## _cr0995 ## Source details **Canonical URL:** [_cr0995](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0995.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0995.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0995.pdf.json) --- ### Executive summary — recent developments and outlook - Real GDP growth: 4.5 percent in 2007; projected 1.6 percent in 2008; projected 1.6 percent in 2009. - Earlier projection for 2008 was 3.7 percent (revised down to 1.6 percent). - Tourist stayover arrivals declined 4.4 percent during January–September 2008. - Several major FDI-financed tourism investment projects are on hold. - 12-month inflation: 8.2 percent in September 2008; core inflation (excluding food and energy): 2.3 percent in September 2008. - Projected inflation: 7.8 percent in 2008; 4 percent in 2009. - Government reinstated the EC$3 per gallon gasoline tax and full passthrough in October 2008, implying an 18 percent price increase. - External current account deficit expected to narrow slightly in 2008, mainly reflecting a slowdown in activity. - Real effective exchange rate broadly unchanged during 2006–08. - Banking system dominated by subsidiaries of international banks; credit growth to the private sector slowed to 9 percent through September 2008. - Nonperforming loans to total loans: 3.5 percent at end-June 2008; liquidity and capital adequacy ratios remained adequate. - Capital Bank: license revoked on September 18, 2008; receiver reappointed; petitioned High Court for liquidation on November 13, 2008. ### Program performance and remedial fiscal measures (2008–09) - Missed targets and arrears: - End-June 2008 quantitative performance criterion on the central government primary balance missed by EC$14 million (0.8 percent of annual GDP). - End-June primary deficit excluding grants: 3.6 percent of annual GDP (program target was 2.8 percent of GDP). - Capital spending overruns: 2.5 percent of GDP; unbudgeted retroactive wage payments: 0.4 percent of GDP. - Several small late external debt service payments (two largest cases amounted to US$0.4 million) breached the performance criterion on nonaccumulation of external arrears. - Domestic arrears: - EC$27 million (1.5 percent of GDP) at end-2007; EC$12 million (0.7 percent of GDP) at end-June 2008; EC$29 million (1.6 percent of GDP) at end-September 2008. - Government agreed to remit back 50 percent of the fuel tax to fuel importers until claims satisfied. - Remedial fiscal measures for remainder of 2008 (adjustment of four percentage points of annual GDP in the primary balance from H1 to H2): - Issued a finance circular in September 2008 to limit capital expenditure in H2 2008 to EC$50 million (2.8 percent of annual GDP) (prior action). - Brought forward to September 20 the date after which no new commitments for nonessential expenditure can be made. - Reinstated the EC$3 per gallon gasoline tax and full passthrough of world prices in October 2008. - Delayed repeal of the National Reconstruction Levy (NRL) until 2009. - Began rationalization of social spending programs. - Committed to resolving Capital Bank with limited direct costs to the budget. - New limited 2008 spending measures: - Duty-free importation of two barrels of foodstuffs per household until end-December 2008 with expected foregone revenue of EC$2.6 million (0.1 percent of GDP). - Free textbook scheme expected to cost around EC$5 million (0.3 percent of GDP) in 2008. - 2009 budget and medium-term framework: - 2009 draft budget will allocate expected divestment proceeds toward financing: an overall deficit of 1.1 percent of GDP; reducing expensive debt by 1.2 percent of GDP; reducing arrears by 0.4 percent of GDP. - Budget reduces spending on transfers and subsidies and on goods and services, and lowers capital expenditure to 9 percent of GDP. - Wages and allowances projected to fall by 1.3 percentage points of GDP in 2009 reflecting large retroactive wage payments in 2008; nominal wages excluding retroactive payments expected to increase by 4 percent in 2009 for public service workers excluding the police (assuming agreement reached). ### Revised fiscal framework and end-2008 targets - Government requested increasing the primary deficit (excluding grants) target for end-December 2008 from EC$90 million (5.1 percent of GDP) to EC$110 million (6.2 percent of GDP). - Requested increase in the domestic arrears target to EC$25 million at end-December 2008 (a reduction from EC$29 million at end-September 2008). - Change in the primary balance target represents a net relaxation of EC$34 million (1.9 percent of GDP), adjusting for lower projected bank restructuring costs and higher projected grants. - Key fiscal table lines (values reproduced exactly as in source): - Total revenues and grants: 33.6 27.2 14.1 14.7 14.8 15.3 28.9 30.0 28.3 29.3 - Revenues: 24.9 26.1 12.6 13.2 12.6 12.4 25.3 25.6 25.7 25.3 - Grants: 8.7 1.1 1.5 1.5 2.2 2.9 3.7 4.4 2.6 3.9 - Total expenditures: 40.0 35.3 16.0 19.3 17.0 14.9 33.0 34.2 29.0 30.4 - Current expenditures: 21.2 21.7 10.9 11.7 12.5 12.1 23.4 23.8 19.9 21.3 - Interest payments: 2.1 2.3 1.4 1.1 1.4 1.5 2.8 2.6 2.5 2.9 - Bank restructuring: 0.0 0.0 0.0 0.0 1.5 0.0 1.5 0.0 0.0 0.0 - Capital expenditures: 18.8 13.6 5.1 7.6 4.5 2.8 9.6 10.4 9.0 9.1 - Primary balance (excluding grants) 2/: -13.0 -6.9 -2.0 -5.0 -3.0 -1.0 -5.0 -6.0 -0.7 -2.2 - Overall balance (including grants) 2/: -6.4 -8.2 -1.9 -4.6 -2.2 0.4 -4.1 -4.2 -0.6 -1.1 ### Debt sustainability, external financing, and divestment - Authorities proceeding cautiously on proposed loan from Export-Import Bank of China; considering a significantly smaller concessional loan of around US$5 million (0.8 percent of GDP) for a much smaller marina; not moving ahead in first half of 2009. - PetroCaribe treatment: continue setting aside 35 percent of PetroCaribe’s concessional financing in a special account in 2008; raise share set aside to 40 percent starting January 2009. - Draft 2009 budget envisages a primary fiscal deficit of 2.2 percent of GDP, consistent with shifting gradually to small overall surpluses to achieve debt sustainability. - Four Seasons Project divestment proceeds expected to total EC$45 million (2.3 percent of GDP); less than half to be used to finance the 2009 fiscal deficit, remainder to reduce expensive debt and arrears. - Lower privatization proceeds for 2009 would delay reaching the 60 percent debt-to-GDP target by one year to 2019. - Seeking out-of-court settlement with Export-Import Bank of Taiwan Province of China that would yield debt service savings of around US$5 million (0.7 percent of GDP) in 2009. - Cleared or restructured all but EC$1.1 million (0.1 percent of GDP) arrears on unrestructured domestic debt incurred in June 2007; new arrears on 90-day treasury bills held by domestic commercial banks of EC$3.4 million (0.2 percent of GDP) at end-October 2008, intended to be cleared by end-2008. ### Financial sector measures, bank resolution, and supervision - Capital Bank resolution: - Government dropped its appeal, revoked the bank’s license on September 18, 2008, reappointed the receiver, and petitioned the High Court for liquidation on November 13, 2008. - Government will not provide any cash injection during resolution but may entertain indirect support requests (tax credits or placement of government deposits). - Petition for liquidation met a structural performance criterion for November 2008. - Banking indicators and vulnerabilities (selected numeric series reproduced): - Total capital asset ratio of locally incorporated banks: 14.9, 15.3, 17.5, 15.6 (percent across 2004–2007). - Nonperforming loans/total loans: 6.0, 5.5, 3.7, 3.5 (percent across 2004–2007). - Provisions for loan losses/nonperforming assets: 81.9, 79.4, 67.4, 57.7 (percent across 2004–2007). - Loans/deposits ratio examples: 57.6, 66.0, 73.2, 75.9 (series shown). - GARFIN and nonbank supervision: - GARFIN enhancing legislation and supervision for insurance companies, credit unions, and money service providers; CARTAC assistance continues. - Grenada undertook AML/CFT assessment under Caribbean FATF in October 2008. - Recommendation: careful monitoring of the insurance sector warranted. ### Structural reforms, VAT, and institutional changes - VAT introduction intended by early 2010; authorities plan to announce introduction date in the December budget speech; submit VAT and excise tax bills to Parliament by April 2009 (proposed structural benchmark). - Recruit and begin training staff and adopt transitional procedures for bonded warehouses by May 2009 (proposed structural benchmark). - New investment legislation: move from tax holidays to capital write-offs; draft legislation expanded to an Investment Code; Cabinet approval may be slightly delayed relative to December 2008 structural benchmark. - Country Poverty Assessment (CPA) to inform social program targeting and develop full PRSP report; completion may be delayed. - Major institutional changes in Ministry of Finance: creation of Waste Reduction Unit; creation of a database of transfer recipients; creation of a Debt Management Unit (structural benchmark); new Office of Private Sector Development. - Structural benchmarks and timetable (selected): - Second Review prior action met: Issue finance circular reducing capital expenditure to EC$184 million — September 2008. - Action plan to improve Doing Business Indicators — August 2008 — Not met. - Planning regulations benchmark — July 2008 — Not met; proposed to be dropped. - Third Review performance criterion met: Reorganize or initiate liquidation of Capital Bank — November 2008. - Establish Debt Management Unit — February 2009 — Proposed benchmark. - Submit VAT and Excise bills to Parliament — April 2009 — Proposed benchmark. - Establish Public Procurement Authority — September 2009 — Proposed benchmark. ### Program monitoring, risks, and contingent measures - Program financing and IMF support: - April 2006 Board approval: SDR 1.56 million, 13.33 percent of quota, availability date April 15, 2006. - July 2008: SDR 2.98 million, 25.48 percent of quota, availability date July 15, 2008. - December 2008: SDR 2.41 million, 20.61 percent of quota, availability date October 15, 2008. - Total PRGF: SDR 11.99 million, 102.50 percent of quota. - Main risks: - Global financial turmoil and global economic slowdown slowing tourism demand, FDI, and remittances; potential negative effects on donor grants. - Deterioration of terms of trade (oil and food price shocks); additional airlift disruption; tightening financing conditions for FDI projects; lower grants and remittances. - Contingent actions: - If grants are lower than projected by more than EC$10 million, program envisages corresponding reduction in primary deficit excluding grants through contingency measures. - Authorities committed to taking contingent measures if needed to reduce spending, including limiting transfers while protecting vulnerable groups. - Program monitoring improvements: - Issue finance circular to reduce capital spending (prior action). - Expand coverage of fiscal data to include public corporations and the National Insurance Scheme recommended by staff. ### Key indicators and selected figures (preserved) - GDP growth: 4.5 percent (2007); 1.6 percent (2008 projected); 1.6 percent (2009 projected). - Inflation: 8.2 percent (12-month, Sept. 2008); 7.8 percent (2008 projected); 4 percent (2009 projected); core inflation 2.3 percent (Sept. 2008). - Banking: credit growth to private sector 9 percent through Sept. 2008; nonperforming loans 3.5 percent at end-June 2008. - Fiscal slippage and corrective targets: missed end-June primary balance by EC$14 million (0.8 percent of annual GDP); capital spending overruns 2.5 percent of GDP; unbudgeted retroactive wage payments 0.4 percent of GDP. - Domestic arrears: EC$27 million (1.5 percent of GDP) end-2007; EC$12 million (0.7 percent of GDP) end-June 2008; EC$29 million (1.6 percent of GDP) end-September 2008. - Capital expenditure limit H2 2008: EC$50 million (2.8 percent of annual GDP). - 2009 fiscal targets: overall deficit 1.1 percent of GDP; reduce expensive debt by 1.2 percent of GDP; reduce arrears by 0.4 percent of GDP. - Short-term revenue foregone and costs: EC$2.6 million (0.1 percent of GDP) duty-free food import concession; EC$5 million (0.3 percent of GDP) free textbook scheme in 2008. - Public and publicly guaranteed debt (end-period): 110.3, 116.5, 116.7, 111.5, 106.5, 107.2, 98.7, 101.2 (percent of GDP across reported periods). - Nominal GDP (US$ millions) examples: 553.9, 564.4, 607.9, 657.3, 655.9, 716.9, 715.1 (series presented). ### Staff appraisal and recommendations (selected) - Staff notes weakened economic outlook and vulnerability to external shocks affecting FDI projects, tourism, and remittances. - Staff welcomes cautious approach on proposed China loan and decision to increase PetroCaribe repayment set-aside. - Staff supports introduction of VAT but emphasizes thorough preparation; passage of VAT and excise laws with sound rate and exemption structure is important. - Staff recommends improving tax enforcement and detection powers to mitigate risks from the announced tax amnesty; supports strengthening garnishment, asset seizure, and linking government services to tax compliance. - Staff urges decisive progress on structural reforms, reorganization of Ministry of Finance, completion of Country Poverty Assessment to underpin a PRS, reform of investment tax concessions, customs reforms, and improvements in Doing Business Indicators. *Source: _cr0995 - Executive Summary and selected sections (IMF).* ### Executive Summary....................................................................................................... ### Executive Summary ### Recent developments and outlook - Growth and activity - Real GDP growth: 4.5 percent in 2007; projected 1.6 percent in 2008; projected 1.6 percent in 2009. - Earlier projection for 2008 was 3.7 percent (revised down to 1.6 percent). - Several major FDI-financed tourism investment projects are on hold. - Tourist stayover arrivals declined 4.4 percent during January–September 2008. - Inflation and prices - 12-month inflation: 8.2 percent in September 2008. - Core inflation (excluding food and energy): 2.3 percent in September 2008. - Projected inflation: 7.8 percent in 2008; 4 percent in 2009. - Government reinstated the EC$3 per gallon gasoline tax and full passthrough in October 2008, implying an 18 percent price increase. - External sector and exchange rate - External current account deficit expected to narrow slightly in 2008, mainly reflecting a slowdown in activity. - Real effective exchange rate broadly unchanged during 2006–08. - Financial sector - Banking system dominated by subsidiaries of international banks; remained resilient to date. - Growth rate of credit to the private sector slowed to 9 percent through September 2008. - Ratio of nonperforming loans to total loans: 3.5 percent at end-June 2008. - Liquidity and capital adequacy ratios remained adequate. - Authorities revoked Capital Bank’s license on September 18, 2008; receiver reappointed; petitioned High Court for liquidation on November 13, 2008. ### Performance under the program - Missed targets and arrears - End-June 2008 quantitative performance criterion on the central government primary balance was missed by EC$14 million (0.8 percent of annual GDP). - End-June primary deficit excluding grants: 3.6 percent of annual GDP (program target was 2.8 percent of GDP). - Capital spending overruns: 2.5 percent of GDP; unbudgeted retroactive wage payments: 0.4 percent of GDP. - Administrative delays led to several small late external debt service payments (two largest cases amounted to US$0.4 million), breaching the performance criterion on nonaccumulation of external arrears. - Domestic arrears - Domestic arrears declined from EC$27 million (1.5 percent of GDP) at end-2007 to EC$12 million (0.7 percent of GDP) at end-June 2008. - Arrears rose to EC$29 million (1.6 percent of GDP) at end-September 2008 due to aging of pre-election spending. - Government acknowledged arrears to fuel importers as of end-June 2008 and agreed to remit back 50 percent of the fuel tax until these claims are satisfied. - Structural benchmarks and implementation delays - Cabinet approval of legislation on investment incentives delayed by change in government; expected in December (status: Not met as of original target). - Action plan to improve Doing Business Indicators: Not met. - Planning regulations: Not met. - Customs Fraud Control Plan: Partially met; MoU on information sharing between customs and Inland Revenue signed in November 2008. ### Policies for the remainder of 2008 and for 2009 - Program objectives - Key goals: achieve fiscal and debt sustainability; stimulate private sector-led growth and poverty reduction through structural reforms; reduce financial sector vulnerabilities. - Remedial fiscal measures for remainder of 2008 (adjustment of four percentage points of annual GDP in the primary balance from H1 to H2) - Issued a finance circular in September 2008 to limit capital expenditure in H2 2008 to EC$50 million (2.8 percent of annual GDP) (prior action). - Brought forward to September 20 the date after which no new commitments for nonessential expenditure items can be made. - Reinstated the EC$3 per gallon gasoline tax and full passthrough of world prices under the automatic price mechanism in October 2008 (implying an 18 percent price increase). - Delayed repeal of the National Reconstruction Levy (NRL) until 2009. - Began rationalization of social spending programs. - Committed to resolving Capital Bank with limited direct costs to the budget. - New limited spending measures in 2008 - Duty-free importation of two barrels of foodstuffs per household until end-December 2008 with expected foregone revenue of EC$2.6 million (0.1 percent of GDP). - Free textbook scheme expected to cost around EC$5 million (0.3 percent of GDP) in 2008. - 2009 budget and medium-term fiscal framework - 2009 draft budget will allocate expected divestment proceeds toward financing: - an overall deficit of 1.1 percent of GDP; - reducing expensive debt by 1.2 percent of GDP; - reducing arrears by 0.4 percent of GDP. - Budget reduces spending on transfers and subsidies and on goods and services, and lowers capital expenditure to 9 percent of GDP. - Financial sector measures - Authorities revoked Capital Bank’s license, reappointed receiver, and petitioned for liquidation; several investors remain interested in asset purchase and assumption of liabilities. - Supervision of nonbank financial institutions is being strengthened. - Structural measures for late 2008 and 2009 - Reform investment incentives. - Complete a country poverty assessment. - Prepare for implementation of a VAT. - Risks and contingent actions - Main risks: global financial turmoil and global economic slowdown slowing tourism demand, FDI, and remittances; potential negative effects on donor grants. - Government intends to take contingent fiscal measures if needed, including limiting transfers while protecting vulnerable groups. ### Key indicators and fiscal dynamics (selected figures reported) - GDP growth: 4.5 percent (2007); 1.6 percent (2008 projected); 1.6 percent (2009 projected). - Inflation: 8.2 percent (12-month, Sept. 2008); 7.8 percent (2008 projected); 4 percent (2009 projected); core inflation 2.3 percent (Sept. 2008). - Banking: credit growth to private sector 9 percent through Sept. 2008; nonperforming loans 3.5 percent at end-June 2008. - Fiscal slippage and corrective targets: missed end-June primary balance by EC$14 million (0.8 percent of annual GDP); capital spending overruns 2.5 percent of GDP; unbudgeted retroactive wage payments 0.4 percent of GDP. - Domestic arrears: EC$27 million (1.5 percent of GDP) end-2007; EC$12 million (0.7 percent of GDP) end-June 2008; EC$29 million (1.6 percent of GDP) end-September 2008. - Capital expenditure limit H2 2008: EC$50 million (2.8 percent of annual GDP). - 2009 fiscal targets: overall deficit 1.1 percent of GDP; reduce expensive debt by 1.2 percent of GDP; reduce arrears by 0.4 percent of GDP. - Short-term revenue foregone and costs: EC$2.6 million (0.1 percent of GDP) duty-free food import concession; EC$5 million (0.3 percent of GDP) free textbook scheme in 2008. *Source: _cr0995 - Executive Summary (IMF).* ### 17. The government has developed a revised fiscal framework for 2008, in light of ### _cr0995 - 17. The government has developed a revised fiscal framework for 2008, in light of ### Revised fiscal framework and end-2008 targets - Government requested increasing the primary deficit (excluding grants) target for end-December 2008 from EC$90 million (5.1 percent of GDP) to EC$110 million (6.2 percent of GDP). - Requested increase in the domestic arrears target to EC$25 million at end-December 2008 (a reduction from the level at end-September 2008 of EC$29 million). - The change in the primary balance target represents a net relaxation of EC$34 million (1.9 percent of GDP), adjusting for lower projected bank restructuring costs and higher projected grants. - The sharp fiscal adjustment in the second half of 2008 implies an overall surplus in the second half (see text table in source). ### Key fiscal figures from the table (selected lines reproduced exactly as in source) - Total revenues and grants: 33.6 27.2 14.1 14.7 14.8 15.3 28.9 30.0 28.3 29.3 - Of which: Revenues: 24.9 26.1 12.6 13.2 12.6 12.4 25.3 25.6 25.7 25.3 - Grants: 8.7 1.1 1.5 1.5 2.2 2.9 3.7 4.4 2.6 3.9 - Total expenditures: 40.0 35.3 16.0 19.3 17.0 14.9 33.0 34.2 29.0 30.4 - Current expenditures: 21.2 21.7 10.9 11.7 12.5 12.1 23.4 23.8 19.9 21.3 - Interest payments: 2.1 2.3 1.4 1.1 1.4 1.5 2.8 2.6 2.5 2.9 - Bank restructuring: 0.0 0.0 0.0 0.0 1.5 0.0 1.5 0.0 0.0 0.0 - Capital expenditures: 18.8 13.6 5.1 7.6 4.5 2.8 9.6 10.4 9.0 9.1 - Primary balance (excluding grants) 2/: -13.0 -6.9 -2.0 -5.0 -3.0 -1.0 -5.0 -6.0 -0.7 -2.2 - Overall balance (including grants) 2/: -6.4 -8.2 -1.9 -4.6 -2.2 0.4 -4.1 -4.2 -0.6 -1.1 ### Debt sustainability and external financing decisions - Authorities proceeding cautiously on proposed loan from Export-Import Bank of China; considering a significantly smaller concessional loan of around US$5 million (0.8 percent of GDP) to finance a much smaller marina, not moving ahead in first half of 2009. - PetroCaribe treatment: continue setting aside 35 percent of PetroCaribe’s concessional financing in a special account in 2008; raise share set aside to 40 percent starting from January 2009. - Draft 2009 budget envisages a primary fiscal deficit of 2.2 percent of GDP, consistent with shifting gradually to small overall surpluses to achieve debt sustainability. - Four Seasons Project divestment proceeds expected to total EC$45 million (2.3 percent of GDP); less than half to be used to finance the 2009 fiscal deficit, remainder to reduce expensive debt and arrears. - Lower privatization proceeds for 2009 would delay reaching the 60 percent debt-to-GDP target by one year to 2019. - Authorities approached Paris Club to extend 2006–08 treatment to include 2009. - Seeking out-of-court settlement with Export-Import Bank of Taiwan Province of China that would yield debt service savings of around US$5 million (0.7 percent of GDP) in 2009. - Cleared or restructured all but EC$1.1 million (0.1 percent of GDP) arrears on unrestructured domestic debt incurred in June 2007; incurred new arrears on 90-day treasury bills held by domestic commercial banks of EC$3.4 million (0.2 percent of GDP) at end-October 2008, intended to be cleared by end-2008. ### Revenue measures, expenditures, and fiscal consolidation for 2009 - Fiscal consolidation supported by increased tax effort and rationalization/reallocation of spending to priority areas: internationally funded capital projects, revitalizing agriculture, housing programs, community development. - Revenue-side measures: maintain EC$3 per gallon fixed fuel tax with full passthrough; repeal of the NRL delayed to 2009; intensify collection of tax arrears; provide a tax amnesty through March 2009. - Expenditure-side measures: reach agreement on a wage path for 2009–11; budget capital expenditure at 9 percent of GDP; reduce spending on goods and services reflecting lower fuel prices and efficiency gains; reduce transfers and subsidies through rationalization while protecting transfers to vulnerable groups. - Wages and allowances projected to fall by 1.3 percentage points of GDP in 2009, reflecting large retroactive wage payments in 2008. Nominal wages excluding retroactive payments expected to increase by 4 percent in 2009 for public service workers excluding the police (assuming agreement reached). ### Structural reforms and institutional changes - VAT introduction intended by early 2010; authorities plan to announce introduction date in December budget speech; submit VAT and excise tax bills to Parliament by April 2009 (proposed structural benchmark). A Memorandum of Understanding between Customs and Inland Revenue Departments was signed in November 2008. - New government committed to improving business environment and moving to capital write-offs rather than tax holidays in investment incentives; draft legislation expanded to an Investment Code. Cabinet approval of new investment legislation may be slightly delayed relative to December 2008 structural benchmark. - Country Poverty Assessment (CPA) expected to inform social program targeting and develop full PRSP report; completion (December 2008 structural benchmark) may be delayed. - Planned structural benchmarks for second review (with delays): action plan to improve Doing Business Indicators, Cabinet approval of new investment legislation, customs Fraud Control Plan. Benchmark on implementing planning regulations proposed to be dropped. - Major institutional changes in Ministry of Finance: creation of Waste Reduction Unit; creation of a database of transfer recipients to rationalize social programs; creation of a Debt Management Unit (structural benchmark) to screen new borrowing proposals and address administrative delays; new Office of Private Sector Development to improve investment/business environment. ### Financial sector, bank resolution, and prudential measures - Government petitioned High Court for liquidation of Capital Bank on November 13, 2008, meeting a structural performance criterion for November 2008; intends to limit direct costs to the budget and does not intend to compensate depositors; may consider indirect support requests (tax credits or placement of government deposits) with limited fiscal impact. - GARFIN enhancing legislation and supervision for insurance companies, credit unions, and money service providers; CARTAC assistance continues. Grenada undertook AML/CFT assessment under Caribbean FATF in October 2008. ### Program monitoring, risks, and contingent measures - Authorities issued a finance circular to reduce capital spending as a prior action for the second review. - Authorities requested relaxing end-December 2008 performance criteria on primary fiscal balance and domestic arrears based on ambitious second-half adjustment. - Program addresses risks through adjustors on grants and divestment proceeds and a realistic timetable for structural measures. - Major risks: (i) deterioration of terms of trade (oil and food price shocks); (ii) additional airlift disruption or declines in tourism demand; (iii) tightening financing conditions for FDI projects; (iv) lower grants and remittances. - If grants are lower than projected by more than EC$10 million, program envisages corresponding reduction in primary deficit excluding grants through contingency measures. - Authorities committed to taking contingent measures if needed to reduce spending, including limiting transfers. ### Staff appraisal and recommendations (selected) - Staff notes weakened economic outlook given vulnerability to external shocks, deteriorating external financial conditions affecting FDI projects, and slowing tourism and remittances. - Implementation uneven in first half of 2008 due to measures to alleviate commodity shocks, election-related spending, and retroactive wage payments; new authorities have taken corrective actions in second half. - Staff welcomes cautious approach on proposed China loan and decision to increase PetroCaribe repayment set-aside. - Staff supports introduction of VAT but emphasizes need for thorough preparation given previous failed attempt; passage of VAT and excise laws with sound rate and exemption structure is important. - Staff recommends improving tax enforcement and detection powers to mitigate risks from the announced tax amnesty; supports plans to strengthen garnishment, asset seizure, and linking government services to tax compliance. - Staff urges decisive progress on structural reforms, reorganization of Ministry of Finance, completion of Country Poverty Assessment to underpin a PRS, reform of investment tax concessions, customs reforms, and improvements in Doing Business Indicators. *IMF staff report content as provided in the source PDF.* ### 39. Staff welcomes the authorities’ decision to revoke Capital Bank’s license, to ### _cr0995 - 39. Staff welcomes the authorities’ decision to revoke Capital Bank’s license, to ### Bank resolution and immediate actions - Staff welcomes the authorities’ decision to revoke Capital Bank’s license, to reappoint the receiver, and to petition the High Court for liquidation. - The decision to resolve the bank in a manner that limits direct fiscal costs is described as appropriate. - Recommendation: In the absence of further legal obstacles, liquidation should move forward without delay. ### Banking sector resilience and oversight - The banking sector has remained resilient thus far, notwithstanding the recent adverse domestic and external developments. - The banking system has not been affected by the closure of Capital Bank and an unregulated investment scheme, and is weathering well the global financial turmoil. - Staff has encouraged the authorities to remain in close contact with the ECCB to ensure effective onsite and offsite examinations that would detect and address any banking sector problems that may arise. ### Nonbank financial supervision (GARFIN) and insurance surveillance - GARFIN’s progress in improving nonbank financial supervision and regulation needs to be continued, particularly in light of the global financial turmoil. - Grenada was the first ECCU Fund-member to establish a single regulatory unit, and it has set an ambitious agenda to build its capacity and to address regulatory gaps. - Recommendation: Careful monitoring of the insurance sector is warranted in the current global environment. ### Statistics and program monitoring - The quality of statistics is improving in areas that are critical for program monitoring. - Recommendation: The coverage of fiscal data could be expanded to include public corporations and the National Insurance Scheme. ### Program financing and arrears - The program is fully and sustainably financed, allowing for a gradual clearance of domestic arrears. - Staff welcomes the authorities’ continued efforts to regularize financial relations with Grenada’s external creditors. ### Risks, outlook, and contingent fiscal measures - Program risks remain significant. - Financial turmoil and the global economic slowdown are expected to lead to weaker tourism demand, FDI, and remittances, and could also negatively affect grants. - The government intends to take contingent fiscal measures if needed to ensure success of the program, including limiting transfers. *https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0995.pdf* ### 45. Notwithstanding the risks described above, staff supports the authorities’ ### _cr0995 - 45. Notwithstanding the risks described above, staff supports the authorities’ ### Program support, waivers, and reviews - Staff supports the authorities’ requests for: - completion of the second review and financing assurance review; - waivers; - modification of quantitative performance criteria. - Rationale: - New government took remedial measures in response to spending overruns in the first half of 2008, including issuing a finance circular to sharply reduce capital expenditure. - The fiscal outturn for the third quarter shows that the measures are already beginning to bear fruit. - Conditionality emphasis: - Staff supports the request to modify the end-2008 performance criteria on the primary balance and domestic arrears, but has emphasized the need to stay the course to meet the revised targets. ### Fiscal measures, outturns, and medium-term central government finances - First-half 2008 deviation: - The fiscal outturn in the first half of 2008 deviated from program targets due to capital expenditure overruns and unbudgeted retroactive wage increases implied by the 2006–08 wage agreement. - Key fiscal figures and indicators (selected, as presented): - Primary balance (excluding grants): values across periods include -8.0, -7.1, -13.0, -6.9, -5.0, -6.0, -0.7, -2.2 (percent of GDP). - Primary balance (including grants): 2.4, 0.3, -4.3, -5.8, -1.3, -1.6, 1.9, 1.8 (percent of GDP). - Overall balance (including grants): 0.4, -1.9, -6.4, -8.2, -4.1, -4.2, -0.6, -1.1 (percent of GDP). - Public and publicly guaranteed debt (end-period): 110.3, 116.5, 116.7, 111.5, 106.5, 107.2, 98.7, 101.2 (percent of GDP). - Nominal GDP (EC$ millions): 553.9, ..., 564.4, 607.9, 657.3, 655.9, 716.9, 715.1 (presented values). - Medium-term central government finance tables (EC$ millions and percent of GDP) show: - Total revenue and grants and total expenditure series across 2006–09 with revisions and projections (detailed line items available in the source tables). - Expenditure arrears movement, including a stock of expenditure arrears and the note: after 2005 includes EC$4.6 million arrears each year on interest to nonparticipating creditors in the debt exchange. ### Inflation, commodity prices, and price drivers - Headline inflation: - Headline inflation has surged (figures and series shown in Figure 1). - Period average consumer prices and end-of-year figures shown across years (e.g., CPI period average and end-of-year series in Table 1). - Main drivers: - Inflation was driven largely by energy and food prices and is mainly imported. - Rising electricity costs and increasing prices of flour products contributed to inflation. - Expectations: - Oil and food prices are expected to fall back in the near term (as noted in figure captions and annotations). ### Banking system vulnerabilities and indicators - Liquidity and asset trends: - Liquidity conditions tightened, with banks shifting assets toward loans. - Loans to total assets and loans/deposits ratios increased (figures show upward asset shift). - Nonperforming loans and provisioning: - NPL ratios remained at moderate levels, but provisioning for NPLs showed a declining trend, pointing to the need for vigilance. - Capital and profitability: - Capital cushions in local banks remained solid despite a recent trend decline. - Profitability in foreign-incorporated banks continued its upward trend. - Selected numeric indicators (from Tables/Figures): - Total capital asset ratio of locally incorporated banks: 14.9, 15.3, 17.5, 15.6 (percent across 2004–2007). - Nonperforming loans/total loans: 6.0, 5.5, 3.7, 3.5 (percent across 2004–2007). - Provisions for loan losses/nonperforming assets: 81.9, 79.4, 67.4, 57.7 (percent across 2004–2007). - Loans/deposits ratio examples: 57.6, 66.0, 73.2, 75.9 (series shown). ### Competitiveness, tourism, and FDI - Competitiveness indicators: - CPI-based REER and CPI-based nominal effective exchange rate indices (index 2000=100) indicate that competitiveness is not an issue as measured by CPI-based REER (figures show index movements). - Customer-based and competitor-based real effective exchange rates (index 2000=100) series shown; competitor-based series saw sharp movements in 2002–04 driven largely by the Dominican Republic’s peso. - Tourism and external receipts: - The decline in Grenada's tourism following the hurricanes has been partially reversed; travel receipts (net) and stay-over arrival shares presented. - Travel (net) figures and percent-of-GDP contributions are shown in Figure 4 and Table 4. - Foreign direct investment: - FDI in percent of GDP has been under pressure, reflecting financing problems of major tourism projects (time series of FDI in percent of GDP shown). ### Doing Business and structural indicators - World Bank Doing Business 2009 indicators (rankings among regional peers) indicate areas for reform: - Overall ease of doing business, starting a business, registering property, trading across borders, employing workers, and contract enforcement rankings are presented in Figure 5 (comparative ranks across Antigua and Barbuda, Dominica, Grenada, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago). - Note: Smaller numbers represent greater ease in doing business; indicators cover the period June 2007 to June 2008. ### Balance of payments, external sector, and Fund financing - Balance of payments trends (Table 4, selected items and projections): - Current account balances (in US$ millions and percent of GDP) and trade balance series presented; projected current account in later years remains large in deficit in levels and percent of GDP (e.g., Current account percent of GDP: -31.1, -32.9, -32.4, ... series). - Travel (net), transfers (net), capital and financial account balances, and net errors and omissions are detailed across 2005–13. - Fund support and disbursement schedule under PRGF (Table 5): - April 2006 Board approval: SDR 1.56 million, 13.33 percent of quota, availability date April 15, 2006. - July 2008: SDR 2.98 million, 25.48 percent of quota, availability date July 15, 2008 (observance of end-June 2006 performance criteria, completion of first review and adopt conditions for second year). - December 2008: SDR 2.41 million, 20.61 percent of quota, availability date October 15, 2008 (observance of end-June 2008 performance criteria and completion of second review). - April 2009: SDR 1.68 million, 14.36 percent of quota, availability date April 15, 2009. - October 2009: SDR 1.68 million, 14.36 percent of quota, availability date October 15, 2009. - April 2010: SDR 1.68 million, 14.36 percent of quota, availability date March 31, 2010. - Total: SDR 11.99 million, 102.50 percent of quota. - Indicators of capacity to repay the Fund (Table 6 excerpts): - Outstanding Fund credit (end of period) in millions of SDRs and US$ series and ratios to exports, debt service, GDP, Imputed Net International Reserves, and quota are provided for 2007–15 projections. - Example indicators: Fund obligations based on existing credit and prospective credit series; memos include exports of goods and services projections (e.g., 209.0, 208.3, 215.6, 233.2, 254.4, 277.3, 302.0, 322.0, 342.6 in US$ millions). ### Vulnerability indicators and macro context - Real sector and external vulnerability indicators (selected from Table 7 and related tables): - Real GDP growth (percent): -5.7, 11.0, -2.3, 4.5 (series across years). - CPI inflation (period average, percent): 2.3, 3.5, 4.2, 3.9 (series). - Current account balance (percent of GDP): -9.6, -31.1, -32.9, -32.4 (series). - Gross international reserves of the ECCB (in US$ millions): 632.4, 600.8, 696.0, 764.5 (series). - Public gross external debt (in US$ million): 415.6, 437.0, 457.2, 478.8 (series). - Public and publicly-guaranteed gross external debt (percent of GDP examples) and related ratios are provided. *Source: IMF staff text and tables as contained in the supplied content unit.* ### ANNEX I—SUMMARY OF APPENDICES ### ANNEX I—SUMMARY OF APPENDICES ### Fund Relations - Grenada’s outstanding purchases as of end-October 2008 amounted to SDR 6.37 million (54.43 percent of quota). - Grenada is a member of the ECCB, which manages monetary policy and the exchange system for its eight members. - 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. - The last Article IV consultation was concluded by the Executive Board on September 26, 2007 (IMF Country Report No. 08/351). - The next Article IV consultation is expected to take place in August 2009. - CARTAC, MCM, and FAD have provided extensive technical assistance. - An updated safeguards assessment of the ECCB was undertaken in July 2007 and did not note any new significant vulnerabilities. ### Relations with the World Bank Group - Eastern Caribbean Sub-Region Country Assistance Strategy (CAS) for FY 2006–09 presented in September 2005 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 with a net commitment of approximately US$47.56 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 - Hurricane Ivan Emergency Project - Caribbean Catastrophe Risk Insurance Facility ### Relations with the Caribbean Development Bank - Grenada continued to receive special financing from the Caribbean Development Bank (CDB) for recovery, reconstruction, capacity building, and poverty reduction. - Financing apportioned to Grenada incorporates a blend of the Bank’s Special Development Funds (SDF) and ordinary capital resources, designed to yield a concessionary grant element of 35 percent. - Main CDB-supported activities include: 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 to facilitate effective surveillance. ### Attachment I — Letter of Intent (key commitments and requests) - Government took office in July 2008 and commits strongly to the PRGF-supported program. - A Supplementary Memorandum of Economic Policies (SMEP) reviews progress and outlines policies and macro framework for remainder of 2008 and beyond, emphasizing debt sustainability, business environment reforms, and fiscal management capacity reforms. - Two out of six quantitative performance criteria for the second review were missed (primary balance excluding grants and external arrears) due to negative shocks and pre-election spending pressures. - Remedial actions taken: - Issued a finance circular in September to sharply restrict capital spending in the fourth quarter (a prior action for completion of the second review). - Selected an expert to head a new Debt Management Unit in the Ministry of Finance. - Petitioned the High Court on November 13 to liquidate a small unregulated bank following license revocation in September 2008. - Program adjustments and requests: - Revised end-2008 program targets for the primary balance excluding grants and for domestic arrears; request waivers for missed performance criteria. - Government requests completion of the second review under the PRGF arrangement and financing assurances review and release of the associated disbursement in an amount equivalent to SDR 2.41 million. - Requests revision of the end-December targets for the primary balance excluding grants and for domestic arrears. - Timetable for future reviews: - Fourth review under the PRGF arrangement expected to be completed by October 15, 2009. - Fifth review expected by March 31, 2010. ### Attachment II — Supplementary Memorandum of Economic Policies (selected recent developments, performance, and policies) H3: Recent Developments (V) - Growth is expected to slow to 1.6 percent during 2008. - Inflation reached 8.2 percent in the 12 months to September 2008; excluding food and fuel, inflation was 2.3 percent in the same period. - Stayover arrivals declined by 4.4 percent during January–September 2008 and are expected to slow further in the fourth quarter. - Private sector credit growth was 9 percent through September 2008. - Work on several FDI-financed tourism projects has been put on hold due to financing difficulties. - A U.S. airline began providing daily direct service to Grenada from Miami in November 2008. H3: Program Performance (VI) - First-half 2008 fiscal outturn deviated from program projections due to negative external shocks, pre-election spending pressures, and unbudgeted retroactive wage payments. - End-June primary deficit excluding grants (below-the-line) was 3.6 percent of annual GDP, exceeding the program target (reflecting adjustors) of 2.8 percent of GDP. - Divestment proceeds financed most of the overall deficit. Key quantitative details: - Capital expenditure in first half: 7.6 percent of annual GDP (programmed 5.1 percent of GDP). - First half-year revenue outturn exceeded projections by 0.6 percent of GDP (largely due to overperformance on the consumption tax). - Current expenditure exceeded projections by 0.8 percent of GDP (due to unbudgeted retroactive wage payments and higher transfers/subsidies). - Several small external debt service payments were paid with a slight delay, breaching the continuous zero ceiling on external payment arrears. Structural reform implementation: - Delays in structural benchmarks largely due to change in government and consultant schedule slippages. - Customs reforms: memorandum of understanding on information sharing between Customs and Inland Revenue signed in November 2008; Fraud Control Plan not yet developed. - Action plan to improve Doing Business Indicators in progress. - Planning regulations development delayed; proposal to drop this benchmark from the program. - Investment incentives legislation: new Investment Policy Review Committee approved by Cabinet; IMF Legal Department technical assistance planned for December. - Reduced fixed fuel tax from EC$3 to EC$2 per gallon in May 2008 and did not employ automatic fuel price adjustment mechanism in July and September 2008, resulting in accumulated arrears to fuel importers. H3: Policies for the Remainder of 2008 and through 2009 (VII) Program objectives and remedial measures: - Ministry of Finance issued a finance circular in September 2008 to limit capital expenditure in the second half of 2008 to EC$50 million (2.8 percent of GDP), delaying large locally-funded projects until 2009. - Brought forward to September 20 the date after which no new commitments for nonessential expenditure items can be made. - Reinstated EC$3 per gallon fuel tax in October 2008 and resumed full passthrough of world fuel prices using the automatic mechanism; domestic retail gasoline prices increased from EC$13.26 to EC$15.65 per gallon. - Decided to resolve Capital Bank in a way that limits direct costs to the budget and will not use the bank restructuring reserve of EC$27 million (1.5 percent of GDP). - Revised target for the primary deficit (excluding grants) increased to EC$110 million (6.2 percent of GDP), implying a relaxation of EC$36 million (2.0 percent of GDP) relative to the original program target (also adjusting for lower-than-expected bank restructuring costs and higher-than-expected grants). - Committed to meeting revised program target and to take offsetting measures as needed. Recurrent expenditure pressures and specific items: - Second-half salary and allowances projection raised to reflect retroactive payments to teachers of EC$10.3 million. - Transfers and subsidies projection revised upward due to retroactive wage increases on pensions and difficulty tightening social programs during rapid cost-of-living increases. Measures to mitigate cost-of-living impacts: - Households allowed to import two barrels of foodstuffs duty-free until end-December 2008; expected foregone revenue of EC$2.6 million (0.1 percent of GDP). - Introduced a free textbook program at a cost of EC$5 million (0.3 percent of GDP) (classified under capital expenditure). Domestic arrears and fuel importer claims: - Domestic arrears older than 60 days: declined from EC$27 million (1.5 percent of GDP) at end-2007 to EC$12 million (0.7 percent of GDP) at end-June 2008, then rose to EC$29 million (1.6 percent of GDP) at end-September 2008. - Target to reduce these arrears to EC$25 million by end-2008. - Agreement with fuel importers to remit back 50 percent of the fuel tax to reduce claims, expected to clear in 2009. - No expectation to accumulate further arrears to importers given full passthrough of world fuel prices. VAT and tax administration reforms: - Reconstituted VAT team and resumed preparatory work; planned VAT introduction date to be announced in the December budget speech within the period October 2009 to February 2010. - VAT and Excise bills to be submitted to Parliament by April 2009 (structural benchmark). - Recruit and begin training staff and adopt transitional procedures for bonded warehouses by May 2009 (structural benchmark). - CARTAC technical assistance requested to support VAT implementation. Accelerated structural reforms and institutional strengthening: - Implement a customs Fraud Control Plan by August 2009, including risk profiles for risk-based inspections and introduction of ASYCUDA World. - Continue work on new investment legislation via the Investment Policy Review Committee. - Complete the Country Poverty Assessment (CPA) to improve targeting of social programs and develop a full PRSP; aim to finalize the full PRSP by November 2009 in cooperation with the World Bank. - Establish a new Debt Management Unit to improve debt recording, evaluate borrowing, develop a debt management strategy, and undertake debt sustainability analysis; technical assistance on the unit’s structure and operation will be requested from the IMF. *Source: ANNEX I—SUMMARY OF APPENDICES (Attachments I and II) of the original document.* ### 14. We will proceed promptly with the resolution of Capital Bank, while minimizing ### _cr0995 - 14. We will proceed promptly with the resolution of Capital Bank, while minimizing ### Resolution of Capital Bank - Proceed promptly with resolution while minimizing costs to the government. - Process delayed by legal challenges and High Court decision to revoke the appointment of the receiver. - On September 18, 2008, the government dropped its appeal, revoked the bank’s license and reappointed the receiver under a different section of the Banking Act on the recommendation of the ECCB. - Petitioned the High Court for liquidation on November 13, acting on the recommendation of the receiver and following consultation with the ECCB. - Government will not provide any cash injection during resolution but would entertain requests by potential investors for indirect support such as tax credits or placement of government deposits. ### Potential concessional loan for port and marina - Previous government considered a proposal of up to US$85 million (13 percent of GDP). - Concern that a large loan could undermine the objective of restoring debt sustainability depending on concessionality. - Government would consider a smaller loan of around US$5 million for a small marina project which would not go forward in the first half of 2009. - If proceeding, will seek a high level of concessionality and explore nonguaranteed private sector co-financing. ### PetroCaribe concessional financing management - Due to high public debt levels, PetroCaribe financing will be prudently managed. - Set aside 35 percent of PetroCaribe financing in the special account to ensure sufficient funds for repayment, and in January 2009 will raise this share to 40 percent. - The remainder would be transferred to the budget as grants. - Intend to broaden the range of fuel products imported under PetroCaribe as infrastructure is developed. ### Debt relief, creditor negotiations, and arrears - Approached Paris Club creditors to seek debt relief for 2009 in line with Paris Club relief extended in 2006–08. - Continuing best efforts to conclude bilateral agreements with Paris Club (the Russian Federation) and non-Paris Club (Taiwan Province of China) creditors. - Seeking an out-of-court settlement with the Export-Import Bank of Taiwan Province of China. - Pursuing good faith efforts to reach a collaborative agreement with external commercial creditors that did not participate in the 2005 debt exchange. - Cleared or restructured all but EC$1.1 million arrears on unrestructured domestic debt to the nonbank public incurred in June 2007. - Incurred new arrears on 90-day Treasury bills held by domestic commercial banks, which stood at EC$3.4 million at end-October 2008, and will complete clearing these arrears by the end of 2008. ### Program objectives for the Fourth Review — fiscal strategy and targets - 2009 budget will continue fiscal consolidation to achieve debt sustainability. - Primary deficit target of 2.2 percent of GDP consistent with shifting gradually to small overall surpluses. - Privatization proceeds expected from the Four Seasons project of EC$45 million or 2.3 percent of GDP will be used to finance this deficit and to reduce expensive debt and arrears. - Expect to reach the 60 percent debt-to-GDP target by 2019, one year ahead of the ECCB’s 2020 benchmark for the region. Key policy measures and targets: - Maintain the fuel tax at EC$3 per gallon and continue application of the automatic fuel price adjustment mechanism. - Repeal from January 2009 the National Reconstruction Levy (cost EC$10 million or 0.5 percent of GDP). - Intensify collection of tax and nontax arrears expected to yield around EC$12 million or 0.7 percent of GDP in 2008; provide a tax amnesty through March 2009 in tandem with strengthened enforcement powers. - Reach agreement on a wage path for public service workers for 2009–11 in line with projected inflation, using findings from the 2008 pay and grade study financed by the CDB. - Adjust travel allowances for public service workers at a cost of EC$6.5 million (0.3 percent of GDP). - Target capital expenditure of EC$175 million (9.1 percent of GDP), and minimize use of special warrants. - Reduce spending on goods and services to EC$75 million (0.4 percent of GDP) through bulk procurement internally and with other ECCU members; Waste Reduction Unit expected to achieve savings on fuel for government vehicles, fleet insurance and electricity costs. - Reduce spending on transfers and subsidies to EC$87 million (0.5 percent of GDP). First-stage rationalization of social programs expected to yield savings of around EC$4 million (0.2 percent of GDP) while protecting transfers to vulnerable individuals. - Any increase in the monthly transfer to the elderly from EC$150 per month would be financed by rationalization and would not increase the total cost of the assistance. Contingent measures if needed: - Reduce spending including limiting grants and subventions while protecting vulnerable groups, and further rationalizing capital spending. ### Structural reform agenda - Focus on improving tax revenue policy, enhancing the business environment, and upgrading public financial management. - Develop an action plan to improve Grenada’s Doing Business Indicators; three priority areas: starting a business, registering property and facilitating trade. Use action plan to identify specific outcome targets and add one as a benchmark for fourth review. - Preparatory steps for introducing VAT in 2009: recruiting and training staff and adopting transitional procedures for bonded warehouses. - Move toward introducing a market-based property tax; complete the cadastral survey in December 2008 as basis for reassessing property values; new valuations to be applied beginning January 1, 2010. - Establish a Public Procurement Authority by September 2009. - Implement public financial management legislation enacted in 2007–08, including the Integrity in Public Life, Anticorruption, Public Financial Management, Audit, and Public Procurement and Contract Administration Acts. - Work with the World Bank to establish bulk procurement procedures with another OECS country, extending procedures beyond pharmaceuticals to textbooks, agricultural inputs, fleet insurance and tires. ### Program monitoring and capacity - Designate a Ministry of Finance official as coordinator of Grenada’s PRGF-supported program to oversee monitoring of macroeconomic and structural targets. - Implement monthly monitoring system of domestic arrears and below-the-line financing of the central government overall balance, updated monthly. ### Reducing financial sector and natural disaster vulnerabilities - Eastern Caribbean Securities and Regulatory Commission (ECSRC) issued cease and desist orders in May against two unregulated investment schemes; will not compensate investors in the scheme which has not made payments since July. - GARFIN will continue public advisories to invest only with licensed institutions and advise against starting foreign exchange trading schemes unless licensed by the ECSRC. - Strengthen nonbank financial sector regulation and supervision with CARTAC technical assistance. GARFIN pursuing legislation, regulations, and supervisory practices for insurance, nonbank financial institutions, money services, and international financial services. - Money Services, Insurance, and Cooperative Society Acts to be submitted to Parliament in the first half of 2009. - Continue participation in the World Bank’s Caribbean Catastrophic Risk Insurance Facility; purchasing parametric insurance since June 2007. IDA credit financed Grenada’s insurance premium in the first two years and half the premium for the next year. Intend to seek donor support for the remaining half of the premium payments beginning in June 2009. ### Fiscal transparency - Disseminate quarterly information with a lag of one quarter on the overall fiscal situation and gross financing needs starting May 2009. - Publish information on public enterprise finances. - Require public enterprises to submit audited financial statements four months after the close of the financial year, as required by the Public Financial Management Act of May 2007. - Continue to publish newly granted or extended tax concessions within a month of granting these. ### Quantitative performance criteria and indicative targets (selected figures preserved) - Central government primary balance excluding grants (floor) — series of values included in table (unadjusted/adjusted targets and preliminaries listed in the source). - Stock of central government domestic arrears (ceiling) — values appear in table (e.g., 15.0, 12.4, 11.0, 28.9, 7.0, 25.0, 20.0, 15.0). - Contracting and guaranteeing of nonconcessional external debt by the central government with maturity of at least one year (ceiling) — repeated value 4.0 in table. - Stock of external short term debt (ceiling) — 0.0 across table. - Contracting and guaranteeing of bilateral concessional external debt by the central government with maturity of at least one year (ceiling) — 0.0 across table (Excludes PetroCaribe). - Central government or guaranteed external arrears accumulation (ceiling) — 0.0 across table. - Indicative target: Change in net credit of the banking system to the public sector (ceiling) — values in table include 12.0, 14.2, 9.9, 18.0, 31.1, 12.9, 24.0, 24.0, 0.0, 0.0. ### TMU and programmed disbursements (selected provisions and figures) - TMU Section II adjustments to the floor on the central government primary balance excluding grants: adjustments (i) through (vi) specified, including an upward adjustment equivalent to 50 percent of divestment shortfall and downward adjustment equivalent to 50 percent of divestment proceeds in excess of EC$45 million with a maximum adjustment of EC$32 million; maximum adjustment for bank restructuring costs of EC$7 million. - TMU Section III: ceiling on net credit of the banking system adjusted for required counterpart financing, including upward adjustments up to a limit of EC$10 million. - TMU Section IV: performance criterion on domestic arrears older than 60 days monitored on outstanding stock basis at specified test dates. - Table 1. Programmed Disbursements of Concessional Loans and Grants and Bank Restructuring Costs (In millions of Eastern Caribbean dollars, cumulative) — selected row values: - Concessional loans: 49.0 2.4 4.7 7.1 9.4 (2008 Q4 Q1 Q2 Q3 Q4 Prog.Prog.Prog.Prog.Prog. 2009) - Grants disbursements: 78.2 15.5 31.0 60.6 76.1 - Divestment proceeds: 50.4 0.0 0.0 0.0 44.6 - Bank restructuring costs: 0.0 0.0 0.0 0.0 0.0 ### Structural measures timetable (selected entries) - Second Review prior action: Issue a finance circular reducing capital expenditure to EC$184 million — September 2008 — Prior action — Met. - Develop an action plan to improve Doing Business Indicators — August 2008 — Benchmark — Not met. - Bring into force new planning regulations as a first step toward giving the Building Code force of law — July 2008 — Benchmark — Not met. - Third Review performance criterion: Reorganize or initiate liquidation of Capital Bank — November 2008 — Performance criterion — Met. - Establish a Debt Management Unit at the Ministry of Finance — February 2009 — Proposed benchmark. - Submit new VAT and Excise bills to Parliament — April 2009 — Proposed benchmark. - Recruit and begin training staff and adopt transitional procedures for bonded warehouses — May 2009 — Proposed benchmark. - Establish a Public Procurement Authority — September 2009 — Proposed benchmark. *Source: Excerpt from IMF document titled "Second Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Requests for Waivers and Modification of Quantitative Performance Criteria, and Financing Assurances Review — Informational Annex" (December 1, 2008).* ### Appendix I. Grenada: Fund Relations ### Appendix I. Grenada: Fund Relations ### I. Membership Status - Joined: August 27, 1975. ### II. General Resources Account (SDR Million; Percent of Quota) - Quota: 11.70; 100.00 - Fund Holdings of Currency: 13.53; 115.64 - Reserve Position: 0.00; 0.00 ### III. SDR Department (SDR Million; Percent of Allocation) - Net cumulative allocation: 0.93; 100.00 - Holdings: 0.05; 5.63 ### IV. Outstanding Purchases and Loans (SDR Million; Percent of Quota) - Emergency Assistance: 1.83; 15.63 - PRGF Arrangements: 4.54; 38.80 ### V. Financial Arrangements - Type: PRGF - Date of Arrangement: Apr. 17, 2006 - Date of Expiration: Apr. 16, 2010 - Amount Approved (SDR Million): 11.99 - Amount Drawn (SDR Million): 4.54 ### VI. Projected Obligations to Fund (SDR Million; based on existing use of resources and present holdings of SDRs) Forthcoming - Years: 2008, 2009, 2010, 2011, 2012 - Principal: 0.37, 1.46, 0.00, 0.16, 0.31 - Charges/Interest: 0.03, 0.07, 0.04, 0.04, 0.04 - Total: 0.40, 1.53, 0.04, 0.20, 0.35 ### VII. Implementation of HIPC and MDRI Initiatives - Not Applicable ### VIII. Safeguards Assessment - The Eastern Caribbean Central Bank (ECCB) is subject to a full safeguards assessment under a four-year cycle. - Most recent assessment completed in July 2007. - Assessment conclusions and findings: - 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 since the last assessment, including the publications of financial statements that comply with International Financial Reporting Standards. - The assessment made some recommendations to sustain the ECCB’s safeguards framework going forward. ### IX. Exchange Arrangement - Grenada is a member of the ECCB, which manages monetary policy and the exchange system for its eight members. - The common currency, the Eastern Caribbean dollar, has been pegged to the U.S. dollar at the rate of EC$2.70 per U.S. dollar since July 1976. - In practice, the ECCB has operated like a quasi-currency board, maintaining foreign exchange backing of its currency and demand liabilities of close to 100 percent. - Grenada accepted the obligations of Article VIII, Sections 2, 3, and 4 in January 1994. - 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: - Development of a Medium-Term Macroeconomic Framework (as part of the Structural Adjustment Technical Assistance Program). - Preparing to implement a VAT; building upon previous work, including draft VAT/excise laws (prepared by LEG) and a VAT sensitivity study and training/publicity tasks (undertaken with CARTAC/FAD assistance). - Assisting customs with ASYCUDA/ASYCUDA++ and with the exchange of information with inland revenue. - Drafting legislation to establish the Grenada Authority for the Regulation of the Financial Institutions (GARFIN) and supporting the newly established agency. - Training for nonbank supervisors. - Substantial assistance in improving the production and dissemination of macroeconomic statistics, including national accounts compilation; rebasing of the consumer price index; initiating work to prepare export-import price indices; training in the processing of trade data; and improving external sector statistics as part of a major CARTAC/ECCB project. - Other Technical Assistance (2007–08): - FAD and LEG provided extensive assistance in tax policy and administration. - Assistance included the design and drafting of a VAT and related changes to excise taxes; training for tax officials; 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. *Appendix I. Grenada: Fund Relations (As of October 31, 2008).* ### Appendix IV. Grenada—Statistical Issues ### Appendix IV. Grenada—Statistical Issues ### A. Real Sector Statistics - Overall assessment: Data provision has some shortcomings, but is broadly adequate for surveillance. - Key deficiencies: - National accounts: - Provided annually but are subsequent to frequent revisions; major revisions undertaken in 2007 to extend coverage to the offshore university and to improve construction activity estimates. - Revision of the national accounts’ base year (currently dating from 1990) and full implementation of the System of National Accounts 1993 needed. - GDP by expenditure available only with long lags. - Real GDP estimates for the tourism sector are not computed. - Estimation of gross fixed capital formation and sectoral price deflators needs improvement. - Foreign trade and tourism: - Discrepancies between customs department and Central Statistical Office (CSO) foreign trade estimates. - Coverage, consistency, and timeliness of tourism data are limited. - Prices and indices: - Consumer prices are the only real sector data provided between IMF missions, but these data are subject to frequent revisions. - CPI basket was last updated in 2000. - Producer price index is not available. - Labor statistics: - Limited and outdated; 1998 is the most recent year available. - No regular wage and unemployment data. - Data collected during the 2001 population census are still unprocessed. - CSO is working with ILO to improve labor market statistics coverage and conducting a Country Poverty Assessment with assistance of the Caribbean Development Bank. - Technical assistance: - IMF, through the Caribbean Regional Technical Assistance Center, has provided specialized technical advice on export-import price indices compilation and dissemination. - Metadata: - Grenada has participated in the Fund’s General Data Dissemination System since March 2001, but most metadata have not been updated since late 2002. ### B. Government Finance Statistics - Improvements and current practice: - Reporting of central government data has improved; quarterly data provided to the ECCB, WHD, and other users in Fund economic classification format with lags of about two months. - Deficiencies and issues: - Apparent inaccuracies in composition of public expenditure. - Capital expenditures may include current expenditure items. - Nature of expenditures in the Public Sector Improvement Program needs careful scrutiny. - Spending on outsourced activities is grouped into a single category rather than broken down appropriately. - Coverage of the rest of the public sector is very limited; no consolidated public sector accounts. - No systematic reporting of information to the Ministry of Finance; annual statements for some public enterprises provided only during Fund missions. - Authorities do not report fiscal data for publication in IFS. - Grenada has not provided fiscal data on a GFSM 2001 basis, or a cash basis, for presentation in the GFS Yearbook. - ECCB disseminates Grenada’s quarterly GFS data in its Economic and Financial Review. - Recommended institutional practice: - Institute a mechanism for regular reporting of financial data pertaining to the rest of the public sector. ### C. Monetary and Financial Statistics - Current compilation and reporting: - 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. - Coverage gaps: - 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 the formation of the Grenada Authority for the Regulation of Financial Institutions. - Data quality and classification issues: - Dataset generally adequate for program purposes, but identified discrepancies need to be addressed, including appropriate classification of government indebtedness (in particular, a specific 2005 loan). - Expanding institutional coverage to include all depository corporations and other financial corporations (credit unions and insurance companies) would enhance understanding of savings and credit and improve monetary aggregates compilation. - Improved classification of financial instruments and loan categorization would enhance identification of credit flows to different sectors. - Program impact: - Current data inadequacies do not pose problems to program reviews. ### D. Balance of Payments Statistics - Compilation and reporting: - ECCB compiles balance of payments statistics on an annual basis, using information collected by the CSO, and reports data to the IMF for publication in the IFS and Balance of Payments Yearbook. - Data sources and reliability: - Statistics based primarily on surveys of establishments; surveys are not comprehensive and response rates are usually poor. - Merchandise trade statistics traditionally more reliable and are available by SITC classification on a quarterly basis. - Reliability and comprehensiveness of merchandise trade statistics suffered considerably after Hurricane Ivan (September 2004); reporting is not yet fully back on track. - Recommended improvements: - Enhanced data sources and better compilation procedures are needed to improve accuracy. - Efforts should be undertaken to compile quarterly balance of payments statistics and the annual international investment position statement. ### E. External and Domestic Debt Statistics - Government external debt: - Database for government external debt is quite comprehensive and usable to provide detailed and reasonably up-to-date breakdowns of disbursements and debt service. - Gaps: - Data availability on domestic debt, government-guaranteed debt, and debt of public enterprises is limited. - No data on private external debt. ### Grenada: Table of Common Indicators Required for Surveillance (As of November 26, 2008) — selected items and frequencies - Exchange Rates: NA - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: M, with 2- to 3-month lag - Frequency of publication: A/Q - Reserve/Base Money: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: M, with 2- to 3-month lag - Frequency of publication: A/Q - Broad Money: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: M, with 1- to 2-month lag - Frequency of publication: A/Q - Central Bank Balance Sheet: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: M, with 1- to 2-month lag - Frequency of publication: A/Q - Consolidated Balance Sheet of the Banking System: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: M, with 2- to 3-month lag - Frequency of publication: A/Q - Interest Rates: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: M, with 1- to 2-month lag - Frequency of publication: A/Q - Consumer Price Index: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: 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: - Date of latest observation: Oct 2008 - Date received: Nov 2008 - Frequency of Data: M - Frequency of Reporting: Q, with 1- to 2-month lag - Frequency of publication: A - Stocks of Central Government and Central Government-Guaranteed Debt: - Date of latest observation: Sep 2008 - Date received: Nov 2008 - Frequency of Data: M/A - Frequency of Reporting: Q, with 1- to 2-month lag - Frequency of publication: A - External Current Account Balance: - Date of latest observation: Dec 2007 - Date received: Feb 2008 - Frequency of Data: A - Frequency of Reporting: A, with long lag - Frequency of publication: A - Exports and Imports of Goods and Services: - Date of latest observation: Dec 2007 - Date received: Feb 2008 - Frequency of Data: A - Frequency of Reporting: A, with long lag - Frequency of publication: A - GDP/GNP: - Date of latest observation: Dec 2007 - Date received: Sep 2008 - Frequency of Data: A - Frequency of Reporting: Staff Mission - Frequency of publication: A - Gross External Debt: - Date of latest observation: Jul 2008 - Date received: Sep 2008 - Frequency of Data: Q - Frequency of Reporting: Q, with 1-month lag - Frequency of publication: A/Semi-annual - International Investment Position: NA *Appendix IV. Grenada—Statistical Issues (IMF).* ### 6. Staff supports the proposed revisions to the targets, which do not change the ### _cr0995 - 6. Staff supports the proposed revisions to the targets, which do not change the ### Staff appraisal and program status - Staff supports the proposed revisions to the targets, which do not change the thrust of the staff appraisal contained in the Grenada Staff Report for the Second Review. - IMF Executive Board completed the second review under the PRGF and approved a disbursement equivalent to SDR 2.41 million (about US$3.66 million). - The three-year PRGF arrangement originally approved for a total amount equivalent to SDR 10.53 million (about US$15.97 million) on April 17, 2006, was extended and augmented to SDR 11.99 million (about US$18.19 million) in July 2008. ### Macroeconomic performance and projections (selected) - Real GDP (annual percentage change): 2005 Est. 11.0; 2006 6.5; 2007 -2.3; 2008 Prog. 4.5; Rev. 3.7; 2009 Proj. 1.6; 2010 Proj. 4.2; 2011 Proj. 1.6. - GDP deflator (annual % change): 2005 5.3; 2006 4.6; 2007 3.9; 2008 Prog. 3.4; Rev. 6.0; 2009 Proj. 6.2; 2010 Proj. 4.7; 2011 Proj. 7.3. - Consumer prices end-of-year (period average): 2005 end-of-year 6.2; 2006 2.0; 2007 1.7; 2008 Prog. 7.4; Rev. 6.2; 2009 Proj. 6.1; 2010 Proj. 3.9; 2011 Proj. 3.2. - Current account balance (including grants; in percent of GDP): 2005 -31.1; 2006 -32.8; 2007 -32.9; 2008 Prog. -32.4; Rev. -36.4; 2009 Proj. -31.8; 2010 Proj. -35.1; 2011 Proj. -30.5. - Travel (net) in percent of GDP (selected): 2005 12.5; 2006 15.7; 2007 20.1; 2008 19.2; 2009 Proj. 17.9; 2010 Proj. 18.2; 2011 Proj. 18.7; 2012 Proj. 19.2; 2013 Proj. 19.8. ### Central government finances (selected levels and ratios) - Total revenue and grants (EC$ millions): 2008 Prel. 445.8; 2008 Prog. 250.2; 2008 Rev. 260.0; 2009 Budget 262.4; 2009 Prog. 271.2; 2009 Rev. 558.8; later columns include 512.6, 531.2, 565.1, 553.6. - Total revenue (EC$ millions): 2008 Prel. 428.5; 2008 Prog. 223.8; 2008 Rev. 233.0; 2009 Budget 223.8; later series include 220.0, 461.1, 447.6, 453.0, 489.0, 488.1. - Grants (EC$ millions): 2008 Prel. 17.3; 2008 Prog. 26.4; 2008 Rev. 27.0; 2009 Budget 38.6; later series include 51.2, 97.7, 65.0, 78.2, 76.1, 65.5. - Total expenditure (EC$ millions): 2008 Prel. 579.7; 2008 Prog. 283.9; 2008 Rev. 341.1; 2009 Budget 300.9; later series include 264.0, 644.6, 584.7, 605.0, 587.2, 596.1. - Current expenditure (EC$ millions): 2008 Prel. 356.6; 2008 Prog. 193.9; 2008 Rev. 206.8; 2009 Budget 220.9; later series include 214.3, 402.8, 414.7, 421.0, 412.2, 416.1. - Salaries and allowances (EC$ millions): 2008 Prel. 158.4; 2008 Prog. 89.8; 2008 Rev. 97.4; 2009 Budget 89.8; later series include 101.9, 188.9, 179.6, 199.3, 193.6, 193.6. - Capital expenditure (EC$ millions): 2008 Prel. 223.1; 2008 Prog. 90.0; 2008 Rev. 134.3; 2009 Budget 80.0; later series include 49.7, 241.8, 170.0, 184.0, 175.0, 180.0. - Primary balance (excluding grants) (EC$ millions): 2008 Prel. -113.1; 2008 Prog. -35.5; 2008 Rev. -88.1; 2009 Budget -52.5; later series include -17.6, -135.7, -88.1, -105.7, -42.1, -51.9. - Primary balance (including grants) (EC$ millions): 2008 Prel. -95.9; 2008 Prog. -9.1; 2008 Rev. -61.0; 2009 Budget -13.9; later series include 33.5, -38.0, -23.1, -27.5, 34.0, 13.6. - Overall balance (including grants) (EC$ millions): 2008 Prel. -133.9; 2008 Prog. -33.7; 2008 Rev. -81.1; 2009 Budget -38.5; later series include 7.3, -81.5, -72.1, -73.8, -22.1, -42.5. - Public and publicly guaranteed debt (end-period, percent of GDP): 2005 110.3; 2006 116.5; 2007 116.7; 2008 111.5; 2009 106.5; subsequent columns: 107.2, 98.7, 101.6. - Nominal GDP (US$ millions): 2005 553.9; 2007 564.4; 2008 607.9; 2009 657.3; 2010 655.9; later: 716.9, 715.1. ### Banking system and monetary accounts (selected) - Consolidated banking system: Liabilities to private sector (M2, EC$ millions, end period) 2004 1,484.1; 2005 1,469.0; 2006 1,482.4; 2007 1,644.7; 2008 June 1,693.8; 2008 Sept. 1,702.3; 2008 Prov. 1,744.7; 2009 Proj. 1,902.2. - Credit to private sector (EC$ millions): 2004 996.7; 2005 1,088.3; 2006 1,223.9; 2007 1,409.2; 2008 June 1,440.1; 2008 Sept. 1,489.0; 2008 Prov. 1,499.5; 2009 Proj. 1,634.9. - Consolidated banking system 12-month change in percent of M2 at the beginning of the period: Net foreign assets 24.9; Net domestic assets -7.2; Credit to private sector 5.1; Loans/deposits ratio (in percent) 57.6 (2004) rising to 73.2 (2006) etc. (table provides series). - Banking system indicators note: Includes National Insurance Scheme in nonfinancial public enterprises credit. ### Balance of payments and external sector (selected) - Current account (US$ millions): 2005 -172.3; 2006 -185.9; 2007 -197.0; 2008 -208.8; 2009 Proj. -218.3; 2010 -226.9; 2011 -231.3; 2012 -243.0; 2013 -248.3. - Trade balance (US$ millions): 2005 -265.9; 2006 -264.3; 2007 -260.1; 2008 -278.2; 2009 Proj. -276.2; 2010 -281.6; 2011 -292.1; 2012 -307.8; 2013 -322.4. - Exports f.o.b. (US$ millions): 2005 32.9; 2006 32.3; 2007 48.2; 2008 39.3; 2009 Proj. 40.4; 2010 42.9; 2011 46.8; 2012 51.0; 2013 55.7. - Imports f.o.b. (US$ millions): 2005 -298.7; 2006 -296.6; 2007 -308.3; 2008 -317.6; 2009 Proj. -316.6; 2010 -324.4; 2011 -338.9; 2012 -358.7; 2013 -378.1. - Capital and financial account (US$ millions): 2005 179.2; 2006 193.8; 2007 189.5; 2008 198.7; 2009 Proj. 220.1; 2010 229.0; 2011 246.5; 2012 253.5; 2013 244.7. - External public and publicly guaranteed debt (US$ millions): 2005 437.0; 2006 457.2; 2007 478.8; 2008 513.8; 2009 543.5; 2010 550.8; 2011 562.6; 2012 573.0; 2013 567.3. - Current account (percent of GDP): 2005 -31.1; 2006 -32.9; 2007 -32.4; 2008 -31.8; 2009 -30.5; 2010 -29.6; 2011 -28.1; 2012 -27.6; 2013 -26.4. ### Indicators of capacity to repay the Fund (2007–15, selected) - Fund obligations based on existing credit (US$ millions): 2007 1.7; 2008 1.9; 2009 1.6; 2010 0.1; 2011 0.2; 2012 0.4; 2013 0.4; 2014 1.0; 2015 1.0. - Outstanding Fund credit (end of period, US$ millions): 2007 7.7; 2008 13.1; 2009 16.1; 2010 18.7; 2011 18.4; 2012 18.0; 2013 17.5; 2014 15.0; 2015 11.6. - Outstanding Fund credit (in percent of GDP): 2007 1.3; 2008 2.0; 2009 2.2; 2010 2.4; 2011 2.2; 2012 2.0; 2013 1.9; 2014 1.5; 2015 1.1. ### Policy measures, reforms, and structural agenda - Fiscal consolidation measures taken and planned: - Reduced capital expenditure and sharply restricted capital expenditure for second half of 2008 (finance circular, a prior action). - Reinstated gasoline tax and full pass-through of fuel prices through the automatic price mechanism. - Decision to save a larger portion of Venezuelan PetroCaribe grants beginning January 2009. - Moved cautiously regarding a large potential external loan for a port and marina; prepared to consider a smaller project and loan. - Engaging in consultations with remaining bilateral creditors; seeking Paris Club debt relief in 2009 along lines of 2006-2008 treatment. - Structural and institutional measures: - Plan to introduce a VAT at an appropriate date; VAT and excise tax laws, effective tax rate, and exemption structures are to be passed (authorities plan to submit VAT and Excise Bills to Parliament by April 2009). - Improving tax enforcement and capabilities to detect evasion; concern that tax amnesty not undermine future compliance. - Strengthening fiscal management: restructuring Ministry of Finance to include Office of Private Sector Development, Waste Reduction Unit, and Public Procurement Authority. - Establishing a debt management office; hiring a debt manager with wide professional experience; Fund TA to be requested. - Measures to improve business climate: create investment promotion agency, modernize customs, reform tax system, modernize registry for property and companies. - Strengthening supervision and regulation of the nonbank financial sector; issued cease-and-desist against unregulated investment scheme. - Social and safety-net measures: - Increased spending on transfers and subsidies by EC$1.7 million to address demand and inclusion screening. - Increased spending on goods and services by EC$2.2 million to improve management of donor-financed housing programs. - Increased capital spending by EC$5 million for faster disbursements on farm roads project and infrastructure to address storm damage. - Rationalization of safety net programs to reduce waste; plan to complete a Country Poverty Assessment to better target social programs and prepare a Poverty Reduction Strategy (PRS). - Banking sector actions: - Capital Bank: license revoked in September 2008; receiver re-appointed; petitioned High Court for liquidation in November 2008; authorities intend to resolve with limited direct budget cost. - Authorities intend to minimize budgetary impact of bank resolution. ### Program performance, shortfalls, and remedial steps - Program performance to end-June 2008: All but two of six end-June 2008 quantitative performance criteria and the indicative targets were met. - Missed PCs: end-June primary balance of central government (missed by 0.8 percent of GDP) and non-accumulation of external arrears (small late payments). - Causes of slippages: spending pressures during election period, administrative difficulties, increases in social safety net outlays, temporary suspension of automatic price adjustment, reduction in excise tax, lowering of duties on food barrels, and higher-than-programmed wage settlements. - Remedial measures already implemented: reinstatement of gasoline tax, full pass-through of fuel prices, restriction of capital expenditure, containment of recurrent expenditure, saving a larger portion of PetroCaribe grants. ### Quantitative performance criteria and targets (2008–09, selected) - Central government primary balance excluding grants (floor) (EC$ millions, cumulative within each calendar year): Examples of target and performance figures in Table 1--SMEP show multiple columns including unadjusted and adjusted targets and preliminaries; specific figures include -45.0; -49.8; -63.3; -67.5; -50.8; -84.5; -90.0; -110.0; -14.0; -28.0. - Stock of central government domestic arrears (ceiling) (EC$ millions): 15.0; 15.0; 12.4; 11.0; 11.0; 28.9; 7.0; 25.0; 20.0; 15.0 (columns correspond to end-June 2008, end-Sept. 2008, end-Dec. 2008, 2009, etc.). - Indicative target: Change in net credit of the banking system to the public sector (ceiling) (EC$ millions): 12.0; 14.2; 9.9; 18.0; 31.1; 12.9; 24.0; 24.0; 6.2; 12.5 (various dates). *Italic: Source: IMF staff report content provided in the supplied PDF extract.* ### Conclusion ### Conclusion ### Authorities' assessment and commitment - Fully cognizant of the downside risks and challenges posed by the global economic outlook. - Current external environment increases urgency for stronger macroeconomic management and establishment of a foundation for future sustainability. - Strong commitment to placing the country on a sustainable fiscal and debt path. - Emphasis on successful achievement of program targets. - Demonstrated preparedness to move expeditiously and boldly to address program slippages. - Applied rigor to the development of the 2009 budget framework to ensure it is focused and driven by strategic priorities. - View the budget and the fiscal reform program as providing a credible framework for fiscal consolidation. ### Requests to the Board - Seeking the Board’s approval of the completion of second review under the PRGF arrangement and financing assurances review. - Requesting the release of the associated disbursement in an amount equivalent to SDR 2.41 million. - Also requesting revision of the end-December 2008 targets for the primary balance (excluding grants) and for domestic arrears. ### Reasons for target revisions - Request reflects: - The extent of the budget overruns in the first half of 2008. - The cost of infrastructure repairs following recent heavy rains. - Unavoidable increases in social safety net programs. - Setup costs for the establishment of a new ministry to manage the housing programs as the authorities seek to address one of the country’s pressing developmental needs. - Under the circumstances, the authorities wish to set realistic and achievable targets as this is important for credibility. ### Relationship with the Fund - The authorities look forward to a continued excellent relationship with the Fund as they seek to transform the economy. *Source: Conclusion (document _cr0995 - Conclusion).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0995.pdf_