## 1grdea2025001-print-pdf — 1. CBI Program: Recent Developments and Scenario Analysis ## Source details **Canonical URL:** [1grdea2025001-print-pdf — 1. CBI Program: Recent Developments and Scenario Analysis](https://www.imf.org/-/media/files/publications/cr/2025/english/1grdea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1grdea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1grdea2025001-print-pdf.pdf.json) --- ### Pre-hurricane context and macroeconomic developments - Growth and tourism - The economy grew by an estimated 4.7 percent in 2023 and continued to grow strongly in early 2024, driven by tourism. - Grenada’s 2023 stayover arrival growth outpaced that in the rest of the ECCU and remained strong in the first half of 2024. - CBI dynamics and fiscal impacts - CBI revenues of 10½ percent of GDP in 2023 contributed to a primary surplus of 9½ percent of GDP. - References to CBI revenue refer to revenues collected through the Investment Migration Agency (IMA) program (the Grenada Citizenship by Investment Unit was rebranded to the IMA in March 2024). - CBI investor demand surged in early 2023 ahead of a ban on applications from Russia; record-high investment inflows carried into 2024 due to processing delays and a large application backlog. - Prices, external sector and reserves - Headline inflation fell to 2.2 percent by end-2023 and further softened in 2024. - Current account deficit estimated to have narrowed to 9.1 percent of GDP in 2023. - Imputed reserves at the ECCB increased with large CBI-driven FDI and capital transfers. - Public finances and deposits - As of end-June 2024, government deposits had risen to 22 percent of GDP, and public debt had fallen to 70 percent of GDP (including 14 percent of GDP in non-guaranteed SOE debt). - Continued strong CBI revenue and slow expenditure execution led to budget overperformance in the first six months of 2024 despite an estimated wage realignment adding about 1 percent of GDP to government wages and salaries from 2024. - Labor and financial sectors - Unemployment rate fell to 11 percent in 2023Q4; youth unemployment fell to 23 percent. - A funded unemployment insurance scheme was introduced in June 2023. - Bank profitability improved and NPLs remained among the lowest in the ECCU; local credit growth modest; credit unions resumed rapid lending growth with more elevated NPLs. - Insurance sector stable and liquid, but higher reinsurance costs increased property insurance premiums. ### Impact of Hurricane Beryl: damages, sectoral effects, and outlook - Event - Hurricane Beryl made landfall as a Category 4 hurricane on Carriacou and Petite Martinique on July 1, 2024. - Damage estimates (GRADE) - Total economic damages and losses: 218.0 million USD, 16.5 percent of GDP (2023). - Residential building damage: 58.5 million USD, 4.4 percent of GDP (Carriacou 45.6 million USD, Petite Martinique 5.0 million USD). - Non-residential building damage: 53.0 million USD, 4.0 percent of GDP. - Infrastructure damage: 63.4 million USD, 4.8 percent of GDP. - Agriculture damage: 43.1 million USD, 3.3 percent of GDP. - Carriacou and Petite Martinique saw damages to about 80 percent of their housing. - Around 10 percent of Grenada’s total tourism room stock was damaged. - Upwards of 45 percent of trees (such as nutmeg and cocoa) were damaged or destroyed. - Sectoral output impacts (selected; 2024 vs 2025) - Real GDP growth impact: pre-Beryl 3.9 percent; post-Beryl 3.6 percent; change -0.3. - Agriculture, Livestock and Forestry: pre-Beryl 2.0 percent; post-Beryl -14.0 percent; change -16.0. - Fishing: pre-Beryl 2.7 percent; post-Beryl -10.0 percent; change -12.7. - Construction: pre-Beryl 0.0 percent; post-Beryl 5.0 percent; change 5.0. - Hotels & Restaurants: pre-Beryl 20.0 percent; post-Beryl 16.4 percent; change -3.6. - Outlook post-Beryl - Hurricane’s GDP growth impact assessed as -0.3 percent of GDP in 2024. - Tourism projected to remain robust in 2024; sector growth expected to slow until new hotel projects come onstream. - Large recovery and reconstruction efforts expected to sustain temporarily higher growth into 2025-26, before convergence to potential growth of around 2.7 percent. - Inflationary pressures contained; inflation expected to return to around 2 percent from 2026. - Current account projected to widen to 13-14 percent of GDP in 2024-25. ### External account projections (selected) - 2024 current account: -493 million EC$; Percent of GDP -13.1. - 2025 current account: -546 million EC$; Percent of GDP -13.8. - Trade (2024): -1,569 million EC$; -41.8 percent of GDP. Trade (2025): -1,592 million EC$; -40.2 percent of GDP. - Services (2024): 1,338 million EC$; 35.6 percent of GDP. Services (2025): 1,354 million EC$; 34.2 percent of GDP. - Tourism receipts (2024) 203 million EC$; 5.4 percent of GDP. (2025) 121 million EC$; 3.1 percent of GDP. - Capital account (2024) 569 million EC$; 15.1 percent of GDP. (2025) 144 million EC$; 3.6 percent of GDP. - Overall balance (2024) 124 million EC$; 3.3 percent of GDP. (2025) -191 million EC$; -4.8 percent of GDP. ### Fiscal response, reconstruction costs, financing, and trajectory - Government support package and costs - Government suspended the primary balance floor under the Fiscal Resilience Act escape clause and introduced time-bound tax and import duty waivers for affected households and businesses. - Supplementary 2024 budget increased planned capital expenditure for reconstruction, transfers to households and farmers, and a transfer to the Grenada Development Bank for concessional financing. - Staff estimates cumulative cost of measures at 13.5 percent of GDP over 2024-26; most reconstruction investment expected carried into 2025-26. - Breakdown (percent of GDP, sum of 2024-26): - Tax relief measures total 0.7 percent of GDP (Income & profit 0.1; Property 0.1; Goods and services 0.3; International trade 0.2). - Expenditure measures total 12.8 percent of GDP (Transfers - households 0.5; Transfers - other 2.1; CAPEX (reconstruction) 10.2). - Triggered disaster-contingent financing and payments (US$ millions; Percent of GDP (2024)) - CCRIF parametric insurance: 55.5 US$ millions; 4.0 percent of GDP. - Central government (post-disaster financing): 44 US$ millions; 3.2 percent of GDP. - State-owned water and electricity companies: 11.5 US$ millions; 0.8 percent of GDP. - World Bank Catastrophe Drawdown Option: 20 US$ millions; 1.4 percent of GDP. - Disaster clause in restructured international bonds: 12 US$ millions; 0.9 percent of GDP (two scheduled payments deferred and added to lump sum at maturity in 2030). - Fiscal trajectory and debt outlook - Record-high CBI revenue, CCRIF payout and expenditure delays projected to yield a 2024 primary surplus of 8 percent of GDP and accumulation of government deposits to nearly 23 percent of GDP. - Normalization of CBI revenues from 2025 implies primary deficits in 2025-26 averaging 3 percent of GDP, financed primarily by deposit drawdowns. - Fiscal outlook from 2027 underpinned by return to 1.5 percent of GDP primary balance rule; public debt projected to fall below 60 percent by 2030. ### Financial system resilience and risks - Resilience - Banking sector highly liquid and well-capitalized with low NPLs and improving profitability. - Carriacou and Petite Martinique account for 2 percent of total bank credit stock; outstanding mortgage values fully covered by insurance. - GARFIN monitoring non-bank financial impacts, assessed as manageable. - Downside risks - Risks tilted to the downside: natural disasters, demand shocks in tourism source markets, commodity price volatility, deepening geo-economic fragmentation, and uncertain CBI inflows. - Materialization of risks in the non-bank financial sector (notably credit unions) could amplify shocks. - Unused government deposits provide an important buffer; prospective hotel developments and public investment projects provide upside risk to medium-term growth. ### Selected post-Beryl fiscal and eligibility measures (timing) - Personal relief and household support - Essential items: 100% duty and tax exemptions on essential items, 2 barrels per household, July-December 2024, administered by Beryl Economic Support Secretariat (BESS). - Household appliances: 100% waiver of taxes on large household appliances/furnishings, one of each appliance per household for properties affected by Beryl; July 2024 - June 2025, administered by BESS. - Building materials and business support - Building materials: 100% VAT waiver on local purchases and 100% waiver of CET, VAT, and CSC on imports for reconstruction; July 2024 - June 2025, administered by BESS. - Equipment relief: 100% waiver of CET, VAT, CSC, Excise tax and EVL for replacement of damaged equipment; July 2024 - June 2025, administered by BESS. - Tax and financial support - VAT and property tax waivers and tax deadline extensions (automatic for Carriacou/Petite Martinique; mainland requires application); Inland Revenue Division deadlines extended to December 31, 2024 for certain taxes. - Income support: one-off payments to affected registered farmers of EC$4,500 for farms less than five acres and EC$9,000 for farms larger than five acres (August 2024 to November 2024). - Development Bank Fund: EC$25 million fund with part loan, part grant; available to MSMEs including hotels, agriculture and fishing; from September 2024. ### Authorities’ views and investment plans - Authorities broadly agreed with staff’s assessment of the outlook and risks but are more optimistic about growth prospects. - Near-term growth impact of the hurricane expected to be relatively modest and short-lived. - Government investment plans include construction of a new teaching hospital and disaster-resilient affordable housing. - Staff estimates public investment needs for reconstruction in the most affected areas at about 10 percent of GDP over 2024-26. - Authorities emphasized commitment to CBI program integrity while recognizing risks to future CBI revenues. - Public debt expected to continue falling and reach the debt target of 60 percent of GDP by 2030; debt classified as “in debt distress” on account of outstanding arrears to official non-Paris Club bilateral creditors. ### Box 1 — CBI program structure, scenarios, and staff projection - CBI framework - Established in 2013. - Investors may donate US$235,000 to the government National Transformation Fund (NTF) or invest a minimum of US$270,000 in pre-approved real estate projects with a five-year minimum holding period (and a government contribution of US$50,000). - Recent developments and governance - CBI inflows spiked in 2023 with a surge in applications by Russian citizens. - February 2023 US-Caribbean roundtable prompted ECCU CBI programs to strengthen risk management and ban new applications from Russia or Belarus. - March 2024: Grenada signatory to a regional Memorandum of Agreement for common CBI pricing standards and a regional CBI regulator. - Staff projection and scenarios - CBI investment projected to decline to pre-surge levels from 2025. - Scenario simulations assume annual inflows 50 percent above (upside) and below (downside) the baseline from 2025. - In 2025-26, simulations assume change in government CBI revenue affects government deposits since the primary balance rule is not binding. - With return to fiscal rules from 2027, the scale of CBI revenues would determine the government’s public investment envelope. - Simulated current account impact reflects scale of public and private (construction) investment. ### Managing CBI revenues and NTF reforms (policy framework) - Broad reform principles - Manage all CBI resources under a more uniform framework; could entail transferring all future CBI revenue and past savings to a single fund (the National Transformation Fund). - Establish clear rules for annual budget drawdowns from the NTF and incorporate these in the fiscal framework; apply the primary balance rule to more predictable drawdowns to smooth budget volatility. - Calibrate drawdowns to determine objectives (degree of future savings vs investment needs) and appropriate oversight. - Establish a clear asset management framework for NTF assets and ensure transparency and accountability (regular reporting on fund size, asset allocation, and performance). - Operational notes - A portion of CBI revenue is encumbered by regulated transfers to a contingency fund and payments to holders of restructured international bonds. - NTF operations could retain the contingency fund subaccount for self-insurance; reform should allow retaining a smaller government deposit balance for cash management. - NTF assets invested outside the ECCU in non-EC$ currencies guided by annual investment plans from the NTF Board and a return and risk tolerance mandate from the Minister of Finance. ### Strengthening public finances and fiscal institutions — key policy recommendations - Adhere to announced time limits on tax incentives to contain fiscal costs. - Improve targeting and efficiency of social transfers; establish a central beneficiary registry and introduce cashless payments to phase out untargeted subsidies. - Coordinate functional review and phased regularization of public sector workers with establishment of a new defined-contribution public sector pension scheme in 2025 for new hires. - Contain foregone revenue from untargeted import tax incentives for electric and hybrid vehicles by exploring alternative policies (e.g., feebates and carbon pricing). - Adopt a more symmetric rules-based pass-through formula for gasoline retail prices to limit foregone tax revenue; context: gasoline retail prices currently have a discretionary cap of EC$17/gallon. - From 2022-23, estimated fiscal cost of previous price cap of EC$15/gallon, temporary suspension of the EC$5.5/gallon petrol tax in late 2022 and its reinstatement at EC$3.5/gallon in early 2023 amounted to about 2.3 percent of GDP relative to full global price pass through. - If current EC$17/gallon cap had been in place, this cost would have halved to 1.1 percent of GDP. - Improve tax collection through digitalization and strengthened risk-based auditing. - Strengthen coherence of the Income Tax Act and broaden the domestic tax base to reduce reliance on taxes on international trade and VAT. - Maintain focus on CBI program integrity and implementation of regional commitments to mitigate non-tax revenue risks. - Enhance procurement, expedite PIMA/C-PIMA recommendations, strengthen project planning and MTFF projections, and bring public audits of government accounts up-to-date. ### Pension, social insurance, and labor-market reforms - National Insurance Scheme reforms (2023): - Gradual increase in pensionable age from 60 to 65 years by 2029. - Increase in contribution rates from 12 to 16 percent by 2033. - Further reforms recommended: incentivize longer contribution periods, increase participation of self-employed workers, ensure benefits based on career-average wages. - Labor measures: expand youth training, develop digital job-matching tools, review Employment Protection Legislation, and consider aligning notice periods with regional peers. - Minimum wage (January 2024) - New minimum wage at least EC$60/day or EC$1200/month; increase between 18-56 percent (varies by sector). - Domestic workers received a 93 percent increase. - About 21 percent of workers earn less than $1200/month; 27 percent of female workers and 16 percent of male workers earn less than $1200/month. - Minimum wages should be reviewed every three years, as legislated. ### Addressing non-bank vulnerabilities and financial sector recommendations - Credit unions - GARFIN requiring selected credit unions to implement time-bound action plans to strengthen provisioning and reduce NPLs toward a benchmark ceiling of 5 percent of total loans. - Credit union NPLs rose by more than half after removal of COVID-19 loan moratoria. - Supervisory reporting should strengthen monitoring of asset quality; impaired asset treatment and provisioning requirements should align closer with banks. - Planned adoption of model-based IFRS9 provisioning should be backstopped by calendar-based requirements for long-overdue loans. - Insurance sector and climate risks - Rising reinsurance costs increased property insurance premiums (average premiums per policy increased by roughly 16 percent in 2023). - Immediate priorities: strengthen supervisory data collection and cross-jurisdictional supervisory cooperation. - GARFIN should maintain engagement with general insurance companies to monitor post-disaster developments and ensure timely claims resolution. - AML/CFT - Maintain strong AML/CFT regime to preserve correspondent banking relationships. - Actions needed: facilitate verification of beneficial ownership information; mitigate misuse of legal persons; update the National Risk Assessment to include the CBI program; train money laundering reporting and compliance officers. ### Insurance affordability and reinsurance market pressures (Annex IV key points) - Market characteristics - As of end-2022, average retention ratio for property insurance was 14 percent. - In 2022, Grenada had 26 insurance companies, about half offering general insurance. - HHI index for assets and gross premium income of general insurers has remained below 0.15 since 2012. - Implications of tighter global reinsurance - 2023 average premiums per property policy increased by roughly 16 percent (regulator data). - In 2022, annual premiums accounted for around 0.75 percent of property values. - Insurance density (gross premium income per capita) about 5% of average yearly earnings (2022). - Insurance penetration (gross premium income relative to GDP) about 3 percent (2022). - Policy considerations - Priority: strengthen insurance data compilation and analysis (number of reinsurers engaged; proportional vs non-proportional contract prevalence; rate on line; limits; liquidity metrics; loss ratios). - Regional approach: consolidated assessment and strengthened regional supervisory cooperation. - Complementary government policies: public risk assessments, stricter land use/zoning/building regulations, investment in disaster-resilient infrastructure; public subsidies/PPP models must consider fiscal contingent liability risks. ### Energy transition and optimal sequencing - Grenada depends on imported oil for over 90 percent of its energy. - Shifting 30 percent of electricity production to renewables could cut oil imports by 15 percent. - For every 10-percentage point increase in share of renewables in electricity generation, oil imports would decline by just over 0.4 percentage points of GDP. - Achieving 100 percent renewable generation would result in the current account deficit falling by almost one-half (caveat: near-term benefits smaller due to import of renewable equipment). - Near-term priority: renewable energy generation and energy efficiency before large-scale EV adoption. - Policy and financing: finalize IRP, balance IPP incentives, explore dynamic pricing, unlock public/private/multilateral financing (include World Bank’s Caribbean Renewable Energy Infrastructure Investment Facility and Green Climate Fund engagement). ### Data adequacy, safeguards, and capacity needs - Data shortcomings hamper surveillance: national accounts, prices, and external sector statistics. - Strengths: resumed Labor Force Survey, granular CBI data, completed 2022 Census. - Priorities: resource the Central Statistics Office (CSO) for timeliness and consistency; release updated CPI weights and revamp CSO website; improve high-frequency indicators and non-bank financial system granularity. - ECCB safeguards: all but one recommendation implemented; outstanding recommendation on legal reforms to strengthen operational autonomy and align Agreement Act with leading practices remains. ### Debt sustainability, stress tests, and policy priorities - DSA findings and status - Grenada remains in public debt distress on account of outstanding arrears to official bilateral creditors of about US$38.0 million (2.9 percent of GDP) as of end-2023. - Central government debt: estimated 60.5 percent of GDP at end-2023. - Public debt projected to fall below 60 percent of GDP by 2030 under baseline with return to fiscal rules. - Stress-test results - PV debt-to-GDP and debt-service-to-revenue thresholds breached under extreme scenarios. - Export shock example: decline in export of goods and services by 16 percent of GDP in 2025 and another 12.5 percent of GDP in 2026. - “Natural disaster” tailored scenario: a 5 percent of GDP, or 2.5 percentage points (whichever is higher), rise in debt in first two years following a hurricane. - Buffers and contingent instruments - CCRIF payout: 55.5 US$ millions. - World Bank CAT-DDO: 20 US$ millions. - Restructured bond disaster clause deferred two scheduled payments (Nov 2024 and May 2025) added to lump sum at maturity in 2030. - Large government deposits from CBI surge provide a substantial buffer. - Key DSA policy recommendations - Fully regularize external arrears to remove “in debt distress” classification. - Maintain fiscal policy prudence anchored in the Fiscal Resilience Act and fiscal rules. - Strengthen CBI revenue management framework and consolidate CBI resources under a unified framework (NTF) with clear drawdown rules. - Continue Disaster Resilience Strategy implementation and publish timely climate fiscal risk statements. - Strengthen public financial management, MTFF, debt management systems, and SOE transparency. ### Selected macro and fiscal projections (highlights) - Real GDP (annual percent change): 2019: 0.7; 2020: -13.8; 2021: 4.7; 2022: 7.3; 2023: 4.7; 2024: 3.6; 2025: 3.9; 2026: 3.3; 2027–2029: 2.7 (each year). - Consumer prices, end of period (percent): 2019: 0.1; 2020: -0.8; 2021: 1.9; 2022: 2.9; 2023: 2.2; 2024: 1.2; 2025: 1.9; 2026–2029: 2.0 (each year). - Current account balance (percent of GDP): 2019: -10.4; 2020: -16.1; 2021: -14.5; 2022: -11.0; 2023: -9.1; 2024: -13.1; 2025: -13.8; 2026: -10.6; 2027–2029: -9.9 to -9.1. - Central government total revenue and grants (percent of GDP): 2023: 36.9; 2024: 44.1; 2025: 30.5; 2026: 29.3. - Government CBI revenue (percent of GDP): 2019: 0.2; 2020: 0.6; 2021: 1.1; 2022: 2.2; 2023: 10.7; 2024: 12.0; 2025: 5.8; 2026: 3.1; 2027–2029: 3.1, 2.9, 2.8 respectively. - Citizenship-by-Investment (CBI) inflows (percent of GDP): 2019: 5.2; 2020: 9.0; 2021: 9.3; 2022: 10.8; 2023: 31.6; 2024: 21.2; 2025: 11.1; 2026: 8.7; 2027: 8.3; 2028: 7.9; 2029: 7.5. - Net imputed international reserves (months of imports): 2019: 5.2; 2020: 5.6; 2021: 4.9; 2022: 5.0; 2023: 4.8; 2024: 5.2; 2025: 4.3. ### Risk Assessment Matrix — key risks and recommended responses - Conjunctural risks - Intensification of regional conflict(s). (High / ST) — Response: Provide targeted transfers; increase value-added of tourism; monitor financial sector with ECCB. - Commodity price volatility. (High / ST) — Response: Provide targeted support; accelerate shift to renewables; improve pass-through of price signals. - Global growth surprises and systemic financial instability — Responses: Accelerate structural reforms; tighten supervision; continue enhancing financial system supervision with ECCB. - Social discontent. (High / ST, MT) — Response: Continue social policies supporting vulnerable populations. - Structural risks - Extreme climate events. (Medium / ST) — Response: Implement Disaster Resilience Strategy; improve infrastructure; strengthen oversight and data collection for insurance sector risks. - Deepening geoeconomic fragmentation. (High / ST) — Response: Accelerate structural reforms; reduce reliance on CBI; enhance international/regional cooperation. - Domestic risks - Fiscal underperformance and reduced/mismanaged CBI revenues — Response: Improve CBI management framework; rationalize spending; broaden revenue base; strengthen transparency and integrity. - Deterioration in credit union asset quality and property reinsurance costs — Response: Accelerate CU NPL resolution; strengthen supervisory data, provisioning, and regional cooperation. *Source: IMF staff report "1. CBI Program: Recent Developments and Scenario Analysis."* ### 1. CBI Program: Recent Developments and Scenario Analysis ____________________________________ 11 ### 1. CBI Program: Recent Developments and Scenario Analysis ### Pre-hurricane context and macroeconomic developments - Growth and tourism - The economy grew by an estimated 4.7 percent in 2023 and continued to grow strongly in early 2024, driven by tourism. - Grenada’s 2023 stayover arrival growth outpaced that in the rest of the ECCU and remained strong in the first half of 2024. - Citizenship by Investment (CBI) dynamics - CBI investor demand surged in early 2023 ahead of a ban on applications from Russia. - Record-high investment inflows carried into 2024 due to processing delays and a large application backlog; accumulation of government deposits and escrow balances occurred for new hotel developments. - References to CBI revenue in the report refer to revenues collected through the Investment Migration Agency (IMA) program (the Grenada Citizenship by Investment Unit was rebranded to the IMA in March 2024). - Inflation and prices - Headline inflation fell to 2.2 percent by end-2023 and further softened in 2024, driven by lower import prices that more than offset price pressures from sizable minimum wage increases in several sectors at the start of 2024. - External sector and reserves - The current account deficit is estimated to have narrowed to 9.1 percent of GDP in 2023. - Services exports were boosted by buoyant tourism revenues; imputed reserves at the ECCB increased with large CBI-driven FDI and capital transfers even as additional bank liquidity from government deposits was partly invested overseas. - Fiscal and public finances - CBI revenues of 10½ percent of GDP in 2023, combined with a fall in public pension spending after a one-off increase the year before, resulted in a primary surplus of 9½ percent of GDP—well exceeding the primary balance floor under the revised 2023 fiscal rules. - Continued strong CBI revenue and slow expenditure execution led to budget overperformance in the first six months of 2024 despite an estimated wage realignment adding about 1 percent of GDP to government wages and salaries from 2024. - As of end-June 2024, government deposits had risen to 22 percent of GDP, and public debt had fallen to 70 percent of GDP (including 14 percent of GDP in non-guaranteed SOE debt). - Labor and financial sectors - Unemployment rate fell to 11 percent in 2023Q4; youth unemployment fell to 23 percent. - A funded unemployment insurance scheme was introduced in June 2023. - Bank profitability improved and NPLs remained among the lowest in the ECCU; local credit growth remained modest although credit unions resumed rapid lending growth with more elevated NPLs. - Insurance sector stable and liquid, but higher reinsurance costs increased property insurance premiums, worsening affordability and protection gaps. ### Impact of Hurricane Beryl: physical damages and economic effects - Event summary - Hurricane Beryl made landfall as a Category 4 hurricane on Carriacou and Petite Martinique on July 1, 2024. - Damage estimates (GRADE report) - Total economic damages and losses estimated above 16 percent of GDP; total economic damages listed as 218.0 million USD, 16.5 percent of GDP (2023). - Residential building damage 58.5 million USD, 4.4 percent of GDP; Carriacou 45.6 million USD, Petite Martinique 5.0 million USD. - Non-residential building damage 53.0 million USD, 4.0 percent of GDP; Infrastructure damage 63.4 million USD, 4.8 percent of GDP. - Agriculture damage 43.1 million USD, 3.3 percent of GDP. - Carriacou and Petite Martinique saw damages to about 80 percent of their housing. - Around 10 percent of Grenada’s total tourism room stock was damaged; core tourism infrastructure on the main island remained operational. - Upwards of 45 percent of trees (such as nutmeg and cocoa) were damaged or destroyed, with long-term impacts on production and exports. - Sectoral output impact (2024 vs 2025, selected sectors) - Real GDP growth impact: pre-Beryl 3.9 percent; post-Beryl 3.6 percent; change -0.3. - Agriculture, Livestock and Forestry: pre-Beryl 2.0 percent; post-Beryl -14.0 percent; change -16.0. - Fishing: pre-Beryl 2.7 percent; post-Beryl -10.0 percent; change -12.7. - Construction: pre-Beryl 0.0 percent; post-Beryl 5.0 percent; change 5.0. - Hotels & Restaurants: pre-Beryl 20.0 percent; post-Beryl 16.4 percent; change -3.6. ### Outlook, inflation, and external accounts post-Beryl - Growth outlook - The hurricane’s GDP growth impact is assessed as relatively modest at -0.3 percent of GDP in 2024 given limited damage to high population areas and tourism. - Tourism performance projected to remain robust in 2024, with continued post-disaster growth in stayover arrivals albeit slowing to pre-pandemic trends; sector growth expected to slow until new hotel projects come onstream. - Large recovery and reconstruction efforts are expected to sustain temporarily higher growth into 2025-26, before convergence to potential growth of around 2.7 percent. - Inflation - Inflationary pressures from the hurricane have remained largely contained; scheduled withdrawal of support measures and normalization of commodity prices are expected to bring inflation back to around 2 percent from 2026. - External accounts and reserves - Current account projected to widen to 13-14 percent of GDP in 2024-25 due to higher food, relief and construction material imports and lower exports (primarily agriculture). - External position in 2024, after accounting for Hurricane Beryl, is broadly in line with the level implied by medium-term fundamentals and desirable policies. - Selected external account projections (Millions of EC$, Percent of GDP) - 2024 current account: -493 million EC$; Percent of GDP -13.1. - 2025 current account: -546 million EC$; Percent of GDP -13.8. - Trade (2024): -1,569 million EC$; -41.8 percent of GDP. Trade (2025): -1,592 million EC$; -40.2 percent of GDP. - Services (2024): 1,338 million EC$; 35.6 percent of GDP. Services (2025): 1,354 million EC$; 34.2 percent of GDP. - Of which: tourism receipts (2024) 203 million EC$; 5.4 percent of GDP. (2025) 121 million EC$; 3.1 percent of GDP. - Capital account (2024) 569 million EC$; 15.1 percent of GDP. (2025) 144 million EC$; 3.6 percent of GDP. - Overall balance (2024) 124 million EC$; 3.3 percent of GDP. (2025) -191 million EC$; -4.8 percent of GDP. ### Fiscal response, reconstruction costs, and financing - Government support package and estimated costs - The Government suspended the primary balance floor under the Fiscal Resilience Act escape clause and introduced a package of fiscal measures including time-bound tax and import duty waivers for affected households and businesses. - Supplementary 2024 budget increased planned capital expenditure for reconstruction, transfers to households and farmers, and a transfer to the Grenada Development Bank for concessional financing to affected businesses. - Staff estimates the cumulative cost of these measures at 13.5 percent of GDP over 2024-26; most reconstruction investment expected to be carried over into 2025-26. - Breakdown of government support (in percent of GDP, sum of estimates for 2024-26): - Tax relief measures total 0.7 percent of GDP (Income & profit 0.1; Property 0.1; Goods and services 0.3; International trade 0.2). - Expenditure measures total 12.8 percent of GDP (Transfers - households 0.5; Transfers - other 2.1; CAPEX (reconstruction) 10.2). - Triggered disaster-contingent financing and payments (US$ millions; Percent of GDP (2024)) - CCRIF parametric insurance: 55.5 US$ millions; 4.0 percent of GDP. - Central government (post-disaster financing): 44 US$ millions; 3.2 percent of GDP. - State-owned water and electricity companies: 11.5 US$ millions; 0.8 percent of GDP. - World Bank Catastrophe Drawdown Option: 20 US$ millions; 1.4 percent of GDP. - Disaster clause in restructured international bonds: 12 US$ millions; 0.9 percent of GDP (two scheduled payments due Nov 2024 and May 2025 deferred and added to lump sum at maturity in 2030). - Fiscal trajectory and debt outlook - Record-high CBI revenue, the CCRIF payout and expenditure execution delays are projected to result in a 2024 primary surplus of 8 percent of GDP and further accumulation of government deposits to nearly 23 percent of GDP. - With normalization of CBI revenues to historical levels from 2025, reconstruction spending needs are projected to result in primary deficits in 2025-26 averaging 3 percent of GDP, financed primarily by deposit drawdowns. - Fiscal outlook from 2027 is underpinned by an expected return to the 1.5 percent of GDP primary balance rule, anchoring a continued downward path in public debt, projected to fall below 60 percent by 2030. ### Financial system resilience and risks - Financial sector impact and resilience - The disaster occurred in the context of a highly liquid and well-capitalized banking sector with low NPLs and improving profitability. - Carriacou and Petite Martinique account for only 2 percent of total bank credit stock; outstanding mortgage values are fully covered by insurance. - GARFIN is monitoring non-bank financial system impacts, currently assessed as manageable. - Risk assessment and downside risks - Risks are tilted to the downside: exposure to natural disasters, demand shocks in tourism source markets, commodity price volatility, and deepening geo-economic fragmentation that could disrupt global trade and increase import costs. - Uncertain outlook for CBI inflows amid increased international scrutiny could weigh on future government revenue and tourism investment. - Shocks could be amplified by materialization of risks in the non-bank financial sector (notably credit unions). - Projected level of unused government deposits provides an important buffer; prospective hotel developments and public investment projects provide upside risk to medium-term growth. ### Selected fiscal and policy measures post-Beryl (timing and eligibility highlights) - Personal relief and household support - Essential items: 100% duty and tax exemptions on essential items, 2 barrels per household, July-December 2024, administered by Beryl Economic Support Secretariat (BESS). - Household items: 100% waiver of taxes on large household appliances/furnishings, one of each appliance per household for properties affected by Beryl; July 2024 - June 2025, administered by BESS. - Building materials and business support - Building materials: 100% VAT waiver on local purchases and 100% waiver of CET, VAT, and CSC on imports for reconstruction of homes/businesses directly affected by Beryl; July 2024 - June 2025, administered by BESS. - Equipment relief: 100% waiver of CET, VAT, CSC, Excise tax and EVL for replacement of damaged equipment; July 2024 - June 2025, administered by BESS. - Tax and financial support - VAT and property tax waivers and various tax deadline extensions (automatic for Carriacou/Petite Martinique; mainland requires application); Inland Revenue Division deadlines extended to December 31, 2024 for certain taxes. - Income support: one-off payments to affected registered farmers of EC$4,500 for farms less than five acres and EC$9,000 for farms larger than five acres (August 2024 to November 2024). - Development Bank Fund: EC$25 million fund with part loan, part grant; available to MSMEs including hotels, agriculture and fishing; from September 2024. *Source: IMF staff report "1. CBI Program: Recent Developments and Scenario Analysis."* ### 15. The authorities broadly agreed with staff’s assessment of the economic outlook and ### 15. The authorities broadly agreed with staff’s assessment of the economic outlook and ### Authorities’ assessment of outlook and sectors - Authorities broadly agreed with staff’s assessment of the economic outlook and risks but are more optimistic about growth prospects. - Near-term growth impact of the hurricane is expected to be relatively modest and short-lived. - Tourism sector expected to perform strongly, supported by: - new hotel construction projects, - improved flight connections, - expansion of the vacation home rental market, which is expected to alleviate tourism capacity constraints over time. - Authorities noted growth potential in the emerging creative industry and ongoing efforts to support digitalization of the economy. - Post-disaster reconstruction and other public investment needs will temporarily weaken fiscal balances, but authorities expect: - return to the fiscal rules to support the longer-term outlook and public debt reduction path, - government’s existing fiscal space to support recovery. - Authorities emphasized strong focus and commitment to the integrity of the CBI program while recognizing potential risks to future CBI revenues. - Financial system remained stable after the hurricane. ### Investment and reconstruction plans - Government investment plans include construction of: - a new teaching hospital, - disaster-resilient affordable housing. - Staff estimates public investment needs for reconstruction of infrastructure and other buildings in the most affected areas at about 10 percent of GDP over 2024-26. - The sizable deposit savings from CBI revenue and post-disaster financing limit new borrowing needed to cover projected 2025-26 deficits. - Public debt is expected to continue falling and reach the debt target of 60 percent of GDP by 2030. - Debt is assessed as sustainable, yet classified as “in debt distress” on account of outstanding arrears to official non-Paris Club bilateral creditors. ### Box 1 — CBI Program: structure, recent developments, and scenarios - CBI program framework: - Established in 2013. - Investors may donate US$235,000 to the government National Transformation Fund (NTF) or invest a minimum of US$270,000 in pre-approved real estate projects with a five-year minimum holding period (and a government contribution of US$50,000). - Recent developments: - CBI inflows spiked in 2023 with a surge in applications by Russian citizens. - February 2023 US-Caribbean roundtable agreement prompted ECCU countries with CBI programs to strengthen risk management and integrity and ban new applications from Russia or Belarus. - March 2024: Grenada was among the signatories of a regional Memorandum of Agreement to establish common standards for minimum CBI pricing and a regional CBI regulator. - Staff projection: - CBI investment projected to decline to pre-surge levels from 2025 (consistent with recent investor demand). - The real-estate CBI financing model partially smooths revenue impact as recent accumulation of escrowed investment is drawn down over time as projects progress. - Scenario analysis: - Simulates impact of high CBI uncertainty on fiscal and external balances. - Scenarios assume annual inflows 50 percent above (upside) and below (downside) the baseline from 2025. - In 2025-26, simulations assume change in government CBI revenue only affects government deposits since the primary balance rule is not binding. - With expected return to fiscal rules from 2027, the scale of CBI revenues would determine the government’s public investment envelope. - Simulated current account impact reflects scale of public and private (construction) investment — higher CBI-driven FDI and public investment would result in slower narrowing of the post-disaster deficit. ### Strengthening public finances and fiscal institutions (policy discussions) - Immediate disaster response: - Government invoked escape clause in the fiscal rules framework to ensure policy space for timely support of recovery. - Recovery support measures were tailored to the most affected households and businesses. - Fiscal outlook and risks: - Reconstruction plans should be carefully calibrated given: - final assessment of damages, - high uncertainty over future CBI revenue, - risk of further weather-related disasters. - Debt sustainability: classified “in debt distress” due to outstanding arrears, notwithstanding progress in negotiations. - Key policy recommendations to preserve fiscal space: - Adhere to announced time limits on the government’s tax incentives to contain fiscal costs. - Improve targeting and efficiency of social transfers, including establishment of a central beneficiary registry and planned introduction of cashless payments; this would create scope to phase out untargeted subsidies (e.g., for cooking gas). - Coordinate functional review and phased regularization of public sector workers with establishment of the new defined-contribution public sector pension scheme in 2025 for new hires to avoid adding to liabilities from the existing unfunded defined benefit plan. - Contain rising foregone revenue from untargeted import tax incentives for electric and hybrid vehicles by exploring alternative, more efficient policies to decarbonize the transportation sector (an October IMF FAD Technical Assistance report proposed feebates and carbon pricing as more efficient options to reduce emissions and be revenue neutral or revenue enhancing). - Adopt a more symmetric rules-based pass-through formula for gasoline retail prices to limit the risk of foregone tax revenue from global price volatility. - Context: Gasoline retail prices currently have a discretionary cap of EC$17/gallon. - From 2022-23, estimated fiscal cost of previous price cap of EC$15/gallon, temporary suspension of the EC$5.5/gallon petrol tax in late 2022 and its reinstatement at EC$3.5/gallon in early 2023 amounted to about 2.3 percent of GDP relative to full global price pass through. - If current EC$17/gallon cap had been in place, this cost would have halved to 1.1 percent of GDP. - Improve tax collection through continued digitalization of tax administration services and strengthened risk-based auditing. - Strengthen coherence of the Income Tax Act and broaden the domestic tax base to reduce reliance on taxes on international trade and VAT. - Maintain focus and commitment to the CBI program integrity and implementation of regional commitments to mitigate non-tax revenue risks. - Public investment management reforms: - Enhance procurement process and expedite 2022 PIMA/C-PIMA high-priority recommendations, including upgrading the PPP framework and determining minimum maintenance requirements. - Strengthen project planning, selection and management capacity to ease execution constraints and support close monitoring of project costs amid material and labor cost pressures. - Improve MTFF projections and contingency plans to enhance top-down budget guidance. - Bring public audits of government accounts up-to-date swiftly. ### Managing CBI revenues and NTF reforms - Stronger management of CBI revenues would support budget and investment planning; unpredictable CBI revenue creates uncertainty under the primary balance rule and could cause procyclical spending cuts if revenues fall short. - Broad reform principles: - Manage all CBI resources under a more uniform framework; could entail transferring all future CBI revenue (including government contributions from real estate revenue) and past savings to a single fund (the National Transformation Fund). - Establish clear rules for annual budget drawdowns from the NTF and incorporate these in the fiscal framework; apply the primary balance rule to more predictable drawdowns to smooth budget volatility and facilitate medium-term planning. - Calibrate drawdowns to determine objectives for use of funds (degree of future savings vs investment needs) and appropriate oversight processes. - Establish a clear asset management framework for NTF assets, potentially following current practice for contingency fund assets managed by the ECCB. - NTF operations should adhere to strong transparency and accountability frameworks, including regular reporting on fund size, asset allocation, and performance. - Operational notes: - While all CBI revenue is recorded in the budget, a portion is encumbered by regulated transfers to a contingency fund and payments to holders of restructured international bonds. - The NTF structure could retain the existing contingency fund subaccount for self-insurance purposes and part of the deposit transfer can support its resourcing; reform should allow retaining a smaller government deposit balance for cash management purposes. - NTF assets are invested outside the ECCU in non-EC$ currencies, guided by annual investment plans from the NTF Board and a return and risk tolerance mandate from the Minister of Finance. ### Pension and social insurance reforms - National Insurance Scheme reforms (2023) include: - Gradual increase in pensionable age from 60 to 65 years by 2029. - Increase in contribution rates from 12 to 16 percent by 2033. - Further reforms needed to improve sustainability: - Incentivize longer periods of contributions. - Increase participation of self-employed workers. - Ensure benefits are based on career-average wages. - Authorities noted imminent passing of public sector pension reform legislation to support sustainability of the national pension system. ### Authorities’ views on policy stance and implementation - Authorities concurred with staff’s advice and are committed to debt sustainability under the amended fiscal rules framework. - They agreed this requires careful management of budget expenditures, containing non-essential outlays, and careful sequencing of public service reforms to protect space for near-term reconstruction and investment. - 2025 budget to clarify exact scale and financing options; budget delayed to Q1/2025 following Hurricane Beryl. - Any new government borrowing is anticipated to rely as far as possible on concessional resources. - Authorities committed to improving tax revenue performance with progress in digitalization and strengthening public financial and investment management. - Authorities welcomed proposal to strengthen management of CBI revenue and look forward to reviewing the framework with future technical assistance. - Noted continued attention to managing contingent liability risks, including strengthening Statutory Bodies (SBs) and State-Owned Enterprises (SOEs) governance. ### Addressing non-bank vulnerabilities and financial sector recommendations - Overall assessment: - Banking system is sound and liquid. - Rising risks in the non-bank financial system (NBFS) are an area of potential vulnerability. - Credit unions: - GARFIN’s targeted measures have helped improve provisioning for still-elevated NPLs. - Credit union NPLs rose by more than half after removal of loan moratoria instated during the COVID-19 pandemic. - GARFIN is requiring selected credit unions to implement time-bound action plans to strengthen provisioning and reduce NPLs toward a benchmark ceiling of 5 percent of total loans. - Sector’s relatively higher risk tolerance and prevalence of forbearance practices amid rapid lending growth calls for close monitoring of lending standards and risk management. - Supervisory reporting requirements should strengthen monitoring of underlying asset quality; impaired asset treatment and provisioning requirements need closer alignment with banks. - Early adoption and enforcement of standards would prepare credit unions for planned common regional minimum standards. - GARFIN’s on- and off-site resources should be strengthened to support supervisory capacity development. - Supervisory and provisioning guidance: - Supervisory reporting should indicate accumulated impairments by stages, forbearance exposures, and breakdowns on past due dates. - Planned adoption of model-based IFRS9 provisioning requirements should be backstopped by calendar-based requirements for long-overdue loans while ensuring restructured loans are prudently classified. - Provisioning requirements should avoid netting of loan collateral given limited property market liquidity. - Support for small businesses and credit access: - Newly established credit reporting bureau will reduce information asymmetries and due diligence costs for smaller borrowers, but positive impact will take time and coverage should be extended to all lenders. - Eastern Caribbean Partial Credit Guarantee Scheme has had limited uptake; increased outreach and assistance for small enterprises (business strategies, accounts, loan requirements) could support lending and local investment alternatives to banks’ rising overseas exposures. - Insurance and climate-related risks: - Rising property insurance premiums driven by re-evaluation of climate risks in reinsurance markets and reallocation of reinsurance capital to markets with better risk-return profiles. - Trend likely accelerated by active 2024 hurricane season, exacerbating under-insurance and potential fiscal contingent liability risks from future natural disasters and raising credit risks to lenders. - Immediate priority: strengthen supervisory data collection and risk monitoring. - Cross-jurisdictional insurance companies prevalence calls for closer regional supervisory cooperation to assess risk retention at local level and adequacy of regulatory and supervisory standards. - GARFIN should maintain ongoing engagement with general insurance companies to monitor post-disaster developments and ensure timely and efficient resolution of policyholders' claims. - AML/CFT: - Maintaining a strong AML/CFT regime is critical for preserving correspondent banking relationships. - Grenada has made progress by approving recommended legislation (amendments to the Customs Act, Friendly Societies Act, Co-operative Societies Act, and the Exchange of Control Act), but greater progress is needed to address issues identified in the 2022 CFATF Mutual Evaluation Report and November 2023 follow-up. - Required actions include: - Implement commitment to facilitate verification of beneficial ownership information. - Mitigate misuse of legal persons. - Update the National Risk Assessment to include the CBI program. - Train money laundering reporting and compliance officers. *Source: 1grdea2025001-print-pdf — Chapter excerpt on authorities’ views, CBI program, fiscal policy, and financial stability.* ### 27. The authorities agreed that sustainability of credit union lending practices and ### 27. The authorities agreed that sustainability of credit union lending practices and ### Insurance and non-bank financial sector risks - Authorities agreed sustainability of credit union lending practices and property reinsurance risks warrant close monitoring. - Provisioning requirements under international accounting standards considered to provide sufficient guidance to strengthen treatment of impaired assets at this time. - Need to strengthen: - Data collection, - Local staffing resources, - Regional cooperation among supervisors. - Intent to continue developing broader macro-financial and systemic risk assessment capacity; recent support by CARTAC appreciated. - Staff recommendation highlights: - Rigorous surveillance of credit union lending and asset quality, - More granular supervisory reporting and alignment of impairment treatment with banking standards, - Strengthening data and risk monitoring of property reinsurance risks, - A stronger AML/CFT framework to safeguard correspondent banking relationships and help manage CBI program risks. ### Energy transition and green investment (Supply-side reforms) - Grenada depends on imported oil for over 90 percent of its energy. - Shifting 30 percent of electricity production to renewables could cut oil imports by 15 percent. - Recommendation to upgrade the National Energy Policy to a comprehensive Integrated Resource Plan (IRP) to align renewable energy targets, projected electricity demand, and planned renewable projects. - While incentivizing electric vehicles can help greening transport, prioritizing renewable electricity generation would more directly reduce oil imports. - Financing approaches: innovative multi-stakeholder financing such as participation in the World Bank’s Caribbean Renewable Energy Infrastructure Investment Facility. ### Labor market and structural reforms - Active labor market policies can improve outcomes; measures include: - Expanding investments in youth training, - Developing digital tools for employer-employee matching, - Introduction of unemployment insurance as an opportunity to review Employment Protection Legislation. - Noted issue: above-Caribbean-average notice periods; reducing them could enhance labor market flexibility and encourage hiring. - Concern: large 2024 minimum wage increase has the potential to negatively affect employment and weaken competitiveness; minimum wages should be reviewed every three years, as legislated. - Policies to offset population aging impacts: promoting transparent pay, investing in care facilities and childcare, and changes to compulsory retirement ages for older workers. - Authorities support strengthening job-search matching, re-skilling and re-tooling, and education reforms emphasizing skills-based curricula including digital skills. ### Tourism, agriculture, and diversification - Ongoing policies to boost off-season stayovers can limit drag from hotel capacity constraints in high season (examples: conference business, fishing, eco-tourism). - Expanding tourism products to improve revenue flows from cruises and increase local economic footprint. - Boosting agricultural productivity, marketing and resilience to adverse weather events to enhance domestic value-added contribution of tourism. - Diversify flight connections to reduce dependence on key source markets like the U.S. - Authorities noted recent successes in boosting off-season tourism and new attractions/services. ### Climate resilience and financing - Efforts to access concessional financing, including a US$100 million loan from the Saudi Fund for Development, support building resilience against climate risks. - Investments should be implemented through the government’s Disaster Resilience Strategy and National Adaptation Plan, in conjunction with climate budget tagging projects. - Accelerating progress requires addressing staffing shortages and implementation capacity constraints. - Authorities emphasized resilience investment including “building-back-better” initiatives in post-Beryl reconstruction. ### Data adequacy, safeguards, and capacity support - Data shortcomings hamper surveillance; priority to adequately resource the Central Statistics Office (CSO) to improve timeliness and consistency of national accounts and external sector statistics. - Strengths: available Labor Force Survey, granular CBI data, and a recently completed updated Census. - Delays in projects: update of the CPI weights and a revamp of the CSO website; improvement needed in high frequency indicators and timely dissemination. - Enhancing data granularity in the non-bank financial system would improve financial risk analysis. - ECCB has addressed most of the 2021 safeguards recommendations; pending recommendation on legal reforms to strengthen operational autonomy and align its Agreement Act with leading practices. - Persistent capacity constraints underscore need for close development partner support and adequate staffing to absorb technical assistance. ### Staff appraisal, macro outlook, and fiscal stance - Economic performance and shocks: - Until July 2024, strong, sustained growth driven by tourism recovery; construction activity slowed. - Inflation decreased with global price pressures; current account deficit and labor market conditions improved despite high youth unemployment. - Recent surge in CBI revenue supported a strengthening fiscal position. - Hurricane Beryl: - Economic damages and losses assessed to exceed 16 percent of GDP, affecting housing, infrastructure, crops, and fishing. - Localization of severe damages and strong tourism performance contain impact on output, though increased import needs pose a temporary current account impact. - Financial system impact appears contained given limited exposures to most affected areas. - Growth and risks: - Substantial reconstruction projected to help sustain strong near-term growth; capacity limits will constrain tourism growth over time. - GDP growth projected to normalize to historical levels over the medium term. - Key risks: high risk of further natural disasters, potential tourism and commodity price shocks, uncertain CBI outlook amid increased international scrutiny, and risks in the local non-bank financial system. - Large CBI savings provide policy space to respond to shocks. - Fiscal position and public debt: - A budget surplus projected for 2024, driven by record-high CBI revenue, the parametric insurance payment and delays in capital spending execution. - A drawdown of government deposits will help finance projected 2025-26 deficits as exceptional revenue inflows wane, limiting government borrowing needs. - Assuming timely resumption of suspended fiscal rules, public debt projected to remain on a downward path; public debt sustainability nonetheless assessed as in “debt distress” on account of outstanding official arrears. - Policy recommendations: - Continue budget prudence to ensure timely return to fiscal rules and protect fiscal space. - Adhere to time bounds of post-disaster recovery incentives and coordinate public service reforms to contain fiscal liabilities. - Strengthen tax collection and efficiency and the CBI program integrity. - Strengthen public financial management: expedite implementation of PIMA priority recommendations and continue strengthening the MTFF as a top-down anchor. - Enhance management of CBI resources under a more unified framework for medium-term planning. - Support small business access to credit to realign credit provision with lenders’ risk-absorption capacity. - Address implementation capacity constraints and unlock private finance to accelerate energy transition and disaster-resilient infrastructure investment. - Strengthen staffing resources to address data gaps and improve absorption of capacity development. *Source: IMF staff report excerpt.* ### 46. It is recommended that the next Article IV consultation with Grenada takes place on ### It is recommended that the next Article IV consultation with Grenada takes place on the standard 12-month cycle. ### Recommendation - It is recommended that the next Article IV consultation with Grenada takes place on the standard 12-month cycle. ### Key macroeconomic findings (figures and captions) - "GDP growth has been among the strongest in the ECCU in the past decade." - "Tourism rebounded from the pandemic and also outperformed peers." - "The current account deficit is large and in line with the ECCU average, reflecting strong construction imports." - "Fiscal policy has been more prudent than most ECCU countries... which supported a more rapid debt reduction." - "The external debt is stable, reflecting concessional access." ### Real sector developments (figure captions) - "Grenada is experiencing income convergence, especially during the rebound from the pandemic." - "Tourism remains the key engine of growth." - "The majority of tourists come from the U.S. and U.K." - "Tourist arrivals are well above their pre-pandemic levels and the regional average." - "Inflation moderated as fuel and food prices eased... and has been among the weakest in the ECCU." ### External sector developments (figure captions) - "Imports saw a modest decline, as fuel prices fell." - "Exports rose, driven by manufactured goods and machinery and transport equipment." - "The current account deficit narrowed in 2023 as service exports rose..." - "... financed with FDI and capital transfers which surged due to CBI inflows." - "Over-financing from external private inflows has contributed to rising reserves." - "The real effective exchange rate continued to depreciate." ### Fiscal sector developments (figure captions) - "Decisive and bold fiscal actions were taken to address the fallout of the pandemic." - "Grenada has seen its debt returning to the pre-pandemic level, ahead of the average in the region." - "Tax buoyancy has been positive in recent years..." - "The pension payout due to the 2022 high court ruling stabilized, contributing to lower expenditures." - "Capital spending remained robust in 2023, on the back of the CBI revenue surge... which also contributed to the large fiscal balance." ### Monetary and financial sector developments (figure captions) - "Credit unions, though smaller than banks, ... significantly broadened credit for households and small businesses, while bank credit growth remained subdued." - "Banks prudently kept a high level of provisioning... and the financial system maintained ample liquidity." - "Systemic risks in the banking system are limited ... and banks remain adequately capitalized broadly in line with the regional average." ### Selected economic and financial indicators (highlights from Table 1) - Real GDP (annual percent change): 2019: 0.7; 2020: -13.8; 2021: 4.7; 2022: 7.3; 2023: 4.7; 2024: 3.6; 2025: 3.9; 2026: 3.3; 2027: 2.7; 2028: 2.7; 2029: 2.7. - Consumer prices, end of period (percent): 2019: 0.1; 2020: -0.8; 2021: 1.9; 2022: 2.9; 2023: 2.2; 2024: 1.2; 2025: 1.9; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0. - Output gap (percent of potential GDP): 2019: 7.1; 2020: -9.5; 2021: -7.2; 2022: -2.8; 2023: -0.8; 2024: -0.6; 2025: 0.3; 2026: 0.2; 2027: 0.1; 2028: 0.0; 2029: 0.0. - Current account balance (percent of GDP): 2019: -10.4; 2020: -16.1; 2021: -14.5; 2022: -11.0; 2023: -9.1; 2024: -13.1; 2025: -13.8; 2026: -10.6; 2027: -9.9; 2028: -9.1; 2029: -9.1. - Central government total revenue and grants (percent of GDP): 2019: 26.6; 2020: 28.1; 2021: 31.5; 2022: 32.7; 2023: 36.9; 2024: 44.1; 2025: 30.5; 2026: 29.3; 2027: 29.2; 2028: 28.9; 2029: 28.8. - Central government total expenditure and net lending (percent of GDP): 2019: 21.6; 2020: 32.7; 2021: 31.2; 2022: 31.8; 2023: 28.9; 2024: 39.5; 2025: 39.4; 2026: 33.1; 2027: 29.6; 2028: 29.2; 2029: 28.9. - Primary balance (percent of GDP): 2019: 6.8; 2020: -2.6; 2021: 2.1; 2022: 2.6; 2023: 9.5; 2024: 8.0; 2025: -5.1; 2026: -1.2; 2027: 1.5; 2028: 1.5; 2029: 1.5. - Overall balance (percent of GDP): 2019: 5.0; 2020: -4.5; 2021: 0.3; 2022: 1.0; 2023: 8.0; 2024: 4.7; 2025: -8.9; 2026: -3.8; 2027: -0.4; 2028: -0.3; 2029: -0.1. - Central government debt (incl. guaranteed, percent of GDP): 2019: 58.5; 2020: 71.4; 2021: 70.0; 2022: 62.8; 2023: 60.5; 2024: 59.3; 2025: 58.1; 2026: 53.9; 2027: 53.2; 2028: 51.4; 2029: 49.6. - Public debt (incl. debt of SOEs and SBs, percent of GDP): 2019: 62.7; 2020: 89.5; 2021: 86.6; 2022: 78.8; 2023: 75.2; 2024: 73.3; 2025: 71.4; 2026: 66.5; 2027: 65.2; 2028: 62.9; 2029: 60.6. - Citizenship-by-Investment (CBI) inflows (percent of GDP): 2019: 5.2; 2020: 9.0; 2021: 9.3; 2022: 10.8; 2023: 31.6; 2024: 21.2; 2025: 11.1; 2026: 8.7; 2027: 8.3; 2028: 7.9; 2029: 7.5. - Government CBI revenue (percent of GDP): 2019: 0.2; 2020: 0.6; 2021: 1.1; 2022: 2.2; 2023: 10.7; 2024: 12.0; 2025: 5.8; 2026: 3.1; 2027: 3.1; 2028: 2.9; 2029: 2.8. - Net imputed international reserves (months of imports of goods and services): 2019: 5.2; 2020: 5.6; 2021: 4.9; 2022: 5.0; 2023: 4.8; 2024: 5.2; 2025: 4.3; 2026: 4.2; 2027: 4.3; 2028: 4.3; 2029: 4.3. ### Balance of payments summary (highlights from Table 2) - Current account (US$ millions): 2019: -125.7; 2020: -168.3; 2021: -162.3; 2022: -135.7; 2023: -120.2; 2024: -182.7; 2025: -202.4; 2026: -164.5; 2027: -160.3; 2028: -155.2; 2029: -161.6. - Exports of goods and services (US$ millions): 2019: 662.0; 2020: 428.6; 2021: 537.9; 2022: 712.3; 2023: 832.4; 2024: 887.0; 2025: 915.3; 2026: 969.9; 2027: 1,019.8; 2028: 1,062.7; 2029: 1,108.0. - Tourism (US$ millions): 2019: 560.3; 2020: 185.5; 2021: 232.4; 2022: 455.8; 2023: 692.1; 2024: 752.3; 2025: 778.1; 2026: 820.0; 2027: 864.6; 2028: 902.0; 2029: 941.5. - Imports of goods and services (US$ millions): 2019: 677.1; 2020: 544.7; 2021: 621.9; 2022: 791.2; 2023: 844.2; 2024: 972.6; 2025: 1,003.6; 2026: 1,012.9; 2027: 1,052.0; 2028: 1,082.9; 2029: 1,127.3. - Foreign direct investment (US$ millions): 2019: -184.2; 2020: -163.9; 2021: -161.6; 2022: -144.4; 2023: -310.6; 2024: -315.1; 2025: -184.9; 2026: -194.7; 2027: -200.3; 2028: -195.3; 2029: -200.9. - ECCB imputed reserves (millions of USD): 2019: 234.1; 2020: 290.9; 2021: 324.2; 2022: 352.6; 2023: 389.1; 2024: 435.1; 2025: 364.5; 2026: 364.8; 2027: 390.3; 2028: 405.6; 2029: 424.6. ### Central government operations (highlights from Tables 3a/3b) - Total revenue and grants (millions of EC$): 2019: 871.9; 2020: 792.7; 2021: 956.2; 2022: 1,088.3; 2023: 1,320.9; 2024: 1,658.1; 2025: 1,207.7; 2026: 1,222.7; 2027: 1,276.5; 2028: 1,325.1; 2029: 1,381.9. - Tax revenue (millions of EC$): 2019: 718.7; 2020: 622.8; 2021: 625.4; 2022: 714.9; 2023: 848.0; 2024: 867.6; 2025: 896.8; 2026: 945.9; 2027: 993.7; 2028: 1,035.9; 2029: 1,085.9. - Nontax revenue 1/ (millions of EC$): 2019: 59.7; 2020: 66.8; 2021: 100.8; 2022: 149.0; 2023: 454.7; 2024: 745.2; 2025: 260.4; 2026: 227.8; 2027: 231.4; 2028: 235.4; 2029: 239.6. - Citizenship by Investment Program (millions of EC$): 2019: 96.1; 2020: 101.5; 2021: 120.3; 2022: 135.4; 2023: 457.3; 2024: 555.8; 2025: 185.5; 2026: 147.9; 2027: 148.1; 2028: 148.1; 2029: 148.1. - Total expenditure and net lending (millions of EC$): 2019: 709.1; 2020: 920.7; 2021: 946.7; 2022: 1,056.7; 2023: 1,034.4; 2024: 1,482.5; 2025: 1,559.9; 2026: 1,380.4; 2027: 1,292.0; 2028: 1,337.5; 2029: 1,388.6. - Interest payments (millions of EC$): 2019: 60.6; 2020: 55.9; 2021: 54.2; 2022: 53.7; 2023: 53.3; 2024: 126.0; 2025: 152.2; 2026: 109.1; 2027: 81.0; 2028: 81.1; 2029: 78.9. - Primary balance (millions of EC$): 2019: 223.5; 2020: -72.1; 2021: 63.6; 2022: 85.3; 2023: 339.9; 2024: 301.5; 2025: -199.9; 2026: -48.6; 2027: 65.5; 2028: 68.7; 2029: 72.3. - Overall balance (millions of EC$): 2019: 162.8; 2020: -128.0; 2021: 9.5; 2022: 31.6; 2023: 286.5; 2024: 175.6; 2025: -352.2; 2026: -157.7; 2027: -15.5; 2028: -12.4; 2029: -6.7. - Public Debt (millions of EC$) 2/: 2019: 2,054; 2020: 2,521; 2021: 2,625; 2022: 2,621; 2023: 2,690; 2024: 2,754; 2025: 2,826; 2026: 2,775; 2027: 2,850; 2028: 2,880; 2029: 2,910. ### Monetary sector summary (highlights from Table 4) - Net foreign assets (millions of EC$): 2019: 1,400.2; 2020: 1,720.7; 2021: 1,919.1; 2022: 2,212.0; 2023: 2,405.0; 2024: 2,874.1; 2025: 2,846.3; 2026: 2,941.2; 2027: 3,087.2; 2028: 3,219.1; 2029: 3,354.9. - Broad money (M2, millions of EC$): 2019: 2,437.0; 2020: 2,658.8; 2021: 2,884.7; 2022: 3,170.0; 2023: 3,213.0; 2024: 3,331.3; 2025: 3,504.5; 2026: 3,694.4; 2027: 3,871.8; 2028: 4,057.4; 2029: 4,253.4. - Credit to private sector (millions of EC$): 2019: 1,624.1; 2020: 1,674.5; 2021: 1,738.2; 2022: 1,775.0; 2023: 1,842.3; 2024: 1,911.7; 2025: 1,992.1; 2026: 2,079.7; 2027: 2,174.7; 2028: 2,272.3; 2029: 2,375.7. - Public sector credit, net (millions of EC$): 2019: -552.1; 2020: -430.6; 2021: -389.5; 2022: -318.0; 2023: -535.8; 2024: -778.6; 2025: -493.2; 2026: -278.5; 2027: -333.6; 2028: -346.3; 2029: -363.8. *Source: IMF staff and country/sector authorities as presented in the provided content.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Conjunctural Risks - Intensification of regional conflict(s). (High / ST) - Expected impact: Medium. Sticky inflation, eroding income, and dampening demand. Markets for energy, food, tourism, and financial markets might see unexpected volatility. - Recommended response: Provide targeted transfers to the vulnerable. Increase value-added of the tourism. Vigilantly monitor the financial sector development in coordination with ECCB. - Commodity price volatility. (High / ST) - Expected impact: Medium. Eroding income, dampening demand, and widening fiscal and trade deficits. - Recommended response: Provide targeted support to the vulnerable. Accelerate shift to renewables and improve the pass-through of price signals. - Global growth surprises: - Slowdown. (Medium / ST) - Expected impact: Slowdown, High. Worsening fiscal and external positions. - Recommended response: Accelerate structural reforms to improve competitiveness. Increase value-added of the tourism. Vigilantly monitor the financial sector development in coordination with ECCB. - Acceleration. (Low / ST) - Expected impact: Acceleration, Medium. - Recommended response: Continue prudent fiscal policy backed by structural reforms to maintain fiscal sustainability, while building buffers and resilience against the risk of further natural disasters or other external shocks. - Systemic financial instability. (Medium / ST) - Expected impact: Medium. Adverse financial conditions may trigger insolvencies, causing market dislocations. - Recommended response: Tighten supervision efforts and continue enhancing financial system supervision in coordination with ECCB. - Social discontent. (High / ST, MT) - Expected impact: Medium. Exacerbate imbalances, slow growth, and trigger market repricing. - Recommended response: Social policies need to continue supporting the most vulnerable population. ### Structural Risks - Extreme climate events. (Medium / ST) - Expected impact: High. Reduce capital stock, create scarring effects, and diminish financial sector’s capital base. - Recommended response: Continue implementing the Disaster Resilience Strategy, improve infrastructure and post-disaster response, and strengthen oversight and data collection to support assessment of systemic financial implications from the insurance sector. - Deepening geoeconomic fragmentation. (High/ST) - Expected impact: High. Higher inflation, lower FDI, more volatile CBI revenues and reduced availability of imports. - Recommended 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. - Cyberthreats. (Low / ST, MT) - Expected impact: Low. Payment and financial system may be disrupted. - Recommended response: Enhance digital security in public and private platforms, raise the public awareness, and prepare a contingency plan. ### Domestic Risks - Fiscal underperformance, reduced/mismanaged CBI revenues, and reputational risks. (Likelihood/Time Horizon not explicitly restated in matrix) - Expected impact: High. Lower investor confidence and growth performance and raised financing costs. - Recommended response: Improve the CBI management framework to minimize the impact of CBI flow uncertainty on budget planning. Rationalize spending and broaden the revenue base from non-CBI sources. Strengthen governance frameworks to enhance the transparency and integrity of the CBI program, including via the management of resources. - A deterioration in CU asset quality, rising costs of property insurance and/or disruption of correspondent bank relationships. (Likelihood/Time Horizon not explicitly restated in matrix) - Expected impact: Medium. Weaker growth and lower financial inclusiveness. - Recommended response: Enhance CU balance sheets by accelerate reforms to resolve NPLs and improve credit access of households and firms. Monitor asset quality and ensure adequate loan loss provisioning. Strengthen supervisory data collection, analysis, and regional cooperation to facilitate the assessment of insurance sector risks and the potential contingent fiscal obligations. *Source: Annex I. Risk Assessment Matrix, GRENADA — INTERNATIONAL MONETARY FUND* ### Annex IV. Challenges to Property Insurance Affordability in ### Annex IV. Challenges to Property Insurance Affordability in Grenada ### Context - Grenada’s property insurance market is highly reliant on international reinsurance due to limited local scale and fragmented market structure. - As of end-2022, the average retention ratio for property insurance was 14 percent. - In 2022, Grenada had 26 insurance companies, half of which offered general insurance. - The general insurance market is characterized by low concentration: the HHI index for assets and gross premium income of general insurers has remained below 0.15 since 2012. - Small scale limits effectiveness of local and regional insurance pooling and constrains insurers’ liability absorption capacity, increasing reliance on global reinsurance, particularly for property lines. - Climate-risk-driven pressures have intensified: reinsurance markets have stiffened due to unprecedented global losses, re-pricing of climate risks, and reallocation of reinsurance capital to markets with more attractive risk-return profiles. - Reinsurance market reactions observed in 2023 included reinsurance rate hikes, contractual exclusions, higher loss levels required to activate coverage, and some primary insurers stopping issuance in certain regions. - SIDS-specific constraints: persistent underinsurance, limited options to relocate from vulnerable coastal areas, lack of mature capital markets limiting alternatives (e.g., catastrophe bonds, insurance-linked securities), and public balance sheet vulnerabilities. ### Implications of Tighter Global Reinsurance Markets in Grenada - Premium dynamics: - In 2023, average premiums per policy for property insurance increased by roughly 16 percent (regulator data). - Recent premium hikes were occurring even prior to Hurricane Beryl and are likely to rise further post-hurricane due to heightened risk assessments, surge in claims, and rising reinsurance costs. - Footnote references: In 2023, the average US home insurance premium rose by over 20% and by up to 50% in Australia; in the ECCU insurance premiums anecdotally surged between 15-25 percent. - Macro-financial channels and quantified indicators: - Dampening impact on economic activity: Higher premiums increase the financial burden of insured households and weaken mortgage affordability, softening household credit and housing market activity. - In 2022, annual premiums accounted for around 0.75% of property values. - Grenada's insurance density (gross premium income per capita) amounted to about 5% of the average yearly earnings (2022 reference). - Financial system vulnerabilities: Higher premiums can weaken borrower repayment (amid already elevated credit union non-performing loans) and amplify uncertainty over collateral values. - Amplified natural disaster impact: Persisting underinsurance raises potential fiscal contingent liabilities. - In 2022, Grenada's insurance penetration (gross premium income relative to GDP) stood at about 3 percent. - Emerging market strains: - Some reinsurers have limited engagement with specific enterprises or geographical areas or retracted participation. - Primary insurers are adjusting strategies—reducing dependence on reinsurance and shifting focus to motor, health, and life insurance sectors. - Consumer-level effects include upticks in payment delinquencies and anecdotal reductions in declared sums insured to match mortgage balances. ### Policy Considerations - Priority: Strengthen insurance data compilation and analysis - Current supervisory monitoring of reinsurance risks is largely limited to retained risk. - Recommended data improvements include: - Number of reinsurance providers engaged. - Prevalence of proportional versus non-proportional reinsurance contracts. - Data on the rate on line and limits for treaty, facultative, and excess-of-loss reinsurance contracts. - Liquidity metrics, loss ratios, and reinsurance commissions in addition to asset coverage ratios. - Enhanced data would support stress testing against reinsurance risks and ensure climate-related risks are incorporated into pricing and underwriting. - GARFIN has introduced a new quarterly reporting requirement facilitating monitoring of accounts receivables and insurance policy cancellations. - Regional approach: - Prevalence of cross-border insurance companies calls for consolidated assessment of disaster-risk resilience and reinsurance risks (including sufficiency of risk retention levels). - Common regional supervisory and regulatory standards and strengthened regional supervisory cooperation and data exchange would facilitate monitoring, timely identification of pressure points, and development of contingency strategies. - Complementary government policies: - Measures to lessen disaster impact over time include public risk assessments, capacity-building, early warning systems, stricter land use/zoning/building regulations, and investment in disaster-resilient infrastructure to improve insurance risk profile. - Any public insurance rate subsidies or public-private partnership models must: - Carefully consider the public sector’s climate-risk-bearing capacity. - Be predicated on strong insurance sector regulations and supervision. - Maintain risk signals in insurance pricing. - Limit retained fiscal contingent liability risks. - Assess appropriate regional scope given cross-jurisdictional operations. - Examples cited (illustrative models): - Flood Re (UK joint industry-government flood reinsurance scheme; funded by an annual insurer levy; set to conclude in 2039). - Flood Re's Build Back Better scheme offers additional payments to policyholders for flood resilience measures. - US National Flood Insurance Program (NFIP) protects over $1.28 trillion in assets across nearly five million policies. *Source: Annex IV. Challenges to Property Insurance Affordability in Grenada (IMF).* ### 8. Replacing oil imports in other uses, such as road transport, is more complex. Reducing ### Replacing oil imports in other uses, such as road transport, is more complex. Reducing ### Replacing oil in transport and electricity implications - Switching from internal combustion engine vehicles to electric vehicles (EVs) increases electricity consumption and requires corresponding increases in electricity generation capacity. - If additional electricity for EVs is generated from diesel generators, the policy would effectively switch methods of consuming oil, limiting economic and environmental benefits. - A substantial increase in electricity demand from EVs requires investment in: - Grid capacity to handle increased load. - EV charging stations. - Conclusion: Reducing oil use by increasing EVs would be more expensive than increasing renewable generation. ### Energy efficiency and demand-reduction measures - Energy efficiency or demand-reduction measures can lower oil imports and reduce transition costs. - Example: The government’s project to improve the efficiency of street lighting reduced electricity consumption for lighting by 21 percent between 2018-23. - Other measures to reduce oil use in transport include: - Improving public transport options (increasing number and reliability of public buses). - Using fiscal incentives to reduce the number of car journeys. - These public-transport and demand-reduction options could be simpler ways to reduce oil use while easing congestion. ### Optimal transition pathway and sequencing - Near-term priority: renewable energy generation and energy efficiency before switching to EVs. - Rationale: - Focusing on renewable energy yields immediate benefits from reduced oil dependency. - Increasing the share of electricity from renewables is a prerequisite for realizing EV benefits. - Sequencing recommendation: - First achieve a high level of renewables in electricity generation. - Then gradually increase support for EVs. - Potential synergies: - Batteries in EVs could be used to help balance intermittent output from solar. ### Macroeconomic impacts and scenario analysis - Simple scenario analysis finding: - For every 10-percentage point increase in the share of renewables in electricity generation, oil imports would decline by just over 0.4 percentage points of GDP. - Ambitious target result: - Achieving the authorities’ goal of generating 100 percent of electricity from renewables would result in the current account deficit falling by almost one-half. - Caveats: - Actual near-term benefits would be smaller because renewable equipment would need to be imported. - Reduced reliance on oil imports could reduce volatility of inflation. - If the transition reduces overall energy costs, it can help improve long-term growth potential by increasing competitiveness, promoting investment, and boosting diversification. - Note: A preliminary assessment of Carriacou’s new Limlair Solar Farm, post-hurricane, reveals significant damage, impeding the expected reduction of fuel consumption by approximately 30,000 gallons annually. ### Policy options and regulatory challenges - National strategy: - Grenada’s updated National Energy Policy 2023-2035 prioritizes transforming the electricity sector, accelerating renewables, and boosting energy efficiency. - Regulatory progress: - Approval of the Electricity Sector Grid Code noted as encouraging. - Needed actions: - Finalize regulatory framework, including developing an Integrated Resource Plan (IRP). - IRP should incorporate projections of future supply and demand to avoid insufficient supply, especially as existing diesel generators near the end of their lifespan. - Balance incentives for independent power producers (IPPs) with the cost of providing energy storage by the utility company. - Explore dynamic pricing to help manage solar intermittency by incentivizing customers to shift demand to match generation patterns. - Financing: - Unlocking additional financing is critical for large-scale projects, including the geothermal pilot project. - Grenada needs to utilize public, private, and multilateral financing. - For solar and battery storage, encourage private investment by: - Simplifying approvals. - Reducing permitting delays. - Negotiating transparent power purchase agreements. - Public sector funds and donor funding may be required for the geothermal pilot and broader grid investment. - Engage with green funds and donors, including efforts to achieve Green Climate Fund accreditation. - Utilize external concessional finance to avoid potential crowding out of government investment. - Active participation in the World Bank’s Caribbean Renewable Energy Infrastructure Investment Facility cited as an example of multi-stakeholder financing. ### Distribution of transition gains - Equitable distribution of windfall gains is vital. - Policy choices for lower electricity costs include: - Passing benefits to households and businesses to create a positive income shock, boost competitiveness, and encourage investment. - Allocating some benefits to the utility company, GRENLEC, to pay for additional transition costs (e.g., grid investment). - Having the utility company pay a dividend to be used for investment or to lower other taxes. ### Labor market developments and institutional changes (Annex VI) - Recent performance: - Unemployment at 11.1 percent in 2023 Q4 — lowest since at least 2008 and a steep fall from a pandemic peak of 28 percent. - Youth unemployment has fallen but remains more than double the headline rate. - Female unemployment has consistently remained above male unemployment, with the gap widening recently. - Hurricane Beryl introduces significant uncertainty for future unemployment trajectory. - Labor force participation: - Average participation was 65.7 percent in 2023, more than 2½ percentage points below its pre-pandemic level. - Decomposition of the participation decline: - Majority due to population aging and retirement: share of population over age 65 rose by more than 4 percentage points between 2019 and 2023 (now exceeding the share of youth population), lowering overall participation. - Participation rates within prime age (25-64) and older worker (65+) cohorts rose modestly. - Sharp fall in youth participation rate (15-24) from 55 percent in 2019 to 49 percent in 2023 — largely reflecting increased youth in education or training. - Structural challenges: - Long-term unemployed (more than 12 months) comprised nearly 60 percent of total unemployment in 2023 Q4. - 45 percent of the unemployed report they have never worked. - Around 43 percent of the unemployed have primary or lower secondary education, exacerbating skills mismatches. - Roughly two-thirds of the inactive population is due to retirement, disability, or illness. - Institutional reforms and policy tools: - Unemployment insurance (UI) scheme introduced in 2023 offers opportunity to recalibrate labor market protections. - Current severance pay is the lowest among ECCU peers; notice periods for redundancy remain above the regional average. - UI can create space to reduce legal hiring costs while retaining redundancy protection; can improve job-search matching. - Minimum wage updated in January 2024 for the first time since 2011: - New minimum wage is at least EC$60/day or EC$1200/month and represents an increase of between 18-56 percent (varies by sector). - Domestic workers received a larger increase of 93 percent. - About 21 percent of workers currently earn less than $1200/month; 27 percent of female workers and 16 percent of male workers earn less than $1200/month. - Equivalent annual increase over 2011-23 is about 1.3 – 3.5 percent. - Risks include employment losses or a shift to the informal sector. - Active Labor Market Policies (ALMPs): targeted training and enhanced job-matching services can address skills gaps and mitigate impacts of higher minimum wages. - Longer-term policies: - Use development partner assistance to improve education attainment, including vocational education and training. - Improve access to education to reduce informality. - Training and apprenticeship programs should focus on technical and entrepreneurial skills and facilitate transition to employment. - Policies to incentivize labor force participation for women and older workers could include transparent pay practices, investment in care and childcare facilities, and changes to compulsory retirement ages. - Reducing the gender gap in tertiary education enrollment rates can boost human capital. *Source: IMF staff compilation from the provided content.* ### Appendix I). ### Appendix I) ### Data adequacy assessment - Staff assessment: "Data has some shortcomings that somewhat hamper surveillance." - Main gaps: national accounts, prices, and external sector statistics. - Mitigating supporting data: labor force survey, detailed CBI revenue data, high frequency indicators of economic activity, Survey of Living Conditions and Household Budget Survey. ### Real sector statistics - Availability and granularity: - GDP output data: available at a granular level at annual frequency, subject to significant delays; weights were last updated in 2006. - GDP expenditure data: not available. - High-frequency indicators: staff receive high-frequency indicators which help provide a timelier assessment of economic activity. - Labor force survey: has been resumed, enabling more comprehensive analysis of potential growth and the output gap. - CPI: monthly CPI data published via the ECCB in a timely manner; basket/weights are outdated. - Survey publications: Grenada published a Survey of Living Conditions and Household Budget Survey in 2018/19. ### External sector statistics - Timeliness and accuracy: - Annual external sector statistics: subject to significant delays and errors; errors and omissions in initial releases can be large, impairing assessment and forecasting of the balance of payments. - Travel exports: recording based on a small survey of tourists which may not be representative. - Goods import data: methodological issues affecting goods import data are yet to be resolved. - FDI and CBI reconciliation: challenges remain in reconciling FDI inflows with CBI investment data, obscuring underlying financing dynamics. ### Fiscal and monetary/banking statistics - Coverage and recent improvements: - Fiscal and monetary/banking coverage: broadly adequate. - Public debt coverage: expanded to include non-guaranteed SOE liabilities and PPPs. - SOE reporting: ongoing CD strengthening timeliness and quality of SOE financial reporting. - CBI reporting: publication of detailed CBI revenue and application data is notable among Grenada’s ECCU peers. - Monetary surveys: do not include non-bank depository institutions; however, necessary data for surveillance is received from the local supervisor (GARFIN). - Non-bank financial soundness data: granularity is an area for improvement given these institutions’ significance to the financial system. ### Changes since the last Article IV consultation - Labor force survey: resumed after a temporary gap during the pandemic. - Census: the 2022 Census has been completed. - CPI weights and collection: - CPI weights updated to 2018 and new software (CPI+) is being used to collect the data; the new series have not been released. - Balance of payments: - BPM6-based balance of payments statistics extended back to 2000 and revised (with assistance from CARTAC), which reduced errors and omissions for some years. - CARTAC assistance continues to strengthen compilation frameworks, including improving business and visitor expenditure surveys. ### Corrective actions and capacity development (CD) priorities - Priority actions: - Release the Census and updated CPI weights. - Update the CSO’s website to enable dissemination of statistics. - Technical assistance (TA) and CD needs: - Additional TA on the ESS to address trade data issues highlighted in previous missions. - Operational support to implement BoP TA recommendations. - Strengthen non-banking system data collection in line with CARTAC recommendations on implementation of risk-based supervision. - Human resources: - Address staffing constraints and staff turnover at the CSO to improve quality, timeliness, and frequency of statistics. ### Use of alternative data in Article IV consultation - Staff do not use data and/or estimates different from official statistics. ### Other data gaps - Capital stock and real estate market data: needed to assess climate-change related risks. - Agricultural indicators: quality of high frequency agricultural production indicators could be improved. - Insurance sector: enhanced supervisory data on reinsurance and other soundness indicators would strengthen assessment of risks (including from climate) in the private insurance sector. ### Data Standards Initiatives and common indicators (summary points) - Participation: Grenada participates in the Enhanced General Data Dissemination System (e-GDDS); first posted metadata in March 2001 but has yet to disseminate the data recommended under the e-GDDS. - Table of Common Indicators Required for Surveillance: presented "As of January 1, 2024" with numerous dated observations and frequencies reported (examples in the table: Sep-24, Nov-24, Jun-24, Dec-24, 2023, etc.), reflecting a mix of monthly ("M"), quarterly ("Q"), annual ("A"), and other frequency classifications and expected timeliness entries such as "1M", "2M", "6W", "15D", "10M", "11M", "12W", "4W", "1Q", "2Q", and "3Q". - Notes excerpted in the table include: - Reserve/Base Money, Broad Money, Central Bank Balance Sheet (including currency and maturity composition). - Consolidated Balance Sheet of the Banking System. - Interest Rates (both market-based and officially determined). - Consumer Price Index. - Revenue, Expenditure, Balance and Composition of Financing — General Government and Central Government. - International Investment Position. - Stocks of Central Government and Central Government-Guaranteed Debt (including reserve assets pledged or otherwise encumbered, as well as net derivative positions). - External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt. - Footnote references clarify frequency/timeliness codes: ("D"), ("W"), ("M"), ("Q"), ("A"), ("SA"), ("I"), ("NA"), ("NLT"). ### Fund relations and financial position (selected figures, as of November 30, 2024) - Membership: Joined August 27, 1975; Article VIII. - Quota: 16.40 (SDR Million); Percent of Quota: 100.00. - Fund Holdings of Currency: 15.23 (SDR Million); Percent of Quota: 92.84. - Reserve Tranche Position: 1.18 (SDR Million); Percent of Quota: 7.16. - SDR Department: - Net Cumulative Allocation: 26.88 (SDR Million); Percent of Allocation: 100.00. - Holdings: 7.09 (SDR Million); Percent of Allocation: 26.37. - Outstanding Purchases and Loans: - RCF Loans: 16.40 (SDR Million); Percent of Quota: 100.00. - ECF Arrangements: 3.80 (SDR Million); Percent of Quota: 23.17. - Latest financial arrangements (type, approval date, expiration date, amount approved, amount drawn): - ECF 06/26/14 05/26/17 14.04 14.04 - ECF 04/18/10 04/17/13 8.78 2.53 - ECF 04/17/06 04/13/10 16.38 16.38 - Outright Loans — RCF: - RCF commitment date 04/28/20; approved 04/30/20; amount approved/drawn 16.40 (SDR Million). - Overdue obligations and projected payments to the Fund (SDR Million) — Forthcoming: - Principal: 2024: 0.60; 2025: 3.64; 2026: 4.28; 2027: 3.48; 2028: 3.28. - Charges/Interest: 0.67 for each year listed (2025–2028). - Total: 2024: 0.60; 2025: 4.31; 2026: 4.95; 2027: 4.15; 2028: 3.95. - Exchange rate arrangement: - De jure and de facto arrangement: a currency board. - Currency union: participates in a currency union with seven other members of the Eastern Caribbean Currency Union (ECCU); no separate legal tender. - Peg: Eastern Caribbean dollar pegged to the U.S. dollar at the rate of EC$2.70 per U.S. dollar since July. *Source: Appendix I from the Staff Report for the 2024 Article IV Consultation (information and tables as presented in the provided content).* ### 1976. Grenada accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the IMF’s Articles ### 1grdea2025001-print-pdf - 1976. Grenada accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the IMF’s Articles ### Exchange regime and Article VIII obligations - Grenada accepted the obligations under Article VIII, Sections 2(a), 3, and 4 of the IMF’s Articles of Agreement. - Maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions and multiple currency practices. ### Safeguards assessment for the Eastern Caribbean Central Bank (ECCB) - Under the Fund's safeguards policy, the ECCB is subject to a full safeguards assessment on a four-year cycle. - An update assessment completed in August 2021 found: - The ECCB has maintained strong external audit and financial reporting practices aligned with international standards. - Further improvement in the capacity of the internal audit function is needed. - Implementation status: - All but one safeguards recommendation have been implemented, including on further improvements in the capacity of the internal audit function and risk management. - The outstanding recommendation on legal reforms to align the Agreement Act with leading practices remains a work in progress. ### Article IV consultation and review cycle - The last Article IV consultation was concluded by the Executive Board on May 26, 2023. - Grenada is on a 12-month cycle. ### Technical assistance (TA) provided and focus areas - Grenada has received significant technical assistance from Caribbean Regional Technical Assistance Center (CARTAC) and the IMF across multiple areas: - Public Financial Management (PFM) - CARTAC TA focused on reform of SOEs and statutory bodies (SBs), cash forecasting and commitment control, development and transition to a new chart of accounts consistent with the Government Finance Statistics Manual 2014 (GFSM 2014), and the Public Expenditure and Financial Accountability (PEFA) assessment. - Assistance on strategic budget reform to modernize the budget preparation process. - SOE/SB reforms: 2016 mission provided limited assistance on Public Service Pension Reform; 2017 mission provided one-week training for the Grenada Fiscal Responsibility Committee and conducted a risk assessment on SOEs. - April 2018 mission assisted moving to International Public Sector Accounting Standards (IPSAS) cash-based accounting and provided a roadmap on reforms to move Grenada to IPSAS Accruals. - Regional workshops in 2018 on Internal Audit, Cash Management and SOE Oversight and assessing Fiscal Risks. - February 2019 Fiscal Affairs Department (FAD) mission reviewed the Fiscal Responsibility Law to remove inconsistencies and reframed the expenditure rule. - April 2022 FAD provided a Public Investment Management Assessment (with a climate module). - May 2022 FAD mission provided guidance on fiscal consequences of the March 2022 high court ruling reinstating pension entitlements and options for improving pension system long-term sustainability. - April 2023 FAD mission provided advice on revising the Fiscal Responsibility Act to enhance its rules-based fiscal framework. - Tax Administration - TA strengthened tax administration at both the Inland Revenue (IRD) and Customs Departments. - For IRD: support included establishing a Large and Medium Taxpayer Unit and a Design, Planning and Monitoring Section; 2020 TA to prepare a new business model with processes enabled by a new information technology (IT) system; 2021 follow-up mission on basic compliance risk management strategy for the Large and Medium Taxpayer unit. - For Customs: 2020 TA to strengthen analytical capacity and risk management; 2022 and 2023 TA to strengthen customs control of petroleum imports. - August 2024 FAD provided capacity development to assist in evaluation of current income tax regime and environmental taxation of vehicles. - Financial Stability Supervision and Regulation - Significant TA to the Grenada Authority for the Regulation of Financial Institutions (GARFIN) to implement risk-based supervision across the non-banking sector. - Capacity building included review of reinsurance contracts, contingency planning for crisis preparedness and management, and review of retail lending portfolios at credit unions. - ECCU-wide initiative support to develop financial health and stability indicators for the insurance sectors. - In 2021-24 GARFIN received TA to enhance stress testing and risk-based supervision framework for credit unions. - Macroeconomic Framework and Statistics - CARTAC TA to establish an annual medium-term economic framework and strengthen medium-term macroeconomic projections and macroeconomic statistics. - TA provided during 2013–2015 to assist with compiling GDP by expenditure estimates. - TA during 2016, 2017, and 2019 to develop quarterly GDP by economic activity at current and constant prices. - 2020 CARTAC TA for rebasing annual and quarterly estimates of GDP by economic activity to 2018 prices and assistance with the compilation of supply and use tables. - 2017 TA to develop the Producer Price Index and 2021 TA to update the CPI basket. - 2014–24 TA to produce balance of payments (BOP) statistics according to BPM6 and to initiate production of international investment position (IIP) statistics; first BPM6-compliant BOP and IIP statistics released in July 2017. - Other TA (Since 2016) - FAD and LEG provided extensive assistance on tax policy and administration, public financial management, and public expenditure rationalization. - TA provided in design and drafting of PFM legislation and Tax Administration legislation, reforms of the tax incentives system, and reform of the income tax, property, VAT, and excise tax Acts. - FAD provided TA on public wage bill reform and comprehensive TA to draft the Fiscal Responsibility Act of 2015, with further strengthening in 2019. - MCM provided TA on formulating a medium-term debt management strategy and institutional changes to strengthen debt management and, together with LEG, TA to draft the Public Debt Management Act of 2015. ### TA mission activity (selected chronology) - A sustained series of missions between 01/11/2016 and 9/27/2024 covering Public Financial Management, Balance of Payments statistics, Tax Administration, External Sector Statistics, Medium-Term Debt Management Strategy, Managing the Public Wage Bill, GDP estimation improvements, Producer Price Index development, stress testing for credit unions, contingency planning for crisis preparedness, strengthening Fiscal Responsibility Law, compilation of supply and use tables, strengthening risk management in customs, strengthening BOP/IIP data, price statistics, compliance risk management, performance targets and KPI development, rebasing GDP to 2018 prices, Public Investment Management – PIMA and Climate PIMA, public sector pensions, workloads and resource allocation reviews, SIGTAS data diagnostics and migration strategy, enhancing data integrity, strengthening oversight of SOEs, support measuring the VAT gap, SIGTAS management/governance, income tax and environmental excise reform, and enhancing BOP/IIP source data. - Source for mission list: Based on available TA reports and consultations with CARTAC. ### Financial Sector Assessment Program (FSAP) - Grenada participated in the regional Eastern Caribbean Currency Union FSAP conducted in September and October 2003. - The Financial System Stability Assessment is IMF Country Report No. 04/293. ### Relations with other international financial institutions (as of November 30, 2024) - World Bank (WB) - Caribbean Development Bank (CDB) ### Debt Sustainability Analysis (DSA) — key findings and indicators - Grenada remains in public debt distress on account of large and longstanding unresolved arrears to official bilateral creditors of about US$38.0 million (2.9 percent of GDP) as of end-2023. - External and public debt are assessed as sustainable, despite the near-term breaches, because capacity to meet current and future debt service obligations without requiring debt relief or accumulating additional arrears remains available. - Both external and public debt remain on a downward path in the baseline scenario, supported by: - economic growth, - limited financing needs, - a declining debt service burden from greater reliance on concessional financing. - Impact of Hurricane Beryl on debt sustainability is modest due to: - high Citizenship-by-Investment (CBI) revenue, - triggering of disaster contingent instruments, including concessional financing from the World Bank’s CAT-DDO, which help cover post-disaster financing needs. - Risks and mitigants: - Gross public debt can rise significantly and persistently in more than one shock scenario. - Large government deposits from the recent CBI revenue surge mitigate the risks. - Upgrading Grenada’s risk rating would require a regularization of the arrears. - Composite index (CI) and judgment: - CI estimated at 3.00 and based on the October 2024 World Economic Outlook (WEO) and 2024 World Bank Country Policy and Institutional Assessment (CPIA) data indicates a medium debt carrying capacity for Grenada. - 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. - DSA date: January 6, 2025. ### Public debt coverage and assumptions in the DSA - Public debt in this DSA is defined as the sum of: - central government debt (including external debt arrears), - government-guaranteed debt, - the non-guaranteed debt of state-owned enterprises (SOEs). - The non-guaranteed debt is estimated to be 14.7 percent of GDP at end-2023, including notably 10.4 percent of GDP on account of the PetroCaribe arrangement. - The DSA adopts complete coverage of public sector debt consistent with the 2023 Fiscal Resilience Act (FRA). - Contingent liability stress test assumptions: - Contingent liabilities from the domestic financial system are set at the minimum value of 5 percent of GDP (the average cost to the government of a financial crisis in low-income countries since 1980). - Current stock of PPP capital and central bank debt borrowed on behalf of the government remain zero; thus related contingent liability shock is set to zero. ### Background on debt dynamics and composition - Pre-Covid trend: - Central government debt declined from 94.3 percent of GDP in 2014 to 58.5 percent of GDP in 2019, supported by solid growth averaging 4.5 percent and robust primary surpluses averaging 4.7 percent of GDP. - Post-pandemic dynamics: - After a temporary rise during the pandemic, central government debt resumed a downward trend in 2021 and reached an estimated 60.5 percent of GDP at end-2023. - Debt of SOEs and statutory bodies rose from 15.5 percent of GDP in 2019 to 18.1 percent in 2020 before falling to 14.7 percent in 2023. - Composition shifted further towards external concessional sources reflecting continued multilateral support and authorities’ debt management strategy. - External debt definition note: - External debt is defined based on a residency criterion. - The share of external debt using currency criteria is about 7.9 percentage points lower, as a large portion of the debt held by nonresidents is in Eastern Caribbean Dollar. ### Selected public sector debt stock figures (year-end, in millions of U.S. dollars, unless otherwise indicated) - Total Public Sector debt (incl. non-guaranteed SOE debt, A + B): - 2020: 2521.2 Total Debt 100.0 89.5 GDP - 2021: 2625.0 Total Debt 100.0 86.6 GDP - 2022: 2620.7 Total Debt 100.0 78.8 GDP - 2023: 2690.0 Total Debt 100.0 75.2 GDP - A. Public sector debt (excl. non-guaranteed SOE debt): - 2020: 2011.8 79.8 71.4 - 2021: 2121.8 80.8 70.0 - 2022: 2088.7 79.7 62.8 - 2023: 2163.7 80.4 60.5 - 1. Central government debt: - 2020: 2011.8 79.8 71.4 - 2021: 2120.8 80.8 70.0 - 2022: 2087.9 79.7 62.8 - 2023: 2163.7 80.4 60.5 - B. SOE non-guaranteed debt: - 2020: 509.4 20.2 18.1 - 2021: 503.2 19.2 16.6 - 2022: 532.0 20.3 16.0 - 2023: 526.3 19.6 14.7 - 1. PetroCaribe Grenada: - 2020: 372.1 14.8 13.2 - 2021: 372.1 14.2 12.3 - 2022: 372.1 14.2 11.2 - 2023: 372.1 13.8 10.4 - 2. Other SOE non-guaranteed debt: - 2020: 137.3 5.4 4.9 - 2021: 131.1 5.0 4.3 - 2022: 159.9 6.1 4.8 - 2023: 154.2 5.7 4.3 - External debt (A+B+C): - 2020: 1963.9 77.9 69.7 - 2021: 2047.3 78.0 67.5 - 2022: 2074.0 79.1 62.4 - 2023: 2167.6 80.6 60.6 - A. Central Government external debt: - 2020: 1554.7 61.7 55.2 - 2021: 1657.1 63.1 54.7 - 2022: 1663.4 63.5 50.0 - 2023: 1759.1 65.4 49.2 *Source: Staff report and DSA materials in the provided content.* ### 1. Multilateral987.839.235.11060.840.435.01111.542.433.41179.843.933.0 ### 1. Multilateral987.839.235.11060.840.435.01111.542.433.41179.843.933.0 ### External and Domestic Arrears; Debt Composition - Total arrears (year-end): - 2020: US$33.9, 3.2 percent of GDP - 2021: US$32.1, 2.9 percent of GDP - 2022: US$42.7, 3.5 percent of GDP - 2023 (est): US$43.3, 3.3 percent of GDP - External arrears composition (2023 est): - External arrears: US$43.3, 3.3 percent of GDP - Bilateral: US$38.0, 2.9 percent of GDP - Non-Paris Club: US$38.0, 2.9 percent of GDP - Algeria: US$2.3, 0.2 percent of GDP - Trinidad: US$35.7, 2.7 percent of GDP - Libya: US$0.0, 0.0 percent of GDP - Paris Club: US$0.0, 0.0 percent of GDP - Commercial arrears: US$2.2, 0.2 percent of GDP - Unpaid contribution to organizations: US$3.0, 0.2 percent of GDP - Domestic arrears and budget expenditure arrears: - Budget expenditure arrears: US$0.0, 0.0 percent of GDP (2020–2023) - Domestic debt arrears: US$0.0, 0.0 percent of GDP (2020–2023) - Debt stock excerpts (selected lines, units implied as in source): - Official bilateral: 195.77.86.9246.99.48.1236.29.07.1294.010.98.2 - of which Paris Club: 16.30.60.616.40.60.514.70.60.413.10.50.4 - Commercial debt: 347.813.812.3332.112.711.0302.411.59.1277.310.37.8 - Overdue membership fees: 23.40.90.817.20.70.613.30.50.48.10.30.2 - SOE non-guaranteed debt: 409.216.214.5390.214.912.9410.615.712.3408.515.211.4 - PetroCaribe Grenada: 372.114.813.2372.114.212.3372.114.211.2372.113.810.4 - Other SOE non-guaranteed debt: 37.11.51.318.10.70.638.51.51.236.41.41.0 - Domestic debt (A+B+C): 557.322.119.8577.722.019.1546.720.916.4522.419.414.6 - A. Central Government: 457.118.116.2463.717.715.3424.516.212.8404.615.011.3 - B. Central-Government Guaranteed: 0.00.00.01.00.00.00.80.00.00.00.00.0 - C. SOE non-guaranteed debt: 100.24.03.6113.04.33.7121.44.63.7117.84.43.3 - Memorandum items: - On-Lent Loans to Public Bodies (External): 34.21.2102.73.4110.33.3181.25.1 - On-Lent Loans to Public Bodies (Domestic): 3.30.13.00.12.70.12.70.1 - PetroCaribe Grenada — Debt to Venezuela: 372.113.2372.112.3372.111.2372.110.4 - Loan to Grenada's Central Government: 111.94.0106.43.599.83.094.32.6 - Loan to Public Bodies: 67.52.493.33.193.32.893.32.6 - Nominal GDP: 2817.23031.63324.9100.03576.1100.0 ### Arrears Resolution and Recent Developments - Authorities have not yet resolved remaining external arrears with non-Paris Club official bilateral creditors; arrears of about US$38.0 million owed to Trinidad and Tobago and Algeria have not been regularized and increased since 2022 with accrual of interest. - Authorities are finalizing an agreement with Algeria and have set up an escrow account to advance negotiations with Trinidad and Tobago; final agreement is yet to be reached. - Modest commercial arrears and unpaid contributions to international organizations totaled 0.4 percent of GDP at end-2023. ### Portfolio Characteristics and Risks - Debt composition and portfolio metrics: - Share of external debt: rose to 82.8 percent in 2023 (from 81.8 percent in 2022). - Average time to maturity (ATM) for total portfolio: increased by 1.2 years to around 10.4 years. - Average effective interest rate on all central government debt: declined marginally from 2.5 percent in 2022 to 2.4 percent in 2023. - Interest rate and re-fixing risk: - Some 93 percent of the external debt portfolio is contracted at fixed interest rates. - Average time to re-fixing for the entire portfolio: increased by 1.1 years to 9.9 years. - A fifth of the portfolio is subject to a change in interest rates in one year, primarily reflecting the short life of domestically issued instruments of which 30 percent are T-bills. - Domestic re-fixing risk mitigants: ECCU region’s relatively stable and insulated interest rate environment and authorities’ strategy to rely mostly on concessional external sources for new financing. - Foreign exchange risk: - About 70 percent of foreign currency debt is denominated in U.S. dollars to which the EC dollar is pegged. ### Impact of Hurricane Beryl and Disaster Financing - Disaster measures and immediate liquidity support: - Grenada triggered a disaster clause in its 2015 restructured bond; two scheduled payments (November 2024 and May 2025) deferred and added to lump sum principal due pro rata at maturity in 2030. - Catastrophe Deferred Drawdown Option (CAT-DDO) with World Bank: provides US$20 million in concessional funding under IDA terms. - CCRIF parametric insurance payouts: US$55.5 million. - These measures provided immediate liquidity support and helped contain the hurricane’s impact on debt level, dynamics, and portfolio risks. - Estimated damage: - Large physical damage estimated at around 16.5 percent of GDP, including extensive destruction to housing, infrastructure, crops and fishing in affected areas (Carriacou, Petite Martinique, Northern main island). - Effect on bond payments: - Restructured bond payments deferred per disaster clause triggered by modeled losses exceeding predefined thresholds (US$30 million). ### Macroeconomic Performance and Forecasts - 2023 performance and drivers: - Economic performance better than anticipated in the 2023 Article IV. - Continued strength of tourism and surge in CBI revenue resulted in a large 2023 fiscal surplus and accumulation of government deposits to 17 percent of GDP; inflation remained moderate. - Hurricane impact on growth and inflation: - Cumulative GDP impact of the hurricane on 2024-25 estimated to be relatively modest due to robust tourism and recovery efforts. - Inflation projection: around 1.4 percent in 2024-25, recovering to 2 percent from 2026 onward. - Import-intensive reconstruction and food import needs projected to temporarily widen the current account deficit. - Medium-term projections and targets: - Growth projected to gradually converge to long-term average of 2.7 percent. - Fiscal rules: return to fiscal rules with a debt ceiling of 60 percent of GDP. - Selected macro assumptions (from Text Table 5 and Box 1): - Real GDP growth (2024 AIV - Current): 3.6 (2024), 3.9 (avg. 2014-22), 3.3 (2025), 2.7 (2026), 2.7 (2027), 2.7 (2028), 2.7 (2029-44) - Inflation rate, period average (GDP deflator, 2024 AIV - Current): 1.4 (2024), 1.4 (2025), 2.0 (2026), 2.0 (2027), 2.0 (2028), 2.0 (2029-44) - Non-interest current account deficit (2024 AIV - Current): 13.0 (2024), 14.0 (2025), 10.8 (2026), 9.8 (2027), 9.1 (2028), 4.1 (2029-44) - Growth of exports of G & S (USD terms, 2024 AIV - Current): 6.6 (2024), 3.2 (2025), 6.0 (2026), 5.1 (2027), 4.2 (2028), 4.4 (2029-44) - Primary balance (2024 AIV - Current): 8.0 (avg. 2014-22), -5.1 (2023), -1.2 (2024), 1.5 (2025), 1.5 (2026), 0.6 (2027) - Box 1 highlights: - Real GDP growth projected at 3.6 percent in 2024 (following 4.7 percent in 2023). - Debt expected to continue to fall and reach 60 percent of GDP by 2030, despite hurricane, thanks to high CBI revenues, accumulated government deposits, and primary surpluses from 2027 onwards. - Non-interest current account deficit projected to widen to 13.0 percent in 2024 and 14.0 percent in 2025. - Risks tilted to the downside, including exposure to natural disasters, tourism slowdowns, commodity volatility, and uncertain CBI inflows. ### Financing Strategy, Deposits, and Gross Financing Needs - Financing assumptions and strategy: - New financing relies only on external concessional sources and utilization of undrawn commitments, incorporating World Bank IDA (including US$20 million CAT-DDO), existing CDB projects, and a US$100 million concessional loan from the Saudi Fund for Development (SFD) agreed in 2023. - Debt strategy includes no new domestic or regional commercial borrowing in the near-term, while rolling over maturing short-term instruments. - No plan to return to external bond markets in the projection period; domestic and RGSM financing to fill remaining needs. - SFD loan: concessional fixed interest rate, 25-year maturity, 5-year grace period, assumed disbursed over 2025-29. - Government deposits and gross financing needs (GFNs): - Government deposits projected to reach 23 percent of GDP by end-2024. - Large GFNs in 2025-26 projected, primarily driven by primary deficits from reconstruction spending and temporarily higher debt service reflecting exceptional payments to holders of restructured international bonds from recent CBI surge. - With no new borrowing, GFNs met by drawdown of deposits projected to decline to just under 10 percent of GDP by 2027. - Expected resumption of fiscal rules anchors continued decline in gross government debt to below 60 percent of GDP by 2030 and stabilization of deposits. - On-lent loans and treatment: - On-lent loans to public bodies are not counted as SOE debt since they are part of central government debt. ### DSA, Scenarios, and Stress Tests - Country classification: - Grenada assessed at medium debt-carrying capacity (CI Score: 3.00; CI rating: Medium). - CI components and contributions included CPIA, real growth rate, import coverage of reserves, remittances, and world economic growth (detailed Text Table 6 provided). - External DSA baseline and thresholds: - External public and publicly guaranteed PPG debt-to-GDP ratio projected to decline in the baseline. - Present value of near-term debt-to-GDP and debt service-to-revenue ratios exceeds thresholds under the baseline; these breaches are transitory. - Decline over medium-term reflects adherence to primary balance rule of 1.5 percent of GDP surplus after resumption until public debt target of 60 percent of GDP is met in 2030. - Jump in debt service-to-revenue ratio reflects temporarily high CBI-related payments to holders of restructured international bonds; these payments are tied to CBI performance and projected to normalize. - Scenario stress tests: - Standard-DSA alternative scenarios and a “natural disaster” tailored scenario considered. - “Natural disaster” scenario tailored by a 5 percent of GDP, or 2.5 percentage points (whichever is higher), rise in debt in the first two years following a hurricane (calibrated to Dominica’s experience with 2017 hurricane Maria). - Realism and sensitivity: - Short-term growth assessed as conservatively forecasted. - Deterioration of the primary balance noted as large vs historical distribution reflecting normalization of CBI revenues and reconstruction outlays. - Drivers of debt dynamics include high residuals from expanded baseline debt coverage to include SOE debt and substantial accumulation and projected partial unwinding of government deposits from the 2023-24 CBI revenue surge. *Sources: Grenadian authorities and Fund staff estimates.* ### 18. Stress tests show that PV debt-to-GDP and debt-service-to-revenue thresholds are ### 1grdea2025001-print-pdf - 18. Stress tests show that PV debt-to-GDP and debt-service-to-revenue thresholds are ### Stress-test findings and scenarios - Stress tests indicate that PV debt-to-GDP and debt-service-to-revenue thresholds are breached under extreme scenarios. - The high tourism dependency of Grenada makes “exports” one of the most severe shocks across solvency and liquidity indicators. - The export shock specified in the text: - decline in export of goods and services by 16 percent of GDP in 2025 and another 12.5 percent of GDP in 2026. - A large natural disaster and a shock on contingent liabilities have significant potential effects on the debt path; a tailored natural disaster shock has a protracted effect partly due to interaction with the growth shock (e.g., infrastructure damage as from Hurricane Beryl). - The most extreme shock to the debt-service-to-revenue ratio came from a one-time depreciation, although this risk is mitigated by the peg to the U.S. dollar and the ECCU’s quasi-currency board. ### External and private external debt assessment - External debt is vulnerable to risks but is assessed as sustainable because capacity to meet current and future debt service obligations without requiring debt relief or accumulating additional arrears remains available. - Factors underpinning external debt resilience: - high share of official creditors in government external debt, - absence of extra-regional international market borrowing, - shortage of alternative regional investment options supporting the regional sovereign debt market. - Grenada showed resilience to Hurricane Beryl supported by a multi-layered disaster resilience framework that provided substantial quasi-automatic financing relief. - Large government savings from past CBI inflows provide a substantial buffer, although replenishment capacity is linked to the uncertain outlook for future CBI revenue. - The bondholder payments are fully incorporated in staff’s baseline projections and are tied to the previous year’s CBI revenue. - Private external debt presents limited risks to the government, comprising mostly: - non-resident deposits of Grenadian nationals abroad, - intra-group bank liabilities of international hotel groups, - FDI debt. - The stability and nature of these private exposures limit contingent liability risks given lack of international market access for local companies and underdeveloped regional capital markets. ### Overall risk of public debt distress and debt path - Public debt is assessed to be “in debt distress” solely on account of unresolved official arrears. - The public debt-to-GDP ratio breaches the threshold for two years before remaining below it under the baseline scenario, reflecting a large share of public debt having concessional terms. - Under assumptions for non-guaranteed SOE debt (constant PetroCaribe debt and stable other external SOE debt as a percent of GDP), the total public debt path is primarily driven by projected decline in central government debt, underpinned by return to the currently suspended primary balance rule. - Medium-term projection: - the total public debt target of 60 percent of GDP is projected to be reached in 2030, significantly ahead of the target year of 2035 specified in the Fiscal Resilience Act 2023. - After 2030, public debt is projected to further decline, supporting residual large Government deposits as a cushion. - Despite sustainable underlying dynamics, under the most extreme growth-shock scenario the benchmark threshold for the PV of debt-to-GDP ratio is breached for more than a decade. ### Vulnerabilities, buffers, and resilience - Main downside risks to debt sustainability: - susceptibility to global shocks on tourism and commodity prices, - highly uncertain CBI inflows amid intensified international scrutiny, - ever-present risk of natural disasters. - Buffers and resilience measures: - sizeable savings from past CBI revenues provide a buffer against external shocks, despite expected reduction in 2025-26, - parametric insurance facilities (CCRIF), other disaster contingent debt instruments (CAT-DDO and disaster-clauses), and availability of other liquid financial assets (SDR allocation) provide substantial buffer, - DRS-related note: the dedicated financial protection against natural disasters amounted to 7¼ percent of GDP in 2020. - The recent Covid-19 experience demonstrated resilience of external debt to a sharp contraction in services exports. ### Policy recommendations and priorities - Fully regularizing external arrears would tangibly improve the DSA rating and remove the “in debt distress” assessment tied to unresolved official arrears. - Maintain fiscal policy prudence anchored in the Fiscal Resilience Act and fiscal rules; continue fiscal structural reforms and strengthen debt management. - Strengthen CBI revenue management framework to ensure efficient use of resources and maintenance of sufficient liquid buffers for severe natural disasters and other external shocks. - Continue implementation of the Disaster Resilience Strategy (DRS), supported by IMF, World Bank, and other development partners, to mitigate climate-related natural disaster risks. - Improve planning and coordination of grant-financed resilience building and transformative public investment projects given 2023 amendment of fiscal rules. - Strengthen public financial management and Medium-Term Fiscal Framework (MTFF) role in budget process, and enhance monitoring of SOEs and PPP-related liabilities with relevant frameworks and regulations. - Publish timely climate fiscal risk statements to better prepare for climate events. ### Debt management and data improvements - Suggested enhancements to debt management: - enhance data management and upgrade IT systems, - revise the debt management procedure manual, - renew the 2018 Debt Management Performance Assessment (DeMPA). - Coordinating debt management strategy with the CBI revenue management framework would help optimize costs from the Government’s net debt position. - Timely publication of SOE financial statements is important for transparency of the government’s fiscal position and operations. *Source: 1grdea2025001-print-pdf - 18. Stress tests show that PV debt-to-GDP and debt-service-to-revenue thresholds are* ### 28. The authorities agreed with staff’s debt sustainability assessment. They indicated the ### 1grdea2025001-print-pdf - 28. The authorities agreed with staff’s debt sustainability assessment. They indicated the ### Authorities’ response and near-term financing - The authorities agreed with staff’s debt sustainability assessment. - They indicated the pending resolution of arrears to Algeria and Trinidad & Tobago is highly advanced. - The authorities noted their commitment to return to the fiscal rules once expenditures for reconstruction activities are completed. - They indicated that near-term reconstruction financing needs would be covered by already contracted external funding, as well as drawdown of deposits. - Authorities stated that staff's financing assumptions are broadly in line with the government's Medium Term Debt Management Strategy. ### Disaster impact, response, and resilience measures - Hurricane Beryl—a Category 4 storm—caused extensive damage equivalent to 16 percent of GDP, primarily impacting Carriacou, Petite Martinique, and the northern parishes. - The government activated the Fiscal Resilience Act’s suspension clause to enable immediate recovery efforts. - Disaster-contingent instruments used included payouts from the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the World Bank’s Catastrophe Drawdown Option. - Grenada aims to achieve 100 percent renewable energy generation by 2030; investments underway include solar and geothermal projects. - Authorities participate in the World Bank’s Caribbean Efficient Green Building Project and the Caribbean Renewable Energy Infrastructure Investment Facility. ### Key economic outcomes and commitments cited by authorities - Real GDP growth: 4.7 percent in 2023 (historical). - Authorities emphasized sustained growth and a strong fiscal position prior to Hurricane Beryl. - Authorities’ stated priorities: build on fiscal strength, advance economic development, and enhance long-term resilience. ### External Debt Sustainability — selected baseline indicators (2021–44; percent of GDP unless otherwise indicated) - External debt (nominal): 2021: 94.8; 2022: 90.0; 2023: 86.9; 2024: 85.4; 2025: 85.4; 2026: 82.6; 2027: 82.3; 2028: 80.5; 2029: 78.4; 2034: 68.3; 2044: 53.3; Historical: 83.0; Projections: 77.8. - Public and publicly guaranteed (PPG) external debt (percent of GDP): 2021: 67.5; 2022: 62.4; 2023: 60.6; 2024: 59.1; 2025: 58.8; 2026: 55.9; 2027: 55.4; 2028: 53.4; 2029: 51.1; 2034: 40.5; 2044: 31.0; Historical: 58.8; Projections: 50.6. - Change in external debt: 2021: 2.3; 2022: -4.8; 2023: -3.0; 2024: -1.5; 2025: 0.0; 2026: -2.8; 2027: -0.3; 2028: -1.8; 2029: -2.1; 2034: -2.0; 2044: -0.8. - Identified net debt-creating flows: 2021: -6.5; 2022: -9.1; 2023: -20.7; 2024: -12.6; 2025: -1.8; 2026: -4.5; 2027: -4.7; 2028: -4.6; 2029: -4.4; 2034: -3.0; 2044: -2.4; Historical: -6.8; Projections: -4.4. - Non-interest current account deficit: 2021: 13.1; 2022: 9.2; 2023: 7.8; 2024: 9.9; 2025: 10.6; 2026: 8.6; 2027: 8.3; 2028: 7.5; 2029: 7.6; 2034: 8.7; 2044: 8.0; Historical: 9.6; Projections: 8.7. - Net FDI (negative = inflow): 2021: -14.4; 2022: -11.7; 2023: -23.4; 2024: -22.7; 2025: -12.6; 2026: -12.6; 2027: -12.4; 2028: -11.5; 2029: -11.3; 2034: -10.7; 2044: -9.6; Historical: -13.9; Projections: -12.5. - Residual (largely reflects fluctuations in government deposits due to CBI revenues): 2021: 8.8; 2022: 4.2; 2023: 17.7; 2024: 11.1; 2025: 1.7; 2026: 1.7; 2027: 4.4; 2028: 2.8; 2029: 2.3; 2034: 1.1; 2044: 1.6; Historical: 3.5; Projections: 2.7. - Key sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (selected projection values): 51.1; 47.5; 44.6; 40.9; 39.7; 37.3; 34.8; 27.0; 20.2. - PV of PPG external debt-to-exports ratio (selected): 81.4; 74.3; 71.0; 64.7; 62.6; 59.3; 55.6; 44.2; 34.3. - PPG debt service-to-exports ratio (selected series): 12.9; 11.5; 8.9; 11.1; 11.7; 10.0; 7.1; 6.9; 6.8; 4.8; 3.7. - PPG debt service-to-revenue ratio (selected): 25.7; 25.5; 15.4; 16.5; 25.1; 22.5; 16.0; 15.6; 15.4; 10.7; 7.9. - Gross external financing need (Million of U.S. dollars): 2021: 54.4; 2022: 50.9; 2023: -132.3; 2024: -78.5; 2025: 77.4; 2026: 35.3; 2027: 6.4; 2028: 6.4; 2029: 10.1; 2034: 21.6; 2044: 19.1. ### Public Sector Debt — baseline highlights (2021–44; percent of GDP unless otherwise indicated) - Public sector debt: 2021: 86.6; 2022: 78.8; 2023: 75.2; 2024: 73.3; 2025: 71.4; 2026: 66.5; 2027: 65.2; 2028: 62.9; 2029: 60.6; 2034: 51.1; 2044: 41.8; Historical: 80.3; Projections: 61.1. - Change in public sector debt: 2021: -2.9; 2022: -7.8; 2023: -3.6; 2024: -1.9; 2025: -1.9; 2026: -4.9; 2027: -1.3; 2028: -2.3; 2029: -2.3; 2034: -1.6; 2044: -0.5. - Identified debt-creating flows: 2021: -6.6; 2022: -8.1; 2023: -13.5; 2024: -8.9; 2025: 4.9; 2026: 0.2; 2027: -2.6; 2028: -2.6; 2029: -2.7; 2034: -2.0; 2044: -0.9; Historical: -5.5; Projections: -2.1. - Primary deficit: 2021: -2.1; 2022: -2.6; 2023: -9.5; 2024: -8.0; 2025: 5.1; 2026: 1.2; 2027: -1.5; 2028: -1.5; 2029: -1.5; 2034: -0.7; 2044: -0.1; Historical: -3.8; Projections: -1.0. - Revenue and grants (percent of GDP): 2021: 31.5; 2022: 32.7; 2023: 36.9; 2024: 44.1; 2025: 30.5; 2026: 29.3; 2027: 29.2; 2028: 28.9; 2029: 28.8; 2034: 28.8; 2044: 28.8; Historical: 24.6; Projections: 29.2. - Grants (subset): 2021: 7.6; 2022: 6.8; 2023: 0.5; 2024: 1.2; 2025: 1.3; 2026: 1.2; 2027: 1.2; 2028: 1.2; 2029: 1.2; 2034: 1.2; 2044: 1.2. - PV of public debt-to-GDP ratio (selected projections): 65.7; 61.8; 57.3; 51.5; 49.5; 46.8; 44.3; 37.6; 30.9. - Debt service-to-revenue and grants ratio (selected): 37.8; 37.8; 25.0; 24.6; 41.6; 40.5; 30.2; 29.2; 29.8; 34.4; 37.0. - Gross financing need (selected): 9.8; 9.8; -0.3; 2.8; 17.7; 13.0; 7.3; 6.9; 7.1; 9.1; 10.5. ### Key macroeconomic and fiscal assumptions (selected series) - Real GDP growth (percent): 2021: 4.7; 2022: 7.3; 2023: 4.7; 2024: 3.6; 2025: 3.9; 2026: 3.3; 2027: 2.7; 2028: 2.7; 2029: 2.7; 2034: 2.7; 2044: 2.7; Actual average: 3.0; Projections average: 3.0. - GDP deflator in US dollar terms (change in percent): 2021: 2.8; 2022: 2.2; 2023: 2.7; 2024: 1.4; 2025: 1.4; 2026: 2.0; 2027: 2.0; 2028: 2.0; 2029: 2.0; 2034: 2.0; 2044: 2.0; Historical: 1.8; Projections: 1.9. - Effective interest rate (percent): 2021: 1.6; 2022: 2.1; 2023: 1.5; 2024: 3.7; 2025: 4.3; 2026: 2.8; 2027: 2.0; 2028: 1.9; 2029: 1.8; 2034: 1.2; 2044: 1.4; Historical: 2.1; Projections: 2.1. - Growth of exports of G&S (US dollar terms, percent): 2021: 25.5; 2022: 32.4; 2023: 16.9; 2024: 6.9; 2025: 3.5; 2026: 5.9; 2027: 5.1; 2028: 4.2; 2029: 4.2; 2034: 4.4; 2044: 4.3; Historical: 8.0; Projections: 4.7. - Growth of imports of G&S (US dollar terms, percent): 2021: 14.2; 2022: 27.2; 2023: 6.7; 2024: 15.3; 2025: 3.8; 2026: 0.9; 2027: 3.5; 2028: 2.9; 2029: 4.1; 2034: 4.3; 2044: 3.7; Historical: 7.8; Projections: 4.8. - Grant element of new public sector borrowing (percent) — selected projection values: 33.7; 30.8; 34.5; 36.8; 44.9; 46.4; 36.8; 24.1; Historical: 37.8. - Government revenues (excluding grants, percent of GDP): 24.0; 26.0; 36.4; 42.9; 29.2; 28.1; 28.0; 27.7; 27.6; 27.6; 27.6; Historical: 24.6; Projections: 29.2. - Aid flows (Million of US dollars): 85.2; 83.1; 6.7; 46.5; 54.2; 47.2; 73.4; 74.3; 75.2; 50.2; 66.7; Historical: (noted in table). - Grant-equivalent financing (percent of GDP) — selected: 3.0; 3.3; 2.6; 3.0; 2.7; 2.6; 1.9; 1.8; Historical: 2.5; Projections: (noted in table). - Nominal GDP (Million of US dollars): 1,123; 1,231; 1,324; (table continues for projections). ### Other technical notes and model considerations (as stated) - Residual largely reflects substantial fluctuations in government deposits due to CBI revenues; for projections, residual also includes contribution from price and exchange rate changes. - Effective interest rate definition: Current-year interest payments divided by previous period debt stock. - Aid defined as grants, concessional loans, and debt relief. - Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). - PV of private sector debt is assumed equivalent to its face value. *Sources: Country authorities; and staff estimates and projections.* ### 3.6 percent. Recovery and reconstruction efforts are expected to boost growth temporarily in 2025– ### 1grdea2025001-print-pdf - 3.6 percent. Recovery and reconstruction efforts are expected to boost growth temporarily in 2025– ### Growth, inflation, and macro outlook - Growth is projected at 3.6 percent with recovery and reconstruction efforts expected to boost growth temporarily in 2025–26, before stabilizing at a potential rate of 2.7 percent. - Inflationary pressures from the hurricane have been contained, aided by policy responses and lower international commodity prices. - Inflation fell to 2.2 percent at the end of 2023 and continued to decline further in 2024. - Inflation is expected to stabilize around 2 percent by 2026 as recovery support measures are withdrawn and global prices normalize. - Planned public investments in reconstruction are estimated at 10 percent of GDP over 2024–26. ### Labor market and social protection - The unemployment rate dropped to 11 percent as at end Q3, 2023, the lowest in recent history. - Introduction of a funded unemployment insurance scheme—the first of its kind in the ECCU—strengthens social protection and economic resilience. - Reforms include improved targeting of social transfers and other measures to enhance social protection. ### External sector and reserves - The current account deficit narrowed in 2023, supported by robust tourism revenues and suppressed import growth due to declining global commodity and construction material prices. - Reserves continued to increase, bolstered by significant Citizenship-by-Investment (CBI)-driven foreign direct investment and capital transfers. - Note: The Citizenship-by-Investment (CBI) unit was rebranded as the Investment Migration Agency (IMA) in March 2024; references to CBI revenues pertain to revenue collected through the IMA. ### Sound fiscal management and debt sustainability - Grenada achieved a primary surplus of 9½ percent of GDP in 2023—exceeding the fiscal rules primary balance floor. - CBI revenues were 10½ percent of GDP in 2023, contributing to strong fiscal performance. - A primary surplus of 8 percent of GDP is expected in 2024, supported by high CBI revenues in 2024, a payout from the Caribbean Catastrophe Risk Insurance Facility (CCRIF), and delayed expenditure execution. - Government deposits are expected to increase to nearly 23 percent of GDP. - Central government debt declined to an estimated 60.5 percent of GDP by the end of 2023 and is on track to meet the debt-to-GDP target of 60 percent by 2030. - Fiscal institution reforms highlighted: - Digitalization of tax administration. - Improved targeting of social transfers. - Adherence to time limits on tax incentives. - Consolidation of CBI revenues under a unified framework, such as the National Transformation Fund (NTF), to facilitate predictable budget drawdowns and long-term planning. - Reforms to procurement, project management, and public-private partnerships (PPPs) aim to enhance execution of reconstruction investments while maintaining fiscal sustainability. ### Financial sector resilience - The financial sector remains stable with rising profitability, a highly liquid banking system, and low NPL levels—among the lowest in the ECCU. - Banking sector credit growth has been modest; rapid lending growth has occurred within the credit union sector. - High liquidity led to increased overseas investments by banks, driven by government deposits. - The insurance sector remains stable and liquid despite higher reinsurance costs raising property insurance premiums. - Grenada Authority for the Regulation of Financial Institutions (GARFIN) has been proactive in monitoring post-disaster developments and collaborating regionally to strengthen risk assessment and supervisory standards. - Initiatives to strengthen financial resilience include: - Recently established credit reporting bureau. - Eastern Caribbean Partial Credit Guarantee Scheme to improve small business access to bank credit. - Strengthened reporting requirements for credit unions and alignment of impaired asset treatment with banks. - Progress on AML/CFT: legislative reforms made, with remaining actions to implement recommendations from the 2022 CFATF Mutual Evaluation Report, including verifying beneficial ownership information, updating the National Risk Assessment to include the CBI program, and enhancing training for compliance officers. ### Structural reforms for sustainable growth - Investments in renewable energy (solar and geothermal projects) aim to reduce reliance on imported fossil fuels, strengthen energy security, and support the transition to a green economy. - Tourism diversification measures focus on promoting off-season activities, eco-tourism, and niche markets to increase competitiveness and local value-added. - Labor market reforms include youth training programs, digital job-matching tools, and a review of employment legislation to boost workforce participation and job creation. - Implementation capacity constraints and the need to unlock private financing are identified as critical to fully realize reform benefits. ### Concluding remarks and international support - Authorities are committed to sustaining strong economic growth and fiscal prudence through sound macroeconomic management and maintaining debt sustainability while addressing development priorities. - Authorities value the Fund’s technical assistance in strengthening public financial management, revenue administration, public investment management, financial system supervision, and data adequacy and look forward to continued support. *Source: 1grdea2025001-print-pdf - 3.6 percent. Recovery and reconstruction efforts are expected to boost growth temporarily in 2025–* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1grdea2025001-print-pdf.pdf_