the structural fundamentals.
- As the economic recovery takes hold, the external position is expected to improve in line with:
  - the continued recovery of tourism,
  - improvement in terms of trade,
  - and, in the medium term, increased competitiveness yielded from structural reforms.

Notes on revisions:
- ECCB preliminary estimates revised NIIP in 2021 from -172 percent of GDP to -154.6 percent of GDP.
- The 2021 current account deficit was revised downwards due to corrected personal services credits (which includes online educational services) and financial services debits.

### EBA-lite Model Results, 2022 (Real Exchange Rate)
Background:
- In 2022, the real effective exchange rate (REER) depreciated by 3.5 percent, continuing the trend since 2019.
- The decline in the REER was driven by significant inflation differentials with Grenada’s main trading partners, as the NEER appreciated by 3.9 percent.

Assessment:
- The REER gap was 8.8 percent, derived from the EBA-Lite CA model with an elasticity of -0.4.
- Results of EBA-Lite REER model point to a gap of -19 percent.
- The ESA model includes a Covid-19 cyclical adjustor; for Grenada only the Covid-19 adjustor for tourism was used, yielding a total adjustment of 3.5 percent of GDP.
- The Eastern Caribbean dollar, the currency of Grenada, is pegged to the U.S. dollar.

### Capital and Financial Accounts: Flows and Policy Measures
Background and composition:
- Grenada relies on FDI (averaged 14 percent of GDP between 2017 and 2021) to finance the saving-investment imbalance.
- FDI is primarily equity investment, volatile and averaging about 85 percent of FDI inflows since 2015 (with the remainder by land sales).
- Citizenship-by-Investment (CBI) revenues have averaged about 5 percent of GDP since the launch of the program in 2014.
- In 2022, FDI rose to 14.1 percent of GDP, in part due to an increase in CBI investment, but is expected to moderate in 2023.
- The government’s concessional loans have been a stable source for financing development.

Assessment and risks:
- FDI is projected to remain stable (averaging 12.3 percent over the medium term), while CBI inflows could prove volatile.
- To the extent CBI inflows mostly finance investment with a large import component, declines in CBI would be partially mitigated by resulting lower imports.
- Key downside risks: continued tightening of global financial conditions (reducing liquidity and driving savings out of the region) and natural disasters (which could deter private capital inflows).
- Upside: faster implementation of structural reforms to improve business environment and competitiveness will help attract higher FDI.

### FX Intervention and Reserves Level
Background:
- Grenada’s reserve position improved in 2022.
- As a member of the Eastern Caribbean Currency Union, Grenada is under a quasi-currency board arrangement.
- Foreign assets and liabilities of the Eastern Caribbean Central Bank (ECCB) cannot be directly assigned to an individual country; the imputed reserves method is used as a proxy for net foreign assets held at the ECCB.
- Estimated imputed reserves increased by 9 percent from 2021 to 2022.
- Imputed reserves covered 5 months of imports and 30 percent of broad money, unchanged from 2021.
- In 2021, with general SDR allocation (which has been kept in reserves), Grenada received 16.4 million SDRs (about US$22.8 million).

Assessment:
- Imputed reserves exceed the typical benchmark of three months of imports and are above the 20 percent of broad money benchmark.
- According to the ECCB by-laws, the imputed reserves of each ECCB member are calculated as the difference between the member’s reserve money and net domestic assets.
- The ECCB has the mandate to maintain a foreign exchange cover of 60 percent of total demand liabilities.

*Source: Annex II. External Sector Assessment (content unit: 1grdea2023001).*

### Annex III. Risk Assessment Matrix

### Annex III. Risk Assessment Matrix

### Risk Assessment Framework
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path.
- The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline:
  - "low" is meant to indicate a probability below 10 percent,
  - "medium" a probability between 10 and 30 percent,
  - "high" a probability between 30 and 50 percent.
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

### Conjunctural Risks
- Intensification of regional conflict(s).
  - Relative Likelihood: High
  - Impact and Channel: Medium. ST/MT. Sticky inflation, eroding income, and dampening demand.
  - Policy Response:
    - Provide targeted transfers to the vulnerable.
    - Increase value-added of the tourism.
    - Vigilantly monitor the financial sector development in coordination with ECCB.
- Abrupt global slowdown or recession.
  - Relative Likelihood: Medium
  - Impact and Channel: High. ST/MT. Slower economic recovery, worsening fiscal and external positions.
  - Policy Response:
    - Accelerate structural reforms to improve competitiveness.
    - Increase value-added of the tourism.
    - Vigilantly monitor the financial sector development in coordination with ECCB.
- Commodity price volatility.
  - Relative Likelihood: Medium
  - Impact and Channel: Medium. ST/MT. Eroding income, dampening demand, and widening fiscal and trade deficits.
  - Policy Response:
    - Provide targeted support to the vulnerable.
    - Accelerate shift to renewables and improve the pass-through of price signals.
- Systemic financial instability.
  - Relative Likelihood: Medium
  - Impact and Channel: Medium. ST/MT. Tighter domestic financial conditions.
  - Policy Response:
    - Intensify monitoring of asset quality, ensure adequate loan loss provisioning, conduct regular stress testing.
    - Vigilantly monitor the financial sector development in coordination with ECCB.

### Structural Risks
- Deepening geo-economic fragmentation.
  - Relative Likelihood: High
  - Impact and Channel: Medium. ST/MT. Higher inflation, lower FDI, and more volatile CBI revenues.
  - Policy Response:
    - Accelerate structural reforms to improve competitiveness.
    - Gradually reduce reliance on CBI for capital expenditures.
    - Enhance international and regional cooperation to support growth and cross-border collaboration.
- Extreme climate events.
  - Relative Likelihood: Medium
  - Impact and Channel: High. ST/MT. Reduce capital stock, create scarring effects, and discourage FDI.
  - Policy Response:
    - Continue implementing the Disaster Resilience Strategy, improve infrastructure, build more financial buffers, enhance post-disaster response, and accelerate shift to renewables.
- Cyberthreats.
  - Relative Likelihood: Medium
  - Impact and Channel: Low. ST/MT. Payment and financial system is disrupted.
  - Policy Response:
    - Enhance digital security in public and private platforms, raise the public awareness, and prepare a contingency plan.

### Domestic Risks
- CBI revenues decline due to lower attractiveness of the programs.
  - Relative Likelihood: Medium
  - Impact and Channel: Medium. ST/MT. Weaker public investment and growth.
  - Policy Response:
    - Continue improving the AML/CFT framework and its implementation.
    - Communicate closely with EU and US regulators regarding CBI regulations.
- Persistently high NPLs of credit unions impair credit intermediation and dampen growth.
  - Relative Likelihood: Medium
  - Impact and Channel: Medium. ST/MT. Weaker growth and lower financial inclusiveness.
  - Policy Response:
    - Accelerate reforms to resolve NPLs and improve credit access of households and firms.

*Source: Annex III. Risk Assessment Matrix (staff RAM and explanatory footnote) from the informational annex.*

### 2023. A population census is being conducted and will be published in 2023. Regular wage data

### 1grdea2023001 - 2023. A population census is being conducted and will be published in 2023. Regular wage data

### Data and statistical developments
- A population census is being conducted and will be published in 2023.
- Regular wage data are not available with the exception of partial data available from the National Insurance Scheme.
- The CSO conducted a Country Poverty Assessment in 2008, with assistance from the Caribbean Development Bank, and is working with the International Labor Organization (ILO) to improve the coverage of labor market statistics.
- Grenada has participated in the Fund’s General Data Dissemination System since March 2001, but most metadata have not been updated since late 2002.
- Grenada has not fully implemented the e-GDDS as it does not yet have a National Summary Data Page (NSDP).

### Government finance statistics and public-sector reporting
- Central government monthly data are provided to the ECCB, IMF, and other users in Fund economic classification format with lags of about 4–6 weeks.
- Some donor-financed capital spending data are often not available until the end of the year, as they are not reported to or do not pass through the accounts of the central government.
- The new Chart of Accounts introduced in 2016 has improved the classification of public expenditure.
- Coverage of the rest of the public sector has improved but remains limited; there are no consolidated public-sector accounts.
- The PFM Act of 2015 requires:
  - The Minister of Finance to present a statement of the overall performance of all enterprises to Parliament alongside the budget proposals.
  - Public enterprises to submit annual financial statements no later than three months from the end of the fiscal year to the Director of Audit and the Minister of Finance.
- Authorities plan to amend the Fiscal Responsibility Act (FRA) in the second half of 2023 to broaden public debt coverage to include debt of all state-owned enterprises (SOEs) and statutory bodies as well as public private partnership related liabilities (PPP).

### Monetary statistics and financial sector surveillance
- Monthly monetary statistics are compiled and reported to the Fund by the ECCB using standardized report forms (SRF 1SR and SRF 2SR) since July 2006.
- An April 2007 data ROSC found:
  - Institutional coverage of other depository corporations is incomplete; mortgage companies, finance companies, building societies, and credit unions are excluded.
  - Accrued interest is not incorporated in the value of interest-bearing assets and liabilities.
  - Valuation adjustments are included in other liabilities.
  - Source data for commercial banks do not provide the recommended disaggregation.
- The ECCB is implementing a new reporting system for commercial banks to address the April 2007 data ROSC recommendations.
- The ECCB reports quarterly Grenada’s core and additional FSIs for deposit takers, covering commercial banks only.
- 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.

### External sector statistics and balance of payments
- BPM6-compliant BOP and IIP were released in July 2017 for 2014–16 and 2013–16, respectively, as part of the ECCU-wide initiative.
- Subsequent releases in September 2018 and April 2019 added preliminary and estimated data for 2017 and 2018 and revised the entire series by improving data sources.
- Ongoing work seeks to improve estimates of tourism expenditure, including alternative estimates for the pandemic year.
- The CSO is working to release consistent historical BPM6-compliant series for 2000–13, improve data timeliness, and produce comprehensive public and private sector external debt statistics.
- The ECCB coordinates compilation of external sector statistics for ECCU economies and provides data to the IMF for the Balance of Payments Yearbook.

### External and domestic debt statistics: databases and coverage
- The database for central government external debt is comprehensive and can provide detailed and reasonably up-to-date breakdowns of disbursements and debt service, including future projections; capacity upgrades are needed to improve reliability and eliminate errors.
- A detailed database on domestic government securities is maintained by the Regional Governments Securities Market (RGSM), providing auction results and outstanding securities of the central government.
- Stock information on privately placed domestic T-bills, loans, bonds, and overdraft facilities are available monthly, but there is no reliable data on future projections.
- Data availability on government-guaranteed debt and debt of public enterprises has improved.
- There is data on private sector external debt beyond the monetary survey in the case of commercial banks.
- The contingent liability stress test accounts for estimated non-guaranteed SOE debt and ongoing PPPs and financial markets.

### Debt Sustainability Analysis — headline assessments and context
- Risk assessments:
  - 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
- Grenada remains in public debt distress solely due to longstanding unresolved arrears to official bilateral creditors of about US$37.6 million (3.1 percent of GDP) as of end 2022.
- Public debt is assessed as sustainable reflecting favorable projected debt dynamics from substantial fiscal surpluses supported by the return to the fiscal rule in 2023.
- Public debt movements:
  - Public debt rose to 71.4 percent of GDP in 2020 from 58.5 percent in 2019, due to the pandemic-induced collapse in GDP.
  - Public debt reached an estimated 64.6 percent of GDP in 2022, with a further decline expected in 2023.
- Even though the public debt-to-GDP ratio does not breach its threshold under the baseline scenario, the present value of the external debt-to-GDP ratio and the external debt service-to-revenue ratio marginally breach the thresholds.
- Policy emphasis: continued adherence to the fiscal responsibility framework and regularization of arrears will be needed to maintain a sustainable debt trajectory and upgrade the risk rating.
- The composite index (CI) is estimated at 2.96 and based on the April 2023 WEO and 2021 World Bank CPIA data, indicating a medium debt carrying capacity for Grenada.

### Public debt coverage and contingent liabilities
- Public debt definition in this DSA: sum of central government debt (including arrears on principal and interest and overdue membership fees to international organizations) and government-guaranteed debt; excludes non-guaranteed debt of SOEs and limited liability companies (notably PDV Grenada’s debt on account of the Petrocaribe arrangement).
- PDV Grenada’s debt is not included in central government debt based on the determination that the Government of Grenada is not responsible for the debt but only for its shares in the company.
- The stock of non-guaranteed SOE debt is estimated at 16.2 percent of GDP in 2022; PDV Grenada accounts for 10.8 percent of GDP of this stock.
- The current stock of PPP capital remains zero; FRA caps PPP-related government liabilities at 5 percent of GDP.
- Contingent liabilities from financial markets are set at the minimum value of 5 percent of GDP.
- The FRA includes: a cap on PPP-related liabilities (5 percent of GDP), a target at or below 55 percent of GDP, and three operational rules: primary balance at or above 3.5 percent of GDP, real primary expenditure growth at or below 2 percent per year, and wage bill at or below 9 percent of GDP.

### Background on debt dynamics and arrears
- Historical public debt trajectory:
  - Public debt fell 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 during 2014–19.
  - Total external debt rose in 2020–21 driven by external public debt dynamics.
  - Public debt rose to 71.4 percent of GDP in 2020 due to GDP collapse and a smaller primary surplus.
  - Public debt resumed a downward trend in 2021 and reached an estimated 64.6 percent of GDP at end-2022.
- Arrears and resolution efforts:
  - In October 2022, the Government of Grenada reached a repayment agreement with the State of Libya on US$5 million in debt arrears.
  - Arrears of about US$37.6 million owed to non-Paris Club official bilateral creditors including Trinidad and Tobago and Algeria remain to be regularized; progress reported on negotiations with Trinidad and Tobago, including opening an escrow account; limited progress with Algeria.
  - Commercial arrears largely relate to holdouts of the 2012 USD restructured bonds; authorities continue to engage commercial creditors.

### Debt portfolio characteristics and risks
- Portfolio improvements in 2022:
  - Average time to maturity for external debt stable at around 10 years.
  - Average time to re-fixing of external debt portfolio increases marginally to 9.9 years.
  - Average effective interest rate on all central government debt declined from 2.8 to 2.5 percent in 2022.
  - Share of external debt held by multilateral creditors increased to 67.3 percent in 2022 from 64.7 percent in 2021.
- Government commitment: non-concessional borrowing ceiling of US$80 million between July 1, 2022–June 30, 2023.
- Portfolio risks:
  - Interest-rate risk: moderate; average time to re-fixing 9.2 years for the entire portfolio; 24 percent of the portfolio re-fixes in one year.
  - Re-fixing risk concentrated in domestic portfolio where 30.5 percent of this debt re-fixes in one year.
  - Foreign-exchange risk: moderate; most foreign currency debt is denominated in U.S. dollars to which the EC dollar is pegged.

### Selected key statistics (as presented)
- Unresolved arrears to official bilateral creditors: US$37.6 million (3.1 percent of GDP) as of end 2022.
- Public debt:
  - 2019: Central government debt 58.5 percent of GDP; Public Sector debt total 62.7 percent of GDP.
  - 2020: Central government debt 71.4 percent of GDP; Public Sector debt total 76.3 percent of GDP.
  - 2021: Central government debt 71.2 percent of GDP; Public Sector debt total 76.7 percent of GDP.
  - 2022: Central government debt 64.6 percent of GDP; Public Sector debt total 70.0 percent of GDP.
- External debt (percent of GDP):
  - 2019: 45.1 percent
  - 2020: 56.5 percent
  - 2021: 57.8 percent
  - 2022: 53.0 percent
- External debt composition (central government, in EC$ millions and percent of GDP):
  - Multilateral: 2019: 832.8 (25.4); 2020: 987.8 (35.1); 2021: 1064.3 (35.7); 2022: 1111.5 (34.4)
  - Official bilateral: 2019: 209.0 (6.4); 2020: 195.7 (6.9); 2021: 246.9 (8.3); 2022: 236.2 (7.3)
  - Commercial debt: 2019: 369.1 (11.3); 2020: 347.8 (12.3); 2021: 332.1 (11.1); 2022: 302.4 (9.4)
  - Overdue membership fees: 2019: 29.5 (0.9); 2020: 23.4 (0.8); 2021: 17.2 (0.6); 2022: 12.5 (0.4)
- SOE non-guaranteed debt (A. Central government / C. SOE non-guaranteed, percent of GDP):
  - 2019: SOE non-guaranteed debt 1.1 percent
  - 2020: 1.3 percent
  - 2021: 2.2 percent
  - 2022: 1.6 percent
- Domestic debt (percent of GDP):
  - 2019: 17.6 percent
  - 2020: 19.8 percent
  - 2021: 18.9 percent
  - 2022: 17.0 percent
- Central government domestic debt (percent of GDP):
  - 2019: 14.6 percent
  - 2020: 16.2 percent
  - 2021: 15.5 percent
  - 2022: 13.1 percent
- Memorandum item — Nominal GDP (EC$ millions):
  - 2019: 3,276.4
  - 2020: 2,817.2
  - 2021: 2,985.3
  - 2022: 3,232.4

*Source: IMF and IDA staff report text as provided in the content unit.*

### 7. Data for 2022 came out stronger than anticipated in the 2022 Article IV.

### 1grdea2023001 - 7. Data for 2022 came out stronger than anticipated in the 2022 Article IV.

### 2022 outturns and short-term developments
- Stronger-than-expected growth in 2022 driven by robust construction activity and a sharper recovery in tourism.
- Inflation surprised to the downside in 2022, as fiscal measures helped contain domestic prices.
- Fiscal outturns for 2022 were favorable: stronger-than-expected revenues (import tax, non-tax revenues, and grants) more than offset larger spending.
- Selected arrears (central government metrics):
  - Total arrears: US$41.6 mln, 4.0 percent of GDP (2020); US$41.2 mln, 3.7 percent of GDP (2021); US$52.1 mln, 4.3 percent of GDP (2022).
  - External arrears equal total arrears in these years: US$41.6 mln (4.0 percent of GDP), US$41.2 mln (3.7 percent of GDP), US$52.1 mln (4.3 percent of GDP).
  - Bilateral external arrears: US$22.8 mln (2.2 percent of GDP), US$24.5 mln (2.2 percent of GDP), US$37.6 mln (3.1 percent of GDP) for 2020–2022 respectively.
  - Commercial external arrears: US$10.1 mln (1.0 percent of GDP), US$10.3 mln (0.9 percent of GDP), US$9.9 mln (0.8 percent of GDP) for 2020–2022 respectively.
  - Unpaid contribution to organizations: US$8.7 mln (0.8 percent of GDP), US$6.4 mln (0.6 percent of GDP), US$4.6 mln (0.4 percent of GDP) for 2020–2022 respectively.
- Sources: Grenadian authorities and staff estimates.

### Projections and macroeconomic assumptions (2023–43)
- Real GDP growth:
  - 2023 AIV - Current: 3.9 percent (table shows series "3.9 3.8 3.5 3.2 2.7 2.8" across projection years/averages).
  - 2022 AIV - Previous: 3.6 3.9 3.5 3.2 2.8 2.8 (as presented).
- Inflation (GDP deflator):
  - 2023 AIV - Current: 3.0 2.8 2.0 2.2 2.2 2.2 (series as presented).
  - 2022 AIV - Previous: 3.3 1.8 2.0 2.2 2.2 2.2 (series as presented).
- Non-interest current account deficit (/1):
  - 2023 AIV - Current: 13.5 11.7 10.8 11.0 10.6 10.9 (series as presented).
  - 2022 AIV - Previous: 18.9 13.7 11.9 11.3 10.8 11.2 (series as presented).
  - Note: The numbers under 2023AIV incorporate a historical upward revision to the services balance.
- Growth of exports of G & S (USD terms):
  - 2023 AIV - Current: 18.4 6.1 3.8 3.9 4.2 4.0 (series as presented).
  - 2022 AIV - Previous: 22.4 16.7 8.7 4.7 5.0 4.8 (series as presented).
- Primary balance:
  - 2023 AIV - Current: 3.6 3.6 3.6 1.6 1.3 -0.7 (series as presented).
  - 2022 AIV - Previous: 3.5 3.8 4.2 4.3 4.2 0.0 (series as presented).
- Long-term assumptions:
  - Potential growth assumed at 2.8 percent over the long term.
  - Inflation expected to peak at 3.2 percent by end-2023, GDP deflator expected to rise by 3.0 percent in 2023.
  - Inflation expected to converge back to 2 percent over the long term, anchored by the currency board arrangement under the ECCB.
  - Over the long term, current account deficit likely to return closer to its long-term historical average.
  - Gross reserves expected to hover around 5 months of imports after a boost in 2021 from the SDR allocation.
- Box highlights:
  - Public investment (WB regional tourism competitiveness project, international airport expansion, climate resilience water sector, smart agriculture, climate resilient cities, solar power generation and battery storage) expected to boost potential GDP and aid climate adaptation and mitigation.
  - Baseline includes estimated average costs of natural disasters (future annual fiscal cost assumed at ½ percent of GDP).

### Fiscal policy, debt dynamics, and financing assumptions
- Fiscal outcomes and debt:
  - Primary surplus averaged 4.7 percent of GDP between 2014–19 under the FRA.
  - Public debt (as defined in the DSA) fell from 94.3 percent to 58.5 percent of GDP in the 2014–19 period.
  - Public debt rose to 71.4 percent of GDP in 2020 following the sharp GDP contraction and extra spending.
  - Public debt returned to a downward trend, ending at 64.6 percent of GDP in 2022.
  - Projections assume returning to the FRA and that the government will maintain primary surpluses through 2025, then small primary deficits after 2027 to fill the investment gap while keeping debt roughly stable at 47 percent of GDP in the long run.
  - Revenue impact of announced tax measures is estimated at EC$5.5 million annually (increase in excise on alcohol and cigarettes and higher VAT on beverages with high sugar content).
- Financing assumptions:
  - Latest financing projections incorporate World Bank IDA program and existing CDB projects; these are sufficient to cover gross financing needs.
  - Remaining disbursements from the Export-Import Bank of China loan (US$69 million total) include US$36.2 million to be disbursed in 2023.
  - In the long run, government assumed to rely mainly on concessional loans from the World Bank and CDB, with no return to external bond markets in the projection period.
  - Domestic and RGSM financing assumed to fill remaining needs, initially with short-term maturities that gradually lengthen.

### Debt sustainability, stress tests, and risk classification
- Country classification:
  - Grenada assessed at medium debt-carrying capacity; CI estimated at 2.96 based on April 2023 WEO and 2021 World Bank CPIA data.
- External DSA findings:
  - External PPG debt-to-GDP ratio projected to decline in the baseline.
  - The present value of debt-to-GDP and debt service-to-revenue ratios marginally exceed the threshold in 2023 under the baseline, but breaches are short-lived (year 2023 only) and hence discounted.
  - Downward trajectory depends on returning to the fiscal rule and continued debt reduction measures (improving spending efficiency, mobilizing domestic resources, enhancing tax compliance, reducing tax arrears, digitalization, broadening the tax base).
- Stress tests:
  - Under standard stress tests, thresholds are breached for all key indicators of PPG external debt under an export shock.
  - The present value of debt-to-GDP breaches its threshold under all stress tests (Table 3 in source).
  - The most severe shock is the “exports” shock due to high exposure to tourism exports; for PV of debt-to-exports, debt service-to-exports, and debt service-to-revenue ratios the exports shock is the most extreme.
  - A large natural disaster and a contingent liabilities shock have significant effects on the debt path; the natural disaster shock has a protracted effect due in part to interaction with the growth shock.
- Overall risk of public debt distress:
  - Total PPG Debt-to-GDP ratio does not breach its benchmark and is projected to gradually decline until 2029 and broadly stabilize thereafter.
  - Despite the improvement, Grenada’s DSA rating remains “in debt distress” because of unresolved arrears to official bilateral creditors.
  - PV of debt-to-GDP ratio would be below benchmark in the baseline, reflecting continued improvement in saving and access to concessional financing.
  - Under the most extreme scenario (growth shock), PV of debt-to-GDP benchmark thresholds are breached throughout the projection period; staff notes the design of this shock in the template is overly onerous and conservative.
  - Debt service-to-revenue ratio projected on a downward trajectory until 2025 and stabilizes thereafter.

### Key risks, vulnerabilities, and policy recommendations
- Main risks and vulnerabilities:
  - Downside risks from a slowdown in the global economy, especially in major tourist source markets (U.S. and U.K.).
  - Sharp rises in import costs of construction materials could weigh on construction sector activity.
  - Persistent global inflationary pressures could raise global borrowing costs, erode incomes and real growth, increase goods and services spending and public wage bills, and raise VAT exemption costs—weakening fiscal performance.
  - Domestic risks include higher-than-expected pensions, health care-related liabilities, and an inadequately funded unemployment insurance scheme.
  - Possibility of particularly large natural disasters and climate change impacts remain major risks, with potential spillovers on tourism.
  - Risks associated with Petrocaribe contingent debt; data/reporting improvements help mitigate these risks.
- Mitigating reforms and recommendations:
  - Continue strong commitment to the Fiscal Responsibility Framework (FRA), including its ongoing amendment to make it simpler and more flexible.
  - Pursue fiscal structural reforms and further improve debt management capacity.
  - Regularize external arrears to official bilateral creditors to tangibly improve the DSA rating.
  - Implement pension and national insurance scheme reforms and advance the transition to renewable energy to reduce exposure to energy price shocks.
  - Strengthen tax policy and administration: enhance tax compliance, reduce tax arrears, boost digitalization, broaden the tax base, and increase equity and efficiency of the tax system.
  - Build climate resilience and disaster risk management capacity:
    - The government has advanced DRM legal and institutional frameworks, with WB TA support and planned WB Second Recovery and Resilience DPC to support DRM legislation, energy efficiency, and incentives to preserve resources.
    - Disaster risk reduction integrated across infrastructure, land, agroforestry, agriculture, fishing, food security, water, mangrove, marine, coral, health, and zone management.
    - Implementation capacity remains a significant impediment; development partners continue to provide technical and capacity assistance.

*Source: Grenada: 2022 Article IV Consultation – Staff Report and related text as provided.*

### 20. The government is also shifting to a more proactive and layered financial response

### 20. The government is also shifting to a more proactive and layered financial response

### Disaster-risk financing architecture and instruments
- A variety of instruments are in place to meet different liquidity and funding needs for disasters of different severity and frequency.
- As part of its 2015 debt restructuring, some Grenada bonds included hurricane clauses whereby debt service on the restructured debt (mainly to 2025 private bondholders, but also to Paris Club) would be automatically re-profiled following a hurricane and in some cases other types of natural disaster.
- The hurricane clause could release up to EC$45 million in funds in the event of a major natural disaster (the amounts would be lower for smaller events, depending on the triggers).
- The World Bank Deferred Drawdown Option for Catastrophe Risks (CAT DDO) renewed in 2023 provided another layer of contingent financing in case of natural disasters.
- Insurance from CCRIF, the contingency fund under the National Transformation Fund, and other savings would provide additional layers of protection.

### Efficiency, complementarity, and legal frameworks
- Although various instruments are in place, they are not used efficiently and need to be optimized to ensure the complementarity between the various risk retention and risk transfer instruments.
- The Disaster Resilience Strategy and the DRM Act are expected to help consolidate the different resources and provide the most efficient cushions against natural disasters.

### Debt management capacity and data coverage
- The authorities’ debt management capacity would benefit from further reform in data management and IT system enhancements, building on the Debt Management Performance Assessment (DeMPA) undertaken with the World Bank in 2018.
- The Ministry of Finance (MoF) plans to amend the Fiscal Responsibility Act (FRA), in the second half of 2023, to better monitor all SOEs, statutory bodies, and PPP related liabilities.
- Monitoring and the quality of information has improved considerably in recent years but can further improve, for example by:
  - improving the timeliness of SOEs’ debt coverage including information on their above-the-line operations; and
  - better assessing PDV’s liabilities.
- Transparency around the Citizenship-by-Investment (CBI) program should be strengthened to enhance the reporting and efficiency of asset management and the capacity for asset/liability operations.

### Authorities’ views and arrears regularization
- The authorities agreed with staff’s debt sustainability assessment.
- They reached a repayment agreement with the State of Libya on the US$5 million in debt arrears owed.
- Regarding arrears to Trinidad & Tobago, they are making payments consistent with 2015 Paris Club agreement into an escrow account.
- The authorities underscore their commitment to regularize the remaining arrears to Trinidad and Tobago and Algeria.
- They committed to a return to the fiscal rules and to continue the debt reduction path.
- They indicated that the near-term financing needs are well covered by external funding that are already contracted and staff's financing assumptions are broadly in line with the government's Medium Term Debt Strategy.

### Selected debt sustainability and macro-fiscal figures (baseline projections and historical where cited)
- External debt (nominal): 92.9 (2020); 95.5 (2021); 92.7 (2022); 92.4 (2023); 85.6 (2024); 79.8 (2025); 76.5 (2026); 73.3 (2027); 71.0 (2028); 64.3 (2033); 54.4 (2043); 100.8 (Average)
- Public and publicly guaranteed (PPG) external debt: 55.2 (2020); 55.4 (2021); 51.4 (2022); 51.9 (2023); 50.3 (2024); 47.7 (2025); 45.6 (2026); 43.6 (2027); 42.0 (2028); 38.8 (2033); 33.2 (2043); 54.8 (Average)
- Identified net debt-creating flows: 14.9 (2020); -4.8 (2021); -4.1 (2022); 0.4 (2023); -1.6 (2024); -2.7 (2025); -2.7 (2026); -3.3 (2027); -3.9 (2028); -4.2 (2029); -2.3 (2030); -4.1 (2031); -3.4 (2033)
- Non-interest current account deficit: 14.9 (2020); 11.8 (2021); 16.0 (2022); 13.5 (2023); 11.7 (2024); 10.8 (2025); 11.0 (2026); 10.6 (2027); 10.4 (2028); 10.2 (2029); 13.1 (2030); 11.6 (2031); 10.6 (2033)
- Net FDI (negative = inflow): -14.9 (2020); -12.8 (2021); -14.1 (2022); -11.0 (2023); -11.5 (2024); -12.0 (2025); -12.5 (2026); -13.0 (2027); -13.5 (2028); -13.5 (2029); -14.8 (2030); -12.8 (2031); -12.8 (2033)
- Real GDP growth (percent): -13.8 (2020); 4.7 (2021); 6.4 (2022); 3.9 (2023); 3.8 (2024); 3.5 (2025); 3.2 (2026); 2.7 (2027); 2.7 (2028); 2.8 (2029); 2.8 (2030); 2.7 (2031); 3.1 (Average)
- Nominal GDP (Million of US dollars): 1,043 (2020); 1,106 (2021); 1,197 (2022); 1,281 (2023); 1,368 (2024); 1,444 (2025); 1,524 (2026); 1,601 (2027); 1,681 (2028); 2,152 (2033); 3,537 (2043)
- Government revenues (excluding grants, percent of GDP): 24.5 (2020); 24.4 (2021); 26.7 (2022); 28.5 (2023); 28.0 (2024); 27.6 (2025); 26.8 (2026); 26.5 (2027); 26.5 (2028); 25.6 (2033); 24.5 (2043)
- Aid flows (Million of US dollars): 38.2 (2020); 85.2 (2021); 83.1 (2022); 69.6 (2023); 58.3 (2024); 63.5 (2025); 53.6 (2026); 55.1 (2027); 55.4 (2028); 64.5 (2033); 91.4 (2043)
- PV of PPG external debt-to-GDP ratio (selected values): 42.4; 41.5; 39.4; 36.4; 34.2; 32.1; 30.6; 27.7; 24.0 (table lists multiple years)
- PPG debt service-to-exports ratio (selected): 16.1; 12.8; 6.1; 9.1; 7.8; 7.7; 7.3; 7.2; 6.6; 5.9; 8.4
- Gross external financing need (Million of U.S. dollars): 69.8 (2020); 58.2 (2021); 63.1 (2022); 101.4 (2023); 66.3 (2024); 46.2 (2025); 40.0 (2026); 27.0 (2027); 11.1 (2028); 5.1 (2033); 108.9 (2043)
- Public sector debt (percent of GDP): 71.4 (2020); 71.0 (2021); 64.6 (2022); 61.1 (2023); 58.3 (2024); 55.0 (2025); 51.9 (2026); 49.3 (2027); 47.1 (2028); 45.9 (2033); 45.2 (2043)
- Change in public sector debt: 12.9 (2020); -0.4 (2021); -6.4 (2022); -3.4 (2023); -2.8 (2024); -3.3 (2025); -3.1 (2026); -2.7 (2027); -2.1 (2028); -0.1 (2033); -0.8 (2043)
- Primary deficit (public sector): 2.6 (2020); -2.1 (2021); -2.6 (2022); -3.6 (2023); -3.6 (2024); -3.6 (2025); -1.6 (2026); -1.3 (2027); -1.0 (2028); 1.0 (2033); 0.6 (2043)
- Revenue and grants (percent of GDP): 28.1 (2020); 32.1 (2021); 33.7 (2022); 30.5 (2023); 29.9 (2024); 29.6 (2025); 28.8 (2026); 28.5 (2027); 28.4 (2028); 27.6 (2033); 26.5 (2043)
- Gross financing need (public sector, percent of GDP): 15.3 (2020); 10.0 (2021); 6.8 (2022); 5.1 (2023); 1.9 (2024); 1.2 (2025); 3.5 (2026); 3.3 (2027); 3.3 (2028); 6.1 (2033); 9.8 (2043)

*Source: IMF staff compilation from the Grenada DSA and chapter text.*

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

### 1grdea2023001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the

### 3-Year Adjustment in Primary Balance
- Title: 3-Year Adjustment in Primary Balance (In Percentage Point of GDP)
- Horizontal axis: size of 3-year adjustment from program inception (in percentage points of GDP)
- Vertical axis: percent of sample
- Notation in figure text: "3-year PB adjustment greater than 2.5 percentage points of GDP in approx. top quartile"
- Observed horizontal tick values (excerpted from figure): -4.5, -4.0, -3.5, -3.0, -2.5, -2.0, -1.5, -1.0, -0.5, 0.0, 0.5, 1.0, 1.5, 2.0, 2.5, 3.0, 3.5, 4.0, 4.5, 5.0, 5.5, 6.0, 6.5, 7.0, 7.5, 8.0, more

### Distribution and Projected 3-year Adjustment
- Label: Distribution 1/; Projected 3-yr adjustment
- Marker: "3"
- Indicator: "-1 0 1 2" shown near distribution axis
- Additional axis values shown: -15, -10, -5, 0, 5, 10

### Fiscal Adjustment and Possible Growth Paths
- Chart elements and labels present:
  - In percentage points of GDP
  - In percent
  - Series labels: Baseline; Multiplier = 0.2; Multiplier = 0.4; Multiplier = 0.6; Multiplier = 0.8
- Year labels present on x-axis excerpt: 2017, 2018, 2019, 2020, 2021, 2022, 2023, 2024

### Historical and Projected DSA Paths
- Lower panel axis tick values shown: 0, 2, 4, 6, 8, 10, 12, 14, 16, 18, 20, 22
- Year labels present on x-axis excerpt: 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026, 2027, 2028
- Y-axis values shown (right-hand panel excerpt): -0.5, 0.0, 0.5, 1.0, 1.5, 2.0, 2.5, 3.0, 3.5, 4.0
- Series labels: Historical; Projected (Prev. DSA); Projected (Curr. DSA)

*Content extracted from PDF: 1grdea2023001 - 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1grdea2023001.pdf_