## _cr08351

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---

### Background and recent context
- Real GDP growth averaged 7 percent during 2005–06, driven by reconstruction, CWC preparations, and tourism revival.
- Inflation: peaked at almost 6 percent at end-2005; 12-month CPI inflation declined to 2.5 percent by May 2007.
- External sector:
  - Foreign direct investment financed about 40 percent of the current account deficit.
  - Stayover tourist arrivals grew nearly 10 percent during January–May 2007 over the previous year.
  - Cocoa exports returned in Q1 2007; other exports broadly constant.
  - First-quarter 2007 current account deficit widened slightly with imports picking up and a decline in income and transfers.
- Monetary and credit developments:
  - Growth in credit to the private sector picked up in 2006 and 2007, led by construction and tourism; loans to agriculture fell.
- Social indicators and strategy:
  - Grenada is undertaking a Country Poverty Assessment (CPA), results expected by end-2007; a full PRSP is expected by June 2008.

### Fiscal outcomes, debt dynamics, and public finance management
- Fiscal outcomes and debt dynamics (2006 and H1 2007):
  - Government investment reached 20 percent of GDP in 2006, about 5 percentage points higher than envisaged.
  - The primary deficit in 2006 was almost 7 percentage points of GDP higher than targeted (measured on a below-the-line basis).
  - National Reconstruction Levy (NRL) rate negotiated at 3 percent rather than planned 5 percent, contributing to lower-than-programmed tax collection.
  - Spending on goods and services exceeded projections; 2006 deficit financed through accumulation of domestic arrears, a drawdown of deposits, and increased public debt.
  - Public debt rose from 120 percent of GDP at end-2005 to 125 percent of GDP by end-2006.
  - Overall deficit during H1 2007 reached 2.2 percent of annual GDP versus revised program target of 1 percent for the whole year.
  - H1 2007 deficit financed primarily through overdrafts and drawdown of deposits.
  - Government accumulated arrears amounting to EC$20.3 million on unrestructured domestic debt to the nonbank public due on June 30.
- Public finance management and reform measures:
  - New guidelines for extra-budgetary spending (June 2007) require all such spending requests be directed to the ministry of finance before Cabinet submission.
  - Authorities expressed interest in moving toward multiyear budgeting within a ten-year National Strategic Plan.
  - Creation in early 2007 of a new unit in Inland Revenue to collect tax arrears; aim to collect about EC$18 million annually.
  - Plans to reassess real estate values for property tax purposes; completion anticipated within two years; increase to be stepwise.
  - VAT: White Paper launched in January 2007; VAT introduction likely delayed into the first half of 2008 (from October 1, 2007). Mission encouraged recruiting and training staff, passing VAT and excise legislation, and adopting transitional procedures for bonded warehouses.
- Management of PetroCaribe concessional financing:
  - Plan: invest the net present value of future debt obligations in an earmarked account and use only the remainder to finance budgeted social programs; record all associated expenditures on budget and put safeguards in place for the earmarked investment account.
  - Mission advised seeking further technical assistance to build debt management capacity; authorities concurred.

### Findings on structural reform implementation
- Progress and measures taken:
  - NRL came into effect in early 2006.
  - Automatic fuel pricing mechanism adopted in October 2006.
  - Publication of information on tax concessions began; work towards VAT implementation proceeding.
  - Grenada established Grenada Authority for the Regulation of Financial Institutions (GARFIN) to strengthen nonbank supervision.
  - Grenada signed up for the World Bank’s Caribbean Catastrophe Risk Insurance Facility (CCRIF).
  - Steps toward giving the Building Code force of law.
- Delays and outstanding reforms:
  - Of seven structural benchmarks under the PRGF program, only three have been met, two with delay.
  - Stop granting or extending tax holidays — Target Date: Jan. 2006 — Status: Not met.
  - Agree on public service wage path for 2006–08 — Target Date: Apr. 2006 — Status: Not met.
  - Initiate work to strengthen PSIP process — Target Date: Jun. 2006 — Status: Met in July 2006.
  - Publish information on new tax concessions — Target Date: Jun. 2006 — Status: Met in Sep. 2006.
  - Amend the Income Tax Act — Target Date: Jun. 2006 — Status: Not met.
  - Repeal tax incentives legislation — Target Date: Jun. 2006 — Status: Not met.
  - Initiate comprehensive customs reforms — Target Date: Aug. 2006 — Status: Met.
- Implementation constraints:
  - Limited administrative capacity, political constraints, and aspects of the original PRGF program viewed by the government as too ambitious.

### Financial sector stability and supervisory concerns
- Banking sector resilience:
  - Broad agreement that the banking sector weathered the hurricanes well; insurance payouts and external assistance preserved liquidity.
  - Although nonperforming loans increased after Hurricane Ivan, they have been steadily declining and are now below pre-hurricane levels.
- Unregulated bank:
  - Longstanding issue: an unregulated, fast-growing bank operates outside ECCB supervision due to a dispute over its license; it is kept out of the formal clearing and payments system.
  - Mission recommendations:
    - Find an approach, consistent with Grenada’s legal framework, to supervise the bank.
    - Conduct an independent assessment to determine the bank’s financial condition.
  - Progress here is key to completing the First Review Under the PRGF program.
- GARFIN, insurance sector, and AML/CFT concerns:
  - GARFIN began operations in March 2007; plans to amend the GARFIN Act to broaden effectiveness.
  - Foreign exchange trading services and micro-financing to be defined as money services business to bring them under GARFIN supervision.
  - Authorities aim to enact a new Insurance Act by December 2007 to strengthen supervision, improve contract certainty, and better protect policyholders.
  - Mission concerns: some insurance companies offering fixed-term deposits with annual interest rates up to 9 percent per year, with funds invested abroad—undermining domestic banks and increasing potential ML/FT risk.
  - Mission welcomed GARFIN’s plans to conduct a thorough investigation of insurance companies’ activities and to coordinate with the ECCB on potential licensing requirements.

### Vulnerabilities, risk management, and contingency planning
- Main vulnerabilities:
  - High public debt and large external financing needs.
  - High susceptibility to natural disasters and terms-of-trade shocks (notably world fuel prices).
  - Increasing dependence on tourism after hurricanes diminished nutmeg production.
- Measures and recommendations:
  - Participation in CCRIF to provide short-term liquidity support after disasters.
  - Steps to give the Building Code force of law.
  - Mission recommended a detailed risk management plan covering natural disasters, financial sector instability, and trade shocks.
  - Mission recommended creation of a contingency fund of at least 1 percent of GDP, to be held in a deposit account with the ECCB; this contingency fund is incorporated into the mission’s recommended active policy scenario (but not the baseline).
  - Mission stressed rebuilding the government’s financial reputation through strong fiscal adjustment; noted some local market participants would not lend to the government presently, and rollover risk could be substantial as outstanding treasury bills alone amount to 5 percent of GDP.
- Medium-term external vulnerability:
  - Sizable current account deficit projected at 25 percent of GDP in 2007 implies increasing dependence on large FDI inflows.

### Debt restructuring, DSA findings, and scenarios
- Debt restructuring outcomes:
  - Commercial debt exchange (November 2005): overall participation reached 91 percent of eligible debt, or about US$237 million (about 40 percent of total public debt).
  - Restructuring involved a net-present-value reduction of 40–45 percent (using a 9 percent discount rate), for exit yields in the 9–10 percent range, and reduced debt servicing costs by 83 percent during 2005–08.
  - Paris Club (May 2006) agreed to reduce debt service to Paris Club creditors by more than 90 percent for the duration of the PRGF arrangement.
  - Outstanding issues with non-Paris Club creditors, including Taiwan Province of China; Ex-Im Bank of Taiwan Province of China sued Grenada in March 2006.
- Debt Sustainability Analysis (DSA) — key numeric findings:
  - Grenada is at high risk of debt distress.
  - Public sector debt (end-2006): 125 percent of GDP.
  - Public sector debt in NPV terms (end-2006): 114 percent of GDP.
  - Public sector debt-to-revenue ratio (2006): 301 percent.
  - Domestic expenditure arrears at end-2006: 2.8 percent of GDP.
  - PetroCaribe concessional financing: about 0.3 percent of GDP in 2007; annual average about 1.4 percent of GDP during 2007–11; interest rate 1 percent; maturity 25 years; grant element 48 percent (if liability in U.S. dollars).
  - Commercial debt exchange participation: 91 percent; about US$237 million; reduction of 40–45 percent in NPV terms; exit yields in the 9-10 percent range; reduced debt servicing costs by 83 percent during 2005–08.
- Baseline scenario:
  - Using current fiscal plans, the targeted nominal debt ratio of 60 percent of GDP is reached by 2025.
  - Under baseline, NPV of external public debt to GDP would not fall below the 40 percent threshold before 2022.
  - Baseline projections: public sector debt (percent of GDP): 115.1 (2007), 109.0 (2008), 104.0 (2009), 99.3 (2010), 78.3 (2015), 67.4 (2020), 59.3 (2025).
- Active scenario (front-loaded adjustment and use of divestment proceeds for debt reduction):
  - Authorities could reach debt-to-GDP ratio of 60 percent by 2017 (three years ahead of ECCB’s revised regional target date).
  - Requires a small overall fiscal surplus and a primary surplus (including grants) of about 3 percent of GDP to be sustained over the next decade.
  - Requires capital expenditure in 2007 be limited to just under 9 percent of GDP and to 8 percent thereafter.
  - Requires implementing additional revenue-enhancing measures over the medium term and keeping real wages and spending on transfers, goods, and services constant.
  - Assumes all divestment proceeds are used to clear arrears and pay down expensive debt rather than finance additional budgetary expenditures.
  - Active scenario public debt (percent of GDP): 111.6 (2007), 103.9 (2008), 97.1 (2009), 91.0 (2010), 65.4 (2015), 50.2 (2020), 37.2 (2025).
- Sensitivity and stress tests:
  - Growth shock (Bound Test B1): growth falls to -2.2 percent in 2008 and 2009; NPV of debt to GDP rises sharply to 157 percent.
  - Natural disaster shock (Scenario A5): natural disaster in 2008 reduces GDP growth to zero for three years; primary deficit increases by 3 percentage points of GDP for each of those years; NPV of debt would rise to 71 percent of GDP.
  - Note: Grenada’s participation in CCRIF is not incorporated in the DSA but would help cushion the financial impact of disasters.

### Key macroeconomic outlook and projections
- Real GDP projections:
  - Projected to grow at 3 percent in 2007 and 4 percent thereafter.
  - Selected growth series: Real GDP (annual percent change): 2003: 6.4; 2004: -6.5; 2005: 12.7; 2006 (Prel./Prog.): 6.5; 2007: 0.7; 2008: 3.0; 2009: 4.0.
- Inflation and prices:
  - GDP deflator (annual percent change): 2003: 0.9; 2004: 4.2; 2005: 2.9; 2006: 4.6; 2007: 3.0; 2008: 2.4; 2009: 2.0.
  - Consumer prices (end-of-year): 2003: 1.6; 2004: 2.5; 2005: 5.8; 2006: 2.0; 2007: 1.7; 2008: 2.0; 2009: 2.0.
- External sector and balance of payments (selected):
  - Current account balance (including grants; percent of GDP): 2003: -32.2; 2004: -12.4; 2005: -24.9; 2006: -32.8; 2007: -23.9; 2008: -24.9; 2009: -24.9; 2010: -21.9.
  - Selected balance of payments series (millions of U.S. dollars): Current account balance: 2003: -143.5; 2004: -53.6; 2005: -126.5; 2006: -125.7; 2007: -138.0; 2008: -147.9; 2009: -138.4.
  - Direct investment (net, millions of U.S. dollars): 2007: 84.2; 2008: 89.6; 2009: 94.4.
- Public finances — baseline central government (EC$ millions):
  - Total revenue and grants: 2005: 515.7; 2006 Prog./Prel.: 505.6; 2007 H1: 511.9; Baseline 2008: 536.4.
  - Total expenditures: 2005: 508.9; 2006 Prog./Prel.: 534.2; 2007 H1: 608.9; Baseline 2008: 576.2.
  - Capital expenditures (various entries): 2006 Prog./Prel.: 206.0; 2007 H1: 216.1; Budget: 285.8; Baseline: 91.1; Active2/: 225.5.
  - Primary balance (excluding grants): 2005: -119.0; 2006 Prog./Prel.: -108.5; 2007 H1: -197.6.
  - Overall balance (including grants): 2005: 6.7; 2006 Prog./Prel.: -28.7; 2007 H1: -97.0.

### Competitiveness, business climate, and structural priorities
- External competitiveness:
  - The real effective exchange rate is at its lowest point in more than two decades; indirect indicators and tourism developments suggest broadly competitive REER.
  - Staff analysis finds no statistically significant deviation of the REER from its estimated equilibrium level.
  - Fiscal consolidation is key to supporting competitiveness and the sustainability of the currency board arrangement.
- Business climate:
  - World Bank’s 2007 “Doing Business Indicators” ranks Grenada 73 out of 175 countries.
  - Weaknesses versus Caribbean competitors: enforcing contracts (143), registering property (145), closing a business (151).
  - Authorities developed an action plan (including a one-stop shop for investors and land registry upgrades) but reforms have been delayed by capacity constraints.
- Structural reform priorities highlighted by staff:
  - Address the unregulated bank.
  - Improve the business environment to sustain competitiveness.
  - Reform the tax concessions regime (authorities no longer intend to fully eliminate tax holidays in light of regional competition).
  - Introduce a VAT and strengthen tax administration.
  - Strengthen capacity to evaluate and prioritize capital projects.
  - Develop a full-fledged Poverty Reduction Strategy (PRS).

### Staff appraisal, key recommendations, and program relations
- Staff assessment and priorities:
  - Recovery since the hurricanes has been strong, but fiscal slippages in 2006–07 increased debt and eroded policy room.
  - DSA shows Grenada at high risk of debt distress; current policies leave debt on an unsustainable path.
- Key policy recommendations:
  - Implement stronger fiscal consolidation, prioritizing use of divestment proceeds to reduce expensive public debt rather than finance capital expenditure.
  - Scale back capital expenditure relative to previous outturns to restore fiscal sustainability.
  - Resolve supervisory arrangements for the unregulated bank and conduct independent assessment; investigate insurance companies’ deposit-taking.
  - Advance structural reforms: VAT introduction, tax concessions reform, improved capital-project evaluation, enhanced tax administration, and completion of PRSP/poverty diagnostics.
  - Clear arrears promptly and avoid further reliance on unsustainable financing.
  - Strengthen public financial management, adopt multi-year budgeting, and enhance statistical coverage, timeliness, and quality.
- Fund relations and program status:
  - Last Article IV consultation concluded July 13, 2005.
  - PRGF arrangement approved Apr 17, 2006 (Amount Approved 10.53 SDR Million; Amount Drawn 1.56 SDR Million); PRGF program went off track relatively soon after approval due to fiscal slippages, slow structural reform pace, and the unregulated bank issue.
  - Completion of the First Review Under the PRGF program contingent on corrective fiscal action, addressing the unregulated bank, and accelerating structural reforms to unlock additional grants and concessional financing.

### Selected financial sector indicators and statistical issues
- Selected financial indicators (2001–06 as presented):
  - Capital adequacy ratio: 14.1 15.6 17.7 14.9 15.3 17.5.
  - Nonperforming loans/total loans: 5.9 5.8 4.5 6.0 5.5 3.7.
  - Loan-loss provisions/NPLs: 43.6 45.6 61.7 81.9 79.4 67.4.
  - (Pre-tax) return on average assets: 2.4 2.3 2.8 0.5 0.7 2.5.
- Statistical issues and needs (Appendix IV):
  - National accounts: annual provision only; GDP by expenditure available with long lags; real GDP by sector not available; CPI basket last updated in 2000.
  - Tourism, labor, and many other series have limited coverage, consistency, and timeliness; labor data most recent year 1998.
  - Fiscal reporting improved but coverage of the rest of the public sector is limited; no consolidated public sector accounts; no systematic reporting mechanism to ministry of finance for many public enterprises.
  - Balance of payments: latest published data for 2005; provisional 2006 data incomplete.
  - Recommendation: enhance coverage, consistency, and timeliness for national accounts, labor markets, tourism, balance of payments, debt, and public enterprise data.

*Source: IMF staff report excerpts (document _cr08351)._

### EXECUTIVE SUMMARY

### _cr08351 - EXECUTIVE SUMMARY

### Background and recent context
- Grenada’s economy rebounded after Hurricanes Ivan and Emily, with recovery centered on reconstruction and 2007 Cricket World Cup preparations.
- Real GDP growth averaged 7 percent during 2005–06, driven by reconstruction, CWC preparations, and tourism revival.
- Inflation: peaked at almost 6 percent at end-2005; 12-month CPI inflation declined to 2.5 percent by May 2007.
- External sector:
  - Foreign direct investment financed about 40 percent of the current account deficit.
  - Stayover tourist arrivals grew nearly 10 percent during January–May 2007 over the previous year.
  - Cocoa exports returned in Q1 2007; other exports broadly constant; first-quarter 2007 current account deficit widened slightly with imports picking up and a decline in income and transfers.
- Monetary and credit developments:
  - Growth in credit to the private sector picked up in 2006 and 2007, led by construction and tourism; loans to agriculture fell.
- Social indicators and strategy:
  - Grenada is undertaking a Country Poverty Assessment (CPA), results expected by end-2007; a full PRSP is expected by June 2008.

### Fiscal outcomes and debt dynamics
- Fiscal performance deteriorated markedly in 2006:
  - Government investment reached 20 percent of GDP, about 5 percentage points higher than envisaged.
  - The primary deficit in 2006 was almost 7 percentage points of GDP higher than targeted (measured on a below-the-line basis).
  - Tax collection was lower than programmed, partly because the National Reconstruction Levy (NRL) rate was negotiated at 3 percent rather than the planned 5 percent.
  - Spending on goods and services exceeded projections, reflecting higher utility costs and transfers to households.
  - The 2006 deficit was financed through accumulation of domestic arrears, a drawdown of deposits, and increased public debt.
  - Public debt rose from 120 percent of GDP at end-2005 to 125 percent of GDP by end-2006.
- 2007 developments through H1:
  - Fiscal slippages continued in H1 2007 despite shortfalls in grants relative to pledges.
  - The overall deficit during the first half of 2007 reached 2.2 percent of annual GDP, compared with the revised program target of 1 percent for the whole of the year.
  - The H1 2007 deficit was financed primarily through overdrafts and the drawdown of deposits.
  - Government accumulated arrears amounting to EC$20.3 million on unrestructured domestic debt to the nonbank public due on June 30.

### Fund relations, programs, and implementation challenges
- Last Article IV consultation concluded in July 2005.
- On April 17, 2006, the Executive Board approved a PRGF arrangement for 90 percent of quota.
- The PRGF program went off track relatively soon after approval due to:
  - Fiscal slippages.
  - Slow pace of structural reforms.
  - The longstanding issue of an unregulated bank, complicated by the bank’s lawsuit against the government and the Eastern Caribbean Central Bank (ECCB), leaving the validity of the bank’s license and supervisory authority unclear.
- Implementation constraints identified by staff and authorities:
  - Limited administrative capacity (staffing constraints, difficulties with intensive economic monitoring).
  - Political constraints.
  - Some aspects of the original PRGF program were later viewed by the government as too ambitious.

### Key challenges and staff analysis
- Restoring fiscal and debt sustainability:
  - Staff view corrective action as needed to compensate for recent fiscal slippages.
  - High debt levels require a stronger fiscal effort, including using all divestment proceeds to pay down expensive debt rather than to finance capital expenditure.
  - Using divestment proceeds to pay down debt would allow the government to reach its debt-to-GDP target of 60 percent by 2017, rather than 2025 under current policies.
  - Authorities preferred using half of divestment proceeds for project financing and found it difficult to scale back capital expenditure as recommended by staff.
- Safeguarding financial sector stability:
  - The financial system weathered the hurricanes well.
  - Grenada established a single regulatory agency to supervise nonbank financial institutions.
  - Authorities and staff expressed concern about the continued operation of an unregulated bank and deposit-taking activities by insurance companies.
  - Authorities are exploring options to supervise the unregulated bank and intend to conduct a thorough investigation of insurance companies’ activities.
- Managing vulnerabilities:
  - Government has taken steps to mitigate natural disaster risk and to diversify the economic base.
  - Staff highlighted vulnerability stemming from large government and external financing needs over the foreseeable future.
- Reinvigorating the structural reform agenda (critical reforms identified by staff):
  - Address the issue of the unregulated bank.
  - Improve the business environment to sustain competitiveness.
  - Reform the tax concessions regime (authorities no longer intend to fully eliminate tax holidays in light of regional competition).
  - Introduce a VAT.
  - Strengthen capacity to evaluate and prioritize capital projects.
  - Enhance tax administration.
  - Develop a full-fledged Poverty Reduction Strategy (PRS).

### Findings and policy recommendations (summary)
- Findings:
  - Recovery from hurricanes has restored economic growth and reduced inflation pressures, but large fiscal and debt vulnerabilities persist.
  - Public debt at end-2006 was 125 percent of GDP, constraining policy space for shocks.
  - Fiscal slippages in 2006–07 have been driven primarily by capital expenditure overruns and lower-than-programmed revenue.
  - Financial sector stability is threatened by governance and supervisory gaps surrounding an unregulated bank and insurance companies’ deposit-taking activities.
- Policy recommendations:
  - Implement stronger fiscal consolidation, prioritizing the use of divestment proceeds to reduce expensive public debt.
  - Scale back capital expenditure relative to previous outturns (as advised by staff) to restore fiscal sustainability.
  - Resolve supervisory arrangements for the unregulated bank and investigate insurance companies’ deposit-taking.
  - Advance structural reforms: VAT introduction, tax concessions reform, improved capital-project evaluation, enhanced tax administration, and completion of PRSP/poverty diagnostics.

*Source: EXECUTIVE SUMMARY (document _cr08351) — IMF staff summary.*

### 10.      Implementation of the authorities’ structural reform program has been uneven:

### 10.      Implementation of the authorities’ structural reform program has been uneven

### Implementation of structural reform program
- Solid progress in fiscal measures:
  - The politically-difficult NRL came into effect in early 2006.
  - An automatic fuel pricing mechanism was adopted in October 2006 to protect revenues from oil price fluctuations.
  - Collection of tax arrears is being strengthened.
  - Publication of information on tax concessions has begun.
  - Work towards the implementation of a VAT is proceeding, with the authorities aiming for introduction in early 2008.
- Important steps toward reducing vulnerabilities:
  - Grenada established a single regulatory agency—Grenada Authority for the Regulation of Financial Institutions (GARFIN)—to strengthen supervision over the nonbank financial sector.
  - Grenada signed up for the World Bank’s Caribbean Catastrophe Risk Insurance Facility (CCRIF).
  - Steps are being taken toward giving the Building Code force of law.
- Delays in other structural reforms:
  - Under their economic reform program the authorities set out seven measures (structural benchmarks under the PRGF program); so far, only three have been met, two with delay.
  - The biggest stumbling block was on tax concessions, as the authorities continued to grant tax holidays.
  - Benchmarks on legislative action regarding tax concessions will only be met by end-2007, and in modified form.
  - An agreement with trade unions on the public service wage path is yet to be reached.
  - The issue of the unregulated bank remains outstanding.
  - Other reforms—from public sector modernization to the one-stop shop for investors—have been delayed, mainly reflecting capacity constraints.

### Status of Structural Benchmarks Under the Program (as reported)
- Stop granting or extending tax holidays — Target Date: Jan. 2006 — Status: Not met
- Agree on public service wage path for 2006–08 — Target Date: Apr. 2006 — Status: Not met
- Initiate work to strengthen PSIP process — Target Date: Jun. 2006 — Status: Met in July 2006
- Publish information on new tax concessions — Target Date: Jun. 2006 — Status: Met in Sep. 2006
- Amend the Income Tax Act — Target Date: Jun. 2006 — Status: Not met
- Repeal tax incentives legislation — Target Date: Jun. 2006 — Status: Not met
- Initiate comprehensive customs reforms — Target Date: Aug. 2006 — Status: Met

### Economic outlook and immediate effects
- Real GDP projections:
  - Projected to grow at 3 percent in 2007 and 4 percent thereafter.
- Investment and spillovers:
  - Major upscale tourism projects and gradual recovery of agriculture expected to generate increased employment, linkages with agriculture and other sectors, and substantial one-off financial resources for the government in the form of land transfer taxes and proceeds from land sales.
  - Land prices have doubled in parts of Grenada over the past year.
- Political context:
  - Government has a one-vote majority in the Parliament.
  - Elections are not due until February 2009, with speculation of an early election; political cycle complicates fiscal adjustment and structural reforms.

### Restoring fiscal and debt sustainability — findings and status
- Overarching objective: restore fiscal and debt sustainability.
- Debt restructuring outcomes:
  - A highly successful debt exchange in November 2005: overall participation reached 91 percent of eligible debt, or about US$237 million (about 40 percent of total public debt).
  - The restructuring involved a net-present-value reduction of 40–45 percent (using a 9 percent discount rate), for exit yields in the 9–10 percent range, and reduced debt servicing costs by 83 percent during 2005–08.
  - Authorities are engaging nonparticipating creditors; one creditor holding about 5 percent of the eligible debt was offered settlement on the same terms as exchange participants.
- Bilateral/official debt:
  - In May 2006, the Paris Club agreed to reduce debt service to Paris Club creditors by more than 90 percent for the duration of the PRGF arrangement.
  - Bilateral agreements signed with Belgium, France, and the United States; agreement close with the United Kingdom; contacts with the Russian Federation.
  - Outstanding issues with non-Paris Club creditors, including Taiwan Province of China; Ex-Im Bank of Taiwan Province of China sued Grenada in March 2006.
- Debt sustainability analysis (DSA):
  - DSA indicates Grenada is at high risk of debt distress.
  - Deterioration in outlook since last DSA due mainly to fiscal slippages of the last 12–18 months.
- Fiscal slippages and corrective measures:
  - Expenditure overruns resulted from greater-than-anticipated reconstruction costs, pressing development needs, and CWC preparations.
  - Government agreed to reprioritize capital projects to substantially lower capital expenditure in the year.
  - Authorities are trying to reach agreement with trade unions on a public sector wage package that would reduce the wage bill as a percent of GDP over time.
  - Authorities expect substantial divestment proceeds from land sales and equity divestments; plan to use half of such proceeds to pay down expensive debt and the remainder to finance their capital program.
  - Combined measures expected to contain the overall deficit to about 3¼ percent of GDP this year and the primary deficit (including grants) to about 1 percent of GDP.
- Risks noted:
  - High public debt leaves little room for maneuver; another strong hurricane could substantially delay fiscal and debt sustainability.
  - Reliance on unsustainable financing sources raises risk of disorderly adjustment and could undermine government’s financial reputation.
  - Need to adopt the stronger policy framework proposed in the active scenario to help unlock disbursements of grants and concessional financing from donors and creditors, including the European Union (EU) and the Caribbean Development Bank (CDB).

### Debt scenarios and assumptions
- Active scenario (authorities could reach debt-to-GDP ratio of 60 percent by 2017, three years ahead of ECCB’s revised regional target date):
  - Requires a small overall fiscal surplus and a primary surplus (including grants) of about 3 percent of GDP to be sustained over the next decade.
  - Requires capital expenditure in 2007 be limited to just under 9 percent of GDP and to 8 percent thereafter.
  - Requires implementing additional revenue-enhancing measures over the medium term (e.g., an inflation adjustment to the fuel surcharge).
  - Requires keeping real wages and spending on transfers, goods, and services constant over the medium term.
  - Assumes all divestment proceeds are used to clear arrears and pay down expensive debt rather than finance additional budgetary expenditures.
- Baseline scenario:
  - Using current fiscal plans, the targeted debt ratio of 60 percent is only reached by 2025.

### Fiscal figures reported (Grenada: Fiscal Developments, 2005–07; in millions of Eastern Caribbean dollars)
- Total revenues and grants:
  - 2005: 515.7
  - 2006 Prog.1/Prel.: 505.6
  - 2007 H1: 511.9
  - Budget: 220.0
  - Baseline: 536.4
  - Active2/: 465.5
  - 2007 (another column): 483.3
- Revenues:
  - 2005: 360.1
  - 2006 Prog.1/Prel.: 392.8
  - 2007 H1: 379.7
  - Budget: 207.4
  - Baseline: 441.2
  - Active2/: 424.8
  - 2007 (another column): 427.7
- Grants:
  - 2005: 155.6
  - 2006 Prog.1/Prel.: 112.8
  - 2007 H1: 132.2
  - Budget: 12.6
  - Baseline: 95.2
  - Active2/: 40.7
  - 2007 (another column): 55.6
- Total expenditures:
  - 2005: 508.9
  - 2006 Prog.1/Prel.: 534.2
  - 2007 H1: 608.9
  - Budget: 253.5
  - Baseline: 576.2
  - Active2/: 514.1
  - 2007 (another column): 464.4
- Primary expenditures:
  - 2005: 479.1
  - 2006 Prog.1/Prel.: 501.2
  - 2007 H1: 577.3
  - Budget: 240.0
  - Baseline: 539.6
  - Active2/: 476.1
  - 2007 (another column): 426.4
- Current Expenditures:
  - 2005: 303.0
  - 2006 Prog.1/Prel.: 318.1
  - 2007 H1: 323.1
  - Budget: 162.4
  - Baseline: 350.7
  - Active2/: 354.1
  - 2007 (another column): 335.2
- Interest:
  - 2005: 29.9
  - 2006 Prog.1/Prel.: 33.0
  - 2007 H1: 31.6
  - Budget: 13.4
  - Baseline: 36.6
  - Active2/: 38.0
  - 2007 (another column): 38.0
- Capital expenditures:
  - 2006 Prog.1/Prel.: 206.0
  - 2007 H1: 216.1
  - Budget: 285.8
  - Baseline: 91.1
  - Active2/: 225.5
  - 2007 (another column): 160.0
  - 2007 (another column): 129.2
- Primary balance (excluding grants):
  - 2005: -119.0
  - 2006 Prog.1/Prel.: -108.5
  - 2007 H1: -197.6
  - Budget: -32.6
  - Baseline: -98.4
  - Active2/: -51.3
  - 2007 (another column): 1.3
- Overall balance (including grants):
  - 2005: 6.7
  - 2006 Prog.1/Prel.: -28.7
  - 2007 H1: -97.0
  - Budget: -33.5
  - Baseline: -39.8
  - Active2/: -48.6
  - 2007 (another column): 18.9

(Note: Table columns labeled "Prog. 1/Prel.", "H1", "Budget", "Baseline", "Active 2/" reflect the presentation in the source.)

### Management of PetroCaribe concessional financing
- Authorities’ approach:
  - Use financing judiciously to improve the debt service profile by investing the net present value of future debt obligations in an earmarked account and using only the remainder to finance budgeted social programs.
  - Plan to transparently record all associated expenditures on budget and put safeguards in place for the earmarked investment account.
  - Mission advised seeking further technical assistance to build up debt management capacity; authorities concurred.

### Public finance management and tax administration reforms
- Strengthening public finance management:
  - Encourage enhanced capacity through intensive training in Public Sector Investment Program (PSIP) techniques.
  - New guidelines for extra-budgetary spending adopted in June 2007 require all requests for such spending be directed to the ministry of finance before submission to Cabinet.
  - Authorities expressed interest in moving toward multiyear budgeting within a ten-year National Strategic Plan.
- Tax policy and administration:
  - Authorities revisited plans to stop granting tax holidays in light of negotiations with top-tier investors; staff suggested a preferred broad-based regional agreement to abolish tax holidays.
  - In absence of regional agreement, any further tax holidays should be transparent, nondiscretionary, and only for qualifying projects above a sufficiently high threshold.
  - Authorities plan to reassess real estate values for property tax purposes; a substantial increase in property taxes is expected because values have not been adjusted since 1994; completion anticipated within two years; increase to be stepwise.
  - Creation in early 2007 of a new unit in Inland Revenue to collect tax arrears, with the aim of collecting about EC$18 million annually over the next few years.
  - Reforms will focus first on the implementation of the VAT and broader customs reforms (simplification of customs clearance; strengthening audit capacity, risk management, anti-smuggling, and fraud detection).
  - VAT launch:
    - White Paper launched in January 2007.
    - VAT introduction likely delayed into the first half of 2008 (from October 1, 2007).
    - Mission encouraged recruiting and training staff, passing VAT and excise legislation, and adopting transitional procedures for bonded warehouses.

### Social and development priorities
- Authorities committed to reducing poverty and improving social indicators.
- Expenditure priorities to align with the social development agenda in the country’s PRS (under preparation).
- Government worked with donors to secure resources for new housing for those displaced after the hurricanes and to rebuild health and education infrastructure.
- Youth training and development prioritized to reduce unemployment.
- Government plans to maintain initiatives from 2006 to cushion the impact of fuel price increases on vulnerable groups.

### Safeguarding financial sector stability
- Government priority: safeguard domestic financial sector stability.
- GARFIN progress:
  - Under GARFIN, authorities have begun to step up supervision of the broader financial sector.
  - CARTAC assistance is being used to strengthen GARFIN’s capacity.

*Source: _cr08351 - 10.      Implementation of the authorities’ structural reform program has been uneven (IMF staff report excerpt).*

### 26.      There was broad agreement

### There was broad agreement

### Banking sector resilience and performance
- Broad agreement that Grenada’s banking sector had weathered well the impact of the hurricanes.
- Grenada’s financial indicators were among the region’s strongest prior to Hurricane Ivan.
- In the aftermath, insurance payouts and external assistance helped preserve a high level of liquidity.
- The debt restructuring was designed to minimize the impact on the banking system.
- Although the share of nonperforming loans increased following Hurricane Ivan, this has been steadily declining and is now below pre-hurricane levels.

### Unregulated bank — risks and recommended actions
- The mission urged the authorities to address the longstanding issue of an unregulated, fast-growing bank.
- Owing to a dispute over the validity of the bank’s license, the ECCB does not supervise the bank and has kept it out of the formal clearing and payments system.
- The mission strongly encouraged the authorities to:
  - find an approach, consistent with Grenada’s legal framework, to supervise the bank; and
  - conduct an independent assessment to determine the bank’s financial condition.
- Authorities believed the bank’s operations posed risks to the rest of the financial sector, although these risks are contained because other banks have tried to limit linkages with this bank.
- Progress in this area would also be a key step toward completing the First Review Under the PRGF program.
- Note: Foreign banks data in the financial indicators exclude the unregulated bank (see table footnote "1/ Excluding the unregulated bank.").

### GARFIN, insurance sector, and AML/CFT concerns
- The commencement of GARFIN’s operations in March 2007 provided an opportunity to address remaining gaps in the regulatory and supervisory framework.
- Authorities plan several crucial amendments to the GARFIN Act to make it more effective.
- Foreign exchange trading services and micro-financing will be defined as money services business to bring such activities under the supervision of GARFIN.
- The new supervisory agency is in its early stages; authorities recognized capacity-building was crucial for GARFIN to fully carry out responsibilities.
- Foreign exchange trading entities can pose a significant risk of money laundering/terrorism financing (ML/FT), especially if they engage in funds-transfer services.
- Authorities are aiming to enact a new Insurance Act by December 2007 to:
  - strengthen insurance supervision;
  - improve contract certainty; and
  - better protect policyholders.
- Mission concerns about insurance companies’ deposit-taking:
  - Some insurance companies are offering fixed-term deposits with annual interest rates up to 9 percent per year, far in excess of that offered by commercial banks, with the funds invested abroad.
  - This activity undermines the client base for the domestic commercial banking system and could indicate riskier investment activities by the insurance companies.
  - Growth in deposit-taking increases potential ML/FT risk in insurance companies to a level not dissimilar to that of banks and other deposit-taking entities.
- Mission welcomed GARFIN’s plans to conduct a thorough investigation of insurance companies’ activities and to determine, in coordination with the ECCB, whether banking licenses should be required.

### Managing vulnerabilities — natural disasters, fiscal risks, and contingency planning
- Grenada remains highly vulnerable to exogenous shocks; the greatest vulnerability stems from the possibility of another natural disaster.
- After the hurricanes, some insurance companies expanded the “hurricane belt” to include Grenada.
- The economy is now more dependent on tourism as a result of the hurricanes’ destruction of nutmeg production capacity.
- Grenada’s highly-open economy is vulnerable to terms-of-trade shocks, including movements in world fuel prices.
- Mission commended authorities’ actions to mitigate financial risks of natural disasters:
  - Grenada secured donor financing to pay its premium for the first three years for the World Bank’s CCRIF.
  - CCRIF is intended to provide short-term liquidity support to the budget and not full insurance coverage.
  - Government steps to give the Building Code force of law were welcomed to prevent repeat hurricane damage.
- Diversification and regional integration:
  - Government implementing a National Export Strategy to diversify (e.g., higher value-added agriculture; marketing local arts and crafts; broadening tourism beyond “sun, sand, and sea”).
  - Mission encouraged continued external trade liberalization within CARICOM.
  - OECS members approved a draft treaty in May 2007 to establish an OECS Economic Union.
- Risk management and contingency fund recommendation:
  - Mission stressed the need for a detailed risk management plan covering scenarios related to natural disasters, financial sector instability, and trade shocks.
  - Recommended creation of a contingency fund of at least 1 percent of GDP, to be held in a deposit account with the ECCB as a cushion for urgent, unanticipated liquidity needs.
  - Footnote: This contingency fund is incorporated into the mission’s recommended active policy scenario, but not the baseline scenario.
- Financing risks:
  - Some local market participants noted they would not lend to the government at this point, even to rollover debt.
  - Rollover risk could be substantial for domestic debt, as outstanding treasury bills alone amount to 5 percent of GDP.
  - The mission stressed rebuilding the government’s financial reputation through strong fiscal adjustment.
  - Medium-term balance of payments vulnerability: sizable current account deficit projected at 25 percent of GDP in 2007 implies increasing dependence on large FDI inflows.

### Enhancing competitiveness and business climate reforms
- Key determinants of growth prospects include international competitiveness (real effective exchange rate (REER)) and the broader investment climate.
- Exchange rate and REER findings:
  - Exchange rate indicators suggest that external competitiveness is currently not an issue.
  - Higher world fuel prices account for the bulk of adverse movements in Grenada’s terms of trade.
  - Movements in REER, including customer- or competitor-based measures, have been favorable; Grenada has increased its share of ECCU stayover visitors.
  - Staff analysis finds no statistically significant deviation of the REER from its estimated equilibrium level.
  - Mission underscored fiscal consolidation’s importance to support competitiveness and the sustainability of the currency board arrangement.
- Business environment:
  - World Bank’s 2007 “Doing Business Indicators” report ranks Grenada 73 out of 175 countries.
  - Grenada performs poorly among Caribbean competitors on several indicators: enforcing contracts (143), registering property (145), and closing a business (151).
  - Authorities have developed a detailed action plan, in consultation with the business community, to address weaknesses.
  - Reforms have suffered delays (e.g., one-stop shop for investors, land registry upgrades); newly-created ministry of economic development and planning may facilitate implementation.

### Staff appraisal — assessment, scenarios, and policy priorities
- Economic rebound since the hurricanes is remarkable; credit to resilience, donor/creditor support, and government efforts including a medium-term economic reform program.
- Government reform program focuses on fiscal and debt sustainability, durable high growth, poverty alleviation, and vulnerabilities.
- Major challenges and debt distress risk:
  - DSA indicates Grenada is at high risk of debt distress.
  - Fiscal slippages have increased debt and eroded room for maneuver in case of future shocks.
  - Current fiscal policies, if continued, would imply debt remains unsustainable.
- Fiscal consolidation scenarios and recommendations:
  - A front-loaded fiscal adjustment could reach targeted debt ratio of 60 percent of GDP by 2017, three years ahead of the ECCB target date for ECCU members.
  - An important element of this scenario is using expected substantial divestment proceeds from sales of land and shares this year to pay down expensive debt rather than finance additional budgetary expenditures.
  - A scenario based on current fiscal plans—including using half of all divestment proceeds to finance capital expenditure in 2007—would imply the targeted debt ratio would only be reached by 2025, and with a weaker government net asset position.
- Public financial management and structural reforms needed:
  - Clear arrears as soon as possible and avoid further reliance on unsustainable financing.
  - Improve efficiency of the tax system (supported by a timely VAT introduction).
  - Enhance effectiveness of public spending and modernize the public service.
  - Improve expenditure control and strengthen capacity to screen and prioritize capital projects.
- Financial sector priorities:
  - Strengthening the health of the financial sector is a top priority.
  - The unregulated bank issue should be addressed without delay: conduct independent assessment and find a supervisory approach consistent with domestic law.
  - Nonbank sector: authorities commended for strengthening supervisory framework, plans to amend GARFIN Act to address emerging risks in the insurance sector and broaden regulatory coverage.
  - Although Grenada has a comprehensive AML/CFT framework in place, recent developments underscore the importance of strengthening its effectiveness to deal with potential ML/FT risks.
- Vulnerability reduction measures:
  - Strategy includes strengthening Building Code enforcement, enacting a new Insurance Act, and participating in the CCRIF.
  - Government aims to diversify the economic base via the National Export Strategy.
  - Bolstering the government’s financial reputation is crucial to ensure solid access to credit markets and continued FDI flows given large domestic and external financing needs.

### Selected financial sector indicators, 2001–06 (as presented)
- Capital adequacy ratio 14.1 15.6 17.7 14.9 15.3 17.5
- Nonperforming loans/total loans 5.9 5.8 4.5 6.0 5.5 3.7
- Locally incorporated banks 9.3 9.0 7.2 7.1 6.8 4.7
- Foreign banks 1.4 1.3 0.6 4.4 3.5 2.4
- Loan-loss provisions/NPLs 43.6 45.6 61.7 81.9 79.4 67.4
- Locally incorporated banks 40.6 39.3 49.5 63.0 60.7 51.5
- Foreign banks 71.1 106.9 301.3 127.8 134.6 114.6
- Gross government claims/total assets 14.3 15.6 13.9 11.3 11.2 11.6
- Foreign currency deposits/total deposits 7.3 6.9 7.3 5.6 7.8 5.8
- (Pre-tax) return on average assets 2.4 2.3 2.8 0.5 0.7 2.5

*Source: Eastern Caribbean Central Bank; table footnote: 1/ Excluding the unregulated bank.*

*IMF Staff Report excerpt: _cr08351 - 26.      There was broad agreement_*

### 46.      External competitiveness does not currently appear to be an issue in Grenada.

### _cr08351 - 46.      External competitiveness does not currently appear to be an issue in Grenada.

### External competitiveness
- The real effective exchange rate is at its lowest point in more than two decades.
- This low REER is supported by sustained low inflation and the EC dollar’s depreciation against the currencies of trading partners.
- Indirect indicators, including tourism sector developments, suggest the real exchange rate level is broadly competitive.
- Looking ahead, fiscal consolidation will be key to supporting competitiveness and the sustainability of the currency board arrangement.

### Structural reform agenda
- The overarching challenge is creating conditions for strong, sustainable, private-sector-led growth in a highly competitive global environment, which is also key to addressing the social agenda.
- Wide-ranging reforms have been initiated but require faster implementation to realize benefits:
  - Setting up a one-stop shop for investors.
  - Reforming the tax concessions regime.
  - Strengthening capacity to evaluate capital projects.
  - Developing a PRS.
- With investors’ high level of interest in Grenada at present, this is an opportune time to push through reforms to improve the business climate.

### Fiscal consolidation, financial sector, and program financing
- Progress with fiscal consolidation, financial sector supervision (most crucially of the unregulated bank), and the structural reform agenda would set the stage for moving forward with the first review under the PRGF program.
- Completing the review could unlock grants and concessional financing and facilitate continued support from Paris Club creditors.
- Additional external support would reinforce the authorities’ efforts to advance their homegrown economic program.

### Data and statistics
- While data provision is generally adequate for surveillance purposes, better statistics are needed to support effective economic management.
- Significant improvements in coverage and timeliness are needed to support policy analysis, policy-making, and informed public debate.
- Data that need strengthening include national accounts, labor markets, tourism, balance of payments, debt, and public enterprises.

### Economic outlook
- The economic outlook for Grenada is favorable.
- Growth prospects are promising as agriculture continues to recover and new tourism projects come on stream, raising Grenada’s profile as an upmarket tourist destination.
- These developments, combined with progress on the government’s reform objectives, should lay the foundation for strong, sustainable growth in the years ahead.

*Source: _cr08351 - 46. External competitiveness does not currently appear to be an issue in Grenada.*

### 51.      It is proposed that the next Article IV consultation take place in accordance with

### _cr08351 - 51.      It is proposed that the next Article IV consultation take place in accordance with

### Article IV consultation timing
- "It is proposed that the next Article IV consultation take place in accordance with the July 15, 2002 decision on consultation cycles."

### Key macroeconomic indicators and projections (Selected Economic and Financial Indicators, 2003–09)
- Real GDP (annual percent change): 2003: 6.4; 2004: -6.5; 2005: 12.7; 2006 (Prel./Prog.): 6.5; 2007: 0.7; 2008: 3.0; 2009: 4.0
- GDP deflator (annual percent change): 2003: 0.9; 2004: 4.2; 2005: 2.9; 2006: 4.6; 2007: 3.0; 2008: 2.4; 2009: 2.0
- Consumer prices (end-of-year): 2003: 1.6; 2004: 2.5; 2005: 5.8; 2006: 2.0; 2007: 1.7; 2008: 2.0; 2009: 2.0
- Consumer prices (period average): 2003: 2.2; 2004: 2.3; 2005: 3.5; 2006: 4.6; 2007: 4.2; 2008: 2.4; 2009: 2.0

### External sector (2003–09, selected)
- Merchandise Exports, f.o.b. (annual percent change): 2003: 10.0; 2004: -18.9; 2005: -5.5; 2006: 0.6; 2007: -15.6; 2008: 14.5; 2009: 8.8; 2010: 10.3 (table header covers 2003–09 but includes 2010 in other tables)
- Merchandise Imports, c.i.f. (annual percent change): 2003: 25.1; 2004: 3.9; 2005: 20.0; 2006: -3.4; 2007: -8.0; 2008: 5.0; 2009: 5.4; 2010: 4.4
- Merchandise export volume (annual percent change): 2003: 2/-2.0; 2004: -25.6; 2005: -15.8; 2006: -0.6; 2007: -15.2; 2008: 17.1; 2009: 14.9; 2010: 13.3
- Merchandise import volume (annual percent change): 2003: 2/12.0; 2004: -8.5; 2005: 11.2; 2006: -5.0; 2007: -16.1; 2008: 1.7; 2009: 5.1; 2010: 5.8
- Current account balance (including grants; percent of GDP): 2003: -32.2; 2004: -12.4; 2005: -24.9; 2006: -32.8; 2007: -23.9; 2008: -24.9; 2009: -24.9; 2010: -21.9
- Terms of trade (deterioration -; percent): 2003: -2.9; 2004: -10.5; 2005: -0.7; 2006: -0.5; 2007: -9.2; 2008: -5.4; 2009: -5.3; 2010: -1.8
- Real effective exchange rate (end of period, depreciation -): 2003: -5.2; 2004: -3.5; 2005: 5.6; 2006: ...; 2007: -4.6

### Banking system (selected levels and changes)
- Net foreign assets (percent of broad money at beginning of year): 2003: 5.8; 2004: 17.9; 2005: -19.3; 2006: -2.2; 2007: -6.4; 2008: 0.0; 2009: 0.5; 2010: -0.8
- Net domestic assets (percent of broad money at beginning of year): 2003: 2.2; 2004: -0.2; 2005: 18.3; 2006: 10.1; 2007: 7.3; 2008: 3.9; 2009: 4.6; 2010: 6.0
- Credit to private sector (percent of broad money at beginning of year): 2003: 3.1; 2004: 5.0; 2005: 6.2; 2006: 8.5; 2007: 9.2; 2008: 4.6; 2009: 5.9; 2010: 5.5
- Money and quasi-money (M2, 12-month change in percent): 2003: 8.0; 2004: 17.7; 2005: -1.0; 2006: 7.8; 2007: 0.9; 2008: 3.9; 2009: 5.1; 2010: 5.2
- Weighted average deposit rate (percent): 2003: 3.4; 2004: 2.8; 2005: 2.8; 2006: ...; 2007: 3.0
- Weighted average lending rate (percent): 2003: 12.4; 2004: 10.0; 2005: 10.2; 2006: ...; 2007: 9.7

### Central government finances — Baseline scenario (2003–09, EC$ millions and percent of GDP)
- Total revenue and grants (EC$ millions): 2003: 413.2; 2004: 390.7; 2005: 515.7; 2006: 505.6; 2007: 511.9; 2008: 536.4; 2009: 465.5; 2010: 492.6; 2011: 513.2
- Total revenue (EC$ millions): 2003: 330.3; 2004: 302.5; 2005: 360.1; 2006: 392.8; 2007: 379.7; 2008: 441.2; 2009: 424.8; 2010: 454.7; 2011: 488.7
- Tax revenue (EC$ millions): 2003: 298.3; 2004: 278.8; 2005: 344.0; 2006: 362.1; 2007: 353.5; 2008: 407.5; 2009: 387.7; 2010: 422.7; 2011: 454.0
- Grants (EC$ millions): 2003: 82.9; 2004: 88.2; 2005: 155.6; 2006: 112.8; 2007: 132.2; 2008: 95.2; 2009: 40.7; 2010: 38.0; 2011: 24.5
- Total expenditure (EC$ millions): 2003: 470.8; 2004: 423.4; 2005: 508.9; 2006: 534.2; 2007: 608.9; 2008: 576.2; 2009: 514.1; 2010: 503.0; 2011: 524.4
- Current expenditure (EC$ millions): 2003: 291.6; 2004: 329.6; 2005: 303.0; 2006: 318.1; 2007: 323.1; 2008: 350.7; 2009: 354.1; 2010: 374.8; 2011: 388.0
- Capital expenditure (EC$ millions): 2003: 179.1; 2004: 93.8; 2005: 206.0; 2006: 216.1; 2007: 285.8; 2008: 225.5; 2009: 160.0; 2010: 128.2; 2011: 136.4
- Primary balance (including grants, EC$ millions): 2003: 4.9; 2004: 43.1; 2005: 36.6; 2006: 4.4; 2007: -65.4; 2008: -3.2; 2009: -10.6; 2010: 30.1; 2011: 34.6
- Overall balance (including grants, EC$ millions): 2003: -57.6; 2004: -32.7; 2005: 6.7; 2006: -28.7; 2007: -97.0; 2008: -39.8; 2009: -48.6; 2010: -10.3; 2011: -11.2
- Financing (EC$ millions): 2003: 113.5; 2004: 51.8; 2005: -6.5; 2006: 28.7; 2007: 124.6; 2008: 30.7; 2009: 48.6; 2010: 10.3; 2011: 11.2
- Net external financing (EC$ millions): 2003: 39.7; 2004: 67.9; 2005: 25.7; 2006: 61.1; 2007: 54.8; 2008: -5.3; 2009: 4.8; 2010: 31.3; 2011: 2.6
- Net domestic financing (EC$ millions): 2003: 73.6; 2004: -38.1; 2005: -32.2; 2006: -32.5; 2007: 30.2; 2008: 0.0; 2009: -32.7; 2010: -20.9; 2011: 8.5
- Total public and publicly guaranteed debt (memorandum, EC$ millions): 2003: 1,318; 2004: 1,528; 2005: 1,649; 2006: 1,666; 2007: 1,778; 2008: 1,778; 2009: 1,722; 2010: 1,746; 2011: 1,773
- Nominal GDP (market prices, EC$ millions): 2003: 1,202; 2004: 1,169; 2005: 1,372; 2006: 1,402; 2007: 1,417; 2008: 1,497; 2009: 1,497; 2010: 1,602; 2011: 1,705

### Central government finances — Baseline scenario (2003–09, percent of GDP)
- Total revenue and grants (percent of GDP): 2003: 34.4; 2004: 33.4; 2005: 37.6; 2006: 36.1; 2007: 36.1; 2008: 35.8; 2009: 31.1; 2010: 30.7; 2011: 30.1
- Total revenue (percent of GDP): 2003: 27.5; 2004: 25.9; 2005: 26.2; 2006: 28.0; 2007: 26.8; 2008: 29.5; 2009: 28.4; 2010: 28.4; 2011: 28.7
- Tax revenue (percent of GDP): 2003: 24.8; 2004: 23.8; 2005: 21.5; 2006: 25.8; 2007: 24.9; 2008: 27.2; 2009: 25.9; 2010: 26.4; 2011: 26.6
- Grants (percent of GDP): 2003: 6.9; 2004: 7.5; 2005: 11.3; 2006: 8.0; 2007: 9.3; 2008: 6.4; 2009: 2.7; 2010: 2.4; 2011: 1.4
- Total expenditure (percent of GDP): 2003: 39.2; 2004: 36.2; 2005: 37.1; 2006: 38.1; 2007: 43.0; 2008: 38.5; 2009: 34.3; 2010: 31.4; 2011: 30.8
- Current expenditure (percent of GDP): 2003: 24.3; 2004: 28.2; 2005: 22.1; 2006: 22.7; 2007: 22.8; 2008: 23.7; 2009: 23.4; 2010: 23.4; 2011: 22.8
- Capital expenditure (percent of GDP): 2003: 14.9; 2004: 8.0; 2005: 15.0; 2006: 15.4; 2007: 20.2; 2008: 15.1; 2009: 10.7; 2010: 8.0; 2011: 8.0
- Overall balance (including grants, percent of GDP): 2003: -4.8; 2004: -2.8; 2005: 0.5; 2006: -2.0; 2007: -6.8; 2008: -2.7; 2009: -3.2; 2010: -0.6; 2011: -0.7
- Total public and publicly-guaranteed debt (percent of GDP): 2003: 109.6; 2004: 130.7; 2005: 120.2; 2006: 118.9; 2007: 125.4; 2008: 118.8; 2009: 115.1; 2010: 109.0; 2011: 104.0

### Central government finances — Active scenario (selected, 2003–09)
- Total revenue and grants (percent of GDP): 2003: 34.4; 2004: 33.4; 2005: 37.6; 2006: 36.1; 2007: 36.1; 2008: 32.3; 2009: 31.4; 2010: 30.8; 2011: 29.4
- Total expenditure (percent of GDP): 2003: 39.2; 2004: 36.2; 2005: 37.1; 2006: 38.1; 2007: 43.0; 2008: 38.5; 2009: 31.0; 2010: 30.2; 2011: 29.4
- Overall balance (including grants, percent of GDP): 2003: -4.8; 2004: -2.8; 2005: 0.5; 2006: -2.0; 2007: -6.8; 2008: -2.7; 2009: 1.3; 2010: 1.2; 2011: 1.4
- Total public and publicly-guaranteed debt (memorandum, percent of GDP): 2003: 109.6; 2004: 130.7; 2005: 120.2; 2006: 118.9; 2007: 125.4; 2008: 118.8; 2009: 111.6; 2010: 103.9; 2011: 97.1

### Summary accounts of the banking system (2004–09, EC$ millions)
- Consolidated banking system — Liabilities to private sector (M2, end-period): 2004: 1,483.4; 2005: 1,469.0; 2006: 1,482.4; 2007: 1,540.2; 2008: 1,618.4; 2009: 1,701.9
- Money (end-period): 2004: 340.2; 2005: 315.3; 2006: 309.5; 2007: 331.4; 2008: 354.2; 2009: 377.1
- Quasi-money (end-period): 2004: 1,143.1; 2005: 1,153.7; 2006: 1,172.9; 2007: 1,208.7; 2008: 1,264.1; 2009: 1,324.8
- Base money (end-period): 2004: 327.6; 2005: 252.7; 2006: 261.9; 2007: 265.8; 2008: 273.9; 2009: 281.7
- Consolidated banking system (12-month change in percent of M2 at beginning of period): Liabilities to private sector (M2 growth): 2004: 17.7; 2005: -1.0; 2006: 0.9; 2007: 3.9; 2008: 5.1; 2009: 5.2
- Loans/deposits ratio (in percent): 2004: 57.6; 2005: 66.0; 2006: 73.2

### Balance of payments and external accounts (2003–12, selected)
- Current account balance (millions of U.S. dollars): 2003: -143.5; 2004: -53.6; 2005: -126.5; 2006: -125.7; 2007: -138.0; 2008: -147.9; 2009: -138.4; 2010: -129.7; 2011: -136.4; 2012: -146.5
- Exports (f.o.b., millions of U.S. dollars): 2003: 45.5; 2004: 36.9; 2005: 34.9; 2006: 29.4; 2007: 33.7; 2008: 36.7; 2009: 40.4; 2010: 45.2; 2011: 48.0; 2012: 50.9
- Imports (f.o.b., millions of U.S. dollars): 2003: -226.4; 2004: -235.4; 2005: -282.5; 2006: -260.0; 2007: -273.1; 2008: -287.9; 2009: -300.5; 2010: -314.7; 2011: -337.1; 2012: -354.5
- Services (net, millions of U.S. dollars): 2003: 51.0; 2004: 67.2; 2005: 29.2; 2006: 39.0; 2007: 68.1; 2008: 71.7; 2009: 91.2; 2010: 109.1; 2011: 120.5; 2012: 127.5
- Travel (net, millions of U.S. dollars): 2003: 95.3; 2004: 74.6; 2005: 68.4; 2006: 92.1; 2007: 124.6; 2008: 130.3; 2009: 151.5; 2010: 171.6; 2011: 187.7; 2012: 198.8
- Income (net, millions of U.S. dollars): 2003: -50.1; 2004: -43.2; 2005: -22.2; 2006: -25.5; 2007: -52.7; 2008: -55.8; 2009: -59.5; 2010: -61.0; 2011: -61.3; 2012: -65.6
- Transfers (net, millions of U.S. dollars): 2003: 36.5; 2004: 120.9; 2005: 114.1; 2006: 91.4; 2007: 86.0; 2008: 87.4; 2009: 90.0; 2010: 91.7; 2011: 93.4; 2012: 95.2
- Capital and financial account (millions of U.S. dollars): 2003: 129.4; 2004: 85.9; 2005: 116.1; 2006: 177.9; 2007: 134.7; 2008: 148.2; 2009: 138.6; 2010: 133.0; 2011: 139.3; 2012: 149.5
- Direct investment (net, millions of U.S. dollars): 2003: 89.2; 2004: 54.0; 2005: 48.6; 2006: 51.1; 2007: 84.2; 2008: 89.6; 2009: 94.4; 2010: 98.6; 2011: 103.7; 2012: 109.1
- Overall balance (millions of U.S. dollars): 2003: -17.2; 2004: 50.4; 2005: -27.5; 2006: -8.1; 2007: -3.3; 2008: 0.3; 2009: 0.2; 2010: 3.3; 2011: 2.9; 2012: 3.0
- External public sector debt (memorandum, millions of U.S. dollars): 2003: 355.8; 2004: 415.6; 2005: 437.0; 2006: 457.2; 2007: 458.2; 2008: 466.7; 2009: 464.3; 2010: 460.2; 2011: 456.4; 2012: 456.1

### Public sector debt and central government debt (year-end)
- Public sector debt (year-end, millions of U.S. dollars): 658.4 (100.0 percent of stock)
- Total debt (percent of GDP): 125.4
- Central government debt (millions of U.S. dollars): 576.8 (87.6 percent of stock); Central government debt (percent of GDP): 109.9
- Central-government guaranteed debt (millions of U.S. dollars): 61.1 (9.3 percent of stock); Central-government guaranteed debt (percent of GDP): 11.7
- External debt (millions of U.S. dollars): 457.2 (69.4 percent of stock); External debt (percent of GDP): 87.1
- A. Central government external debt (fragment shown): 413.3 (62.8 percent of stock); percent of GDP: 78.7

*Source: Ministry of Finance; Eastern Caribbean Central Bank; United Nations, Human Development Report 2006; World Bank, WDI 2006; and Fund staff estimates and projections.*

### 1.  Multilateral136.020.725.9

### _cr08351 - 1.  Multilateral136.020.725.9

### Public sector debt composition (2006 / table figures)
- Multilateral: 136.0 20.7 25.9
  - CDB: 84.2 12.8 16.0
  - IDA: 27.9 4.2 5.3
  - IBRD: 9.0 1.4 1.7
  - IMF: 9.5 1.4 1.8
  - Other multilateral: 5.4 0.8 1.0
- Official bilateral: 77.9 11.8 14.8
  - Paris Club: 16.4 2.5 3.1
    - Belgium: 6.7 1.0 1.3
    - France: 4.2 0.6 0.8
    - Russian Federation: 0.2 0.0 0.0
    - United Kingdom: 2.5 0.4 0.5
    - United States: 2.8 0.4 0.5
  - Non-Paris Club: 61.5 9.3 11.7
    - Taiwan Province of China: 20.3 3.1 3.9
    - Kuwait: 18.5 2.8 3.5
    - Trinidad and Tobago: 17.0 2.6 3.2
    - Other bilateral: 5.8 0.9 1.1
- Commercial, total: 199.4 30.3 38.0
  - Restructured bonds: 193.5 29.4 36.9
  - Unrestructured bonds: 5.8 0.9 1.1
- Central government guaranteed: 23.5 3.6 4.5
  - Of which Paris Club: 7.8 1.2 1.5
- Other public sector: 20.5 3.1 3.9

### Domestic debt (table figures)
- Domestic debt total: 201.2 30.6 38.3
  - A. Central government: 163.5 24.8 31.2
    - Restructured Bonds: 68.1 10.3 13.0
    - Unrestructured bonds: 11.0 1.7 2.1
    - Treasury bills: 26.5 4.0 5.0
    - Commercial bank loans: 24.2 3.7 4.6
    - Overdraft: 18.4 2.8 3.5
    - Domestic arrears: 14.8 2.3 2.8
    - Compensation claims: 0.6 0.1 0.1
  - B. Central government guaranteed: 37.7 5.7 7.2
- Memorandum item:
  - Nominal GDP: 524.9
- Note: 1/ Includes central government liabilities to the National Insurance Scheme.
- Sources (table): Grenada authorities; and Fund staff estimates.

### Key real, financial, and external indicators (selected figures)
- Real GDP growth (percent): 2003: 6.4-6.5; 2004: 12.7; 2005: 0.7
- CPI inflation (period average, in percent): 2003: 2.2; 2004: 2.3; 2005: 3.5; 2006: 4.2
- Capital adequacy ratio (locally incorporated banks): 17.7 14.9 15.3 17.5
- Liquid assets/total assets: 32.5 44.3 37.3 31.5
- Total loans/total deposits: 68.1 57.6 66.0 73.2
- Nonperforming loans/total loans: 4.5 6.0 5.5 3.7
- Loan loss provision/NPLs: 61.7 81.9 79.4 67.4
- Broad money (percent change, 12-month basis): 8.0 17.7 -1.0 0.9
- Private sector credit (percent change, 12-month basis): 4.1 6.8 9.2 12.5
- U.S. treasury bill rate (percent per annum): 1.0 1.4 3.2 4.9
- Treasury bill rate (percent per annum) 1/: 6.0 6.0 6.0 6.5
- Exchange rate (per US$, end of period): 2.7 2.7 2.7 2.7
- Current account balance (percent of GDP): -32.2 -12.4 -24.9 -23.9
- Gross international reserves of the ECCB (in US$ millions): 539.9 632.4 600.8 696.0
- Public gross external debt (in US$ million): 355.8 415.6 437.0 457.2
- Public gross external debt to exports of goods and services (percent): 198.2 213.5 255.8 269.8
- Public gross external interest payments to exports of goods and services (percent): 12.7 13.9 5.6 7.2
- Gross external financing requirement (in percent of GDP) 2/: 35.2 18.5 26.7 26.0
- Central government overall balance (after grants): -4.8 -2.8 0.5 -6.8
- Public and publicly-guaranteed gross external debt: 79.9 96.0 86.0 87.1
- Sources: Ministry of Finance; Eastern Caribbean Central Bank; and Fund staff estimates and projections.
- Footnotes:
  - 1/ Rate on one-year treasury bills.
  - 2/ Defined as external current account deficit plus external amortization.

### Millennium Development Goals indicators (selected entries)
- Forest area (percent of total land area): 12.0 ... 12.0 12.0
- CO2 emissions (metric tons per capita): 1.2 1.7 2.1 2.0 2.2
- Access to an improved water source (percent of population): 97.0 ... 95.0
- Access to improved sanitation (percent of population): 97.0 ... 96.0
- Fixed line and mobile telephones (per 1,000 people): 178.3 242.3 301.1 377.6 738
- Internet users (per 1,000 people): 0.0 0.0 10.0 43.6 169.0
- Source: World Development Indicators database.
- Note: 1/ Data as of 2004.

### Fund relations, donor activity, and statistical issues (selected points)
- Outstanding purchases to the Fund: SDR 5.2 million, 44.59 percent of quota.
- Grenada is a member of the ECCB; Eastern Caribbean dollar pegged to the U.S. dollar at EC$2.70 per U.S. dollar since July 1976.
- Last Article IV consultation concluded July 13, 2005 (IMF Country Report No. 05/290).
- CARTAC, MCM, and FAD have provided extensive technical assistance.
- World Bank: Six active projects with net commitment of approximately US$42.35 million (Telecommunications and ICT Development, Public Sector Modernization, Education Reform Project, HIV/AIDS Prevention and Control, Hurricane Ivan Emergency Project, Caribbean Catastrophe Risk Insurance Facility).
- Caribbean Development Bank: Special financing with a concessionary grant element of 35 percent for Grenada; main activities include Grenville Market Square Development Project, Project Management Training, Country Poverty Assessment, physical infrastructure and housing.
- Statistical issues: Grenada participates in the Fund’s General Data Dissemination System (GDDS); data provision sufficient for program monitoring but significant improvement needed in coverage, timeliness and frequency.

### Debt Sustainability Analysis — executive summary and context
- Prepared material heading: Debt Sustainability Analysis (Prepared by the Staff of the International Monetary Fund in consultation with the World Bank Staff; September 10, 2007).
- Overall assessment: Grenada’s debt sustainability outlook has deteriorated since the last DSA, with fiscal slippages in 2006–07 a major contributor.
- Based on Grenada’s 2004–06 average CPIA rating of “medium,” Grenada exceeds the thresholds for the ratio of the NPV of external debt to GDP and to exports (but not other thresholds).
- Even under an active fiscal adjustment scenario, the ratio of the NPV of external debt to GDP will remain above the threshold until 2018.
- The authorities’ target of 60 percent for the ratio of nominal public debt to GDP could only be achieved by 2017 under active adjustment; under the baseline it would be achieved by 2025.
- Conclusion: Grenada is at high risk of debt distress.

### Key historical and policy events relevant to the DSA
- Post-hurricane rebound: Real GDP growth averaged 7 percent a year during 2005–06; projected at 3 percent in 2007 and 4 percent thereafter.
- CPI: Twelve-month CPI inflation peaked at almost 6 percent at end-2005; fell to 2.5 percent in May 2007.
- Debt restructuring:
  - Commercial debt exchange (November 2005): Overall participation reached 91 percent of eligible debt, about US$237 million (about 40 percent of total public debt); reduction of 40–45 percent in NPV terms; exit yields in the 9-10 percent range; reduced debt servicing costs by 83 percent during 2005–08.
  - Paris Club agreement (May 2006) reduces debt service to Paris Club creditors by more than 90 percent through 2008.
  - No agreement yet with Taiwan Province of China for non-Paris Club official debt (largest bilateral creditor, with a quarter of all official bilateral debt).

### Baseline DSA macroeconomic assumptions (Box 1, 2007–27)
- Real GDP growth after 2007: 4 percent per year.
- Inflation: 2 percent per year.
- Primary balance of the central government: improves from historical deficit of 2.2 percent to a surplus of about 2 percent.
- Capital expenditure: limited to 8 percent of GDP.
- Grants: decline from high post-hurricane levels to 1 percent of GDP.
- Interest rate on new borrowing: increases from 2 percent through 2010 to 7 percent by 2020; discount rate: 5 percent.
- Concessional financing under PetroCaribe assumed during 2007–11; grant element used to finance budgeted programs.
- Interest rate on debt restructured in 2005: increases from 1 percent through 2008 to 9 percent by 2019.
- Current account deficit: assumed to narrow over time due to tourism growth and lower post-hurricane imports; increasingly financed by foreign investment.

### Baseline projection outcomes and deterioration since prior DSA
- Public sector debt end-2006: 125 percent of GDP.
- External debt share of total debt: 69 percent.
- In NPV terms, public sector debt: 114 percent of GDP (reflecting concessionality and restructured debt).
- Fiscal slippages in 2006–07 increased public sector debt by 5 percentage points of GDP during 2006.
- Under the baseline projection:
  - Nominal debt target of 60 percent of GDP achieved by 2025 (versus 2015 in previous DSA).
  - NPV of debt falls to 57 percent of GDP by 2027.
  - Public sector debt-to-revenue ratio falls from 301 percent in 2006 to 139 percent in 2027.
  - Debt service-to-revenue ratio increases from 9.9 percent in 2006 to 11.5 percent in 2027, with a ratio of 21–24 percent during 2021–25 as restructured debt amortizes.

### PetroCaribe financing assumption
- PetroCaribe concession: provides about 0.3 percent of GDP in 2007, increasing to an annual average of about 1.4 percent of GDP during 2007–11 (based on current oil prices).
- Terms: interest rate of 1 percent and maturity of 25 years (including a two-year grace period); implies a grant element of 48 percent if liability in U.S. dollars.
- PetroCaribe finances 40 percent of oil imports (up to a ceiling) when international price of oil is between US$50 and US$90 per barrel; share financed lower if price falls below US$50 per barrel and higher if it rises to US$100 or more per barrel.

### Signs of financial stress and credit rating actions
- April 2007: Standard and Poor’s downgraded Grenada from B- to CCC+, citing rising fiscal pressures and lack of payments discipline, including arrears (since cleared) to domestic commercial banks.
- August 2007: Downgrade reversed owing to “measures taken in June 2007 to streamline the government’s debt-payment mechanism.”
- Payment difficulties: Grenada could not meet payment obligations on EC$20.3 million of unrestructured domestic debt to the nonbank public due on June 30 (authorities informed bond holders full payment would be made by the fourth quarter of 2007).

### Scenarios and stress tests
- Active fiscal policy scenario:
  - Authorities’ nominal debt target of 60 percent of GDP achieved by 2017 (delay of three years relative to previous target).
  - NPV of debt falls to 37 percent of GDP by 2027.
  - Assumptions: all divestment proceeds used to pay down expensive debt; capital expenditure limited to just under 9 percent of GDP in 2007 and to 8 percent per year thereafter; additional revenue-enhancing measures implemented; real wages and spending on transfers, goods, and services kept constant; first review under the PRGF completed by year-end unlocking additional grants.
- Other scenarios: referenced but not detailed in supplied content.

### Selected headline numeric values (preserved exactly)
- Public sector debt (end-2006): 125 percent of GDP.
- Public sector debt in NPV terms (end-2006): 114 percent of GDP.
- Commercial debt exchange participation: 91 percent; about US$237 million; reduction of 40–45 percent in NPV terms; exit yields in the 9-10 percent range; reduced debt servicing costs by 83 percent during 2005–08.
- Nominal debt target (authorities): 60 percent of GDP.
- Discount rate used in current DSA: 5 percent.
- Domestic expenditure arrears at end-2006: 2.8 percent of GDP.
- PetroCaribe concessional financing: about 0.3 percent of GDP in 2007; annual average about 1.4 percent of GDP during 2007–11; interest rate 1 percent; maturity 25 years; grant element 48 percent (if liability in U.S. dollars).
- Public sector debt-to-revenue ratio (2006): 301 percent.
- Public sector debt-to-revenue ratio (2027 baseline): 139 percent.
- Debt service-to-revenue ratio (2006): 9.9 percent.
- Debt service-to-revenue ratio (2027 baseline): 11.5 percent.
- Public gross external debt (in US$ million): 355.8 415.6 437.0 457.2.

*Prepared by the Staff of the International Monetary Fund in consultation with the World Bank Staff; September 10, 2007.*

### 9.      Economic growth and the primary balance are key factors underpinning

### 9.      Economic growth and the primary balance are key factors underpinning

### Debt dynamics under baseline and active scenarios
- Baseline scenario (historical primary deficit 2.5 percent of GDP and GDP growth 3.7 percent):
  - NPV of debt would rise to 130 percent by 2027 (Table A1b).
  - NPV of debt to revenue increases over time.
  - Debt service-to-revenue ratio increases to 33 percent (Scenario A2).
- Baseline projections table (percent of GDP, selected years shown):
  - Total revenues and grants: 43.1 (2007), 43.7 (2008), 43.1 (2009), 42.9 (2010), 41.5 (2015), 41.3 (2020), 41.2 (2025)
  - Total expenditure: 46.3 (2007), 44.4 (2008), 43.8 (2009), 43.3 (2010), 43.1 (2015), 43.8 (2020), 43.1 (2025)
  - Primary balance: -0.7 (2007), 1.9 (2008), 2.0 (2009), 2.1 (2010), 1.7 (2015), 1.8 (2020), 1.7 (2025)
  - Overall balance: -3.2 (2007), -0.6 (2008), -0.7 (2009), -0.4 (2010), -1.6 (2015), -2.4 (2020), -1.9 (2025)
  - Public debt: 115.1 (2007), 109.0 (2008), 104.0 (2009), 99.3 (2010), 78.3 (2015), 67.4 (2020), 59.3 (2025)
  - GDP growth rate 1/: 3.0 (2007), 4.0 (2008), 4.0 (2009), 4.0 (2010), 4.0 (2015), 4.0 (2020), 4.0 (2025)
  - Inflation rate (average): 2.4 (2007), 2.0 (2008), 2.0 (2009), 2.0 (2010), 2.0 (2015), 2.0 (2020), 2.0 (2025)
- Active scenario (assumes an active structural reform program):
  - Total revenues and grants: 44.3 (2007), 44.4 (2008), 43.8 (2009), 43.0 (2010), 41.8 (2015), 41.6 (2020), 41.4 (2025)
  - Total expenditure: 43.0 (2007), 43.2 (2008), 42.4 (2009), 41.9 (2010), 41.8 (2015), 42.1 (2020), 41.1 (2025)
  - Primary balance: 3.8 (2007), 3.7 (2008), 4.0 (2009), 3.5 (2010), 2.8 (2015), 2.6 (2020), 2.5 (2025)
  - Overall balance: 1.3 (2007), 1.2 (2008), 1.4 (2009), 1.2 (2010), 0.1 (2015), -0.5 (2020), 0.3 (2025)
  - Public debt: 111.6 (2007), 103.9 (2008), 97.1 (2009), 91.0 (2010), 65.4 (2015), 50.2 (2020), 37.2 (2025)
  - GDP growth rate 1/: 3.0 (2007), 4.0 (2008), 4.0 (2009), 4.0 (2010), 4.0 (2015), 4.0 (2020), 4.0 (2025)
  - Inflation rate (average): 2.4 (2007), 2.0 (2008), 2.0 (2009), 2.0 (2010), 2.0 (2015), 2.0 (2020), 2.0 (2025)

### Sensitivity analysis and downside risks
- Bound Test B1 (growth shock scenario):
  - Growth falls to -2.2 percent in 2008 and 2009.
  - Fiscal revenue assumed to remain constant as a share of GDP; expenditure held constant in nominal terms.
  - NPV of debt to GDP rises sharply to 157 percent.
- Natural disaster shock example (Scenario A5):
  - Natural disaster in 2008 reduces GDP growth to zero for three years.
  - Primary deficit increases by 3 percentage points of GDP for each of those years.
  - NPV of debt would rise to 71 percent of GDP.
  - Note: Grenada’s participation in the World Bank’s Caribbean Catastrophe Insurance Facility is not incorporated in this analysis but would help cushion the financial impact of further disasters.

### External debt sustainability
- Grenada exceeds Debt Sustainability Framework thresholds for low-income countries on the ratios of NPV of external debt:
  - Based on Grenada’s 2004–06 average CPIA rating of “medium,” thresholds are 40 percent (NPV of external debt to GDP) and 150 percent (NPV of external debt to exports).
  - For 2006, Grenada’s ratios were 75 percent (NPV of external debt to GDP) and 234 percent (NPV of external debt to exports).
  - Grenada falls below thresholds on the NPV of debt to revenue and for the ratio of debt service to exports and to revenue.
- Trajectory under baseline:
  - NPV of external public debt to GDP would not fall below the 40 percent threshold before 2022.
  - NPV of debt to exports would fall below the 150 percent threshold by 2011 (Figure 2).
- Bound tests and alternative scenario:
  - Under an alternative scenario with key variables (GDP growth, the current account deficit, and FDI) at historical averages, NPV of debt would rise to 156 percent of GDP by 2027 (Scenario A2).
  - Under this scenario, the debt-to-exports ratio would rise to 347 percent in 2027.
  - Debt service-to-exports ratio would rise sharply as restructured debt matures.

### Conclusions and policy implications
- Debt sustainability has deteriorated owing in large part to fiscal slippages in 2006–07.
- The analysis indicates Grenada’s debt is unsustainable under current fiscal policies, even when incorporating some adjustment.
- Authorities’ efforts to limit expenditure in 2007 below the budgeted level are a first step, but much greater fiscal adjustment will be needed to place debt on a firmly declining trajectory.
- A recently missed payment on domestic debt and Standard and Poor’s downgrade (albeit subsequently reversed) underscore financial strains and the need for urgent corrective action.
- Grenada is at high risk of debt distress on the external front, with several debt indicators above indicative thresholds under a variety of scenarios.
- Even under an active fiscal adjustment scenario, a determined and prolonged effort is required to bring debt down to sustainable levels.
- Another external shock (e.g., a hurricane or a shock to tourism) would severely affect favorable outcomes and could lead to an unsustainable debt trajectory.

### Selected public debt stock composition (Year end, in millions of U.S. dollars; percent of stock; percent of GDP)
- Public sector debt: 658.4 (100.0 percent of stock; 125.4 percent of GDP)
- Central government debt: 576.8 (87.6 percent of stock; 109.9 percent of GDP)
- Central government guaranteed debt: 61.1 (9.3 percent of stock; 11.7 percent of GDP)
- Other public sector debt: 20.5 (3.1 percent of stock; 3.9 percent of GDP)
- External debt: 457.2 (69.4 percent of stock; 87.1 percent of GDP)
- A. Central government external debt: 413.3 (62.8 percent of stock; 78.7 percent of GDP)
  - 1. Multilateral: 136.0 (20.7 percent of stock; 25.9 percent of GDP)
    - CDB: 84.2 (12.8 percent of stock; 16.0 percent of GDP)
    - IDA: 27.9 (4.2 percent of stock; 5.3 percent of GDP)
    - IBRD: 9.0 (1.4 percent of stock; 1.7 percent of GDP)
    - IMF: 9.5 (1.4 percent of stock; 1.8 percent of GDP)
    - Other multilateral: 5.4 (0.8 percent of stock; 1.0 percent of GDP)
  - 2. Official bilateral: 77.9 (11.8 percent of stock; 14.8 percent of GDP)
    - Paris Club: 16.4 (2.5 percent of stock; 3.1 percent of GDP)
    - Belgium: 6.7 (1.0 percent of stock; 1.3 percent of GDP)
    - France: 4.2 (0.6 percent of stock; 0.8 percent of GDP)
    - Russian Federation: 0.2 (0.0 percent of stock; 0.0 percent of GDP)
    - United Kingdom: 2.5 (0.4 percent of stock; 0.5 percent of GDP)
    - United States: 2.8 (0.4 percent of stock; 0.5 percent of GDP)
    - Non-Paris Club: 61.5 (9.3 percent of stock; 11.7 percent of GDP)
      - Taiwan Province of China: 20.3 (3.1 percent of stock; 3.9 percent of GDP)
      - Kuwait: 18.5 (2.8 percent of stock; 3.5 percent of GDP)
      - Trinidad and Tobago: 17.0 (2.6 percent of stock; 3.2 percent of GDP)
      - Other bilateral: 5.8 (0.9 percent of stock; 1.1 percent of GDP)

*Source: Ministry of Finance; and Fund staff estimates and projections.*

### 3.  Commercial, total199.430.338.0

### _cr08351 - 3.  Commercial, total199.430.338.0

### Public sector debt levels (2004–07 and projections)
- Public sector debt: 130.7 (2004); 120.2 (2005); 125.4 (2006); Average 115.1; 2007: 109.0; 2008: 104.0; 2009: 99.3; 2010: 73.3; 2017: 71.0; 2018: 59.3; 2025: 57.6; 2026: 55.9
- Foreign-currency denominated share of public sector debt: 96.0 (2004); 86.0 (2005); 87.1 (2006); Average 82.7; 2007: 78.6; 2008: 73.5; 2009: 68.7; 2010: 47.5; 2017: 45.8; 2018: 37.5; 2025: 36.1; 2026: 34.7
- Change in public sector debt: 21.0 (2004); -10.5 (2005); 5.3 (2006); Average -10.4; 2007: -6.1; 2008: -5.0; 2009: -4.8; 2010: -2.5; 2017–12 average: -2.3; 2018: -1.7; 2025: -1.7; 2026: -1.7

### Identified debt-creating flows and primary position
- Identified debt-creating flows: 6.0 (2004); -18.4 (2005); 1.9 (2006); Average -10.5; 2007: -5.9; 2008: -5.6; 2009: -5.5; 2010: -2.3; 2017–12 average: -2.1; 2018: -1.6; 2025: -1.6; 2026: -1.6
- Primary deficit (noninterest): -3.3 (2004); -2.7 (2005); 4.6 (2006); Average 2.5; 2007: 4.3; 2008: 0.7; 2009: -1.9; 2010: -2.0; 2017–12 average: -2.1; 2018: -1.6; 2025: -1.8; 2026: -1.8; 2027: -1.7

### Revenue, grants, and expenditure
- Revenue and grants: 43.3 (2004); 47.6 (2005); 47.1 (2006); Average 43.1; 2007: 43.7; 2008: 43.1; 2009: 42.9; 2010: 41.4; 2017–12 average: 41.4; 2018: 41.2; 2025: 41.2; 2026: 41.2
- Grants (of revenues and grants): 7.5 (2004); 11.3 (2005); 9.3 (2006); Average 2.7; 2007: 2.4; 2008: 1.4; 2009: 1.2; 2010: 0.8; 2017–12 average: 0.7; 2018: 0.5; 2025: 0.5; 2026: 0.4
- Primary (noninterest) expenditure: 39.9 (2004); 44.9 (2005); 51.7 (2006); Average 43.8; 2007: 41.9; 2008: 41.1; 2009: 40.8; 2010: 39.7; 2017–12 average: 39.6; 2018: 39.5; 2025: 39.5; 2026: 39.5

### Automatic debt dynamics and contributions
- Automatic debt dynamics: 9.4 (2004); -15.8 (2005); -2.1 (2006); Average -4.0; 2007: -4.0; 2008: -3.6; 2009: -3.5; 2010: -0.6; 2017–12 average: -0.3; 2018: 0.1; 2025: 0.0; 2026: 0.1
- Contribution from interest rate/growth differential: 10.7 (2004); -15.5 (2005); -1.3 (2006); Average -3.6; 2007: -4.0; 2008: -3.6; 2009: -3.5; 2010: -0.6; 2017–12 average: -0.3; 2018: 0.1; 2025: 0.0; 2026: 0.1
  - Contribution from average real interest rate: 3.1 (2004); -0.8 (2005); -0.5 (2006); Average 0.0; 2007: 0.4; 2008: 0.6; 2009: 0.5; 2010: 2.3; 2017–12 average: 2.5; 2018: 2.4; 2025: 2.3; 2026: 2.3
  - Contribution from real GDP growth: 7.7 (2004); -14.8 (2005); -0.9 (2006); Average -3.7; 2007: -4.4; 2008: -4.2; 2009: -4.0; 2010: -2.9; 2017–12 average: -2.8; 2018: -2.3; 2025: -2.3; 2026: -2.2
  - Contribution from real exchange rate depreciation: -1.3 (2004); -0.3 (2005); -0.7 (2006); Average -0.4; 2007: 0.0; 2008: 0.0

### Other identified flows and residual
- Other identified debt-creating flows: 0.0 (2004); 0.0 (2005); -0.6 (2006); Average -7.2; 2007: 0.0; 2008: 0.0; 2009: 0.0; 2010: 0.0; 2017–12 average: 0.0; 2018: 0.0; 2025: 0.0; 2026: 0.0
  - Privatization receipts (negative): 0.0 (2004); 0.0 (2005); -0.6 (2006); Average -7.2; subsequent years 0.0
- Residual, including asset changes: 15.0 (2004); 8.0 (2005); 3.3 (2006); Average 0.1; 2007: -0.2; 2008: 0.6; 2009: 0.8; 2010: -0.2; 2017–12 average: -0.2; 2018: -0.1; 2025: -0.1; 2026: -0.1

### NPV and debt ratios (selected)
- NPV of public sector debt (selected years): 113.7; 105.8; 100.6; 99.3; 96.2; 71.9; 69.5; 59.6; 58.1; 56.5
- NPV of public sector debt-to-revenue and grants ratio: 241.3; 245.5; 230.1; 230.4; 224.3; 173.6; 167.9; 144.6; 141.0; 137.3
- NPV of public sector debt-to-revenue ratio: 300.9; 262.0; 243.3; 238.3; 230.7; 177.0; 171.0; 146.4; 142.7; 138.8
- Debt service-to-revenue and grants ratio (in percent): 24.0 (2004); 8.3 (2005); 7.9 (2006); 13.9; 11.9; 12.1; 11.0; 13.0; 12.7; 20.4; 11.6; 11.3
- Debt service-to-revenue ratio (in percent): 29.1 (2004); 10.8 (2005); 9.9 (2006); 14.9; 12.6; 12.5; 11.3; 13.3; 13.0; 20.7; 11.8; 11.5

### Primary balance that stabilizes the debt-to-GDP ratio
- Primary deficit that stabilizes the debt-to-GDP ratio: -24.4 (2004); 7.8 (2005); -0.6 (2006); Average 11.1; 2007: 4.2; 2008: 2.9; 2009: 2.7; 2010: 0.7; 2017–12 average: 0.5; 2018: 0.0; 2025: 0.1; 2026: 0.0

### Key macroeconomic and fiscal assumptions (selected)
- Real GDP growth (in percent): -6.5 (2004); 12.7 (2005); 0.7 (2006); Average 3.7; 2007: 6.0; 2008: 3.0; 2009: 4.0; 2010: 4.0; 2017–12 average: 4.0; 2018: 3.8; 2025–27: 4.0 (repeated entries of 4.0)
- Average nominal interest rate on forex debt (in percent): 5.7 (2004); 1.3 (2005); 1.8 (2006); Average 5.4; 2007: 3.6; 2008: 2.1; 2009: 2.4; 2010: 2.7; 2017–12 average: 2.7; 2018: 2.8; 2025: 5.6; 2026: 6.0; 2027: 6.7; 2013–27: 6.6; later entries: 6.7; 6.0
- Average real interest rate on domestic currency debt (in percent): 1.6 (2004); 1.0 (2005); -0.8 (2006); Average 2.3; 2007: 2.8; 2008: -0.3; 2009: 0.3; 2010: 0.3; 2017–12 average: 0.3; 2018: 0.3; 2025: 2.7; 2026: 2.9; 2027: 3.4; 2013–27: 3.2; later entries: 3.3; 2.9
- Real exchange rate depreciation (in percent, + indicates depreciation): -1.5 (2004); -0.3 (2005); -0.9 (2006); Average -0.2; 2007: 1.2; 2008: -0.4
- Inflation rate (GDP deflator, in percent): 4.2 (2004); 2.9 (2005); 3.0 (2006); Average 2.2; 2007: 1.3; 2008: 2.4; 2009: 2.0; 2010: 2.0; 2017–12 average: 2.0; 2018: 2.1; 2025–27: 2.0 (repeated)

### Domestic debt composition (selected)
- Domestic debt total: 201.2; 30.6; 38.3 (context shows Domestic debt lines: 201.2 30.6 38.3)
- A. Central government: 163.5; 24.8; 31.2
  - Restructured Bonds: 68.1; 10.3; 13.0
  - Unrestructured bonds: 11.0; 1.7; 2.1
  - Treasury bills: 26.5; 4.0; 5.0
  - Commercial bank loans: 24.2; 3.7; 4.6
  - Overdraft: 18.4; 2.8; 3.5
  - Domestic arrears: 14.8; 2.3; 2.8
  - Compensation claims: 0.6; 0.1; 0.1
- B. Central government guaranteed: 37.7; 5.7; 7.2

### External debt dynamics and indicators (2004–27, selected)
- External debt (nominal) as percent of GDP: 96.0 (2004); 86.0 (2005); 87.1 (2006); Average 82.7; 2007: 78.6; 2008: 73.5; 2009: 68.7; 2010: 47.5; 2017: 45.8; 2018: 37.5; 2025: 36.1; 2026: 34.7
- Change in external debt: 16.1 (2004); -10.0 (2005); 1.1 (2006); Average -4.4; 2007: -4.0; 2008: -5.1; 2009: -4.9; 2010: -1.8; 2017–12 average: -1.6; 2018: -1.3; 2025: -1.4; 2026: -1.4
- Identified net debt-creating flows (external): 2.2 (2004); 1.1 (2005); 11.5 (2006); Average 7.2; 2007: 6.7; 2008: 4.1; 2009: 1.9; 2010: 3.2; 2017–12 average: 3.3; 2018: 3.1; 2025: 3.0; 2026: 2.9
- Noninterest current account deficit: 6.1 (2004); 23.0 (2005); 21.6 (2006); Average 20.2; 2007: 7.0; 2008: 22.4; 2009: 22.4; 2010: 19.2; 2017–12 average: 16.9; 2018: 16.6; 2025: 16.5; 2026: 16.2
- Endogenous debt dynamics: 8.5 (2004); -12.3 (2005); -0.4 (2006); Average 0.0; 2007: -0.6; 2008: -0.3; 2009: -0.3; 2010: 0.7; 2017–12 average: 0.9; 2018: 1.0; 2025: 0.9; 2026: 0.9
  - Contribution from nominal interest rate: 6.3 (2004); 1.9 (2005); 2.3 (2006); Average 2.5; 2007: 2.5; 2008: 2.7; 2009: 2.5; 2010: 2.6; 2017–12 average: 2.7; 2018: 2.5; 2025: 2.3; 2026: 2.3
  - Contribution from real GDP growth: 5.4 (2004); -10.4 (2005); -0.6 (2006); Average -2.5; 2007: -3.1; 2008: -3.0; 2009: -2.8; 2010: -1.9; 2017–12 average: -1.8; 2018: -1.5; 2025: -1.4; 2026: -1.4
  - Contribution from price and exchange rate changes: -3.1 (2004); -3.8 (2005); -2.1 (2006); Average -2.2; 2007: -2.4; 2008: -1.8; 2009: -1.5; 2010: -1.0; 2017–12 average: -0.9; 2018: -0.8; 2025: -0.7; 2026: -0.7
- Residual (external): 13.9 (2004); -11.1 (2005); -10.4 (2006); Average -9.5; 2007: -8.4; 2008: -7.4; 2009: -5.2; 2010: -4.1; 2017–12 average: -4.0; 2018: -3.7; 2025: -3.6; 2026: -3.6

### External debt NPV and export-related ratios
- NPV of external debt (selected): 75.4; 73.4; 70.3; 68.8; 65.6; 46.1; 44.3; 37.7; 36.6; 35.3
- NPV of external debt (in percent of exports, selected): 233.5; 194.6; 188.6; 174.0; 158.2; 107.3; 103.0; 87.4; 84.8; 82.0
- Debt service-to-exports ratio (in percent): 22.6 (2004); 8.7 (2005); 11.3 (2006); 12.2; 13.5; 12.5; 10.6; 9.1; 9.1; 14.4; 8.4; 8.1
- PPG debt service-to-exports ratio (in percent): same series as Debt service-to-exports ratio

### Gross financing needs and memorandum items
- Gross financing need 2/: 17.1 (2004); 6.4 (2005); 13.3 (2006); Average 11.4; 2007: 7.7; 2008: 7.3; 2009: 6.5; 2010: 6.2; 2017–12 average: 5.9; 2018: 8.3; 2025: 4.6; 2026: 4.4
- Total gross financing need (millions of U.S. dollars): 16.5 (2004); 83.3 (2005); 81.6 (2006); 65.4; 73.1; 58.6; 43.9; 65.0; 68.0; 135.5; 97.4; 100.7
- Nominal GDP (millions of U.S. dollars): 433.0; 508.3; 524.9; 554.3; 593.5; 631.4; 670.1; 1,013.0; 1,074.6; 1,624.3; 1,723.1; 1,827.8

### Sensitivity analyses and scenario outcomes (selected)
- Baseline NPV of Debt-to-GDP Ratio (selected years): 106 (2007); 101 (2008); 99 (2009); 99 (2010); 69 (2011); 63 (2012); 89 (2017); 72 (2027) [table entries show multiple series across scenarios]
- Alternative scenarios (examples):
  - A1. Active policy scenario: 104 (2007); 99 (2008); 95 (2009); 92 (2010); 88 (2011); 83 (2012); 64 (2017); 37 (2027)
  - A5. Natural disasters in 2008: 106 (2007); 108 (2008); 113 (2009); 117 (2010); 112 (2011); 107 (2012); 88 (2017); 71 (2027)
- Debt service-to-revenue ratio projections under Baseline and scenarios (selected): Baseline series 245; 230; 230; 224; 217; 209; 174; 137 (by year clusters); A1 Active scenario: 235; 223; 218; 213; 205; 196; 154; 91
- External-debt sensitivity (selected): Baseline NPV of debt-to-exports ratio series: 737; 70; 69; 66; 62; 59; 46; 35; A1 Active scenario: 726; 69; 66; 63; 60; 57; 42; 20

*Sources: Grenada authorities; and Fund staff estimates and projections.*

### Appendix I. Grenada: Fund Relations

### Appendix I. Grenada: Fund Relations

### I. Membership Status
- Joined: August 27, 1975

### II. General Resources Account
- Quota: 11.70 (SDR Million) — 100.00 (Percent of Quota)
- Fund Holdings of Currency: 15.36 (SDR Million) — 131.27 (Percent of Quota)
- Reserve Position: 0.00 (SDR Million) — 0.00 (Percent of Quota)

### III. SDR Department
- Net cumulative allocation: 0.93 (SDR Million) — 100.00 (Allocation)
- Holdings: 0.08 (SDR Million) — 8.45 (Allocation)

### IV. Outstanding Purchases and Loans
- Emergency Assistance: 3.66 (SDR Million) — 31.26 (Quota)
- PRGF Arrangements: 1.56 (SDR Million) — 13.33 (Quota)

### V. Financial Arrangements
- PRGF: Date of Approval Apr 17, 2006; Date of Expiration Apr 16, 2009; Amount Approved 10.53 (SDR Million); Amount Drawn 1.56 (SDR Million)

### VI. Projected Obligations to Fund
(SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming by year:
  - 2007
    - Principal: 0.37
    - Charges/Interest: 0.13
    - Total: 0.50
  - 2008
    - Principal: 1.83
    - Charges/Interest: 0.19
    - Total: 2.01
  - 2009
    - Principal: 1.46
    - Charges/Interest: 0.10
    - Total: 1.56
  - 2010
    - Principal: 0.00
    - Charges/Interest: 0.05
    - Total: 0.05
  - 2011
    - Principal: 0.16
    - Charges/Interest: 0.04
    - Total: 0.20

### VII. Implementation of HIPC and MDRI Initiatives
- Not Applicable

### VIII. Safeguards Assessment
- Under the Fund’s safeguards assessment policy, the Eastern Caribbean Central Bank (ECCB) is subject to a full safeguards assessment under a four-year cycle.
- The most recent assessment was completed in July 2007, and concluded that the ECCB continues to have appropriate control mechanisms in place, which have strengthened since the first safeguards assessment completed in 2003.
- ECCB management places emphasis on good governance and sound controls, and has enhanced the bank’s transparency and accountability since the last assessment, including the publications of financial statements that comply with International Financial Reporting Standards.
- The assessment made some recommendations to sustain the ECCB’s safeguards framework going forward.

### IX. Exchange Arrangement
- Grenada is a member of the ECCB, which manages monetary policy and the exchange system for its eight members.
- The common currency, the Eastern Caribbean dollar, has been pegged to the U.S. dollar at the rate of EC$2.70 per U.S. dollar since July 1976.
- In practice, the ECCB has operated like a quasi-currency board, maintaining foreign exchange backing of its currency and demand liabilities of close to 100 percent.
- Grenada accepted the obligations of Article VIII, Sections 2, 3, and 4 in January 1994.
- It maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions.

### X. Article IV Consultation
- Grenada is on the standard 12-month consultation cycle.
- The last Article IV consultation was concluded by the Executive Board on July 13, 2005 (IMF Country Report No. 05/290).

### XI. FSAP Participation
- 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.

### XII. Technical Assistance
- Caribbean Regional Technical Assistance Centre (CARTAC)
  - CARTAC has provided wide-ranging assistance in developing a Medium-Term Macroeconomic Framework (as part of the Structural Adjustment Technical Assistance Program);
  - preparing to implement a VAT, building upon previous work, including draft VAT/excise laws (prepared by LEG) and a VAT sensitivity study and training/publicity tasks (undertaken with CARTAC/FAD assistance);
  - assisting customs with ASYCUDA/ASYCUDA++ and with the exchange of information with inland revenue;
  - drafting legislation to establish the single supervisory agency, Grenada Authority for the Regulation of the Financial Institutions (GARFIN) and supporting the newly established agency; and training for nonbank supervisors.
  - CARTAC has also provided substantial assistance in improving the production and dissemination of macroeconomic statistics, including national accounts compilation; rebasing of the consumer price index; initiating work to prepare export-import price indices; training in the processing of trade data; and improving external sector statistics as part of a major CARTAC/ECCB project.
- Other Technical Assistance (2006–07)
  - FAD and LEG have provided extensive assistance in tax policy and administration.
  - FAD and LEG assisted in the design and drafting of a VAT and related changes to excise taxes.
  - LEG assisted with training for tax officials and with the finalization of the VAT and excise laws.
  - A series of FAD missions provided further assistance on implementing a VAT and on tax and customs administration more broadly.

*Source: Appendix I. Grenada: Fund Relations (As of July 31, 2007).*

### Appendix IV. Grenada: Statistical Issues

### Appendix IV. Grenada: Statistical Issues

### A. Real Sector — Findings and Needs
- National accounts are provided annually; GDP by expenditure is available only with long lags, and real GDP by sector is not available.
- Estimation of gross capital formation needs to be improved and sectoral price deflators computed.
- Discrepancies exist between foreign trade estimates prepared by the customs department and the Central Statistical Office (CSO).
- Coverage, consistency, and timeliness of tourism data are limited.
- Consumer prices are the only real sector data provided between missions.
- The CPI basket was last updated in 2000.
- A producer price index is not available.
- Labor statistics are limited and outdated; 1998 is the most recent year for which labor data are available.
- There are no regular wage and unemployment data.
- Data collected during the 2001 population census are still being processed.
- The CSO is working with the International Labor Organization (ILO) to improve labor market statistics coverage.

### B. Public Finances — Findings and Needs
- Central government reporting has improved; quarterly data are provided to the ECCB, WHD, and other users in Fund economic classification format with lags of about two months.
- Inaccuracies appear in the composition of public expenditure; capital expenditures could include current expenditure items.
- The nature of expenditures in the Public Sector Improvement Program needs careful scrutiny.
- Spending on outsourced activities is grouped into a single category rather than broken down.
- Coverage of the rest of the public sector is very limited; there are no consolidated public sector accounts.
- No systematic reporting of information to the ministry of finance; annual statements for some public enterprises are provided only during Fund missions.
- Recommendation: institute a mechanism for regular reporting of financial data pertaining to the rest of the public sector.
- The authorities do not report fiscal data for publication in IFS.
- Grenada has not provided any fiscal data, either on a GFSM 2001 basis, or a cash basis, for presentation in the GFS Yearbook.
- The ECCB disseminates Grenada’s quarterly GFS data in its Economic and Financial Review.

### C. Monetary Accounts — Findings and Needs
- The ECCB compiles monthly data on depository corporations and reports accounts attributable to Grenada to STA using standardized report forms with a lag of about two months for publication in the IFS and the IFS Supplement.
- The ministry of finance does not collect data regularly on finance companies, building societies, and credit unions, which also accept deposits, and on other financial corporations; prospective improvement with formation of the Grenada Authority for the Regulation of Financial Institutions.
- Recommendation: expand institutional coverage to include all depository corporations and other financial corporations (credit unions and insurance companies) to improve understanding of savings and credit and compilation of monetary aggregates.
- Recommendation: improve classification of financial instruments and loan categorization to enhance identification of credit flows to different sectors.

### D. Balance of Payments — Findings and Needs
- The ECCB compiles and reports balance of payments statistics on an annual basis using information collected by the CSO.
- Latest data published in the IFS and Balance of Payments Yearbook are for 2005; incomplete, provisional data have been produced for 2006 and will be completed and finalized later this year or early in 2008.
- Many statistics are based on survey information and are not comprehensive.
- Trade statistics have been more reliable and available by SITC classification on a quarterly basis, but reliability and detail suffered after Hurricane Ivan (September 2004) and reporting is not yet fully back on track.
- Recommendation: enhance data sources and compilation procedures to improve accuracy of balance of payments statistics.
- Quarterly balance of payments statistics and international investment position data are not compiled.

### E. External and Domestic Debt — Findings and Needs
- The database for government external debt is quite comprehensive and can provide detailed and reasonably up-to-date breakdowns of disbursements and debt service.
- Data availability on domestic debt, government-guaranteed debt, and debt of public enterprises is limited.
- There is no data on private external debt.

### Table of Common Indicators Required for Surveillance — Selected Timeliness and Frequency Notes (as of September 7, 2007)
- Exchange Rates: NA
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: latest observation Jul 2007; date received 9/7/07; Frequency: M; Frequency of Reporting: M, with 2- to 3-month lag; Frequency of publication: A/Q
- Reserve/Base Money: latest observation Jul 2007; date received 9/7/07; Frequency: M; Frequency of Reporting: M, with 2- to 3-month lag; Frequency of publication: A/Q
- Broad Money: latest observation Jul 2007; date received 9/7/07; Frequency: M; Frequency of Reporting: M, with 1- to 2-month lag; Frequency of publication: A/Q
- Central Bank Balance Sheet: latest observation Jul 2007; date received 9/7/07; Frequency: M; Frequency of Reporting: M, with 1- to 2-month lag; Frequency of publication: A/Q
- Consolidated Balance Sheet of the Banking System: latest observation Jul 2007; date received 9/7/07; Frequency: M; Frequency of Reporting: M, with 2- to 3-month lag; Frequency of publication: A/Q
- Interest Rates: latest observation Jul 2007; date received 9/7/07; Frequency: M; Frequency of Reporting: M, with 1- to 2-month lag; Frequency of publication: A/Q
- Consumer Price Index: latest observation May 2007; date received Aug 2007; Frequency: M; Frequency of Reporting: M, with 1- to 2-month lag; Frequency of publication: A/M
- Revenue, Expenditure, Balance and Composition of Financing – Central Government: latest observation Jun 2007; date received Jul 2007; Frequency: M; Frequency of Reporting: Q, with 1- to 2-month lag; Frequency of publication: A
- Stocks of Central Government and Central Government-Guaranteed Debt: latest observation Jun 2007; date received Jul 2007; Frequency: M/A; Frequency of Reporting: Q, with 1- to 2-month lag; Frequency of publication: A
- External Current Account Balance: latest observation Dec 2006; date received Jul 2006; Frequency: A; Frequency of Reporting: Article IV Mission; Frequency of publication: A
- Exports and Imports of Goods and Services: latest observation Dec 2006; date received Jul 2006; Frequency: A; Frequency of Reporting: Article IV Mission; Frequency of publication: A
- GDP/GNP: latest observation Dec 2006; date received Jul 2006; Frequency: A; Frequency of Reporting: Article IV Mission; Frequency of publication: A
- Gross External Debt: latest observation Jul 2007; date received Aug 2007; Frequency: Q; Frequency of Reporting: Q, with 1- to 2-month lag; Frequency of publication: A/Semi-annual

### Public Information Notice (PIN) No. 07/132 — Executive Board Key Messages (October 25, 2007)
- Background findings:
  - Real GDP growth averaged 7 percent a year during 2005–06.
  - Real GDP growth projected at about 3 percent in 2007 and 4 percent beyond.
  - Inflation has remained low.
  - External current account deficit improved slightly in 2006; expected to remain large, at over 20 percent of GDP over the near term.
  - Public debt reached 125 percent of GDP at end-2006.
  - On current policies, the overall deficit (including grants) in the current year would be about 3¼ percent of GDP, compared with almost 7 percent in 2006.
  - Absent more active and front-loaded fiscal adjustment, the authorities’ debt-to-GDP target of 60 percent might not be achieved until well after 2020.
- Directors’ assessments and recommendations:
  - Welcomed strong economic rebound and favorable prospects, but highlighted weak fiscal position and high debt levels.
  - Agreed reform program focus is appropriate on fiscal and debt sustainability, durable high growth, poverty alleviation, and mitigation of vulnerabilities.
  - Emphasized need for further fiscal consolidation, including spending restraint on capital expenditure and the public sector wage bill.
  - Recommended using expected divestment proceeds to pay down expensive debt rather than finance additional budgetary expenditures.
  - Urged exploration of a regional solution to counter-productive tax abatement competition among Caribbean countries.
  - Encouraged strengthening public financial management and adoption of multi-year budgeting.
  - Recommended clearing arrears promptly, avoiding unsustainable financing, and enhancing capital project evaluation capacity.
  - Welcomed intention to introduce a VAT and urged expeditious progress.
  - Noted technical assistance from the Fund in debt management and budgeting could be useful.
  - Supported measures to strengthen financial supervision, including bringing unregulated commercial bank under proper supervision without delay.
  - Encouraged acceleration of structural reforms to improve the business climate and competitiveness.
  - Encouraged strengthening coverage, quality, and timeliness of statistical database to support policy analysis, surveillance, and public debate.
  - Urged completion of pending first review under the PRGF arrangement by taking corrective fiscal action, addressing the unregulated bank, and accelerating structural reforms to unlock additional financial resources.

### Selected Economic Indicators (annual and levels as reported)
- Real GDP growth: 2003 6.4-6.5; 2004 12.7; 2005 6.5; 2006 0.7; 2007 Prog./Prel./Proj. 3.0
- GDP deflator: 2003 0.9; 2004 4.2; 2005 2.9; 2006 4.6; 2007 3.0; (final) 2.4
- Consumer prices (end of period): 2003 1.6; 2004 2.5; 2005 5.8; 2006 2.0; 2007 1.7; (final) 2.0
- Net foreign assets of the banking system (percent of broad money at the beginning of the year): 2003 5.8; 2004 17.9; 2005 -19.3; 2006 -2.2; 2007 -6.4; (final) 0.0
- Net domestic assets of the banking system: 2003 2.2; 2004 -0.2; 2005 18.3; 2006 10.1; 2007 7.3; (final) 3.9
  - Net credit to the nonfinancial public sector: 2003 2.3; 2004 -6.5; 2005 -1.1; 2006 0.0; 2007 0.2; (final) -1.5
  - Credit to the private sector: 2003 3.1; 2004 5.0; 2005 6.2; 2006 8.5; 2007 9.2; (final) 4.6
- Liabilities to the private sector (M2): 2003 8.0; 2004 17.7; 2005 -1.0; 2006 7.8; 2007 0.9; (final) 3.9
- Merchandise exports, f.o.b.: 2003 10.0; 2004 -18.9; 2005 -5.5; 2006 0.6; 2007 -15.6; (final) 14.5
- Merchandise imports, c.i.f.: 2003 25.1; 2004 3.9; 2005 20.0; 2006 -3.4; 2007 -8.0; (final) 5.0
- Real effective exchange rate (end of period, depreciation -): 2003 -5.2; 2004 -3.5; 2005 5.6; 2006 ...; 2007 -4.6; 2007 final ...
- Current account balance (in percent of GDP): 2003 -32.2; 2004 -12.4; 2005 -24.9; 2006 -32.8; 2007 -23.9; 2007 final -24.9
- Central government finances (percent of GDP) — Total revenue and grants: 2003 34.4; 2004 33.4; 2005 37.6; 2006 36.1; 2007 36.1; 2007 final 31.1
  - Grants: 2003 ...; 2004 ...; 2005 6.9; 2006 7.5; 2007 11.3; 2007 final 8.0; 2007 other 9.3; final 2.7
  - Current expenditure: 2003 24.3; 2004 28.2; 2005 22.1; 2006 22.7; 2007 22.8; 2007 final 23.7
  - Capital expenditure: 2003 14.9; 2004 8.0; 2005 15.0; 2006 15.4; 2007 20.2; 2007 final 10.7
  - Primary balance (excluding grants): 2003 -6.5; 2004 -3.9; 2005 -8.7; 2006 -7.7; 2007 -13.9; 2007 final -3.4
  - Overall balance (including grants): 2003 -4.8; 2004 -2.8; 2005 0.5; 2006 -2.0; 2007 -6.8; 2007 final -3.2
- Nonfinancial public sector debt (gross) — Total: 109.6 130.7 120.2 118.9 125.4 115.1
  - External: 79.9 96.0 86.0 88.4 87.1 82.7
- Nominal GDP (millions of U.S. dollars): 2003 445.3; 2004 433.0; 2005 508.2; 2006 519.3; 2007 524.9; 2007 final 554.3
- Gross international reserves of the ECCB; end-of-period (millions of U.S. dollars): 539.9 632.4 600.8 ... 696.0 ...

*Italic: Appendix IV. Grenada: Statistical Issues (IMF content unit)._

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08351.pdf_