## _cr08357

## Source details

**Canonical URL:** [_cr08357](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08357.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08357.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08357.pdf.json)

---

### Executive summary — outlook and program status
- Economic growth:
  - 2007 growth was 4.3 percent; growth in 2008 is projected at 3.7 percent.
- Inflation:
  - Annual inflation is projected at 7.8 percent for 2008; monthly inflation reached 8.7 percent in April 2008.
- 2007 growth drivers: tourism, the Cricket World Cup (CWC), and expansion of an offshore university.
- Program performance and delays:
  - All quantitative performance criteria for end-June 2006, except the primary balance, were observed; authorities request a waiver for the missed criterion.
  - Three out of seven structural benchmarks were not met; CPA and a full PRSP delayed.
  - Authorities developed a revised fiscal program, a financial sector strategy, and a structural reform program focused on the investment climate, tax concessions regime, and customs reforms.
- Key program risk:
  - Proposed large loan from China for a port and marina project could, depending on loan size and concessionality, undermine debt sustainability.

### Program context — recent developments and outlook
- Positive macro developments:
  - Stayover arrivals: growth of 9 percent in 2007.
  - External financing: external current account improved marginally in 2007; strong FDI inflows.
  - Banking soundness (regulated banking system): capital adequacy ratio 15.6 percent at end-2007; nonperforming loans 3.5 percent; deposits grew 11.5 percent in 2007; credit expanded 15.1 percent.
  - Structural progress: receiver appointed for Capital Bank in February 2008; Parliament approved the Executive Agencies Bill; comprehensive customs business plan adopted.
- Concerns and vulnerabilities:
  - Inflation surge: annual inflation 8.7 percent in April 2008 due to world food and fuel prices and U.S. dollar depreciation.
  - Fiscal deterioration: fiscal slippages in 2007 due to very high capital expenditure despite a grants shortfall of 5 percent of GDP and higher transfers to vulnerable groups.
  - Debt dynamics: debt-to-GDP fell from 117 percent at end-2006 to 112 percent at end-2007.
  - Political context: general elections called for July 8, 2008.

### Fiscal performance — outcomes and 2008 strategy
- Fiscal outcomes (selected items, percent of GDP):
  - Total revenues and grants: 2005 = 34.8; 2006Prog. = 33.3; 2006Actual = 33.7; 2007Budget = 32.8; 2007Prel. = 27.3; 2007Prog. = 31.5; 2008 = 28.9.
  - Revenues: 2005 = 24.3; 2006Prog. = 25.8; 2006Actual = 25.0; 2007Budget = 27.0; 2007Prel. = 26.2; 2007Prog. = 26.0; 2008 = 25.2.
  - Grants: 2005 = 10.5; 2006Prog. = 7.4; 2006Actual = 8.7; 2007Budget = 5.8; 2007Prel. = 1.1; 2007Prog. = 5.5; 2008 = 3.7.
  - Total expenditures: 2005 = 34.3; 2006Prog. = 35.2; 2006Actual = 40.1; 2007Budget = 35.3; 2007Prel. = 35.8; 2007Prog. = 36.3; 2008 = 32.9.
  - Current expenditures: 2005 = 20.4; 2006Prog. = 21.0; 2006Actual = 21.3; 2007Budget = 21.5; 2007Prel. = 22.2; 2007Prog. = 22.7; 2008 = 23.4.
  - Interest: 2005 = 2.0; 2006Prog. = 2.2; 2006Actual = 2.1; 2007Budget = 2.2; 2007Prel. = 2.3; 2007Prog. = 2.7; 2008 = 2.8.
  - Bank restructuring: 2005–2007 = 0.0; 2008 = 1.5.
  - Capital expenditures: 2005 = 13.9; 2006Prog. = 14.2; 2006Actual = 18.8; 2007Budget = 13.8; 2007Prel. = 13.7; 2007Prog. = 13.6; 2008 = 9.6.
  - Primary balance (excluding grants): 2005 = -8.0; 2006Prog. = -7.1; 2006Actual = -13.0; 2007Budget = -6.0; 2007Prel. = -7.3; 2007Prog. = -7.6; 2008 = -5.0.
  - Overall balance (including grants): 2005 = 0.5; 2006Prog. = -1.9; 2006Actual = -6.4; 2007Budget = -2.4; 2007Prel. = -8.5; 2007Prog. = -4.6; 2008 = -4.1.
- Missed targets and implications:
  - Missed quantitative performance criterion on central government primary balance (excluding grants) by 1.2 percent of GDP at end-June 2006 largely due to capital overruns.
  - Overall deficit financed in part through domestic arrears and drawdown of deposits; indicative target on net bank credit to public sector missed substantially.
- 2008 fiscal strategy:
  - Target overall deficit: 4.1 percent of GDP, including bank restructuring costs of 1.5 percent of GDP.
  - Reduce capital expenditure from budgeted 13.6 percent of GDP to realistic 9.6 percent of GDP.
  - Expenditure controls: pre-Cabinet review of proposals to spend above allocations; limit special warrants; contingent measures include limiting grants and subventions while protecting transfers to vulnerable groups, improved targeting, further capital rationalization.
  - Social mitigation measures for food and fuel costing around 1.2 percent of GDP.

### Banking sector, unregulated bank, and financial supervision
- Capital Bank (unregulated bank) failure and resolution:
  - Receiver appointed on February 15, 2008.
  - Total deposits: EC$21.8 million (1.2 percent of GDP), excluding related party deposits and a large deposit offset by a large investment.
  - Around 70 percent of the 5,800 depositors are small depositors.
  - At least 54 percent of the bank’s loan portfolio (to a related party) is nonperforming.
  - Receiver’s report indicates the bank appears insolvent; bank highly illiquid and not in formal clearing and payments system; no evidence of contagion.
  - High Court revoked receivership on May 7, 2008; government obtained stay and filed appeal; receiver remains in place pending Appeals Court outcome.
  - Bank owner arrested May 14, 2008 on charges from an ongoing Financial Intelligence Unit investigation.
  - Government participation in restructuring could cost as much as EC$27 million (1.5 percent of GDP).
  - Resolution by reorganization or initiating liquidation is a performance criterion for November 2008.
- GARFIN and nonbank supervision:
  - GARFIN began offsite monitoring of credit unions and building societies; offsite monitoring of insurance companies to start in 2008 following GARFIN Act amendment in March 2008.
  - GARFIN addressing unregulated investment schemes and has issued two public warnings.
  - If ECSRC does not determine jurisdiction over schemes by end-June 2008, GARFIN will act to prevent new deposits or seek High Court cease-and-desist order.
- Financial sector program risks and provisions:
  - Program includes estimated bank restructuring costs of 1.5 percent of GDP for 2008.
  - Identified program risks: bank restructuring costs, expenditure control, implementation capacity, natural disasters.

### Structural reform program and implementation
- 2008 reform focus:
  - Improve the investment climate; reform the tax concessions regime; advance customs reforms.
- Specific measures and timelines:
  - Action plan to strengthen Doing Business Indicators by August 2008 (benchmark); World Bank assistance to make GIDC a one-stop shop.
  - New Ministry of Economic Development and Planning to facilitate approvals.
  - Legislation to amend the Income Tax Act, introduce a new Investment Act, and repeal tax incentives legislation to be submitted to Parliament by December 2008; new legislation will provide capital write-offs rather than tax holidays.
  - Customs reforms to focus on risk management, anti-smuggling and fraud detection, and information sharing with Inland Revenue to facilitate VAT introduction.
- Structural benchmark status:
  - Four of seven benchmarks met (three with delay); two legislative benchmarks on tax concessions modified and postponed to December 2008.
- Capacity constraints:
  - Limited implementation capacity cited as reason for delayed benchmarks and delayed CPA and PRSP preparation.

### Debt sustainability — DSA findings, scenarios, and implications
- Debt stock and composition:
  - Public sector debt fell by 5 percentage points of GDP during 2007 to 112 percent of GDP.
  - External debt accounted for 71 percent of total debt; commercial debt about 40 percent of external debt; multilateral debt about one-third of external debt.
  - NPV public sector debt stood at 108 percent of GDP (concessional element and assumed restructuring of some bilateral debt).
- Baseline (program) DSA projections and assumptions (selected, percent of GDP unless noted):
  - Primary balance (including grants): -6.2 (Prelim. 2007), -1.3 (2008), 1.9 (2009), 3.2 (2010), 3.0 (2013), 2.4 (2018), 2.0 (2028).
  - Overall balance: -8.5 (Prelim. 2007), -4.1 (2008), -0.6 (2009), 0.7 (2010), 0.4 (2013), -0.8 (2018), -0.1 (2028).
  - Public debt: 112.0 (Prelim. 2007), 106.5 (2008), 98.7 (2009), 93.4 (2010), 78.8 (2013), 59.6 (2018), 35.4 (2028).
  - Real GDP growth: 4.3 (Prelim. 2007), 3.7 (2008), 4.2 (2009), 4.4 (2010), 4.2 (2013), 4.0 (2018), 4.0 (2028).
  - Inflation (average): 3.9 (Prelim. 2007), 7.8 (2008), 4.5 (2009), 3.1 (2010), 2.3 (2013), 2.0 (2018), 2.0 (2028).
- Key DSA conclusions:
  - Debt sustainability outlook deteriorated relative to previous DSA due to 2007 fiscal slippages, revised 2008 projection (including 1.5 percent of GDP bank restructuring costs), and larger PetroCaribe borrowing.
  - Under the baseline, authorities' nominal debt target of 60 percent of GDP achieved in 2018 (two years ahead of ECCB regional target date).
  - Grenada is at high risk of debt distress; limited room to borrow even on concessional terms.
- Stress-test scenarios (selected results):
  - Delayed adjustment by five years (Alternative Scenario A5): 60 percent nominal debt target reached in 2024; NPV debt-to-GDP 55 percent by 2028.
  - Unchanged primary fiscal balance at 2008 level (Alternative Scenario A2): 60 percent nominal debt target not achieved in projection period; nominal debt-to-GDP close to 100 percent.
  - Proposed China loan (US$85 million over 2009–11; 37 percent grant element) (Alternative Scenario A6):
    - NPV debt-to-GDP in 2028 = 50 percent; 60 percent nominal target reached in 2021.
    - If project raises growth by 0.5 percentage point during 2012–28: NPV debt-to-GDP in 2028 = 45 percent; 60 percent nominal target in 2020.
  - Natural disaster scenario (e.g., in 2009): NPV debt = 57 percent of GDP; 60 percent nominal target in 2024.
  - Bound Test B1 (real GDP contracts by 2.2 percent in 2009–10): NPV debt rises to 129 percent of GDP.
- Policy implications:
  - Fiscal consolidation is essential to achieve debt sustainability; outcomes are vulnerable to shocks and additional borrowing.
  - Caution urged on large concessional bilateral loans (e.g., Export-Import Bank of China); staff recommended sharing feasibility studies and seeking high concessionality or private financing alternatives.
  - Program includes a new performance criterion capping bilateral concessional external debt (excluding PetroCaribe-related debt) with original maturity of at least one year.

### Program design, PRGF adjustments, conditionality, and financing
- PRGF adjustments and financing requests:
  - Authorities requested one-year extension of PRGF arrangement, rephasing of disbursements, and augmentation of access equal to 12.5 percent of quota.
  - Projected increase in total imports up to US$52.2 million (7.8 percent of GDP) in 2008 due to world price shock; three quarters for fuel.
  - PetroCaribe concessional borrowing to finance half the cost of diesel imports.
  - Requested additional SDR amounts: SDR 0.73 million at completion of first review and SDR 0.73 million at completion of second review.
  - With augmentation, total access under program would be 102.5 percent of quota.
  - Staff concluded augmentation does not materially worsen Grenada’s debt profile or capacity to repay the Fund.
- Program conditionality and monitoring:
  - Prior action met: appointment of a receiver for the unregulated bank.
  - Quantitative and structural performance criteria and benchmarks proposed through December 2008; new ceiling on bilateral concessional debt added.
  - Nonconcessional debt ceiling accommodates a US$3 million loan from the U.S. Export-Import Bank for community lighting.
- Financing, divestment, and arrears:
  - Divestment proceeds received Q1 2008 = 1.5 percent of GDP (EC$27 million) used to more than fully finance Q1 2008 overall deficit of 1.2 percent of GDP.
  - Authorities expect remaining EC$50 million (2.8 percent of GDP) end-2008 or early 2009; plan to sell two-thirds of Cable and Wireless shares, first expected to yield EC$50 million.
  - Authorities intend to clear or restructure remaining EC$10.9 million arrears on maturing unrestructured domestic debt to nonbank public by end-2008.
  - Government signed all but one Paris Club bilateral agreement; seeking out-of-court settlement with Export-Import Bank of Taiwan Province of China (loan equivalent to 3.3 percent of GDP).

### Social, disaster risk reduction, and poverty-reduction actions
- Social mitigation for food and fuel:
  - Measures costing around 1.2 percent of GDP: emergency food basket distribution, increases in transfers to needy elderly persons (EC$150 monthly), expansion of free transport for students, suspension of Common External Tariff on nine basic items, removal of customs service charge on selected staples; mission stressed improved targeting.
- Disaster risk reduction:
  - Bring Building Code into force; Construction Quality Assurance Mechanism in force since November 2007.
  - Bring new planning regulations into force by July 2008 (structural benchmark).
  - Participation in Caribbean Catastrophe Risk Insurance Facility: purchasing parametric insurance beginning June 2007; World Bank to pay Grenada’s premium first year and half for next two years.
- Poverty reduction strategy:
  - Country Poverty Assessment expected by end-December 2008 (benchmark); full PRSP expected by November 2009.

### Monitoring, statistical issues, and capacity constraints
- Statistical and data issues:
  - Grenada participates in GDDS; data provision sufficient for program monitoring but needs improvement in coverage, timeliness, and frequency.
  - National accounts revisions undertaken in 2007; gaps in tourism real-sector estimates, producer price index, labor statistics, and quarterly balance of payments.
  - Recommendation to expand coverage of depository and other financial corporations, improve classification of instruments, and institute regular reporting of public enterprise accounts.
- Implementation capacity:
  - Limited implementation capacity highlighted as driver of delayed structural benchmarks and reforms; structural conditionality aligned with capacity and realistic timetables set.

### Staff appraisal, risks, and recommendations
- Staff endorsement:
  - Supports waiver for missed performance criterion, completion of first review, rephasing of disbursements, extension of PRGF through April 2010, augmentation, and financing assurances review—citing fiscal corrective actions, appointment of receiver, initial structural reforms, food and fuel shocks, and debt negotiations.
- Key recommendations:
  - Maintain fiscal consolidation and budgetary discipline to restore debt sustainability.
  - Reduce capital expenditure toward historical levels for 2008 as post-hurricane reconstruction nearly complete.
  - Implement revenue reforms: improved collection of tax arrears (expected yield 0.6 percent of GDP in 2008), complete cadastral survey and revalue property effective 2010, set date for VAT after elections and include VAT-related measures as structural conditionality.
  - Continue transparency commitments: publish information on tax concessions and ensure public enterprises’ audited accounts within four months after fiscal year end.
  - Strengthen financial supervision: enforce Building Code, enact new Insurance Act, build GARFIN capacity, address unregulated investment schemes.
  - Exercise caution on proposed large concessional loan from Export-Import Bank of China; consider private financing or restructure project if feasibility study not positive; new performance criterion will cap bilateral concessional external debt.

*Source: Executive Summary and selected excerpts from IMF Country Report content unit _cr08357.*

### Executive Summary.......................................................................................................

### _cr08357 - Executive Summary

### Executive summary — outlook and program status
- Economic growth: 2007 growth was 4.3 percent; growth in 2008 is projected at 3.7 percent, reflecting a projected slowdown in the global economy.
- Inflation: annual inflation is projected at 7.8 percent for 2008; monthly inflation reached 8.7 percent in April 2008.
- Drivers of 2007 growth: tourism, the Cricket World Cup (CWC), and expansion of an offshore university.
- Fiscal and institutional delays: time needed to address an unregulated bank, fiscal slippages, and slow structural reform delayed completion of the first PRGF review.
- Program performance: all quantitative performance criteria for end-June 2006, except the primary balance, were observed; the authorities are requesting a waiver for the missed performance criterion.
- Structural benchmarks: three out of seven structural benchmarks were not met, reflecting limited implementation capacity; the Country Poverty Assessment (CPA) and a full PRSP have been delayed for the same reason.
- 2008 policy response: authorities developed a revised fiscal program, a strategy for the financial sector, and a structural reform program with a realistic timeframe focused on improving the investment climate, reforming the tax concessions regime, and customs reforms.
- Key program risk noted by staff: a proposed large loan from China for a port and marina project could, depending on loan size and concessionality, undermine debt sustainability.

### Program context — recent developments and outlook
- Positive macro developments:
  - Stayover arrivals: growth in stayover arrivals of 9 percent in 2007 helped offset a large shortfall in external grants and a decline in transfers.
  - External financing: the external current account improved marginally in 2007, and strong FDI inflows provided ample financing.
  - Competitiveness: competitiveness appears to have improved recently based on indirect indicators.
  - Banking soundness (regulated banking system): capital adequacy ratio was 15.6 percent at end-2007; nonperforming loans to total remained low at 3.5 percent; deposits grew 11.5 percent during 2007; credit expanded at 15.1 percent, driven by tourism and personal loans.
  - Structural progress: government appointed a receiver for Capital Bank (the unregulated bank) in February 2008; Parliament approved the Executive Agencies Bill; government adopted a comprehensive business plan for customs reforms and took steps toward stronger building standards.
- Concerns and vulnerabilities:
  - Inflation surge: annual inflation rose sharply to 8.7 percent in April 2008, reflecting rising world food and fuel prices and U.S. dollar depreciation.
  - Fiscal deterioration: fiscal performance deteriorated further in 2007 despite delays in reaching agreement on a public service wage path; slippages largely reflect very high capital expenditure notwithstanding a substantial shortfall (5 percent of GDP) in grants and higher transfers to vulnerable groups.
  - Debt dynamics: strong growth helped reduce the debt-to-GDP ratio from 117 percent at end-2006 to 112 percent at end-2007.
  - Political context: government has a one-vote majority in Parliament; general elections called for July 8, 2008.

### Program performance — fiscal and structural outcomes
- Fiscal outcomes 2005–08 (selected items, in percent of GDP):
  - Total revenues and grants: 2005 = 34.8; 2006Prog. = 33.3; 2006Actual = 33.7; 2007Budget = 32.8; 2007Prel. = 27.3; 2007Prog. = 31.5; 2008 = 28.9.
  - Revenues: 2005 = 24.3; 2006Prog. = 25.8; 2006Actual = 25.0; 2007Budget = 27.0; 2007Prel. = 26.2; 2007Prog. = 26.0; 2008 = 25.2.
  - Grants: 2005 = 10.5; 2006Prog. = 7.4; 2006Actual = 8.7; 2007Budget = 5.8; 2007Prel. = 1.1; 2007Prog. = 5.5; 2008 = 3.7.
  - Total expenditures: 2005 = 34.3; 2006Prog. = 35.2; 2006Actual = 40.1; 2007Budget = 35.3; 2007Prel. = 35.8; 2007Prog. = 36.3; 2008 = 32.9.
  - Current expenditures: 2005 = 20.4; 2006Prog. = 21.0; 2006Actual = 21.3; 2007Budget = 21.5; 2007Prel. = 22.2; 2007Prog. = 22.7; 2008 = 23.4.
  - Interest: 2005 = 2.0; 2006Prog. = 2.2; 2006Actual = 2.1; 2007Budget = 2.2; 2007Prel. = 2.3; 2007Prog. = 2.7; 2008 = 2.8.
  - Bank restructuring: 2005–2007 entries = 0.0; 2008 = 1.5.
  - Capital expenditures: 2005 = 13.9; 2006Prog. = 14.2; 2006Actual = 18.8; 2007Budget = 13.8; 2007Prel. = 13.7; 2007Prog. = 13.6; 2008 = 9.6.
  - Primary balance (excluding grants): 2005 = -8.0; 2006Prog. = -7.1; 2006Actual = -13.0; 2007Budget = -6.0; 2007Prel. = -7.3; 2007Prog. = -7.6; 2008 = -5.0.
  - Overall balance (including grants): 2005 = 0.5; 2006Prog. = -1.9; 2006Actual = -6.4; 2007Budget = -2.4; 2007Prel. = -8.5; 2007Prog. = -4.6; 2008 = -4.1.
- Status of structural benchmarks under the program (target date — status):
  - Stop granting or extending tax holidays — Jan. 2006 — Not met.
  - Agree on public service wage path for 2006–08 — Apr. 2006 — Met in January 2008 (except teachers).
  - Initiate work to strengthen PSIP process — Jun. 2006 — Met in July 2006.
  - Publish information on new tax concessions — Jun. 2006 — Met in Sep. 2006.
  - Amend the Income Tax Act — Jun. 2006 — Not met.
  - Repeal tax incentives legislation — Jun. 2006 — Not met.
  - Initiate comprehensive customs reforms — Aug. 2006 — Met.
- Missed targets and financing implications:
  - The quantitative performance criterion on the central government primary balance (excluding grants) was missed by 1.2 percent of GDP at end-June 2006, largely due to capital expenditure overruns.
  - The overall deficit was financed in part through domestic arrears and a drawdown of deposits, implying the indicative target on net bank credit to the public sector was missed by a substantial margin.
- Structural reform implementation: solid progress on fiscal measures (National Reconstruction Levy (NRL), flexible fuel pricing mechanism, enhanced collection of tax arrears), establishment of GARFIN, and signing up for CCRIF.

### Policy discussions — restoring fiscal and debt sustainability
- Fiscal strategy for 2008:
  - Targeted overall deficit: 4.1 percent of GDP, including estimated bank restructuring costs of 1.5 percent of GDP.
  - Capital expenditure adjustment: budgeted capital expenditure of 13.6 percent of GDP reduced to a realistic 9.6 percent of GDP, reflecting a realistic projection of grants and near-complete post-hurricane reconstruction.
  - Expenditure control measures: Ministry to review proposals to spend above budget allocations before Cabinet under a new policy that limits the use of special warrants; contingent measures identified (limit grants and subventions while protecting transfers to vulnerable groups, improved targeting, further rationalization of capital spending).
  - Authorities request a waiver of the missed June 2006 performance criterion on the primary balance excluding grants in light of corrective actions.
- Social mitigation measures for high food and fuel prices: implemented measures costing around 1.2 percent of GDP, including an emergency food basket distribution scheme, increases in transfers to needy elderly persons, expansion of a free transport program for students, suspension of the Common External Tariff on nine basic items, and removal of the customs service charge on selected staples; mission stressed improved targeting.
- Financing and debt outlook:
  - Program financing: fully and sustainably financed for 2008; allows gradual clearance of arrears and is consistent with debt sustainability.
  - Role of divestment proceeds: substantial divestment proceeds expected during 2008; fiscal program would allow for a reduction of public sector debt of 5.6 percentage points of GDP. Divestment proceeds received in Q1 2008 amounted to 1.5 percent of GDP and were used to more than fully finance the overall deficit of 1.2 percent of GDP in Q1 2008, allowing for a small net repayment of debt.
  - Debt-to-GDP target: authorities aim to achieve a 60 percent debt-to-GDP ratio by 2018, two years ahead of the ECCB’s regional target date; delay relative to an earlier scenario reflects fiscal slippages and larger PetroCaribe concessional borrowing related to higher fuel prices.
  - PetroCaribe arrangement: a share of PetroCaribe’s disbursements is being placed in a special account to repay related obligations and the remainder transferred to the budget; staff proposed a higher share for the special account than planned; authorities considering this as they define their investment strategy. Half of divestment proceeds would be used to pay down debt.
  - Additional reform measures to aid sustainability: improved collection of tax arrears expected to yield 0.6 percent of GDP in 2008; cadastral survey expected to be completed in the year and new property assessments applied from 2010; authorities plan to announce a date for VAT introduction after elections and agreed VAT-related measures would be included as structural conditionality.
- Transparency commitments: continue to publish information on tax concessions; obtain public enterprises’ audited accounts within four months after the close of the fiscal year.
- Proposed external loan risk:
  - Government is considering a concessional loan from the Export-Import Bank of China to finance a port and marina; the project could cost as much as US$85 million (13 percent of GDP).
  - Staff cautioned that such a large loan would put the objective of restoring debt sustainability at risk; Debt Sustainability Analysis shows the risk of debt distress remains high and there is limited room to borrow, even on concessional terms.
  - Authorities will explore private financing options; if the feasibility study does not indicate positive net benefits they will restructure the project and seek high concessionality.
  - Program will incorporate a new performance criterion with a ceiling on bilateral concessional external debt that would not accommodate the proposed loan at this stage; ceiling could be revised upward later if debt sustainability is not jeopardized.

### Policy discussions — reducing financial sector vulnerabilities
- Unregulated bank resolution:
  - Government appointed a receiver for the unregulated bank (prior action); the authorities have appealed a recent revocation of the receivership by the High Court.
  - Resolution of the bank through reorganization or the start of the liquidation process will be a performance criterion for November 2008.
- Banking sector costs and program risk:
  - Program risks include bank restructuring costs, expenditure control, implementation capacity, and natural disasters.
  - The fiscal program includes estimated bank restructuring costs of 1.5 percent of GDP for 2008.
  - Staff expressed concern about potential additional costs and their impact on debt sustainability.

### Structural reform program and implementation
- Focus areas for 2008 reforms:
  - Improve the investment climate.
  - Reform the tax concessions regime.
  - Advance customs reforms.
- Progress to date:
  - Authority actions: appointment of a receiver for Capital Bank; approval of Executive Agencies Bill; adoption of customs reform plan; steps toward stronger building standards.
  - Structural benchmarks: four of seven were met (three with delay); two legislative benchmarks on tax concessions modified and postponed to December 2008.
- Capacity constraints: limited implementation capacity highlighted as a reason for delayed benchmarks and delayed CPA and PRSP preparation.

*Source: Executive Summary (IMF Country Report content unit _cr08357).*

### 14.      In response to the rapidly deteriorating financial condition of the unregulated

### _cr08357 - 14.      In response to the rapidly deteriorating financial condition of the unregulated

### Bank failure and resolution developments
- A receiver was appointed for the unregulated bank (Capital Bank) on February 15, 2008.  
- Bank condition and exposure:
  - Total deposits: EC$21.8 million (1.2 percent of GDP), excluding related party deposits and a large deposit offset by a large investment.
  - Around 70 percent of the 5,800 depositors are small depositors.
  - At least 54 percent of the bank’s loan portfolio (to a related party) is nonperforming.
  - The receiver’s report indicates the bank appears to be insolvent.
  - The bank was highly illiquid and unable to honor deposit withdrawals and was not in the formal clearing and payments system; there has been no evidence of contagion.
- Legal actions and timeline:
  - Minister of Finance proposed reorganization to the High Court on April 14 (2008).
  - High Court revoked the receivership on May 7 (2008); the government obtained a stay and filed an appeal; the receiver remains in place pending the Appeals Court outcome.
  - Bank owner arrested on May 14 (2008) on charges from an ongoing Financial Intelligence Unit investigation.
- Fiscal cost and government involvement:
  - Government participation in restructuring could cost as much as EC$27 million (1.5 percent of GDP) based on asset deficiency and other costs.
  - Government may consider tax credits on portfolio losses or placement of government deposits.
  - Resolution options under consideration include reorganization or liquidation; transferring small deposits (under EC$500) to another financial institution is being considered.
  - Resolution by reorganization or initiating liquidation is a performance criterion for November 2008.
- External assistance:
  - An MCM technical expert has been advising the government on bank resolution.
- Process risks:
  - Bank resolution has been hampered by several legal challenges; prolonged legal battles may slow the process despite investor interest in asset purchase and assumption of liabilities.

### Regulation and supervision of non-bank financial sector
- GARFIN actions and timeline:
  - GARFIN has begun offsite monitoring of credit unions and building societies, and will start offsite monitoring of insurance companies in 2008, following amendment of the GARFIN Act in March 2008.
  - GARFIN is addressing unregulated investment schemes; two public warnings have been issued.
  - If the Eastern Caribbean Securities Regulatory Commission does not determine jurisdiction over the schemes, or does not make a decision by end-June 2008, GARFIN will act to prevent the scheme from taking new deposits or apply for a cease and desist order from the High Court.

### Structural reform program priorities (2008)
- Main focus: enhancing the investment climate, reform of the tax concessions regime, and customs reforms to improve competitiveness and promote private-sector led growth.
- Specific measures and timelines:
  - Develop an action plan by August 2008 to strengthen Doing Business Indicators (benchmark). World Bank assistance to make Grenada Industrial Development Corporation a one-stop shop.
  - New Ministry of Economic Development and Planning to facilitate timely approval of investment projects.
  - Legislation to amend the Income Tax Act, introduce a new Investment Act, and repeal tax incentives legislation is well advanced and will be submitted to Parliament by December 2008; new legislation will provide capital write-offs rather than tax holidays.
  - Customs reforms to focus on risk management, anti-smuggling and fraud detection, and enhanced information sharing with Inland Revenue to facilitate VAT introduction later.
- Poverty reduction and social programs:
  - Grenada’s PRSP expected to be completed in November 2009, with World Bank support.
  - PRSP will build on the Country Poverty Assessment, expected to be completed in December 2008, and will facilitate restructuring of some social, employment and poverty reduction programs.

### Program design, financing, and conditionality
- Monitoring and conditionality:
  - Monitoring modalities unchanged; conditionality aligned with implementation capacity.
  - As a prior action for completion of the review, authorities appointed a receiver for the unregulated bank.
  - Quantitative and structural performance criteria and benchmarks proposed through December 2008 (see supplementary MEP); new ceiling on bilateral concessional debt added.
  - Nonconcessional debt ceiling accommodates a US$3 million loan from the U.S. Export-Import Bank for community lighting.
- PRGF arrangement adjustments:
  - Authorities requested extending the PRGF arrangement by one year, with remaining disbursements rephased.
  - Authorities requested an augmentation of access equal to 12.5 percent of quota to mitigate adverse effects of rising world food and fuel prices.
  - World price shock impacts:
    - Projected increase in total imports up to US$52.2 million (7.8 percent of GDP) in 2008, of which three quarters will be for fuel.
    - PetroCaribe concessional borrowing will finance half the cost of diesel imports.
    - Overall balance of payments expected to post a deficit of 0.7 percent of GDP, compared with earlier projections of a small surplus.
  - Requested additional SDR amounts:
    - Additional SDR 0.73 million to be disbursed at completion of the first review and remaining SDR 0.73 million at completion of the second review.
  - With augmentation, total access under the program would be 102.5 percent of quota (norm for first-time PRGF users is 90 percent of quota; maximum limit is 140 percent).
  - The augmentation does not materially worsen Grenada’s debt profile or capacity to repay the Fund.
- Domestic arrears and debt actions:
  - Authorities intend to clear or restructure by end-2008 remaining EC$10.9 million arrears on maturing unrestructured domestic debt to the nonbank public, incurred in June 2007.
  - Authorities continuing bilateral agreements with Russian Federation and non-Paris Club creditors and good faith efforts with nonparticipating external commercial creditors.
  - Government has signed all but one Paris Club bilateral agreement; seeking out-of-court settlement with Export-Import Bank of Taiwan Province of China (the loan is equivalent to 3.3 percent of GDP).

### Program risks and mitigation
- Identified risks:
  - Significant uncertainty over costs of and legal hurdles to bank restructuring.
  - Difficulties in expenditure control—particularly in an election year—or another natural disaster could impede fiscal adjustment.
  - A possible large loan from China’s Export-Import Bank could undermine debt sustainability.
  - Capacity constraints could complicate structural reforms.
- Design responses:
  - Capped adjustor on bank restructuring costs.
  - Tighter controls on special warrants.
  - New ceiling on bilateral concessional borrowing.
  - Realistic timetable for structural reforms.

### Staff appraisal and policy recommendations
- Progress and achievements:
  - Authorities introduced important fiscal measures; begun strengthening tax and customs administration; improved transparency; initiated reforms to enhance investment environment and reduce vulnerabilities; mobilized donor support for reconstruction.
- Implementation challenges:
  - Program implementation was poor due to large fiscal slippages and difficulties in securing legal basis to address the unregulated bank.
  - Difficulties partly due to underestimating reconstruction costs after the hurricanes and initial PRGF implementation capacity issues.
- Staff assessments and recommendations:
  - Fiscal consolidation remains essential to achieve debt sustainability; medium-term fiscal framework is ambitious and budgetary discipline is crucial.
  - For 2008, reducing capital expenditure toward historical levels is appropriate as post-hurricane reconstruction is nearly complete.
  - Key revenue reforms needed: market-based property tax and setting a date for VAT introduction after elections.
  - Caution advised regarding potential large loan from China’s Export-Import Bank; authorities should consider private sector financing alternatives and share feasibility studies.
  - Support for authorities’ appointment of a receiver and appeal of the revocation of receivership; reorganization or initiating liquidation is a structural performance criterion for November 2008.
  - Emphasis on reducing vulnerabilities: strengthen Building Code enforcement, enact a new Insurance Act, participate in CCRIF, build GARFIN capacity, and address unregulated investment schemes.
- Staff endorsement:
  - Staff supports authorities’ requests for a waiver for the missed performance criterion, completion of the first review, rephasing of disbursements and extension of the PRGF arrangement through April 2010, augmentation, and completion of the financing assurances review—citing fiscal corrective action, appointment of a receiver, initial structural reforms, food and fuel shocks, and debt negotiation efforts.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 4.4 percent

### 4.4 percent

### External shocks and public debt
- "Average 2000-07" 4.4 percent.
- Grenada "has been buffeted by external shocks" including "Hurricane Ivan", "Hurricane Emily", and "Sept. 11 attacks".
- Chart notes: Domestic debt, Commercial external debt, Official external debt shown for 1999–2007 (labels only in source).
- "Debt restructuring" noted as a response to shocks.
- "Public Sector Debt in Selected Emerging Market Countries, end 2007" places Grenada among the most indebted emerging markets.
- Public and publicly guaranteed debt (end-period): 121.3, 111.2, 117.0, 117.2, 112.0, 106.5, 98.7 (values shown in Table 1 across years).
- External public sector debt (mem. item, Table 4): 415.6, 437.0, 457.2, 478.8, 511.8, 520.1, 533.5, 546.6, 559.4, 549.4 (year series).
- External public and publicly guaranteed debt (percent of GDP, Table 4): 89.1, 79.5, 81.3, 79.2, 77.9, 72.5, 69.1, 65.9, 63.0, 58.0 (year series).

### Debt service and interest burden
- Figures show interest payments (in percent of revenue) and sharp reduction in debt service burden after the hurricanes (labels and charts in source).
- Central government interest (Table 2a, in EC$ millions): 29.9, 33.0, 31.6, 36.6, 38.0, 38.1, 47.8, 49.1, 48.9 (annual series).
  - Of which Domestic: 15.8, 9.3, 9.9, 12.2, 11.7, 13.0, 18.4, 19.6, 18.3.
  - Of which Foreign: 14.0, 23.7, 21.6, 24.4, 26.3, 25.1, 29.4, 29.4, 30.6.

### Doing Business and structural reforms
- Figure 6. Grenada: Doing Business Indicators, 2008 (World Bank Doing Business Indicators (2008)).
- Doing Business Ranking and component rankings illustrated; indicators include:
  - Overall Doing Business Ranking (smaller numbers = greater ease). Comparable across 178 countries.
  - Starting a Business Ranking (procedures, time, cost).
  - Registering Property Ranking (steps, time, cost).
  - Getting Credit Ranking (effectiveness of collateral & bankruptcy laws; credit information).
  - Employing Workers Ranking (flexibility of working hours, firing/hiring difficulty).
  - Contract Enforcement Ranking (time, cost, procedures to enforce contracts).
- Country codes used: Antigua and Barbuda (ATG), Dominica (DMA), Grenada (GRD), Jamaica (JMA), St. Kitts and Nevis (KNA), St. Lucia (LCA), Trinidad and Tobago (TTO), St. Vincent and the Grenadines (VCT).

### Social and human development indicators
- Rank in UNDP Human Development Index: 82 out of 177 countries (2007/08).
- Infant mortality rate per '000 births (2005): 17.
- Adult illiteracy rate in percent (2004): 4.
- Life expectancy at birth in years (2004): 73.
- Poverty headcount index (2000): 32.
- GDP per capita in US$ (2006): 5,428.

### Macroeconomic aggregates and projections (selected)
- Table 1 (Selected Economic and Financial Indicators, 2004–09) — percent / levels reported:
  - Real GDP (annual percent change): 2004 -6.4, 2005 11.5, 2006 6.5, 2007 -1.1, 2008 4.3, 2009 3.7, (proj.) 4.2.
  - GDP deflator: 4.5, 4.6, 4.6, 3.1, 3.5, 6.0, 4.7.
  - Consumer prices end-of-year: 2.5, 6.2, 2.0, 1.7, 7.4, 6.2, 3.9.
  - Current account balance (including grants; in percent of GDP): -9.7, -31.4, -32.8, -33.1, -32.6, -36.4, -35.1.
  - Nominal GDP (Table 1, in millions of U.S. dollars): 466.6, 549.4, …, 562.1, 604.9, 657.3, 716.9 (series shown).
- Table 2a (Medium-Term Central Government Finances, 2005–09, EC$ millions):
  - Total revenue and grants: 515.7, 505.6, 511.9, 536.4, 483.3, 445.8, 558.8, 512.6, 546.8.
  - Total revenue: 360.1, 392.8, 379.7, 441.2, 427.7, 428.5, 461.1, 447.6, 496.9.
  - Tax revenue: 344.0, 362.1, 353.5, 407.5, 387.7, 402.8, 423.4, 414.3, 460.2.
  - Grants: 155.6, 112.8, 132.2, 95.2, 55.6, 17.3, 97.7, 65.0, 50.0.
  - Total expenditure: 508.9, 534.2, 608.9, 576.2, 464.4, 585.2, 644.6, 584.7, 559.3.
  - Current expenditure: 303.0, 318.1, 323.1, 350.7, 335.2, 362.1, 402.8, 414.7, 385.1.
  - Capital expenditure: 206.0, 216.1, 285.8, 225.5, 129.2, 223.1, 241.8, 170.0, 174.2.
  - Overall balance (including grants): 6.7, -28.7, -97.0, -39.8, 18.9, -139.4, -81.5, -72.1, -12.5.
  - Financing components: Net external financing: 69.4, 61.1, 54.5, -5.3, -36.1, 40.2, -6.3, 44.4, -26.6.
  - Net domestic financing: -32.2, -32.5, 30.2, 0.0, -59.2, 69.7, 30.0, -19.8, -32.0.
  - Nominal GDP (market prices, EC$ millions): 1,483, 1,518, 1,518, 1,633, 1,633, 1,633, 1,775, 1,775, 1,936 (memorandum).
  - Stock of expenditure arrears (EC$ millions): 20.6, …, 51.8, …, 37.2, …, 27.8, 25.4 (series shown).
- Table 2b (Medium-Term Central Government Finances, 2005–09, percent of GDP):
  - Total revenue and grants: 34.8, 33.3, 33.7, 32.8, 29.6, 27.3, 31.5, 28.9, 28.2.
  - Total expenditure: 34.3, 35.2, 40.1, 35.3, 28.4, 35.8, 36.3, 32.9, 28.9.
  - Current balance: 3.8, 4.9, 3.7, 5.5, 5.7, 4.1, 3.5, 1.8, 5.8.
  - Overall balance (including grants): 0.5, -1.9, -6.4, -2.4, 1.2, -8.5, -4.6, -4.1, -0.6.
  - Public sector net borrowing: -0.2, 1.7, 3.1, 2.1, 5.0, 1.2, 1.7, 1.6, 1.4 (Table 4, percent of GDP series).
- Banking system (Table 3, selected):
  - Liabilities to private sector (M2, end-period, EC$ millions): 1,484.1, 1,469.0, 1,482.4, 1,644.7, 1,783.9, 1,945.9.
  - Money and quasi-money (M2, Table 1): 17.8, -1.0, 7.8, 0.9, 11.0, 8.5, 9.1 (annual percent changes).
  - Loans/deposits ratio (in percent): 57.6, 66.0, 73.2, 75.9, … (series shown).

### External sector and balance of payments (selected)
- Current account balance (in millions of U.S. dollars, Table 4): -45.3, -172.3, -185.9, -197.0, -239.4, -251.7, -251.2, -239.7, -236.7, -231.2 (2004–13 series).
- Exports (f.o.b., Table 4): 37.5, 32.9, 32.3, 48.2, 39.3, 40.4, 42.8, 46.9, 51.4, 56.5.
- Imports (f.o.b., Table 4): -226.2, -298.7, -296.6, -308.3, -344.8, -371.6, -377.6, -388.9, -407.2, -425.8.
- Services (net): 65.5, 20.6, 31.4, 52.5, 57.2, 79.7, 92.4, 110.7, 130.2, 147.0.
  - Travel (net): 75.3, 69.1, 88.5, 121.9, 127.2, 149.8, 165.2, 183.0, 201.9, 221.9.

### Composition of public debt (year-end stock table)
- Public sector debt (year end, in millions of U.S. dollars): Stock 677.6, Percent of Total Debt 100.0, Percent of GDP 112.0.
- Central government debt: 603.2 (89.0 percent of stock, 99.7 percent of GDP).
- External debt (total): 478.8 (70.7 percent of stock, 79.2 percent of GDP).
- Central government external debt breakdown (A. Central government 437.1, 64.5 percent of stock, 72.3 percent of GDP):
  - Multilateral: 154.8 (22.9 percent of stock, 25.6 percent of GDP). Components: CDB 95.0, IDA 35.0, IBRD 12.0, IMF 7.6, Other multilateral 5.2.
  - Official bilateral: 82.9 (12.2 percent of stock, 13.7 percent of GDP). Components include Paris Club 19.3; non-Paris Club 63.6 with Kuwait 17.8, Taiwan Province of China 20.3, Trinidad and Tobago 17.0, Venezuela 2.9; and others.

*Source: IMF staff compilation from Ministry of Finance; Eastern Caribbean Central Bank; United Nations, Human Development Report 2007/08; World Bank, WDI 2007; World Bank, Doing Business Indicators (2008); and Fund staff estimates and projections.*

### 3.  Commercial, total199.429.433.0

### _cr08357 - 3.  Commercial, total199.429.433.0

### Public sector debt (Table 5 excerpt)
- Commercial, total: 199.4 29.4 29.4 33.0
- Restructured bonds: 193.5 28.6 32.0
- Unrestructured bonds: 5.8 0.9 1.0
- B. Central government guaranteed: 21.3 3.1 3.5
  - Of which: Paris Club: 7.8 1.1 1.3
- C. Other public sector: 20.5 3.0 3.4

### Domestic debt (Table 5 excerpt)
- Domestic debt: 198.7 29.3 32.9
- A. Central government: 166.1 24.5 27.5
  - Restructured Bonds: 68.1 10.1 11.3
  - Unrestructured bonds: 8.5 1.3 1.4
  - Treasury bills: 28.9 4.3 4.8
  - Commercial bank loans: 22.4 3.3 3.7
  - Overdraft: 9.0 1.3 1.5
  - Domestic arrears: 13.8 2.0 2.3
  - Compensation claims: 14.8 2.2 2.4
  - Other: 0.6 0.1 0.1
- B. Central-government guaranteed: 32.6 4.8 5.4
- Memorandum item: Nominal GDP: 604.9

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

### Real sector indicators (2004–2007, selected)
- Real GDP growth (percent): -6.4 11.5 -1.1 4.3
- CPI inflation (period average, in percent): 2.3 3.5 4.2 3.9

### Financial sector indicators (selected)
- Total capital asset ratio of banks (locally incorporated): 14.9 15.3 17.5 15.6
  - of which: Tier 1 capital: 10.5 12.7 13.2 13.3
- Liquid assets/total assets: 44.3 37.3 31.5 29.2
- Liquid assets/current liabilities: 48.2 40.0 34.6 32.3
- Total loans/total deposits: 57.6 60.0 73.2 75.9
- Net liquid assets/total deposits: 44.2 35.4 28.6 26.4
- Nonperforming loans/total loans: 6.0 5.5 3.7 3.5
  - Locally incorporated banks: 7.1 6.8 4.7 3.4
  - Foreign banks: 4.4 3.5 2.4 3.5
- Provisions for loan losses /nonperforming assets: 81.9 79.4 67.4 56.7
  - Locally incorporated banks: 63.0 60.7 51.5 46.4
  - Foreign banks: 127.8 134.6 114.6 71.2
- Gross government claims/total assets: 11.3 11.2 11.6 11.9
- FX deposits/total deposits: 5.6 7.8 5.8 7.7
- Net foreign currency exposure/capital (locally incorporated banks): 221.4 138.4 101.4 65.8
- Contingent liabilities/capital (locally incorporated banks): 67.7 88.7 72.2 85.8
- Ratio of bank's before-tax profits to average assets (percent): 0.5 0.7 2.5 2.1
- Broad money (percent change, 12-month basis): 17.8 -1.0 0.9 11.0
- Private sector credit (percent change, 12-month basis): 6.8 9.2 12.5 15.1
- U.S. treasury bill rate (percent per annum): 1.4 3.2 3.2 3.2
- Treasury bill rate (percent per annum) 1/: 6.0 6.0 6.5 6.5
  - 1/ Rate on one-year treasury bills.

### External sector indicators (selected)
- Exchange rate (per US$, end of period): 2.7 2.7 2.7 2.7
- REER appreciation (percent change on 12-month basis, end of period): -3.6 5.6 -4.6 0.0
- Exports of goods (percent change, 12-month basis): -17.6 -12.4 -1.7 49.2
- Imports of goods (percent change, 12-month basis): -0.1 32.1 -0.7 3.9
- Travel receipts (gross, percent change, 12-month basis): -18.7 -5.6 31.5 27.2
- Current account balance (percent of GDP): -9.7 -31.4 -33.1 -32.6
- Capital and financial account balance (percent of GDP): 15.3 32.6 34.5 31.3
- FDI inflows (percent of GDP): 13.9 12.8 15.2 22.7
- Gross international reserves of the ECCB (in US$ millions): 632.4 600.8 696.0 764.5
- Gross international reserves in months of current year imports in ECCU countries: 4.8 3.9 3.8 3.7
- Gross international reserves to broad money in ECCU countries (percent): 20.4 20.4 18.6 18.6
- Public gross external debt (in US$ million): 415.6 437.0 457.2 478.8
- Public gross external debt to exports of goods and services (percent): 45.7 53.4 50.1 37.9
- Public gross external interest payments to exports of goods and services (percent): 13.9 6.5 7.5 6.3
- Public gross external amortization payments to exports of goods and services (percent): 8.7 6.0 6.6 5.7
- Public gross external interest payments to fiscal revenue (percent): 18.7 5.0 6.4 8.0
- Public gross external amortization payments to fiscal revenue (percent): 11.7 4.7 5.7 7.2
- Gross external financing requirement (in percent of GDP): 13.3 33.0 35.0 34.5

### Public sector indicators (selected)
- Central government overall balance (after grants): -2.6 0.5 -6.4 -8.5
- Public and publicly-guaranteed gross external debt: 89.1 79.5 81.3 79.2

*Sources: Ministry of Finance; Eastern Caribbean Central Bank; and Fund staff estimates and projections.*

### Millennium Development Goals (selected, Table 7)
- Net primary enrollment ratio (percent of relevant age group): 85.8 83.9 (data as of 2004)
- Primary completion rate, total (percent of relevant age group): 73.7 93.0 (data as of 2003)
- Ratio of girls to boys in primary and secondary education (percent): 97.0 102.0
- Share of women employed in the nonagricultural sector (percent): 38.2 38.5 40.3 41.3 42.7
- Proportion of seats held by women in national parliament (percent): 20.0 26.7 26.7
- Immunization, measles (percent of children under 12 months): 85.0 87.0 92.0 92.0 99.0 (data as of 2004)
- Infant mortality rate (per 1,000 live births): 30.0 26.0 ... 21.0 17.0 (data as of 2004)
- Under 5 mortality rate (per 1,000): 37.0 33.0 ... 26.0 21.0 (data as of 2004)
- 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 (data as of 2002)
- Access to an improved water source (percent of population): 97.0 ... 95.0 (data as of 2004)
- Access to improved sanitation (percent of population): 97.0 ... 96.0 (data as of 2004)
- Fixed line and mobile telephones (per 1,000 people): 178.3 242.3 301.1 352.0 719.0 (data as of 2004)
- Internet users (per 1,000 people): 0.0 0.0 10.0 41.0 182.0 (data as of 2002)
- Personal computers (per 1,000 people): ... 127.1 155 (data as of 2004)

*Source: World Development Indicators database.*

### Proposed PRGF reviews and disbursements (Table 8 excerpt)
- April 2006: Board approval of PRGF arrangement — Disbursement: SDR 1.56 million — Percent of Quota: 13.33 — Disbursement date: April 28, 2006
- June 2008: Observance of end-June 2006 performance criteria, completion of first review and adopt conditions for second year — Disbursement: SDR 2.98 million 1/ — Percent of Quota: 25.48 — Disbursement date: July 8, 2008 2/
- October 2008: Observance of end-June 2008 performance criteria and completion of second review — Disbursement: SDR 2.41 million 1/ — Percent of Quota: 20.61 — Disbursement date: October 15, 2008 2/
- April 2009: Observance of end-December 2008 performance criteria, completion of third review, and adopt conditions for third year — Disbursement: SDR 1.68 million — Percent of Quota: 14.36 — Disbursement date: April 15, 2009 2/
- October 2009: Observance of end-June 2009 performance criteria and completion of fourth review — Disbursement: SDR 1.68 million — Percent of Quota: 14.36 — Disbursement date: October 15, 2009 2/
- April 2010: Observance of end-December 2009 performance criteria and completion of fifth review — Disbursement: SDR 1.68 million — Percent of Quota: 14.36 — Disbursement date: April 15, 2010 2/
- Total: SDR 11.99 million — Percent of Quota: 102.50
  - 1/ Assumes frontloading, as well as augmentation of access of 12.5 percent of quota (SDR 1.46 million), phased equally over the two disbursements expected in 2008.
  - 2/ Expected date of disbursement.

*Source: Fund staff.*

### Fund obligations and capacity to repay (Table 9, selected)
- Fund obligations based on existing credit (in millions of SDRs), Principal: 1.1 1.5 1.1 1.5 0.0 0.2 0.3 0.3 0.3 0.3
- Charges and interest: 0.3 0.3 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0
- Fund obligations based on existing and prospective credit (in millions of SDRs), Principal: 1.1 1.5 1.1 1.5 0.0 0.2 0.3 0.6 1.6 2.2
- Charges and interest: 0.3 0.3 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
- Total obligations based on existing and prospective credit:
  - In millions of SDRs: 1.4 1.7 1.2 1.6 0.1 0.2 0.4 0.7 1.6 2.3
  - In millions of US$: 2.0 2.7 1.9 2.5 0.1 0.4 0.6 1.1 2.6 3.6
  - In percent of exports of goods and services: 1.2 1.3 0.9 1.1 0.1 0.1 0.2 0.3 0.7 1.0
  - In percent of debt service 2/: 8.7 10.6 6.2 4.7 0.5 1.5 2.0 2.5 5.2 6.5
  - In percent of GDP: 0.4 0.4 0.3 0.3 0.0 0.0 0.1 0.1 0.3 0.3
  - In percent of Imputed Net International Reserves: 2.0 2.4 1.7 2.0 0.1 0.4 0.6 1.2 2.7 3.7
  - In percent of quota: 11.6 14.9 10.3 13.3 0.7 2.1 3.3 5.9 13.9 19.6
- Outstanding Fund credit:
  - In millions of SDRs: 6.3 4.9 8.4 10.3 12.0 11.8 11.5 10.9 9.4 7.1
  - In millions of US$: 9.5 7.7 13.3 16.3 18.9 18.7 18.2 17.2 14.8 11.3
  - In percent of exports of goods and services: 5.9 3.7 6.4 7.1 7.5 6.8 6.1 5.3 4.3 3.0
  - In percent of debt service 2/: 41.5 30.4 43.0 31.3 78.0 72.0 58.6 38.8 29.7 20.2
  - In percent of GDP: 1.7 1.3 2.0 2.3 2.5 2.3 2.0 1.8 1.5 1.1
  - In percent of Imputed Net International Reserves: 9.5 6.9 11.7 12.9 18.3 19.1 17.8 18.2 15.3 11.5
  - In percent of quota: 54.0 41.5 71.9 88.1 102.5 101.1 98.5 93.2 79.9 60.9
- Net use of Fund credit (millions of SDRs): 0.5 -1.5 4.3 1.9 1.7 -0.2 -0.3 -0.6 -1.6 -2.2
- Disbursements: 1.6 0.0 5.4 3.4 1.7 0.0 0.0 0.0 0.0 0.0
- Repayments and Repurchases: 1.1 1.5 1.1 1.5 0.0 0.2 0.3 0.6 1.6 2.2
- Memorandum items:
  - Exports of goods and services (in millions of US$): 162.3 209.0 208.2 230.6 251.1 274.4 299.4 326.4 347.6 369.8
  - Debt service (in millions of US$) 2/: 22.9 25.2 30.9 52.1 24.3 26.0 31.1 44.5 49.8 55.6
  - Nominal GDP (in millions of US$): 562.1 604.9 657.3 716.9 771.8 829.7 888.0 946.7 1,004.2 1,065.3
  - Imputed Net International Reserves (in millions of US$): 99.8 110.4 113.6 126.2 103.8 98.1 102.3 94.8 96.9 98.0
  - Quota (millions of SDRs): 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7 11.7

- 1/ Assumes prospective PRGF disbursements of SDR 5.39 million in 2008, SDR 3.36 million in 2009, and SDR 1.68 million in 2010.
- 2/ Total debt service includes IMF repurchases and repayments.

*Source: IMF staff estimates and projections.*

### Annex I — Fund relations (selected)
- Grenada’s outstanding purchases as of end-May 2008 amounted to SDR 3.75 million (32.08 percent of quota).
- Grenada is a member of the Eastern Caribbean Central Bank (ECCB); common currency pegged at EC$2.70 per U.S. dollar since July 1976.
- Last Article IV consultation concluded by the Executive Board on September 26, 2007 (IMF Country Report No. 08/351).
- Next Article IV consultation expected in August 2009.
- CARTAC, MCM, and FAD have provided extensive technical assistance.
- Updated safeguards assessment of the ECCB undertaken in July 2007 and has not noted any new significant vulnerabilities.

### Relations with the World Bank Group (selected)
- Eastern Caribbean Sub-Region Country Assistance Strategy (CAS) for FY 2006–09 supports two pillars: (1) stimulating growth and improving competitiveness; and (2) reducing vulnerability by promoting greater social inclusion and strengthening disaster risk management.
- Eight active World Bank projects in Grenada for a net commitment of approximately US$46.61 million: OECS E-government for Regional Integration Program; Grenada Technical Assistance Project; Telecommunications and ICT Development; Public Sector Modernization; Education Reform Project; HIV/AIDS Prevention and Control; the Hurricane Ivan Emergency Project; and the Caribbean Catastrophe Risk Insurance Facility.

### Relations with the Caribbean Development Bank (selected)
- Grenada received special financing incorporating a blend of Special Development Funds (SDF) and ordinary capital resources, yielding a concessionary grant element of 35 percent.
- Main activities: school rehabilitation and reconstruction project, Project Management Training, and a Country Poverty Assessment.

### Statistical issues
- Grenada participates in the Fund’s General Data Dissemination System (GDDS).
- Data provision is sufficient for program monitoring, but significant improvement is needed in coverage, timeliness and frequency of data.

### Letter of Intent — Key policy and program points (June 20, 2008)
- Economy recovery from Hurricanes Ivan and Emily; medium-term prospects improved with major tourism projects underway.
- Government progress: introduced National Reconstruction Levy; adopted a flexible fuel pricing mechanism; enhanced tax arrears collection.
- Missed end-June 2006 performance criterion on central government primary balance due to higher capital spending; waiver requested.
- Measures: more realistic capital spending target and tighter expenditure controls for 2008.
- Structural agenda progress: customs reform, PSIP, transparency on tax concessions; delay in new legislation on investment incentives.
- Banking sector: receiver appointed for a small unregulated bank; appeal of High Court decision that appointment was unlawful; plan to resolve the bank being developed.
- Debt restructuring: continued efforts to complete bilateral debt restructuring and reach agreements with remaining nonparticipating commercial creditors.
- Request for augmentation of access under PRGF: SDR 1.46 million (12.5 percent of quota).
- Request completion of first review under PRGF and associated disbursement; request for extension of PRGF arrangement by one year and rephasing of disbursements; request second disbursement, with augmentation, of SDR 2.98 million.
- Government commits to provide information requested by the Fund and to consult with the Fund on policy revisions.
- Expected schedule: second review by October 15, 2008; third review by April 15, 2009.

### Supplementary Memorandum of Economic Policies — Performance under the program (opening summary)
- Program focus: promote sustained high economic growth by improving climate for private investment; put public finances on a sustainable trajectory; reduce vulnerabilities; alleviate poverty through social programs and safety nets.
- Economic growth: Real GDP growth increased to 4.3 percent in 2007, driven by tourism.
- External current account deficit narrowed during 2007, reflecting an increase in tourism receipts, underpinned by 9 percent growth in stayover visitor arrivals.
- Annual inflation has increased sharply to an annual average of [text ends].

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

### 3.9 percent in 2007, reflecting the pass-through of rising world fuel and food prices.

### _cr08357 - 3.9 percent in 2007, reflecting the pass-through of rising world fuel and food prices.

### Fiscal developments: 2006–2007
- Inflation was "3.9 percent in 2007, reflecting the pass-through of rising world fuel and food prices."
- Fiscal outcome and deviations:
  - 2006 overall deficit increased to 6.4 percent of GDP (8.2 percent based on below-the-line financing data) compared with 1.9 percent under the program.
  - End-June 2006 missed performance criterion on the central government primary balance by about 1.2 percent of GDP.
  - Indicative target on the change in net credit of the banking system to the public sector missed by about 0.5 percent of GDP.
  - 2006 unpaid claims: EC$47 million (3.1 percent of GDP) at end-2006.
  - 2007 overall deficit: 8.5 percent of GDP in 2007 (8.0 percent of GDP below the line) compared with 2.4 percent of GDP in the 2007 budget.
  - Shortfall in grants in 2007: 4.7 percent of GDP.
  - Reduced expenditure arrears by EC$19 million during 2007.
  - 2007 revision: GDP was revised upward in 2007; the revision for 2006 was an increase of 7 percent. "All GDP ratios below reflect this upward revision."

### Fiscal reforms and revenue measures introduced
- National Reconstruction Levy (NRL)
  - Introduced in 2006; "streamlined somewhat from that envisaged in our March 2006 MEP."
- Automatic fuel pricing mechanism
  - Adopted October 2006 with adjustments every eight weeks and a specific tax of EC$3 per gallon.
  - Fully implemented since October 2007.
- Collection of tax arrears
  - A unit in Inland Revenue collected EC$9 million during 2007.
  - The new unit is expected to collect about EC$12 million during 2008.
- Other measures
  - Procedures for Ministry of Finance review of additional spending proposals before Cabinet.
  - Cabinet policy change in January 2008 to limit use of special warrants.

### Status of structural benchmarks (summary)
- Benchmarks met (examples)
  - Initiated work to strengthen PSIP process (met in July 2006 with CDB assistance).
  - Initiated comprehensive customs reforms (contracted PricewaterhouseCoopers).
  - Information on all new concessions made available on the GIDC web site starting September 2006.
  - Agreement with public service unions on 2006–08 wage path reached in January 2008 (except teachers).
- Benchmarks not met (examples)
  - Stop granting or extending tax holidays (Jan. 2006) — Not met.
  - Amend the Income Tax Act (Jun. 2006) — Not met.
  - Repeal tax incentives legislation (Jun. 2006) — Not met.
  - Publish information on new tax concessions (Jun. 2006) — Met in Sep. 2006.
  - Initiate comprehensive customs reforms (Aug. 2006) — Met.
- Tax holidays granted after hurricanes and in response to regional competition:
  - Instances cited: local hotel (request made in 2005, addressed Apr. 2006), Port Louis (2006), Mt. Hartman (2007, based on 2004 agreement), Levera (2007), Century project (2008, based on 2003 agreement).

### 2008 fiscal program, targets, and spending strategy
- Overall deficit target for 2008: 4.1 percent of GDP.
- Debt objective: reach debt target of 60 percent of GDP by 2018.
- Capital expenditure plan:
  - 2006 capital expenditure: 18.8 percent of GDP.
  - 2007 capital expenditure: 13.7 percent of GDP.
  - 2008 planned capital expenditure: 9.6 percent of GDP (budgeted ratio was 13.6 percent of GDP).
  - Commitment to reduce capital expenditure relative to approved 2008 budget; may be adjusted if grants or divestment proceeds differ from projections.
  - If divestment proceeds exceed projected amount, half of additional financing would be used to lower debt.
- Contingent measures to reduce spending:
  - Limit grants and subventions while protecting transfers to vulnerable groups, improve targeting, further rationalize capital spending.
- Public sector wages:
  - 2008 budget provided room for wage increase in line with inflation.
  - Agreement reached Jan. 2008 with public service workers (except teachers, who account for 38 percent of the wage bill).
  - Lump sum retroactive increases for 2006 and 2007 to be paid by August 2008.
  - Pay and grade study financed by CDB; report expected by August 2008.
  - Intend to seek wage path for 2009–11 in line with inflation.

### Revenues, tax policy, and administration measures
- VAT implementation
  - VAT delayed until after elections due by April 2009.
  - January 2007 VAT White Paper announced a rate of 15 percent, with a special rate of 10 percent for hotels.
  - Preparatory measures required once implementation date set: pass VAT and Excise Tax Laws, recruit staff, upgrade IT modules, adopt transitional procedures for bonded warehouses.
- Fuel pricing
  - Continue automatic fuel pricing mechanism with adjustments every eight weeks; mechanism delinks fuel tax revenues from international price fluctuations.
  - Domestic fuel prices to be revised every eight weeks in line with international prices.
- Inland Revenue and nontax arrears
  - New Inland Revenue unit expected to collect about EC$12 million during 2008.
  - Ministry of Finance taking steps to improve collection of nontax arrears including dividends, licenses, and rent.
- Property valuation and cadastral work
  - Complete cadastral survey in August 2008 as basis for reassessing property values.
  - New valuations to be applied beginning January 1, 2010.
  - Enact law to allow Inland Revenue to adjust valuations between cadastral surveys.
  - Aim to raise substantial revenue via move to market valuation without changing rates.

### Customs, public investment, and public financial management reforms
- Customs reforms
  - Comprehensive business plan for customs reform prepared in February 2008.
  - Key elements: fraud control plan, improving customs systems and procedures, upgrading IT, reducing clearance times.
  - By September 2008: sign MOU on information sharing between Inland Revenue and Customs, adopt a Fraud Control Program (benchmark).
  - ASYCUDA resumed operation in February 2007; plan to move to ASYCUDA World by end-2009.
  - Target to reduce customs clearance from 4 days to 1½ days over the next three years.
- Public Sector Investment Program (PSIP)
  - Strengthen capacity with CDB-provided training and further technical assistance.
  - Use strengthened capacity in preparing the 2009 budget.
- Expenditure controls and arrears
  - Reduced unpaid claims from EC$47 million (3.1 percent of GDP) at end-2006 to EC$28 million (1.7 percent) at end-2007.
  - Intend to reduce these arrears by half by end-2008.
  - Ministry of Finance to review proposals to increase spending before Cabinet and strictly apply new policy limiting special warrants.
  - Public Tender Board approval required for any tender over EC$100,000.
- Fiscal transparency
  - Disseminate quarterly information on the overall fiscal situation and gross financing needs starting July 2008.
  - Publish information on public enterprise finances.
  - Public enterprises required by Public Financial Management Act of May 2007 to submit audited financial statements four months after close of financial year.
  - Recruitment and training for Audit Department underway.
  - Continue publishing newly granted or extended tax concessions.

### Financing, divestment, and external financing stance
- Financing stance and constraints
  - Revised 2008 fiscal program "fully financed in an sustainable manner."
  - Refrain from use of nonconcessional external financing (performance criterion).
  - Avoid reliance on overdraft facility or arrears.
  - Clear or restructure remaining EC$10.9 million arrears on unrestructured domestic debt to the nonbank public by end-2008.
- Divestment program and expected receipts
  - Reduce public and publicly guaranteed debt from 112 percent of GDP at end-2007 to 106.5 percent at end-2008.
  - Received EC$27 million (1.5 percent of GDP) in January 2008 from sale of land for the Four Seasons project.
  - Expect remaining EC$50 million (2.8 percent of GDP) at end-2008 or early 2009.
  - Plan to sell two-thirds of shares in Cable and Wireless to the public in two equal lots; the first expected to yield EC$50 million.
- PetroCaribe and concessional energy financing
  - Began importing diesel under PetroCaribe Agreement in October 2007 via PetroCaribe Grenada Ltd.
  - Based on May 2008 oil prices, Agreement could provide concessional financing on the order of 2.5 percent of GDP per year.
  - PetroCaribe Grenada to set aside in a special account sufficient amounts to service the loan; remainder transferred to budget for social programs.
  - Retail fuel and electricity prices to continue to reflect world prices and would not be reduced as a result of the Agreement.
- Potential external loan for port and marina
  - Considering applying for a concessional loan of around US$85 million (13 percent of GDP) from the Export-Import Bank of China to finance construction of a port and marina.
  - Will share feasibility study with IMF, World Bank, or CDB; would restructure if study does not show positive net benefits and seek a high level of concessionality if proceed.

### Structural policies and investment climate improvements
- New Investment Act and tax concessions
  - Drafted Investment Act to provide capital write-offs rather than tax holidays and ensure a transparent nondiscretionary process for tax concessions.
  - Legislation to be submitted to Parliament by December 2008 following final drafting and Cabinet approval.
- Doing Business and investment facilitation
  - Developing an action plan to improve Doing Business Indicators by August 2008 (benchmark); priority areas: starting a business, registering property, facilitating trade.
  - Prepare comprehensive investment strategy by November 2008.
  - Work toward establishing an Investment Facilitation Network (IT platform) in 2009.
  - Continue efforts to make GIDC a one-stop shop for investors; strengthen capacity of GIDC, Planning Approval, and associated agencies.
- Land registry and land transactions
  - Upgrade land registry to a fully computerized system allowing public access; original completion date revised from end-2006 to 2010.
  - Work toward establishing a new land agency with World Bank assistance following passage of Executive Agencies Act in February 2008.

*Source: _cr08357 - 3.9 percent in 2007, reflecting the pass-through of rising world fuel and food prices.*

### 29.      To reduce vulnerabilities to natural disasters, we will work toward giving the

### _cr08357 - 29.      To reduce vulnerabilities to natural disasters, we will work toward giving the

### Disaster risk reduction and building regulations
- Bring the Building Code force of law.
- Construction Quality Assurance Mechanism brought into force in November 2007, involving contractors, engineers, architects, and financial institutions; entails training, certification, and procedures to assist stakeholders to ensure buildings are built to required standards.
- Bring into force the new planning regulations by July 2008 (structural benchmark).

- Participation in World Bank’s Caribbean Catastrophe Risk Insurance Facility:
  - Began purchasing parametric insurance beginning in June 2007 that pays the government a predetermined amount in case of hurricane or earthquake.
  - The World Bank will pay Grenada’s insurance premium in the first year and half the premium for the next two years.

### Export strategy and trade facilitation
- Final draft of National Export Strategy prepared and approved by Cabinet.
- Organization of American States funded the Export Competency Development Strategy for a two-year period.
- World Bank collaborating with Ministry of Economic Development and Planning to help establish a Trade Information Network and strengthen the Bureau of Standards.
- Plan to adapt draft model legislation for the National Export Council.
- Negotiated more airlift for passengers and products to North America.

### Social protection, subsidies, and poverty reduction
- Key objective: reduce poverty and support the most vulnerable.
- Measures maintained in 2008 introduced with the 2006 budget to cushion impact of fuel price increases:
  - Increase in the monthly transfer to needy elderly persons to EC$150.
  - Temporary subsidization of the increase in bus fares for tertiary students.
- To address high costs of imported foods (following CARICOM decision), suspended for one year the Common External Tariff on: cooking oil, baby formula, baking powder and yeast, and dried breakfast cereals.
- Put in place margin controls on the same products and waived the customs service charge on the import of bulk milk by the Marketing and National Importing Board.

- Preparation of a full PRSP as follow-up to the interim PRSP at time of PRGF program approval:
  - Updated Country Poverty Assessment (CPA) delayed; with assistance of the CDB, CPA is underway with results expected by end-December 2008 (benchmark).
  - Aim to finalize the full PRSP by November 2009.
  - A PRSP Preparation Status Note has been provided.

### Financial sector reform and supervision (GARFIN and related measures)
- Enacted Grenada Authority for the Regulation of Financial Institutions (GARFIN) legislation effective September 2006; GARFIN began operation in February 2007.
  - GARFIN brings together under one supervisory authority a wide range of financial institutions including credit unions, cooperatives, insurance and offshore companies.
  - Intention to ensure insurance sector follows sound practices; intend to enact a new Insurance Act by end-2008.

- GARFIN progress and actions:
  - Set up a reporting system and begun offsite monitoring of credit unions and building and loan societies; same process to be undertaken for insurance companies in 2008.
  - For the offshore sector, GARFIN will remove inactive International Business Corporations from the register by May 2008.
  - Amended GARFIN Act came into force in March 2008, making GARFIN the registrar and supervisor of insurance companies and broadening the definition of money services under its jurisdiction.
  - Several pieces of legislation slated for submission to Parliament in 2008, including the Cooperatives Society Act, and Money Services Act.
  - The Offshore Banking Act took effect in December 2007.

- Unregulated investment schemes:
  - Issued a public warning on risks and a financial advisory indicating which schemes operate without a license.
  - If ECSRC determines a scheme does not fall under its jurisdiction, or does not make a decision by end-June 2008, GARFIN will act to prevent the scheme from taking new client deposits or apply for a cease and desist order from the High Court under the amended GARFIN Act.

### Crisis at an unregulated bank and resolution strategy
- Appointed a receiver on February 15, 2008 for a rapidly deteriorating unregulated bank that was highly illiquid and unable to honor deposit withdrawals; increasing evidence of likely insolvency. Obtained a court order to appoint the receiver.
- ECCB recommended revoking the bank’s license while urging action to safeguard depositors’ interests.
- No contagion to the regulated banking system; the bank is not in the formal clearing and payments system; no systemic risk as the bank accounts for a small share of the banking system.
- High Court ruling on May 7 found the appointment of the receiver unlawful in favor of the bank’s owner; authorities obtained a stay and filed an appeal; receiver remains in place pending Appeals Court outcome.
- Communication strategy: government prepared to work with depositors but cannot commit to compensating depositors until a resolution plan is in place.
  - Considering transferring small deposits (under EC$500) to another financial institution.
  - Will refrain from compensating related party depositors.

- Preliminary figures and conditions:
  - Total deposits around EC$21.8 million (1.2 percent of GDP), excluding a large deposit—which is offset by a large investment, and related party deposits.
  - Around 70 percent of the 5,800 deposits are small deposits.
  - 54 percent of the bank’s loan portfolio (to a related party) is reportedly nonperforming.
  - Receiver’s report indicates the bank appears to be insolvent.

- Resolution plan:
  - Strategy to protect depositors while minimizing costs to the government; plan for resolution submitted to the High Court on April 14, 2008.
  - Process slowed by legal challenges.
  - Several investors expressed interest in some form of asset purchase and assumption of liabilities.
  - Reorganization or initiating liquidation of the bank would be a performance criterion for November 2008.

### Quantitative performance criteria and indicative targets (selected figures as presented)
- Central government primary balance excluding grants (floor) (cumulative; Eastern Caribbean dollars):
  - Targets/Actuals shown include: -73.3; -92.2; -129.4; -224.1; -45.0; -67.5; -90.0.
- Stock of central government domestic arrears (ceiling):
  - 22.0; 0.8; 22.0; 7.0; 15.0; 11.0; 7.0.
- Contracting and guaranteeing of nonconcessional external debt by the central government with maturity of at least one year (ceiling):
  - 16.0; 0.0; 16.0; 3.9; 4.0; 4.0; 4.0.
- Stock of external short term debt (ceiling): 0.0 across reported columns.
- Central government or guaranteed external arrears accumulation (ceiling): 0.0 across reported columns.
- Indicative Target: Change in net credit of the banking system to the public sector (ceiling):
  - 0.0; 7.6; -30.5; 3.0; 12.0; 18.0; 24.0.

### Proposed structural measures and timelines (selected)
- Initial reforms for the First Review:
  - Appoint a receiver for the unregulated bank — Prior Action. Met in February 2008.
  - Prepare a comprehensive business plan for customs reform — May 2008. Met in February 2008.
  - Reach agreement on public service wage path for 2006–08 — June 2008. Partially met in January 2008. Rephased from April 2006.
  - Submit Executive Agency Bill to Parliament as a step toward establishing a new land agency — Second Review.

- Second Review / Benchmarks:
  - Develop an action plan to improve Doing Business Indicators — August 2008 (Benchmark).
  - Bring into force new planning regulations, as a first step toward giving the Building Code force of law — July 2008 (Benchmark).
  - Develop and begin implementing a customs Fraud Control Plan and sign an MoU on information sharing between customs and Inland Revenue.
  - Update Investment Act, amend Income Tax Act, and drafts to repeal tax incentives legislation, update with final policy decisions and obtain Cabinet approval.

- Third Review / Performance criterion and Benchmarks:
  - Reorganize or initiate liquidation of Capital Bank — November 2008 (Performance criterion).
  - Submit to Parliament the Investment Act, the amended Income Tax Act, and repeal of tax incentives.
  - Complete the Country Poverty Assessment — December 2008 (Benchmark).
  - VAT-Related Measures: Complete update of SIGTAS with VAT returns and refunds processing modules; Enact new VAT and Excise Laws; Recruit and begin training staff and adopt transitional procedures for bonded warehouses.

### Supplementary Technical Memorandum of Understanding (TMU) adjustments (selected)
- Section I: In paragraph 4, delete “nonfinancial” and replace “and Grenada International Financial Services Authority” with “the Grenada Authority for the Regulation of Financial Institutions, and the National Insurance Scheme”.
- Section II: Replace paragraph 10 with detailed adjustors to the floor on the central government primary balance excluding grants, including:
  - (i) downward to the extent that grants exceed programmed amounts, as specified in Table 1.
  - (ii) upward to the extent that grants fall short of the programmed amounts, as specified in Table 1, by more than EC$10 million through end-June or after.
  - (iii) downward to the extent that concessional financing from multilateral development banks exceeds programmed amounts, as specified in Table 1.
  - (iv) upward by an amount equivalent to 50 percent of the shortfall of divestment proceeds from the programmed amount, as specified in Table 1.
  - (v) downward by an amount equivalent to 50 percent of divestment proceeds in excess of EC$57 million, with a maximum adjustment of EC$32 million. The remaining excess divestment proceeds will be used to pay down debt, targeting more expensive debt first.
  - (vi) upward to the extent that bank restructuring costs fall short of the programmed amount, as specified in Table 1.

- Table 1. Programmed Disbursements for 2008 (In millions of Eastern Caribbean dollars, cumulative):
  - Concessional loans: Q1 5.3, Q2 14.2, Q3 28.5, Q4 37.4.
  - Grants disbursements: Q1 15.5, Q2 26.4, Q3 54.1, Q4 65.0.
  - Divestment proceeds: Q1 27.0, Q2 27.0, Q3 57.0, Q4 57.0.
  - Bank restructuring costs: Q1 0.0, Q2 0.0, Q3 27.0, Q4 27.0.

- Section V.A: Replace paragraph 17 with “Excluded from the ceiling are credits from the IMF and credits on concessional terms.”
- Insert new section V.C establishing a performance criterion on contracting or guaranteeing official bilateral concessional debt (excluding PetroCaribe-related debt) with an original maturity of at least one year.

### Debt Sustainability Analysis (DSA) — key findings and macro assumptions
- DSA prepared by IMF staff in consultation with World Bank staff, June 20, 2008.
- Debt sustainability outlook deteriorated relative to the active scenario in the previous DSA, reflecting:
  - fiscal slippages in 2007,
  - revised fiscal projection for 2008 (including bank restructuring costs),
  - larger PetroCaribe borrowing as a result of higher fuel prices.

- ECCU benchmark and timing:
  - The ECCU benchmark of 60 percent for the ratio of nominal public debt to GDP would be achieved in 2018, two years ahead of the target date.

- Risks:
  - Possible additional borrowing from Export-Import Bank of China to finance port and marina project could, depending on loan size and concessionality, undermine debt sustainability.
  - Based on Grenada’s 2004–06 average CPIA rating of “medium,” Grenada currently exceeds the thresholds for the ratio of the NPV of external debt to GDP and to exports.
  - Under the program, the ratio of the NPV of external debt to GDP will fall below the 40 percent indicative threshold only in 2020.
  - Conclusion: Grenada is at high risk of debt distress.

- Recent debt restructuring history:
  - Successful exchange for commercial debt concluded in November 2005:
    - Overall participation reached 91 percent of eligible debt, or about US$237 million (about 40 percent of total public debt).
    - Restructuring increased maturity and implied a reduction of 40–45 percent in net present value terms (for exit yields in the 9–10 percent range), and reduced debt servicing costs by 83 percent during 2005–08.
  - Paris Club agreement reached in May 2006 reducing debt service to Paris Club creditors by more than 90 percent through 2008.
  - Government seeking out-of-court settlement with Export-Import Bank of Taiwan Province of China for outstanding liabilities of US$20.3 million (3.4 percent of 2007 GDP).

- Key DSA baseline assumptions and projections (selected table entries, in percent of GDP unless otherwise indicated):
  - Total revenues and grants: 39.3 (Prelim. 2007), 41.9 (2008), 41.2 (2009), 41.0 (2010), 40.3 (2013), 39.6 (2018), 39.1 (2028).
  - Primary (noninterest) expenditure: 45.5 (Prelim. 2007), 43.2 (2008), 39.4 (2009), 37.7 (2010), 37.2 (2013), 37.2 (2018), 37.1 (2028).
  - Primary balance (including grants): -6.2 (Prelim. 2007), -1.3 (2008), 1.9 (2009), 3.2 (2010), 3.0 (2013), 2.4 (2018), 2.0 (2028).
  - Overall balance: -8.5 (Prelim. 2007), -4.1 (2008), -0.6 (2009), 0.7 (2010), 0.4 (2013), -0.8 (2018), -0.1 (2028).
  - Public debt: 112.0 (Prelim. 2007), 106.5 (2008), 98.7 (2009), 93.4 (2010), 78.8 (2013), 59.6 (2018), 35.4 (2028).
  - External current account: -32.6 (Prelim. 2007), -36.4 (2008), -35.1 (2009), -32.5 (2010), -24.4 (2013), -22.7 (2018), -21.1 (2028).
  - Exports of goods and services: 34.6 (Prelim. 2007), 31.7 (2008), 32.2 (2009), 32.5 (2010), 34.5 (2013), 35.0 (2018), 36.0 (2028).
  - Real GDP growth (in percent): 4.3 (Prelim. 2007), 3.7 (2008), 4.2 (2009), 4.4 (2010), 4.2 (2013), 4.0 (2018), 4.0 (2028).
  - Inflation rate (average; in percent): 3.9 (Prelim. 2007), 7.8 (2008), 4.5 (2009), 3.1 (2010), 2.3 (2013), 2.0 (2018), 2.0 (2028).

- Box 1: Baseline macroeconomic assumptions (2008–28) highlights:
  - Real GDP growth projected above 4 percent a year during 2009–13 and at 4 percent subsequently.
  - Annual average inflation projected to fall from 7.8 percent in 2008 to 2 percent by 2014 and remain at this level thereafter.
  - Primary balance (including grants) improves from average deficit of 2.2 percent of GDP during 1998–2007 to a surplus of about 2 percent by 2018, consistent with annual capital expenditure of about 8 percent of GDP.
  - Grants gradually decline to 1 percent of GDP by 2020; interest rate on new borrowing increases from 2 percent through 2010 to about 6 percent by 2028; with a discount rate of 5 percent, implies a negative grant element for new borrowing in later years.
  - Projection assumes concessional financing under PetroCaribe during 2008–12 and that grant element used to finance programs in budget, replacing more expensive financing.
  - Interest rate on debt restructured in 2005 increases from 1 percent through 2008 to 9 percent by 2019.
  - External current account deficit assumed to decline from 32.6 percent of GDP in 2007 to about 24 of GDP by 2013 and stabilize just over 20 percent of GDP in outer years.
  - Exports of goods assumed to stabilize at historical norm of 6 percent of GDP by 2013.
  - Buoyant net FDI flows averaging 23 percent of GDP in 2008–13 and 16 percent in outer years; other non-debt creating inflows averaging close to 3 percent of GDP over projection period.

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

### 4.      Public sector debt fell by 5 percentage points of GDP during 2007 to 112 percent

### 4.      Public sector debt fell by 5 percentage points of GDP during 2007 to 112 percent

### Overview of debt stock and composition
- Public sector debt fell by 5 percentage points of GDP during 2007 to 112 percent of GDP.
- External debt accounted for 71 percent of total debt, almost all owed by the central government.
- Commercial debt accounted for about 40 percent of external debt.
- Multilateral debt, mostly from the Caribbean Development Bank, accounted for another one-third of external debt.
- The remainder of external debt was owed to bilateral (Paris and non-Paris Club) creditors.
- In NPV terms, public sector debt stood at 108 percent of GDP, reflecting the concessional element of multilateral and restructured debt, and assuming that bilateral debt to non-Paris Club creditors will be restructured on Paris Club terms.

### Baseline (program) scenario
- Grenada’s debt sustainability outlook has deteriorated relative to the previous DSA’s active scenario, reflecting:
  - fiscal slippages in 2007;
  - the revised projection for 2008 (including bank restructuring costs estimated at 1.5 percent of GDP);
  - larger PetroCaribe borrowing as a result of higher fuel prices.
- The baseline does not include a proposed loan from Export-Import Bank of China.
- The authorities’ nominal debt target of 60 percent of GDP will be achieved in 2018 under the baseline (program) projection, four years later than in the previous DSA’s active scenario.
- The NPV of debt falls to 43 percent of GDP by 2028, compared with 35 percent of GDP in nominal terms, reflecting growing commercial borrowing at above the discount rate of 5 percent.
- The NPV of public sector debt-to-revenue ratio falls from 275 percent in 2007 to 109 percent in 2028.
- The debt service-to-revenue ratio would fall from 13 percent in 2007 to 8 percent in 2028, with the ratio rising to 14–17 percent during 2021–25 as restructured debt amortizes.
- The baseline projection incorporates debt accumulated under the PetroCaribe Agreement during 2008–12.
  - Based on current WEO oil prices, this agreement would provide concessional financing of 2.5 percent of GDP in 2008.
  - The financing terms are highly concessional, with an interest rate of 1 percent and a maturity of 25 years (including a two-year grace period), implying a grant element of 47 percent.

### Alternative scenarios and stress tests — policy scenarios
- Scenario: delayed adjustment by five years (Alternative Scenario A5)
  - If the primary fiscal balance remains at the 2007 level for five years, and delays in structural reforms reduce growth by 0.5 percentage point a year relative to the baseline in the same period:
    - NPV of debt to GDP would fall to 55 percent by 2028 (48 percent in nominal terms), rather than 43 percent in the baseline.
    - The 60 percent of GDP nominal debt target is reached only in 2024 rather than 2018.
    - NPV of debt to revenue would fall to 139 percent, rather than 109 percent in the baseline.
- Scenario: unchanged primary fiscal balance at the 2008 level throughout the projection period (Alternative Scenario A2)
  - With an unchanged primary balance, the 60 percent of GDP nominal debt target would not be achieved within the projection period.
  - The nominal debt-to-GDP ratio remains close to 100 percent of GDP, with the NPV of debt-to-GDP ratio rising to 101 percent by 2028 (98 percent in nominal terms).
- Scenario: proposed Export-Import Bank of China loan (assumed US$85 million disbursed over 2009–11, 37 percent grant element, no private co-financing, no impact on growth) (Alternative Scenario A6)
  - With these assumptions:
    - NPV of debt-to-GDP ratio in 2028 is 50 percent (40 percent in nominal terms).
    - The 60 percent of GDP nominal debt target is reached only in 2021 rather than 2018.
  - If the project raises GDP growth by 0.5 percentage point during 2012–28:
    - NPV of debt-to-GDP ratio in 2028 is 45 percent (36 percent in nominal terms).
    - The 60 percent of GDP nominal debt target is reached in 2020.

### Alternative scenarios and stress tests — other scenarios
- Natural disaster scenario (e.g., in 2009)
  - Example: a disaster that reduces GDP growth to zero for three years, raises growth in 2012–13 during recovery, and increases the primary deficit by 3 percentage points of GDP during 2009–11:
    - NPV of debt would be 57 percent of GDP (50 percent in nominal terms), compared to 43 percent in the baseline.
    - The 60 percent of GDP nominal debt target would be achieved only in 2024.
  - Grenada’s participation in the World Bank’s Caribbean Catastrophe Insurance Facility, not incorporated in this analysis, could help cushion the financial impact of further disasters.
- Bound Test B1 (real GDP contracts by 2.2 percent in 2009 and 2010; revenue follows baseline trajectory; expenditure held constant in nominal terms)
  - NPV of debt rises to 129 percent of GDP (127 percent in nominal terms).
  - The 60 percent of GDP nominal debt target would not be achieved in the projection period.
  - This is the most extreme scenario in 2018 for ratios of NPV of debt to GDP and to revenue, and for the debt service to revenue ratio.

### Evaluation of external debt sustainability
- Grenada exceeds Debt Sustainability Framework thresholds for the ratio of the NPV of external debt to GDP and to exports:
  - Based on Grenada’s 2004–06 average CPIA rating of “medium,” the thresholds are 40 percent (NPV of external debt to GDP) and 150 percent (NPV of external debt to exports).
  - For 2007, Grenada’s ratios were 75 percent (NPV external debt to GDP) and 218 percent (NPV external debt to exports).
- Under the baseline:
  - The ratio of NPV of external public debt to GDP would not fall below the 40 percent threshold until 2020.
  - The NPV of debt to exports would not fall below the 150 percent threshold until 2015.
  - The debt service-to-exports ratio breaches the 20 percent threshold in 2009 and during 2021–28 (the latter reflecting service on restructured debt).
- Under the Export-Import Bank of China borrowing scenario:
  - The NPV of external public debt to GDP would not fall below the 40 percent threshold until 2023.
  - The NPV of debt to exports would fall below the 150 percent threshold in 2017.
- Bound tests:
  - Under a scenario with key variables at historical averages (Scenario A1), the NPV of external public debt to GDP ratio would fall to 28 percent by 2028 (one percentage point higher than baseline).
  - Under Scenario A1, the NPV of debt-to-exports ratio would fall to 77 percent by 2028 (two percentage points higher than baseline), while the debt service-to-exports ratio would remain above the 20 percent threshold for most of the projection period.
  - Under a natural disaster in 2009, the NPV of debt-to-exports ratio and debt-service-to-exports ratio deteriorate initially, and the NPV of external public debt to GDP would fall under the threshold two years later than in the baseline.

### Conclusions and policy implications
- Owing in large part to fiscal slippages in 2007, Grenada’s debt sustainability has deteriorated.
- Under the baseline (program) scenario, with continued fiscal consolidation Grenada’s public debt is sustainable, but vulnerable to shocks.
- The assessment is contingent on policies to enhance growth and raise the primary fiscal balance.
- The potential large loan from Export-Import Bank of China could—depending on the loan size and concessionality—undermine debt sustainability efforts.
- On the external front, Grenada is at high risk of debt distress, with key debt indicators above their indicative thresholds.
- Under the baseline, a determined and prolonged effort will be required to bring debt down to more sustainable levels; this favorable outcome would be affected adversely by an external shock (such as a hurricane or a decline in tourism) or possible borrowing from Export-Import Bank of China.

### Key statistics (Year end, in millions of U.S. dollars)
- Public sector debt 1/: 677.6 — Total Debt 100.0 — Percent of GDP 112.0
- Central government debt: 603.2 — Percent of Stock 89.0 — Percent of GDP 99.7
- Central-government guaranteed debt: 53.9 — Percent of Stock 8.0 — Percent of GDP 8.9
- Other public sector debt: 20.5 — Percent of Stock 3.0 — Percent of GDP 3.4
- External debt: 478.8 — Percent of Stock 70.7 — Percent of GDP 79.2
- A. Central government external debt: 437.1 — Percent of Stock 64.4 — Percent of GDP 72.3
  - 1. Multilateral: 154.8 — Percent of Stock 22.9 — Percent of GDP 25.6
    - CDB: 95.0 — Percent of Stock 14.0 — Percent of GDP 15.7
    - IDA: 35.0 — Percent of Stock 5.2 — Percent of GDP 5.8
    - IBRD: 12.0 — Percent of Stock 1.8 — Percent of GDP 2.0
    - IMF: 7.6 — Percent of Stock 1.1 — Percent of GDP 1.3
    - Other multilateral: 5.2 — Percent of Stock 0.8 — Percent of GDP 0.9
  - 2. Official bilateral: 82.9 — Percent of Stock 12.2 — Percent of GDP 13.7
    - Paris Club: 19.3 — Percent of Stock 2.8 — Percent of GDP 3.2
    - Belgium: 7.3 — Percent of Stock 1.1 — Percent of GDP 1.2
    - France: 4.3 — Percent of Stock 0.6 — Percent of GDP 0.7
    - Russian Federation: 0.2 — Percent of Stock 0.0 — Percent of GDP 0.0
    - United Kingdom: 4.6 — Percent of Stock 0.7 — Percent of GDP 0.8
    - United States: 2.9 — Percent of Stock 0.4 — Percent of GDP 0.5
    - Non-Paris Club: 63.6 — Percent of Stock 9.4 — Percent of GDP 10.5
      - Kuwait: 17.8 — Percent of Stock 2.6 — Percent of GDP 2.9
      - Taiwan Province of China: 20.3 — Percent of Stock 3.0 — Percent of GDP 3.3
      - Trinidad and Tobago: 17.0 — Percent of Stock 2.5 — Percent of GDP 2.8
      - Venezuela: 2.9 — Percent of Stock 0.4 — Percent of GDP 0.5
      - Other bilateral: 5.6 — Percent of Stock 0.8 — Percent of GDP 0.9

*Source: _cr08357 - 4.      Public sector debt fell by 5 percentage points of GDP during 2007 to 112 percent_*

### 3.  Commercial, total199.429.433.0

### _cr08357 - 3.  Commercial, total199.429.433.0

### Public sector and domestic debt breakdown (as reported)
- Commercial, total: 199.4 29.4 29.4 33.0
- Restructured bonds: 193.5 28.6 32.0
- Unrestructured bonds: 5.8 0.9 1.0
- B. Central government guaranteed: 21.3 3.1 3.5
  - Of which: Paris Club: 7.8 1.1 1.3
- C. Other public sector: 20.5 3.0 3.4
- Domestic debt: 198.7 29.3 32.9
  - A. Central government: 166.1 24.5 27.5
    - Restructured Bonds: 68.1 10.1 11.3
    - Unrestructured bonds: 8.5 1.3 1.4
    - Treasury bills: 28.9 4.3 4.8
    - Commercial bank loans: 22.4 3.3 3.7
    - Overdraft: 9.0 1.3 1.5
    - Domestic arrears: 13.8 2.0 2.3
    - Compensation claims: 14.8 2.2 2.4
    - Other: 0.6 0.1 0.1
  - B. Central-government guaranteed: 32.6 4.8 5.4
- Memorandum item: Nominal GDP 604.9

### Public sector debt trajectory and composition (2005–2028, selected)
- Public sector debt (percent of GDP, annual points shown):  
  2005: 111.2; 2006: 117.2; 2007: 112.0; 2008: 106.5; 2009: 98.7; 2010: 93.4; 2011: 88.5; 2012: 84.6; 2013: 78.8; 2018: 59.6; 2028: 35.4
- o/w foreign-currency denominated (percent of GDP):  
  2005: 79.5; 2006: 81.3; 2007: 79.2; 2008: 77.9; 2009: 72.5; 2010: 69.1; 2011: 65.9; 2012: 63.0; 2013: 58.0; 2018: 41.5; 2028: 19.8
- Change in public sector debt (percent of GDP):  
  2005: -10.1; 2006: 6.0; 2007: -5.1; 2008: -5.6; 2009: -7.8; 2010: -5.3; 2011: -4.9; 2012: -3.9; 2013: -5.8; 2018: -3.1; 2028: -2.2

### Identified debt-creating flows and residuals (percent of GDP)
- Identified debt-creating flows (selected years):  
  2005: -18.7; 2006: 3.3; 2007: -1.9; 2008: -6.6; 2009: -12.0; 2010: -7.7; 2011: -7.2; 2012: -6.0; 2013: -5.6; 2018: -2.8; 2028: -2.0
- Primary deficit (percent of GDP):  
  2005: -2.5; 2006: 4.3; 2007: 6.2; 2008: 2.2; 2009: 4.4; 2010: 1.3; 2011: -1.9; 2012: -3.2; 2013: -3.1; 2018: -3.0; 2028: -3.0
- Revenue and grants (percent of GDP):  
  2005: 44.8; 2006: 44.7; 2007: 39.3; 2008: 41.9; 2009: 41.2; 2010: 41.0; 2011: 40.6; 2012: 40.4; 2013: 40.3; 2018: 39.6; 2028: 39.1
  - of which: grants: 2005: 10.5; 2006: 8.7; 2007: 1.1; 2008: 3.7; 2009: 2.6; 2010: 2.0; 2011: 1.9; 2012: 1.8; 2013: 1.6; 2018: 1.2; 2028: 0.7
- Primary (noninterest) expenditure (percent of GDP):  
  2005: 42.3; 2006: 49.0; 2007: 45.5; 2008: 43.2; 2009: 39.4; 2010: 37.7; 2011: 37.5; 2012: 37.4; 2013: 37.2; 2018: 37.2; 2028: 37.1
- Automatic debt dynamics (percent of GDP):  
  2005: -16.3; 2006: -0.4; 2007: -5.9; 2008: -6.2; 2009: -6.3; 2010: -4.5; 2011: -4.1; 2012: -3.0; 2013: -2.6; 2018: -0.4; 2028: 0.0
  - Contribution from interest rate/growth differential: 2005: -14.5; 2006: -0.2; 2007: -5.5; 2008: -4.1; 2009: -4.3; 2010: -3.6; 2011: -3.7; 2012: -2.7; 2013: -2.2; 2018: -0.4; 2028: 0.0
    - contribution from average real interest rate: 2005: -2.0; 2006: -1.5; 2007: -0.8; 2008: -0.1; 2009: 0.0; 2010: 0.6; 2011: 0.4; 2012: 1.1; 2013: 1.2; 2018: 2.0; 2028: 1.4
    - contribution from real GDP growth: 2005: -12.5; 2006: 1.3; 2007: -4.8; 2008: -4.0; 2009: -4.3; 2010: -4.2; 2011: -4.1; 2012: -3.7; 2013: -3.4; 2018: -2.4; 2028: -1.4
  - Contribution from real exchange rate depreciation: 2005: -1.7; 2006: -0.2; 2007: -0.4
- Other identified debt-creating flows (percent of GDP): 2005: 0.0; 2006: -0.6; 2007: -2.2; 2008: -1.7; 2009: -3.8; 2010: 0.0; 2011: 0.0; 2012: 0.0; 2013: 0.0; 2018: 0.0; 2028: 0.0
  - Privatization receipts (negative): 2005: 0.0; 2006: -0.6; 2007: -2.2; 2008: -3.2; 2009: -3.8; 2010: 0.0; 2011: 0.0; 2012: 0.0; 2013: 0.0; 2018: 0.0; 2028: 0.0
  - Recognition of implicit or contingent liabilities: 0.0 across series reported
  - Debt relief (HIPC and other): 0.0 across series reported
  - Other (bank restructuring): 0.0 across series reported except 2008: 1.5
- Residual, including asset changes (percent of GDP): 2005: 8.7; 2006: 2.7; 2007: -3.2; 2008: 1.0; 2009: 4.2; 2010: 2.4; 2011: 2.3; 2012: 2.2; 2013: -0.2; 2018: -0.2; 2028: -0.1
  - Note: residual during 2008-12 reflects PetroCaribe borrowing.

### NPV and financing indicators (selected)
- NPV of public sector debt (percent of GDP, projections): 2008: 108.2; 2009: 101.9; 2010: 91.6; 2011: 87.4; 2012: 83.5; 2013: 80.3; 2018: 60.9; 2028: 42.6
  - o/w foreign-currency denominated (percent of GDP): 2008: 75.3; 2009: 73.4; 2010: 65.5; 2011: 63.1; 2012: 60.9; 2013: 58.6; 2018: 55.3; 2028: 42.8; 2028 (alt line): 27.1
  - o/w external: 2008 onward mirrors foreign-currency denominated series shown above
- Gross financing need (percent of GDP): 2008: 5.9; 2009: 12.4; 2010: 15.4; 2011: 10.1; 2012: 6.8; 2013: 4.6; 2018: 4.4; 2028: 4.7; later: 5.3; 5.0; 2.2 (additional entries present)
- NPV of public sector debt-to-revenue and grants ratio (percent): 2008: 275.3; 2009: 243.4; 2010: 222.2; 2011: 213.3; 2012: 205.4; 2013: 198.7; 2018: 188.7; 2028: 153.8; 2018 alt: 108.9
- Debt service-to-revenue and grants ratio (percent): 2008: 8.1; 2009: 7.8; 2010: 12.6; 2011: 11.5; 2012: 12.2; 2013: 11.0; 2018: 10.8; 2028: 11.8; additional years: 13.9; 13.5; 8.0
- Debt service-to-revenue ratio (percent): 2008: 10.6; 2009: 9.7; 2010: 12.9; 2011: 12.6; 2012: 13.1; 2013: 11.6; 2018: 11.3; 2028: 12.3; further entries: 14.5; 14.0; 8.1
- Primary deficit that stabilizes the debt-to-GDP ratio (percent of GDP): 2008: 7.6; 2009: -1.7; 2010: 11.3; 2011: 6.9; 2012: 5.9; 2013: 2.0; 2018: 1.8; 2028: 0.8; later: 2.8; 0.6; 0.2

### Key macroeconomic and fiscal assumptions (selected)
- Real GDP growth (percent): 2005: 11.5; 2006: -1.1; 2007: 4.3; 2008: 4.2; 2009: 6.4; 2010: 3.7; 2011: 4.2; 2012: 4.4; 2013: 4.6; 2018: 4.4; 2028: 4.2; additional steady entries: 4.3; 4.0; 4.0; 4.0
- Average nominal interest rate on forex debt (percent): 2005: 1.3; 2006: 1.8; 2007: 2.0; 2008: 4.9; 2009: 3.5; 2010: 2.3; 2011: 2.2; 2012: 2.8; 2013: 2.8; 2018: 3.3; 2028: 3.2; further: 2.8; 5.3; 6.0; 5.4
- Average real interest rate on domestic currency debt (percent): 2005: -1.6; 2006: -1.3; 2007: -0.8; 2008: 2.3; 2009: 3.0; 2010: -1.1; 2011: -1.0; 2012: -0.3; 2013: 0.1; 2018: 1.2; 2028: 1.5; additional: 0.1; 3.7; 3.9; 3.7
- Real exchange rate depreciation (percent, + indicates depreciation): 2005: -2.2; 2006: -0.3; 2007: -0.5; 2008: -0.3; 2009: 1.4
- Change in GDP deflator (percent): 2005: 5.6; 2006: 3.5; 2007: 3.2; 2008: 2.6; 2009: 1.8; 2010: 4.8; 2011: 4.7; 2012: 3.1; 2013: 2.8; 2018: 2.5; 2028: 2.3; additional: 3.4; 2.0; 2.0; 2.0
- Growth of real primary spending (deflated by GDP deflator, percent): 2005: 27.3; 2006: 14.6; 2007: -3.3; 2008: 6.8; 2009: 11.6; 2010: -1.6; 2011: -5.0; 2012: 0.1; 2013: 4.0; 2018: 4.0; 2028: 3.8; additional: 0.9; 4.0; 4.0; 4.0
- Grant element of new external borrowing (percent): entries include 7.7; 10.4; 5.3; 4.9; 6.1; 2.9; 6.2; -3.3; -7.5; -4.3 (values reported in the projections table)

### Sensitivity analysis, alternative scenarios, and bound tests (high-level indicators)
- Baseline NPV of debt-to-GDP series (selected projection points): 2008: 102; 2009: 92; 2010: 87; 2011: 83; 2012: 80; 2013: 76; 2018: 61; 2028: 43; 2014-28 Average: 38; later values shown in the sensitivity tables correspond to multiple scenario paths including A1–A6 and B1–B5.
- Alternative scenarios and bound tests consider shocks such as: Real GDP growth and primary balance at historical averages, Primary balance unchanged from 2008, Permanently lower GDP growth, Natural disaster in 2009, Delayed adjustment, With China loan, and multiple downside shocks (e.g., one-time 30 percent real depreciation, 10 percent of GDP increase in other debt-creating flows).
- Bound tests produce higher stress ratios (examples shown): B1 and B2 yield significantly elevated NPV of debt-to-GDP and NPV of debt-to-revenue ratios in projected years (tables and figures document time paths through 2028).

### External debt dynamics and key external sector indicators (2005–2028)
- External debt (nominal, percent of GDP): 2005: 80.0; 2006: 82.0; 2007: 79.2; 2008: 77.3; 2009: 69.8; 2010: 66.8; 2011: 64.1; 2012: 61.8; 2013: 57.4; 2018: 43.6; 2028: 26.2
- Change in external debt (percent of GDP): 2005: -9.4; 2006: 2.0; 2007: -2.8; 2008: -1.8; 2009: -7.6; 2010: -2.9; 2011: -2.7; 2012: -2.3; 2013: -4.4; 2018: -2.2; 2028: -1.7
- Identified net debt-creating flows (external, percent of GDP): 2005: 5.1; 2006: 16.1; 2007: 4.1; 2008: 9.8; 2009: 3.1; 2010: 8.0; 2011: 4.9; 2012: 3.4; 2013: 1.9; 2018: 3.4; 2028: 6.3
- Non-interest current account deficit (percent of GDP): 2005: 29.6; 2006: 30.9; 2007: 30.4; 2008: 20.2; 2009: 9.4; 2010: 33.8; 2011: 32.4; 2012: 30.7; 2013: 27.2; 2018: 24.7; 2028: 22.6
  - Deficit in balance of goods and services (percent of GDP): 2005: 44.6; 2006: 41.4; 2007: 34.3; 2008: 37.8; 2009: 35.1; 2010: 31.4; 2011: 27.9; 2012: 25.4; 2013: 23.5; 2018: 20.6; 2028: 17.3
  - Exports and imports (percent of GDP, projections table includes exports and imports series with values such as exports 27.1–36.0 and imports 71.7–53.4 across periods)
- Net current transfers (negative = inflow, percent of GDP): 2005: -18.9; 2006: -13.9; 2007: -7.3; 2008: -12.4; 2009: 6.7; 2010: -7.0; 2011: -5.7; 2012: -5.0; 2013: -4.8; 2018: -4.6; 2028: -4.4
- Net FDI (negative = inflow, percent of GDP): 2005: -12.8; 2006: -15.2; 2007: -22.7; 2008: -14.3; 2009: 3.9; 2010: -24.0; 2011: -29.1; 2012: -21.7; 2013: -21.1; 2018: -20.6; 2028: -20.1; later averages: -17.6; -13.8; -16.3
- Endogenous debt dynamics (percent of GDP): 2005: -11.7; 2006: 0.4; 2007: -3.6; 2008: -0.1; 2009: -0.2; 2010: -1.1; 2011: -1.2; 2012: -0.7; 2013: -0.6; 2018: 0.6; 2028: 0.6
  - Contribution from nominal interest rate (percent): 2005: 1.8; 2006: 2.2; 2007: 2.2; 2008: 2.6; 2009: 2.7; 2010: 1.8; 2011: 1.7; 2012: 1.9; 2013: 1.9; 2018: 2.3; 2028: 1.6
  - Contribution from real GDP growth (percent): 2005: -8.8; 2006: 0.9; 2007: -3.2; 2008: -2.7; 2009: -3.0; 2010: -2.9; 2011: -2.8; 2012: -2.6; 2013: -2.4; 2018: -1.7; 2028: -1.1
- Residual (percent of GDP): 2005: -14.6; 2006: -14.1; 2007: -6.9; 2008: -11.6; 2009: -10.6; 2010: -10.9; 2011: -7.7; 2012: -5.8; 2013: -6.3; 2018: -5.6; 2028: -7.9
  - o/w exceptional financing: range shown includes 0.0; -2.3; -0.2 entries
- NPV of external debt (percent of GDP, projections): 2008: 75.3; 2009: 73.4; 2010: 65.5; 2011: 63.1; 2012: 60.9; 2013: 58.6; 2018: 55.3; 2028: 42.8; alternative line: 27.1
  - In percent of exports (NPV of external debt-to-exports): 2008: 218.0; 2009: 231.5; 2010: 203.7; 2011: 193.9; 2012: 184.1; 2013: 173.9; 2018: 160.3; 2028: 122.3; further: 75.1
- Debt service-to-exports ratio (percent): 2005: 12.5; 2006: 14.1; 2007: 12.0; 2008: 14.8; 2009: 22.6; 2010: 9.7; 2011: 9.3; 2012: 10.2; 2013: 13.3; 2018: 17.7; 2028: 23.3
- Total gross financing need (billions of U.S. dollars, memorandum entries): 111.2; 111.5; 71.9; 95.5; 75.8; 94.3; 76.4; 67.1; 67.0; 114.0; 324.0
- Non-interest current account deficit that stabilizes debt ratio (percent of GDP): 2005: 39.1; 2006: 28.9; 2007: 33.2; 2008: 35.6; 2009: 39.9; 2010: 33.7; 2011: 30.0; 2012: 27.1; 2013: 26.9; 2018: 22.5; 2028: 21.2

### Key external-sector macro assumptions (selected)
- Real GDP growth (percent): same series as reported under key macroeconomic assumptions (e.g., 2005: 11.5; 2006: -1.1; 2007: 4.3; projections steady at 4.0–4.3 across long-term).
- GDP deflator in US dollar terms (change in percent): 2005: 5.6; 2006: 3.5; 2007: 3.2; 2008: 2.4; 2009: 1.6; 2010: 4.8; 2011: 4.7; 2012: 3.1; 2013: 2.8; 2018: 2.5; 2028: 2.3; additional: 3.4; 2.0; 2.0; 2.0
- Effective interest rate (percent) 7/: 2005: 2.3; 2006: 2.8; 2007: 2.9; 2008: 5.5; 2009: 2.8; 2010: 3.6; 2011: 3.8; 2012: 2.8; 2013: 2.7; 2018: 3.2; 2028: 3.2; additional: 3.2; 5.4; 6.2; 5.4
- Growth of exports of G&S (US$ terms, percent): 2005: -23.6; 2006: 9.0; 2007: 28.8; 2008: 5.7; 2009: 18.6; 2010: -0.4; 2011: 10.7; 2012: 8.9; 2013: 9.3; 2018: 9.1; 2028: 9.0; long-run: 7.8; 6.4; 6.4; 6.4
- Growth of imports of G&S (US$ terms, percent): 2005: 24.0; 2006: 0.3; 2007: 5.4; 2008: 7.4; 2009: 10.5; 2010: 9.6; 2011: 5.6; 2012: 2.3; 2013: 2.5; 2018: 3.8; 2028: 4.5; long-run: 4.7; 5.2; 6.1; 5.5
- Grant element of new public sector borrowing (percent): entries include 7.7; 10.4; 5.3; 4.9; 6.1; 2.9; 6.2; -3.3; -7.5; -4.3

### Memorandum and data notes
- Memorandum item: Nominal GDP (in millions of US dollars): 2008: 549.4; 2009: 562.1; 2010: 604.9; 2011: 657.3; 2012: 716.9; 2013: 771.8; 2018: 1,271.7; 2028: 2,294.6
- Table and figure sources: Grenada authorities; Fund staff estimates; Fund staff simulations and projections.
- Footnotes and definitions included in the source: coverage definitions, formula for endogenous debt dynamics, gross financing need definition, exclusions for debt service ratios, and assumptions for stress tests and scenario constructions.

*Source: Grenada authorities; and Fund staff estimates and projections (Table A1a, Table A2a, Table A2b, and accompanying figures, as presented in the staff report).*

### Appendix I. Grenada: Fund Relations

### Appendix I. Grenada: Fund Relations

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

### II. General Resources Account
- Quota: SDR Million 11.70 — Percent of Quota 100.00
- Fund Holdings of Currency: SDR Million 13.89 — Percent of Quota 118.76
- Reserve Position: SDR Million 0.00 — Percent of Quota 0.00

### III. SDR Department
- Net cumulative allocation: SDR Million 0.93 — Allocation 100.00
- Holdings: SDR Million 0.07 — Allocation 7.11

### IV. Outstanding Purchases and Loans
- Emergency Assistance: SDR 2.19 — Million 18.75 (percent of Quota)
- PRGF Arrangements: SDR 1.56 — Million 13.33 (percent of Quota)

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

### VI. Projected Obligations to Fund
(SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming obligations by year:
  - 2008
    - Principal: 0.73
    - Charges/Interest: 0.06
    - Total: 0.79
  - 2009
    - Principal: 1.46
    - Charges/Interest: 0.07
    - Total: 1.54
  - 2010
    - Principal: 0.00
    - Charges/Interest: 0.03
    - Total: 0.03
  - 2011
    - Principal: 0.16
    - Charges/Interest: 0.03
    - Total: 0.19
  - 2012
    - Principal: 0.31
    - Charges/Interest: 0.03
    - Total: 0.34

### 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.
- Findings:
  - The assessment 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.
  - The ECCB has enhanced transparency and accountability, 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.
- Grenada 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 a 24-month consultation cycle.
- The last Article IV consultation was concluded by the Executive Board on September 26, 2007 (IMF Country Report No. 08/351).

### 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) assistance highlights:
  - Developing a Medium-Term Macroeconomic Framework (as part of the Structural Adjustment Technical Assistance Program).
  - Preparing to implement a VAT, drawing on prior work including draft VAT/excise laws (prepared by LEG) and a VAT sensitivity study.
  - Training/publicity tasks on VAT implementation (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.
  - Training for nonbank supervisors.
  - 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 (2007–08):
  - FAD and LEG have provided extensive assistance in tax policy and administration, including:
    - Assisting in the design and drafting of a VAT and related changes to excise taxes.
    - Assisting 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 May 31, 2008).*

### Appendix IV. Grenada: Statistical Issues

### Appendix IV. Grenada: Statistical Issues

### A. Real Sector — Findings and Data Gaps
- Participation and metadata
  - Since March 2001, Grenada has participated in the Fund’s General Data Dissemination System (GDDS). Metadata are posted on the Dissemination Standards Bulletin Board but have not been certified and updated recently. Metadata include short- and medium-term plans for statistical development.
- National accounts
  - National accounts are provided annually but are subsequent to frequent revisions; major revisions were undertaken in 2007 to extend coverage of national accounts to the offshore university and to improve construction activity estimates.
  - GDP by expenditure is available only with long lags.
  - Real GDP estimates for the tourism sector are not computed.
  - Estimation of gross capital formation and sectoral price deflators needs improvement.
- Trade and tourism statistics
  - 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.
  - Trade statistics have traditionally 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.
- Price indices and labor statistics
  - Consumer prices are the only real sector data provided between missions; these data are subject to frequent revisions.
  - The basket used to compute the consumer price index was last updated in 2000.
  - A producer price index is not available.
  - Labor statistics are limited and outdated, with 1998 being the most recent year for which 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 and is conducting a Country Poverty Assessment with assistance of the Caribbean Development Bank.

### B. Public Finances — Findings and Data Gaps
- Central government reporting and quality
  - Reporting of central government data 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; expenditures in the Public Sector Improvement Program need careful scrutiny.
  - Spending on outsourced activities is not broken down into appropriate categories but is grouped into a single category.
- Coverage and consolidation
  - Coverage of the rest of the public sector is very limited; there are no consolidated public sector accounts.
  - There is 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.
- External dissemination and formats
  - 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 Recommendations
- Current compilation and reporting
  - The ECCB compiles monthly data on depository corporations (central bank and other 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; this may improve with formation of the Grenada Authority for the Regulation of Financial Institutions.
- Data adequacy and specific issues
  - The dataset provided by the authorities is generally adequate for program purposes, but identified discrepancies need to be increasingly addressed, including appropriate classification of government indebtedness (in particular, a specific 2005 loan).
  - These data inadequacies do not pose problems to program reviews.
- Recommended coverage and classification improvements
  - Expand institutional coverage to include all depository corporations and other financial corporations (such as credit unions and insurance companies) to enhance understanding of savings and credit and improve compilation of monetary aggregates.
  - Improve classification of financial instruments and loan categorization to better identify credit flows to different sectors.

### D. Balance of Payments — Findings and Data Gaps
- Compilation and publication
  - The ECCB compiles and reports balance of payments statistics on an annual basis using information collected by the CSO.
  - The 2006 data were finalized in 2008 and are published in the IFS and Balance of Payments Yearbook.
- Source limitations and frequency
  - Many statistics are based on survey information and are not comprehensive.
  - Enhanced data sources and better compilation procedures are needed to improve accuracy.
  - Quarterly balance of payments statistics and international investment position data are not compiled.

### E. External and Domestic Debt — Findings
- External debt database
  - The database for government external debt is quite comprehensive and can provide detailed and reasonably up-to-date breakdowns of disbursements and debt service.
- Gaps in coverage
  - 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 — Selected data availability and reporting (as of June 12, 2008)
- Exchange Rates: NA (Date of latest observation: NA; Date received: NA; Frequency: NA)
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Apr 2008 (Date received: Jun 2008; Frequency: M; Frequency of reporting: M, with 2- to 3-month lag; Frequency of publication: A/Q)
- Reserve/Base Money: Apr 2008 (Date received: Jun 2008; Frequency: M; Frequency of reporting: M, with 2- to 3-month lag; Frequency of publication: A/Q)
- Broad Money: Apr 2008 (Date received: Jun 2008; Frequency: M; Frequency of reporting: M, with 1- to 2-month lag; Frequency of publication: A/Q)
- Central Bank Balance Sheet: Apr 2008 (Date received: Jun 2008; Frequency: M; Frequency of reporting: M, with 1- to 2-month lag; Frequency of publication: A/Q)
- Consolidated Balance Sheet of the Banking System: Apr 2008 (Date received: Jun 2008; Frequency: M; Frequency of reporting: M, with 2- to 3-month lag; Frequency of publication: A/Q)
- Interest Rates: Apr 2008 (Date received: Jun 2008; Frequency: M; Frequency of reporting: M, with 1- to 2-month lag; Frequency of publication: A/Q)
- Consumer Price Index: Apr 2008 (Date received: Jun 2008; 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: Apr 2008 (Date received: Jun 2008; 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: Apr 2007 (Date received: Jun 2008; Frequency: M/A; Frequency of reporting: Q, with 1- to 2-month lag; Frequency of publication: A)
- External Current Account Balance: Dec 2007 (Date received: Feb 2008; Frequency: A; Frequency of reporting: A, with long lag; Frequency of publication: A)
- Exports and Imports of Goods and Services: Dec 2007 (Date received: Feb 2008; Frequency: A; Frequency of reporting: A, with long lag; Frequency of publication: A)
- GDP/GNP: Dec 2007 (Date received: Apr 2008; Frequency: A; Frequency of reporting: Staff Mission; Frequency of publication: A)
- Gross External Debt: Apr 2008 (Date received: Jun 2008; Frequency: Q; Frequency of reporting: Q, with 1-month lag; Frequency of publication: A/Semi-annual)
- International Investment Position: NA (Date received: NA; Frequency: NA; Frequency of reporting: NA; Frequency of publication: NA)
- Notes on table conventions:
  - 1 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).
  - 2 Grenada is a member of the Eastern Caribbean Currency Union, in which the common currency of all member states (EC dollar) is pegged to the U.S. dollar.
  - 3 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
  - 4 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
  - 5 Foreign, domestic bank, and domestic nonbank financing.
  - 6 Including currency and maturity composition.
  - 7 Public external debt only.

### IMF Press Release — Program review, extension, and disbursement (Press Release No. 08/169, July 8, 2008; Corrected: July 8, 2008)
- Actions by the Executive Board
  - Completed the first review of Grenada’s economic performance under the Poverty Reduction and Growth Facility (PRGF).
  - Approved disbursement of an amount equivalent to SDR 2.98 million (about US$4.8 million).
  - Approved a one-year extension of the PRGF arrangement to 2010.
  - Approved rephasing the remaining disbursements and augmenting the arrangement by SDR 1.46 million (about US$2.4 million).
- Arrangement history and totals
  - The three-year PRGF arrangement with Grenada was originally approved for a total amount equivalent to SDR 10.53 million (about US$17.1 million) on April 18, 2006.
  - Following the augmentation, the total amount of the arrangement will be equivalent to SDR 11.99 million (about US$19.4 million).
- Reasons for delays and waivers
  - The first review was delayed due to the time needed to address an unregulated bank, fiscal slippages, and the slow pace of structural reforms.
  - The Executive Board granted a waiver of a missed 2006 quantitative performance criterion on the central government primary balance, missed in part because of higher-than-anticipated costs of reconstruction.
- Assessment and outlook (statements by Mr. Murilo Portugal, Deputy Managing Director and Acting Chair)
  - Grenada’s economy rebounded from Hurricanes Ivan and Emily, driven by spending for reconstruction and by tourism.
  - Annual inflation is projected to increase in 2008, reflecting rising world fuel and food prices.
  - Medium-term prospects are favorable, given several major tourism projects under way and in the pipeline.
  - Authorities’ reform progress noted: introducing the National Reconstruction Levy and a flexible fuel pricing mechanism, strengthening tax administration, reducing vulnerabilities, and enhancing transparency and the investment environment.
  - Emphasis on restoring fiscal and debt sustainability; the fiscal program targets an overall deficit for 2008 in line with debt sustainability.
  - Authorities are taking steps to improve expenditure control and strengthen capacity to screen and prioritize capital projects.
  - Authorities are working on a resolution strategy for an unregulated bank.
  - Establishment of the Grenada Authority for the Regulation of Financial Institutions (GARFIN) is expected to promote financial sector stability by enhancing supervision of the broader financial sector, including the insurance sector.
  - The revised structural reform agenda for 2008 focuses on enhancing the investment climate, reforming the tax concessions regime, and improving tax and customs administration.
  - Authorities remain committed to reducing poverty and improving social indicators; they aim to address the impact of rising world fuel and food prices through targeted assistance to vulnerable groups.
  - The Fund approved an increase in its financial assistance to Grenada to help with the higher food import bill.
  - Completion of the Country Poverty Assessment in December 2008 will support preparation of the full Poverty Reduction Strategy Paper.
- PRGF loan terms
  - PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.

*Source: Appendix IV. Grenada: Statistical Issues (IMF)._

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2008/_cr08357.pdf_