## _cr15333

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---

### EXECUTIVE SUMMARY
- Extended Credit Facility Arrangement
  - Arrangement approved on June 26, 2014; second review completed on June 29, 2015.
  - Disbursements equivalent to SDR 6.04 million (about US$9 million) have been made to Grenada so far under the arrangement.
  - The equivalent of SDR 2 million (about US$3 million) will be made available upon Executive Board completion of the third review.
- Debt Restructuring
  - Debt exchange with Grenada’s largest private creditor group scheduled to conclude on November 12, 2015.
  - Deal includes a 50 percent principal haircut of Grenada’s external commercial bonds.
    - Half of the principal reduction is to be provided upon completion of the exchange; the remainder will be provided following completion of the sixth review of the ECF-supported program.
  - Once fully executed, the agreement will reduce Grenada’s public debt by 11 percent of projected 2017 GDP.
  - Authorities scheduled to meet with the Paris Club in November 2015 and expect to finalize negotiations with remaining creditors in 2016.
- Program Performance (third review)
  - All quantitative performance criteria for the third review were met.
  - All structural benchmarks for the third review were implemented.
  - Authorities advanced reforms to ensure transparent and sustainable management of Citizenship-By-Investment (CBI) revenues, strengthen the fiscal policy framework, and improve public finance management.
- Third Review discussions and adjustments
  - Focus on measures to meet the 2016 fiscal targets and pro-growth structural reforms.
  - Proposed minor modifications to performance criteria (update fiscal adjustor for debt advisory costs; make adjustors for fiscal performance criteria consistent).
  - Proposed structural benchmarks aim to enhance fiscal sustainability and strengthen growth objectives.

### RECENT DEVELOPMENTS AND OUTLOOK
- Recovery and growth
  - Activity expanded by 5.7 percent (market prices) in 2014.
  - Agriculture grew by 54 percent in 2014, contributing 1.9 percentage points to growth.
  - Unemployment: 29 percent (2014 labor force survey); youth unemployment about 45 percent.
  - Growth projections: 3.4 and 2.4 percent in 2015 and 2016, respectively.
  - Medium-term growth forecast: 2–2 ½ percent (consistent with potential).
  - Output gap expected to close in 2015.
- Inflation and prices
  - Consumer prices fell by 1.4 percent (y/y) in July 2015 (first seven months of 2015).
  - Consumer prices projected to decline by 0.8 percent on an annual average basis for 2015.
  - Inflation expected to average 2.0 percent in 2016 and stabilize thereafter.
- External position
  - Current account deficit fell to 15.5 percent of GDP in 2014 from 23 percent of GDP in 2013.
  - Current account deficit projected to decline to 14 percent of GDP in 2015.
  - Medium-term current account deficit forecast to deteriorate to 15 percent of GDP (partly due to higher imports related to increased investments financed through the CBI program).
  - Net international reserves remained stable at around 5 months of projected 2016 imports (as of July 2015).
  - Real effective exchange rate (REER) appreciated by about 2 percent since its mid-2014 trough (as of August 2015).
- Financial sector
  - Commercial bank profitability turned positive in the first two quarters of 2015 but remains weak.
  - Nonperforming loans (NPLs) stood at 13 percent of total loans for all banks in Q2 2015.
  - Reported capital adequacy remains above the regulatory 8 percent minimum.
  - Credit unions’ capital position around 12 percent of assets in Q1 2015 (regulatory minimum 10 percent).
  - Private credit contracted by 3.1 percent (y-o-y) in July 2015.
  - Banks increased net foreign assets and deposits at the ECCB, pushing excess reserves to historic highs.

### PUBLIC DEBT, RESTRUCTURING, AND SUSTAINABILITY
- Public debt status and projections
  - Public debt peaked at about 107 percent of GDP in 2013.
  - Debt as percent of GDP expected to decline to 90 percent at end-2015, assuming completion of the commercial bond exchange.
  - Staff projections indicate public debt could fall to 57 percent of GDP by 2020 with restructuring of commercial bonds, continued fiscal consolidation, and prudent medium-term fiscal policy.
  - ECCU common target: 60 percent of GDP.
- Restructuring specifics
  - 2025 international bonds: creditor committee representing about 76 percent of the bonds announced on October 7 that all of its members would participate (above the 75 percent rate needed to trigger the collective action clause).
  - Bond deal implies an NPV reduction of 52.5 percent, assuming a 12 percent exit yield (discount rate used for NPV calculations).
  - Agreement includes sharing of potential receipts from the CBI program after the full principal haircut is granted and a clause allowing delay in debt service following a qualifying natural disaster.
  - MNIB restructuring expected to reduce government-guaranteed debt by 0.4 percent of GDP by end-2015.
- Importance
  - Clearance of arrears to official creditors and completion of restructuring remain essential to restore debt sustainability.

### PROGRAM PERFORMANCE, FISCAL OUTCOMES AND MONITORING (END-JUNE 2015)
- General outcomes
  - Program performance remains strong with all quantitative performance criteria met and structural benchmarks implemented for the third review.
  - Cumulative fiscal adjustment to date: 5¾ percent of GDP, completing more than two-thirds of the total programmed consolidation.
- Key fiscal figures (year-to-July 2015)
  - First primary surplus in a decade achieved in the first seven months of 2015.
  - Year-to-July primary surplus: 1.4 percent of GDP (net of CBI-related revenues so far estimated at 0.4 percent of GDP).
  - This exceeded the end-year target of 1.3 percent of GDP.
  - Strong tax performance across all categories and continued expenditure restraint.
  - Capital spending aligned with reduced budget allocations agreed during the second review.
- Quantitative Performance Criteria (End-June 2015, EC$ mln)
  - A. Cumulative floor on central government primary balance: Program 926 / Program Adjusted 347 / Actual 926 / Difference Met
  - B. Cumulative ceiling on central government primary spending: Program 281 / Program Adjusted 301 / Actual 284 / Difference -17 Met
  - C. Ceiling on stock of central government domestic arrears: Program 43 / Program Adjusted 43 / Actual 34 / Difference -10 Met
  - D. Ceiling on accumulation of external debt arrears (continuous): Program 0 / Program Adjusted 0 / Actual 0 / Difference 0 Met
  - E. Ceiling on non-concessional external borrowing (continuous): Program 0 / Program Adjusted 0 / Actual 0 / Difference 0 Met
  - F. Cumulative ceiling on net change in central government and guaranteed debt: Program 39 / Program Adjusted 38 / Actual -30 / Difference -69 Met
  - G. Floor on social spending by central government: Program 6.7 / Program Adjusted 6.7 / Actual 5.4 / Difference -1.3 Not Met
  - H. Wage bill target (excluding retroactive payments): Program 110 / Program Adjusted 110 / Actual 109 / Difference -1 Met
  - I. Public employment (excluding workers under the IMANI program): Program 7534 / Program Adjusted 7534 / Actual 7096 / Difference -438 Met

### SOCIAL SPENDING AND SEED PROGRAM (END-JUNE 2015)
- Indicative floor on social spending for end-June was missed.
- Cause: delay in implementation of the new beneficiary information system limited processing of new applicants, resulting in under-spending by about 0.05 percent of GDP relative to the programmed indicative floor for end-June 2015.
- Mitigating actions
  - Authorities worked with the World Bank to improve targeting of the SEED program.
  - New beneficiary information system implemented and authorities are increasing processing of a large list of new applicants (MEFP ¶22).
  - Interim offset: increased spending on other social programs.
- Outlook
  - As reforms were only recently completed, the end-December 2015 floor may also be missed.

### ARREARS, EXTERNAL BORROWING, AND EXTERNAL ARREARS
- Budget expenditure arrears (excluding arrears on debt under restructuring)
  - At end-June 2015: EC$33.6 million, below program ceiling of EC$43 million.
  - Half of reduction due to on-lending agreement between Government and GSWMA.
  - Government remains on track to fully repay budget expenditure arrears by end-December 2015.
- External arrears
  - Apart from debt under restructuring negotiations, no new arrears were accumulated on external debt.
  - External arrears on the 2025 international bonds will be cleared as part of the debt restructuring agreement.
  - Authorities will meet with the Paris Club in mid November 2015 and seek to regularize Paris Club arrears.
- Outstanding arrears (Dec. 2014 / Jun. 2015 / percent of GDP)
  - Total Arrears: 288.1 / 280.7 / 10.9% of GDP
  - External Arrears: 174.6 / 192.7 / 7.5% of GDP
  - Multilateral: 0.0 / 0.0 / 0.0% of GDP
  - Official bilateral: 40.0 / 42.7 / 1.7% of GDP
  - Paris Club: 11.6 / 13.5 / 0.5% of GDP
  - Non-Paris Club: 28.5 / 29.2 / 1.1% of GDP
  - Commercial creditors: 70.0 / 85.7 / 3.3% of GDP
  - Unpaid contributions: 64.6 / 64.3 / 2.5% of GDP
  - Budget expenditure arrears: 113.5 / 88.1 / 3.4% of GDP
  - Debt arrears: 47.6 / 54.5 / 2.1% of GDP
  - Supplier arrears: 65.9 / 33.6 / 1.3% of GDP
- New external borrowing in 2015
  - Majority from newly-issued bonds from the restructured debt with private creditors.
  - Remaining borrowings include concessional on-lending project loan from CDB on behalf of GSWMA and exceptional financing from World Bank, IMF and CDB (excluded from the zero ceiling performance criterion).
  - Performance criterion for end-June met; end-December target expected to be met.
- External Borrowing Program in 2015-16 (US million; PV uses 5 percent discount rate)
  - Sources of debt financing: 221.9 (2015 contracting/guaranteeing) / 209.0 (present value) / 49.1 / 36.7
  - Concessional debt, of which: 20.7 / 11.5 / 10.0 / 4.6
    - Multilateral debt: 20.7 / 11.5 / 10.0 / 4.6
    - Bilateral debt: 0.0 / 0.0 / 0.0 / 0.0
  - Non-concessional debt (NCD), of which: 201.2 / 197.5 / 39.1 / 32.1
    - Semi-concessional debt: 24.2 / 20.5 / 39.1 / 32.1
    - Commercial terms: 177.0 / 177.0 / 0.0 / 0.0
  - Use of debt financing: 221.9 / 209.0 / 49.1 / 36.7
    - Infrastructure: 14.5 / 9.9 / 0.0 / 0.0
    - Budget financing: 30.4 / 22.0 / 25.4 / 17.7
    - Debt restructuring: 177.0 / 177.0 / 23.7 / 19.0
  - Memo items — Indicative projections: Year 2017: 20.0 / 16.0

### STRUCTURAL REFORMS — PROGRESS AND IMPLEMENTATION
- Publication and governance
  - July 2015: Authorities began publishing detailed CBI program statistics (quarterly structural benchmark); first country in the region to do so.
  - August 2015: Finalized regulations for governance framework for the National Transformation Fund (NTF).
  - September 2015: Finalized new framework for public finance management (PFM) by putting in place regulations for the 2015 PFM Act.
  - Aim to ensure transparent and prudent management of CBI revenues, manage fiscal risks, and maximize impact on potential growth.
- Fiscal framework and legislation status
  - Comprehensive legislative reform includes PFM, public debt management, tax administration and incentives, and new fiscal rules.
  - Not fully operational elements: 2015 FR Act, 2015 PDM Act, 2015 NTF Regulations, and tax incentive reform.
  - Recommendation: these components should be immediately brought into force and supporting regulations finalized.
- Tax incentive reform
  - Major reforms approved by Parliament but not effective pending completion of full package (MEFP¶13).
  - Pending items include amendments to the property tax act and the list of conditional duty exemptions (requires CARICOM coordination).
  - Authorities committed to bringing the rest of the tax incentive regime into full force by end-December 2015 (proposed new structural benchmark).
- Public Financial Management (PFM)
  - 2015 PEFA assessment acknowledges strengthened PFM practices contributing to improved fiscal outcomes (Annex IV).
  - New chart of accounts to be implemented for the 2016 Budget (end-December 2015 structural benchmark).
  - Once operational, strengthened framework should support medium-term, results-oriented budgeting and multi-year fiscal targets.
- Tax administration
  - New Tax Administration Act expected to be finalized in line with end-November 2015 structural benchmark.
  - Restructuring of the Inland Revenue Department (IRD) to establish LMTS and STS units is progressing; operationalization is a proposed new structural benchmark for end-December 2015.
  - Installation of a peripatetic revenue administration advisor planned.
- SOEs and statutory bodies
  - Strategic plan implementation continued; oversight centralized within Ministry of Finance.
  - SOEs and SBs commenced reporting under a new performance monitoring framework; dividend policy for commercial SOEs being finalized.
  - Restructuring of individual institutions commencing, focusing on two largest SOEs with likely World Bank financial support.
  - Revamping tariff-setting regimes of some large commercial SOEs seen as critical.

### LABOR, ENERGY, AGRICULTURE, AND FINANCIAL SECTOR REFORMS
- Labor market reforms and competitiveness
  - Reduction in labor costs and labor code revisions to improve labor mobility and reduce hiring impediments (MEFP ¶19).
  - Parliamentary approval of new labor code proposed as new structural benchmark for end-August 2016.
  - Authorities committed to annual labor force surveys and strengthening statistical capacity.
- Energy sector regulatory reform
  - New Electricity Supply Act expected to be approved by parliament in early 2016 to open the energy sector to competition, encourage renewable energy, and introduce an independent national regulator (MEFP ¶20).
- Agriculture modernization
  - Policies aim to diversify into nontraditional crops, improve productivity, and strengthen linkages with tourism.
  - MNIB role expanded; two government-owned agricultural estates commercialized, three additional estates to be commercialized by 2016 (MEFP ¶21).
- Financial sector reforms
  - New Banking Act legislated across most of the ECCU; regional bank diagnostics completed (AQR, viability assessments).
  - Institution-by-institution plans not yet elaborated; ECCB and national authorities consulting on capital needs with a detailed strategy expected in autumn.
  - Priority on private sector solutions for bank weaknesses; public resources only consistent with sustainable fiscal framework and IMF program commitments if needed.
  - Nonbank reforms: credit union capital adequacy reforms (raise minimum institutional capital to 7 percent and total capital ratio to 12 percent from 10 percent currently); insurance sector transition to ECFSRC expected early 2017; pensions on-site supervision expected in 2016.

### PROGRAM DESIGN, FINANCING, AND FISCAL FRAMEWORK
- New quantitative performance criteria proposed for end-December 2016, consistent with achieving a 3.5 percent of GDP primary surplus by end of program period and with FR Act rules.
- Technical modifications to performance criteria proposed (align debt advisory cost adjustor; include reimbursement of CLICO and BAICO policyholders across fiscal criteria).
- New structural benchmarks proposed to support fiscal sustainability and growth objectives.
- Financing assurances in place for third review: completion of debt restructuring with Taiwan Province of China’s Eximbank and private creditors and improved macro outlook narrowed financing needs; remaining financing gaps expected to close over the ECF-program period with exceptional financing.
- Grenada’s capacity to repay the Fund described as remaining adequate; disbursement profile unchanged.

### RISKS TO THE OUTLOOK
- Upside risks
  - Larger demand response to the oil price decline.
  - Potential inflows from the CBI program.
  - Confidence boost following debt restructuring and program progress.
- Downside risks
  - Natural disasters.
  - Modest global recovery.
  - Continued appreciation of the U.S. dollar.
  - Changes in U.S. monetary policy.
  - Potential impact from an opening of U.S.-Cuba tourism.
- Implementation risks
  - Public sector wage pressures, capacity constraints, banking system weakness, and natural disasters.

### STAFF APPRAISAL — PRIORITIES
- Growth surged in 2014 and remained robust in 2015 due to expanding agriculture and tourism demand.
- Debt levels improved with progress on public debt restructuring.
- Fiscal consolidation proceeded faster than programmed; primary surplus in July surpassed end-year target.
- Follow-through on 2016 budget targets necessary to keep fiscal consolidation on track and restore fiscal sustainability; government proposal for 2016 budget consistent with program commitments and FR Act.
- Fiscal policy framework overhaul near complete legislatively; critical to finalize regulations and implement: tax incentive regime, chart of accounts, Tax Administration Act, and LMTS/STS units.
- Public sector reform remains outstanding and critical to secure long-term fiscal prudence and meet FR Act requirements.
- Banking system: priority to address weaknesses identified in regional diagnostics; any use of public resources for bank capital shortfalls must be within a sustainable fiscal framework and meet IMF program commitments and debt targets.

### ANNEX HIGHLIGHTS — DSA, CBI, PFM
- Debt Sustainability Analysis (Annex I)
  - Key finding: "Debt is in distress but prospects are improving."
  - DSA incorporates agreed debt restructurings into baseline; does not assume restructuring on Paris Club or other bilateral/domestic debt under negotiations.
  - Compared to previous DSA, outlook improved due to higher than anticipated growth in 2014 and 2015.
- Citizenship-By-Investment (Annex II)
  - Launched in 2014; government revenue from CBI about 0.4 percent of GDP during first half of 2015.
  - NTF regulations finalized August 2015 with governance provisions:
    - First "40 percent" of total NTF resources must be saved for arrears repayment, debt reduction and contingency financing.
    - First "EC$24 million" of NTF revenues in 2015 to be devoted to arrears clearance.
  - Fiscal safeguards: FR Act includes cap on total sum of CBI receipts to be used for meeting primary balance targets at "1.5 percent of GDP" (effective from 2018); over program period, CBI revenues cannot be used to meet fiscal targets.
  - Authorities engaged international groups to strengthen due diligence and AML/CFT measures.
- Public Financial Management (Annex III)
  - 2015 PFM Act, 2015 PDM Act, and 2015 FR Act introduce significant institutional and legal reforms (elimination of special warrants; Minister of Finance sole authority to contract loans with Parliament approval; FR Act sets debt limit at 55 percent of GDP).
  - Recommendations: implement full life-cycle costing for capital projects; strengthen non-financial asset monitoring; improve timeliness of financial statements (latest financial statements for year ending December 31, 2012); prepare financial statements in accordance with IPSAS.

### KEY TABLED DATA (SELECTED)
- Balance of Payments Summary (Current account, US$mln)
  - 2012: -168.5; 2013: -195.5; 2014: -141.8; 2015: -131.4; 2016: -131.0; 2017: -161.0; 2018: -170.3; 2019: -177.6; 2020: -185.1
- Gross external debt (percent of GDP)
  - 2012: 141.0; 2013: 143.9; 2014: 144.0; 2015: 136.1; 2016: 132.8; 2017: 122.6; 2018: 117.4; 2019: 112.3; 2020: 107.3
- External public and publicly guaranteed debt (percent of GDP)
  - 2012: 67.6; 2013: 70.0; 2014: 66.9; 2015: 60.8; 2016: 59.4; 2017: 51.1; 2018: 47.1; 2019: 43.1; 2020: 39.2
- Nominal GDP (US$ mln)
  - 2012: 800; 2013: 842; 2014: 912; 2015: 957; 2016: 1,005; 2017: 1,055; 2018: 1,108; 2019: 1,164; 2020: 1,223
- Banking system (Net foreign assets, EC$ mln)
  - 2013: 352.4; 2014: 582.2; 2015: 772.9; 2016: 888.9
- Financial sector indicators (selected, latest)
  - Regulatory capital to risk-weighted assets: 13.2 (2015, Jun-15)
  - Nonperforming loans to total gross loans: 13.0 (2015, Jun-15)
  - Return on assets: 1.3 (Jun-15)
  - Liquid assets to total assets: 36.7 (Jun-15)
- Extended Credit Facility disbursement schedule (SDR)
  - Total: SDR 14.041 (Percent of quota 120); installments include SDR 2.040 (June 26, 2014), SDR 2.000 (Sep 30, 2014), SDR 2.000 (Mar 31, 2015), SDR 2.000 (Sep 30, 2015), SDR 2.000 (Mar 31, 2016), SDR 2.000 (Sep 30, 2016), SDR 2.000 (Mar 31, 2017).

*IMF staff report — excerpts from _cr15333 (third review, November 10, 2015).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Extended Credit Facility Arrangement
- Arrangement approved on June 26, 2014; second review completed on June 29, 2015.
- Disbursements equivalent to SDR 6.04 million (about US$9 million) have been made to Grenada so far under the arrangement.
- The equivalent of SDR 2 million (about US$3 million) will be made available upon Executive Board completion of the third review.

### Debt Restructuring
- A debt exchange with Grenada’s largest private creditor group is scheduled to conclude on November 12, 2015.
- The deal includes a 50 percent principal haircut of Grenada’s external commercial bonds.
  - Half of the principal reduction is to be provided upon completion of the exchange; the remainder will be provided following completion of the sixth review of the ECF-supported program.
- Once fully executed, the agreement will reduce Grenada’s public debt by 11 percent of projected 2017 GDP.
- Authorities scheduled to meet with the Paris Club in November 2015 and expect to finalize negotiations with remaining creditors in 2016.

### Program Performance (third review)
- Overall program implementation remains strong.
  - All quantitative performance criteria for the third review were met.
  - All structural benchmarks for the third review were implemented.
- Authorities advanced reforms to:
  - Ensure transparent and sustainable management of the Citizenship-By-Investment (CBI) revenues.
  - Strengthen the fiscal policy framework.
  - Improve public finance management.

### Third Review discussions and adjustments
- Focus: measures to meet the 2016 fiscal targets and pro-growth structural reforms.
- Proposed minor modifications to performance criteria:
  - Update the fiscal adjustor to reflect debt advisory costs related to the restructuring.
  - Make the adjustors for the fiscal performance criteria consistent.
- Proposed structural benchmarks aim to enhance fiscal sustainability and strengthen growth objectives under the program.

### Recent developments and outlook
- Recovery and growth
  - Activity expanded by 5.7 percent (market prices) in 2014, significantly higher than the 3 percent anticipated.
  - Agriculture grew by 54 percent in 2014, contributing 1.9 percentage points to growth.
  - Unemployment: 29 percent (2014 labor force survey); youth unemployment about 45 percent.
  - Growth projections: 3.4 and 2.4 percent in 2015 and 2016, respectively.
  - Medium-term growth forecast: 2–2 ½ percent (consistent with potential).
  - The output gap is expected to close in 2015.
- Inflation and prices
  - Consumer prices continued to decline in the first seven months of 2015, falling by 1.4 percent (y/y) in July.
  - Consumer prices are projected to decline by 0.8 percent on an annual average basis for 2015.
  - Inflation expected to average 2.0 percent in 2016 and stabilize at that level thereafter.
- External position
  - Current account deficit fell to 15.5 percent of GDP in 2014 from 23 percent of GDP in 2013.
  - Current account deficit projected to decline to 14 percent of GDP in 2015.
  - Over the medium term, current account deficit forecast to deteriorate to 15 percent of GDP (partly due to higher imports related to increased investments financed through the CBI program).
  - Net international reserves remained stable at around 5 months of projected 2016 imports of goods and services (as of July 2015).
  - Real effective exchange rate (REER) appreciated by about 2 percent since its mid-2014 trough (as of August 2015).
- Financial sector
  - Commercial bank profitability turned positive in the first two quarters of 2015 but remains weak.
  - Nonperforming loans (NPLs) stood at 13 percent of total loans for all banks in the second quarter of 2015.
  - Reported capital adequacy remains above the regulatory 8 percent minimum.
  - Credit unions’ capital position around 12 percent of assets in the first quarter (regulatory minimum 10 percent).
  - Private credit contracted by 3.1 percent (y-o-y) in July 2015.
  - Banks have increased net foreign assets and deposits at the ECCB, pushing excess reserves to historic highs.

### Public debt and restructuring importance
- Public debt status and projections
  - Public debt peaked at about 107 percent of GDP in 2013.
  - Debt as a percent of GDP expected to decline to 90 percent at end-2015, assuming completion of the commercial bond exchange.
  - Staff projections (based on cautious assumptions) indicate public debt could fall to 57 percent of GDP by 2020 with restructuring of commercial bonds, continued fiscal consolidation, and prudent medium-term fiscal policy.
  - ECCU common target: 60 percent of GDP.
- Restructuring specifics and related provisions
  - 2025 international bonds: creditor committee representing about 76 percent of the bonds announced on October 7 that all of its members would participate in the restructuring (above the 75 percent rate needed to trigger the collective action clause).
  - The bond deal implies an NPV reduction of 52.5 percent, assuming a 12 percent exit yield (the discount rate used for NPV calculations).
  - The agreement includes sharing of potential receipts from the CBI program after the full principal haircut is granted and a clause allowing delay in debt service following a qualifying natural disaster.
  - Other initiatives:
    - Government contacting non-participating creditors from the 2005 debt exchange to restructure outstanding claims of US$5.6 million.
    - Agreed MNIB restructuring expected to reduce government-guaranteed debt by 0.4 percent of GDP by end-2015.
- Clearance of arrears to official creditors and completion of restructuring remain essential to restore debt sustainability (Annex I).

### Risks to the outlook
- Upside risks:
  - Larger demand response to the oil price decline.
  - Potential inflows from the CBI program.
  - Confidence boost following debt restructuring and progress under the authorities’ program.
- Downside risks:
  - Natural disasters.
  - Modest global recovery.
  - Continued appreciation of the U.S. dollar.
  - Changes in U.S. monetary policy.
  - Potential impact from an opening of U.S.-Cuba tourism.

### Program performance remains on track — Fiscal outcomes and monitoring (end-June 2015)
- General outcomes
  - Program performance remains strong with all quantitative performance criteria met and structural benchmarks implemented for the third review.
  - Cumulative fiscal adjustment to date: 5¾ percent of GDP, completing more than two-thirds of the total programmed consolidation.
- Key fiscal figures (year-to-July 2015)
  - First primary surplus in a decade achieved in the first seven months of 2015.
  - Year-to-July primary surplus: 1.4 percent of GDP (net of CBI-related revenues so far estimated at 0.4 percent of GDP).
  - This exceeded the end-year target of 1.3 percent of GDP.
  - Strong tax performance across all categories and continued expenditure restraint.
  - Capital spending aligned with reduced budget allocations agreed during the second review.
- Program monitoring: Quantitative Performance Criteria under the ECF (End-June 2015, in millions of EC dollars)
  - A. Cumulative floor on central government primary balance (EC$ mln): Program 926 / Program Adjusted 347 / Actual 926 / Difference Met
  - B. Cumulative ceiling on central government primary spending (EC$ mln): Program 281 / Program Adjusted 301 / Actual 284 / Difference -17 Met
  - C. Ceiling on stock of central government domestic arrears (EC$ mln): Program 43 / Program Adjusted 43 / Actual 34 / Difference -10 Met
  - D. Ceiling on accumulation of external debt arrears (continuous): Program 0 / Program Adjusted 0 / Actual 0 / Difference 0 Met
  - E. Ceiling on non-concessional external borrowing by the central government (continuous): Program 0 / Program Adjusted 0 / Actual 0 / Difference 0 Met
  - F. Cumulative ceiling on net change in central government and central government guaranteed debt (EC$ mln): Program 39 / Program Adjusted 38 / Actual -30 / Difference -69 Met
  - G. Floor on social spending by central government (EC$ mln): Program 6.7 / Program Adjusted 6.7 / Actual 5.4 / Difference -1.3 Not Met
  - H. Wage bill target (excluding retroactive payments) (EC$ mln): Program 110 / Program Adjusted 110 / Actual 109 / Difference -1 Met
  - I. Public employment (excluding workers under the IMANI program): Program 7534 / Program Adjusted 7534 / Actual 7096 / Difference -438 Met

*Source: IMF staff report — EXECUTIVE SUMMARY (third review), November 10, 2015.*

### 11.      The indicative floor on social spending for end-June was missed.  Over the review

### 11.      The indicative floor on social spending for end-June was missed.  Over the review

### Social spending and SEED program
- The indicative floor on social spending for end-June was missed.
- Cause of under-spending:
  - Delay in implementation of the new beneficiary information system limited processing of new applicants into the beneficiary pool.
  - Resulted in under spending by about 0.05 percent of GDP relative to the programmed indicative floor for end-June 2015.
- Mitigating actions and developments:
  - Authorities continued to work with the World Bank to improve targeting of the Support for Education, Empowerment and Development (SEED) program.
  - The new beneficiary information system has since been implemented and authorities are increasing the rate of processing of a large list of new applicants (MEFP ¶22).
  - Interim offset: authorities continued to offset the impact of under-spending on SEED with increased spending on other social programs.
- Outlook:
  - As reforms were only recently completed, the end-December 2015 floor may also be missed.

### Arrears, debt-related performance criteria, and external borrowing
- Budget expenditure arrears (excluding arrears on debt under restructuring):
  - At end-June 2015: EC$33.6 million, significantly below the program ceiling of EC$43 million.
  - Half of the reduction was due to an on-lending agreement between the Government of Grenada and the Grenada Solid Waste Management Authority (GSWMA) (MEFP¶9).
  - Government remains on track to fully repay budget expenditure arrears by end-December 2015.
- External arrears:
  - Apart from debt under restructuring negotiations, no new arrears were accumulated on external debt.
  - External arrears on the 2025 international bonds will be cleared as part of the debt restructuring agreement.
  - Authorities will meet with the Paris Club in mid November 2015 and seek to regularize Paris Club arrears.
  - Authorities are requesting a comprehensive restructuring of their claims with all non-Paris Club official bilateral creditors on comparable terms.
- Membership arrears to regional and international organizations:
  - Authorities started paying membership arrears; arrears declined slightly in the year to June.
  - A strategy to clear arrears to these regional bodies was finalized (MEFP¶9); repayment plans sought with organizations with largest arrears balances.
- Outstanding arrears (2014 Dec. / 2015 Jun. shown in table form):
  - Total Arrears: 288.1 / 280.7 / 10.9% of GDP
  - External Arrears: 174.6 / 192.7 / 7.5% of GDP
  - Multilateral: 0.0 / 0.0 / 0.0% of GDP
  - Official bilateral: 40.0 / 42.7 / 1.7% of GDP
  - Paris Club: 11.6 / 13.5 / 0.5% of GDP
  - Non-Paris Club: 28.5 / 29.2 / 1.1% of GDP
  - Commercial creditors: 70.0 / 85.7 / 3.3% of GDP
  - Unpaid contributions: 64.6 / 64.3 / 2.5% of GDP
  - Budget expenditure arrears: 113.5 / 88.1 / 3.4% of GDP
  - Debt arrears: 47.6 / 54.5 / 2.1% of GDP
  - Supplier arrears: 65.9 / 33.6 / 1.3% of GDP
- New external borrowing in 2015:
  - Majority from newly-issued bonds from the restructured debt with private creditors.
  - Remaining external borrowings include:
    - Concessional on-lending project loan from CDB on behalf of GSWMA.
    - Exceptional financing from the World Bank, IMF and CDB (excluded from the associated performance criterion on zero ceiling of non-concessional borrowing (TMU¶10)).
  - The performance criterion for end-June was met; the end-December target is also expected to be met.
- Summary Table on External Borrowing Program in 2015-16 (US million; present value uses 5 percent discount rate)
  - Sources of debt financing: 221.9 (2015 contracting/guaranteeing) / 209.0 (present value) / 49.1 / 36.7
  - Concessional debt, of which: 20.7 / 11.5 / 10.0 / 4.6
    - Multilateral debt: 20.7 / 11.5 / 10.0 / 4.6
    - Bilateral debt: 0.0 / 0.0 / 0.0 / 0.0
  - Non-concessional debt (NCD), of which: 201.2 / 197.5 / 39.1 / 32.1
    - Semi-concessional debt: 24.2 / 20.5 / 39.1 / 32.1
    - Commercial terms: 177.0 / 177.0 / 0.0 / 0.0
  - Use of debt financing: 221.9 / 209.0 / 49.1 / 36.7
    - Infrastructure: 14.5 / 9.9 / 0.0 / 0.0
    - Budget financing: 30.4 / 22.0 / 25.4 / 17.7
    - Debt restructuring: 177.0 / 177.0 / 23.7 / 19.0
  - Memo items — Indicative projections: Year 2017: 20.0 / 16.0

### Structural reforms — progress and implementation
- Publication and governance:
  - July 2015: Authorities began publishing detailed CBI program statistics, meeting the quarterly structural benchmark; first country in the region to do so.
  - August 2015: Finalized regulations for governance framework for the National Transformation Fund (NTF), implementing end-February 2015 structural benchmark.
  - September 2015: Finalized new framework for public finance management (PFM) by putting in place regulations for the 2015 PFM Act, implementing end-June 2015 structural benchmark.
  - Aim: ensure transparent and prudent management of CBI revenues, manage fiscal risks from sudden stops or overheating, and maximize impact on potential growth (Annex II).
- Fiscal framework and legislation status:
  - Comprehensive legislative reform includes public finance management, public debt management, tax administration and incentives, and new fiscal rules.
  - Not fully operational elements: 2015 Fiscal Responsibility (FR) Act, 2015 Public Debt Management (PDM) Act, 2015 National Transformation Fund Regulations, and tax incentive reform.
  - Recommendation: these critical components should be immediately brought into force and, where required, supporting regulations finalized and brought into force.
- Tax incentive reform:
  - Major reforms approved by Parliament but not effective pending completion of full package (MEFP¶13).
  - Pending items include amendments to the property tax act and the list of conditional duty exemptions (requires CARICOM coordination).
  - Authorities committed to bringing the rest of the tax incentive regime into full force by end-December 2015 (proposed new structural benchmark).
- Public Financial Management (PFM):
  - 2015 PEFA assessment acknowledges strengthened PFM practices contributing to improved fiscal outcomes and targets (Annex IV).
  - PEFA highlights improvements in budget preparation and oversight of SOEs and SBs.
  - New chart of accounts to be implemented for the 2016 Budget to support classification of recurrent and capital spending (end-December 2015 structural benchmark).
  - Once fully operational, the strengthened legislative framework should support a medium-term, results-oriented budget process and multi-year fiscal targets.
- Tax administration:
  - New Tax Administration Act expected to be finalized in line with end-November 2015 structural benchmark.
  - Act will complement the enacted Customs Act.
  - Regulations for the Customs Act are being finalized in consultation with CARICOM.
  - Restructuring of the Inland Revenue Department (IRD) to establish LMTS and STS units is progressing; making these units operational is a proposed new structural benchmark for end-December 2015.
  - Installation of a peripatetic revenue administration advisor planned to support tax administration.
- State-owned enterprises (SOEs) and statutory bodies (SBs):
  - Strategic plan implementation continued; expected to improve performance and reduce fiscal risks (MEFP¶12).
  - A committee established to oversee implementation; oversight centralized within the Ministry of Finance.
  - SOEs and SBs commenced reporting under a new performance monitoring framework; guidance note issued on salary negotiations to ensure sustainable wage bill practices.
  - A dividend policy for commercial SOEs is being finalized.
  - Restructuring of individual institutions commencing, focusing on two largest SOEs with likely World Bank financial support.
  - Revamping tariff-setting regimes of some large commercial SOEs seen as critical to strengthen financial positions and reduce fiscal risks.
- Public sector modernization and wage bill control:
  - Public sector modernization is a key pillar (MEFP ¶16).
  - Progress on strategic review and strategy development (end-March 2016 structural benchmark) has been slow.
  - Authorities working on corporate planning, review of employment arrangements, and attrition policy; intend to enact a new Public Service Bill by mid-2016 and aim to finalize strategic plan in line with March structural benchmark, though mid or end-2016 may be more realistic.
  - Objective: contain public sector wage expenditure to nine percent of GDP, in line with FR Act requirement.
  - Savings to date achieved via nominal wage freeze and attrition policy (no more than three of every ten departing employees replaced).
  - Recent pressures: public sector labor unions indicate no agreement was ever reached on payment of increments (change in career grade) over 2014-2016 and are seeking payment; any solution must be absorbed within program parameters for the wage bill and debt targets and FR Act.
- Structural reforms to support competitiveness and growth:
  - Growth strategy focused on removing impediments to private sector investment; a new National Development Plan (2015-2030) launched, expected finalized by end-June 2016.
  - Poverty Reduction and Growth Strategy (GPRS) 2014-18 will feed into NDP and 2016 Budget consultations (MEFP ¶17).
  - Measures to improve ease of doing business:
    - Introduce new insolvency legislation: bill drafted; expected to be approved by parliament by end-2015 (MEFP ¶18).
    - Reform Grenada Industrial Development Corporation (GIDC): plan to revise GIDC act and have Parliament approve revised act by end-June 2016 (proposed new structural benchmark); aims to reduce time and cost of investment approvals and promote productive investment (MEFP ¶18).
    - Create a credit bureau: authorities committed regionally to creation of a regional credit bureau for the ECCU; legislation to be presented to Grenada’s parliament once approved by the ECCB monetary council (MEFP ¶18).

*Source: IMF staff report text provided in content unit*

### 27.      The authorities have initiated steps to reform labor regulations and strengthen

### 27.      The authorities have initiated steps to reform labor regulations and strengthen

### Labor market reforms and competitiveness
- Reduction in labor costs―related to both wages and labor regulations―is identified as a key instrument to strengthen competitiveness for a small open economy with a fixed exchange rate in a monetary union.
- With elevated structural unemployment, labor market reforms are intended to complement public sector modernization and promote employment growth.
- Authorities are finalizing planned revisions to the labor code to improve labor mobility and reduce impediments to hiring that go beyond the accepted norms of protecting workers’ rights (MEFP ¶19).
- Parliamentary approval of the new labor code is proposed to be a new structural benchmark for end-August 2016.
- Authorities are committed to continuing annual labor force surveys and strengthening the capacity of the statistical office to analyze labor market data to improve skills matching and job search.

### Energy sector regulatory reform
- Reforming the regulatory environment for the energy sector is framed as vital to lowering energy costs.
- A new Electricity Supply Act is expected to be approved by parliament in early 2016.
- The new legislation aims to:
  - open the energy sector to competition,
  - encourage development of renewable energy,
  - introduce an independent national regulator to set electricity tariffs (MEFP ¶20).

### Agriculture modernization
- Policies aim to diversify into nontraditional crops, improve productivity, and strengthen linkages between the agricultural and tourism sectors.
- MNIB’s role expanded beyond purchase/export and sale of inputs to act as a service provider of information on market prices, production planning, product quality, and export standards to strengthen sales to the tourism sector.
- Authorities have commercialized two government-owned agricultural estates, with three additional estates to be commercialized by 2016; these efforts have helped to expand agricultural production and strengthen diversification (MEFP ¶21).

### Financial sector reforms
- Objective: build a stronger banking system to contribute to investment and growth.
- The new Banking Act is legislated across most of the ECCU and approved by Grenada’s parliament, establishing a strengthened regional framework for bank resolution and supervision.
- Regional bank diagnostics completed, including:
  - an asset quality review (AQR) of indigenous banks,
  - viability assessments of individual banks,
  - a regional assessment of potential mergers and/or groups of assets and liabilities attractive to investors.
- Institution-by-institution plans have not been elaborated; ECCB and national authorities are consulting on final estimated capital needs with a detailed strategy expected this autumn.
- Authorities prioritize private sector solutions for addressing bank weaknesses; if private solutions are not forthcoming, authorities committed to working with the ECCB to develop an approach consistent with a sustainable fiscal framework and IMF program commitments, including the program’s goal of debt sustainability (MEFP¶23).
- Nonbank financial sector reforms:
  - CARTAC’s independent evaluation of GARFIN (early 2015) guides reform priorities (MEFP¶24).
  - Credit union sector priorities: conduct a credit quality review (with CARTAC), revise the Cooperative Societies Act in 2016 to raise minimum capital adequacy requirement, and, with the Caribbean Association of Credit Union Supervisors, develop a risk-weighted capital adequacy framework for credit unions (MEFP¶26).
    - Intent: raise the minimum level of institutional capital required to 7 percent and the total capital ratio to 12 percent (from 10 percent currently).
  - Insurance sector priority: transition supervision to the Eastern Caribbean Financial Services Regulatory Commission (ECFSRC), expected to commence operations in early 2017 (MEFP¶25).
  - Pension plans: most are registered with GARFIN; offsite supervision has started and onsite supervision is expected in 2016 (MEFP¶27).

### Program design, financing, and fiscal framework
- New quantitative performance criteria are proposed for end-December 2016 (MEFP Table 1), consistent with achieving a 3.5 percent of GDP primary surplus by the end of the program period and with the new rules embedded in the FR Act.
- Proposed technical modifications to performance criteria:
  - align the existing adjustor for debt advisory costs (floor on primary balance and ceiling on primary spending) with updated cost estimates;
  - include the existing adjustor on the indicative ceiling on the net change in central government and government guaranteed debt for the reimbursement of CLICO and BAICO policyholders on the floor for the primary balance and ceiling on primary spending to ensure consistency across fiscal performance criteria.
- New structural benchmarks are proposed to support fiscal sustainability and strengthen growth objectives (MEFP Table 2).
- Financing assurances for the third review are in place:
  - Completion of debt restructuring with Taiwan Province of China’s Eximbank and private creditors, together with an improved macroeconomic outlook, have significantly narrowed financing needs in the baseline.
  - Remaining financing gaps are expected to close over the ECF-program period with exceptional financing (Table 3).
- Grenada’s capacity to repay the Fund is described as remaining adequate; debt service to the Fund has declined as a percent of GDP and percent of exports of goods and services in line with an upward revision to the growth outlook and improved external position. The disbursement profile remains unchanged.

### Risks and implementation
- Two-thirds of the total programmed fiscal consolidation has been accomplished; completion of the remainder will be supported by the strengthened fiscal policy framework.
- Identified risks to program implementation include:
  - public sector wage pressures,
  - capacity constraints,
  - banking system weakness,
  - natural disasters.

### Staff appraisal—recent performance and priorities
- Growth surged in 2014 and remained robust in 2015 due to expanding agriculture output and solid external demand for tourism.
- Debt levels improved notably with progress on public debt restructuring.
- Unemployment remains high; public demand for greater employment opportunities and higher incomes persists.
- Fiscal consolidation has proceeded faster than programmed; the primary surplus in July already surpassed the end-year target.
  - Revenue performance was driven by new measures and stronger-than-expected growth, while expenditure was kept within the programmed envelope.
- The recent debt exchange with private creditors is expected to reduce the debt-to-GDP ratio to an estimated 90 percent at end 2015, down from 107 percent in 2013.
- Follow-through on 2016 budget targets is necessary to keep fiscal consolidation on track and restore fiscal sustainability; the government has elaborated a proposal for the 2016 budget consistent with program commitments and the FR Act, with bulk of adjustment measures in place and remaining measures identified.
- Fiscal policy framework overhaul is near complete legislatively, but accompanying regulations and implementation remain critical:
  - Priorities include putting the new tax incentive regime into force, implementing the new chart of accounts, finalizing the Tax Administration Act, and putting the large, medium and small taxpayer services units into force.
- Public sector reform remains outstanding and is critical to secure long-term fiscal prudence, reduce the wage bill sustainably, and meet FR Act requirements; progress has been slow.
- Banking system: with the new Banking Act in place across most of the ECCU, priority is addressing weaknesses identified in regional bank diagnostics; any use of public resources to meet bank capital shortfalls must be within a sustainable fiscal framework and meet IMF program commitments and debt targets.

*IMF staff report content from _cr15333.*

### 43.      Risks to the program are balanced but should be monitored closely. The

### _cr15333 - 43.      Risks to the program are balanced but should be monitored closely.

### Program assessment and near-term risks
- Risks to the program are described as "balanced but should be monitored closely."
- Rationale for balanced risks:
  - The government's track record and significant accomplishments in fiscal and structural reforms.
  - A pick-up in growth that points to continued success meeting program objectives.
  - The completion of debt restructuring is noted as an important milestone allowing focus on growth and competitiveness reforms to boost employment.
- Staff actions supported:
  - Completion of the third review under the ECF-arrangement.
  - Modification of quantitative performance criteria.
  - Completion of the financing assurances review.

### Recent economic developments
- Output gap and growth:
  - The economic recovery has proceeded faster than anticipated, with the output gap expected to close in 2015.
- Sectoral contributions to growth:
  - The contribution of domestic factors to growth has increased, largely due to strong growth in the agricultural sector.
  - Tourism arrivals continue to display strong momentum as the recovery in Grenada’s key tourism markets has continued.
- Inflation and energy:
  - Headline inflation is driven by the decline in global energy prices.
  - Despite the recent petrol tax increases, retail petroleum product prices are forecast to remain below their 2013-14 levels.
- Exact phrasing from charts/text retained where applicable:
  - "Grenada: Actual and Potential Real GDP" (levels in millions of 2006 EC$ (LHS); growth in percent (RHS))
  - "Grenada: Economic Growth (contribution to growth, percentage points)"
  - "Grenada: Retail Petroleum Product Prices (Monthly, US$ per gallon, assumes 100% passthrough)"
  - "Crude oil price (US$/barrel, rhs) 1/"

### External sector and external developments
- Real effective exchange rate:
  - The real effective exchange rate has appreciated by about 2¼ percent since mid-2014 trough.
- Current account and financing:
  - The external current account deficit improved considerably in 2014, though the level is relatively high compared to other small-tourism dependent countries.
  - Improvement attributed to increased tourism service exports and compressed imports in line with weak domestic demand.
  - In 2014, the current account deficit was largely financed by FDI, capital transfers, and debt including exceptional financing from IFIs.
  - As a result, Grenada’s external debt increased slightly in 2014 despite some debt forgiveness from the restructuring of Eximbank’s claims on Grenada.
- Reserves:
  - As of July 2015, imputed reserves maintained around 5 months of prospective imports.
- Chart/series titles retained:
  - "RealEffective Exchange Rate (Based on CPI, index, 2010=100)"
  - "Current Account Balances of Small Tourism-Dependent Countries (in percent of GDP)"
  - "Grenada: Net Foreign Assets (in percent of GDP)"
  - "Imputed Reserves (months of imports; CA balance, imputed reserves -US$m)"

### Monetary and banking sector developments
- Banking sector liquidity and credit:
  - Banks’ net domestic assets have continued to decline, driven by a contraction in credit to the private sector.
  - The contraction in credit has occurred despite a moderate expansion in broad money, as banks have expanded their net foreign assets.
  - Banks’ excess reserves at the central bank have reached historical highs.
  - Interest rates have remained stable despite high liquidity in the banking system.
- Chart/series titles retained:
  - "Commercial Banks' Net Domestic Assets (contribution to growth, y-o-y)"
  - "Private Sector Credit Growth (year-over-year)"
  - "Components of Broad Money Growth (M2) (contribution to growth, y-o-y)"
  - "Commerical Banks Net Foreign Assets (in millions of EC$)"
  - "Deposits and Bank Excess Reserves (Deposit: indices, 100=sample average for each deposit type; Excess Reserves: percent of total deposits)"
  - Interest rate series shown: "Policy Rate (ECCB)"; "Lending Rate (Grenada)"; "U.S. Bank Prime Rate"; "Deposit Rate (Grenada)"; "Interbank Rate (ECCB)"

### Fiscal developments and consolidation
- Revenue and expenditure outcomes:
  - Stronger than programmed revenue performance continued, with the majority saved.
  - Public employment and personnel expenditure have been cut back through the government’s attrition policy.
  - Fiscal consolidation in the second year of the program is expected to outperform the budget again and to contribute to the projected decline in the current account deficit.
  - With fiscal adjustment proceeding faster than programmed, the remaining fiscal adjustment to be implemented is smaller than expected.
- Debt restructuring:
  - The completion of the debt restructuring with its largest private creditor group will help put Grenada’s public debt on a firmly downward path.
- Fiscal charts/labels retained:
  - "Grenada: Program Projection vs. Actual Outturn (Cumulative from Jan 2014, outturn minus program, EC$m)"
  - "Grenada: Public Employment and Wage Bill (Quarterly)"
  - "Grenada: Budget Execution (EC$m)"
  - "Grenada: Fiscal Adjustment (Over program period, in percent of GDP)"
  - "Grenada: Public Sector Debt (in percent of GDP)" — note: "Includes only agreed restructuring."

### Financial sector soundness indicators
- Asset quality and profitability:
  - Nonperforming loans are elevated across the banking system.
  - Provisioning for NPLs is low, particularly for indigenous banks.
  - Together with lower interest margins relative to gross income, bank profitability remains weak.
- Capital and liquidity:
  - Banks’ reported capital adequacy is above the regulatory minimum.
  - Banks’ liquidity continues to increase.
- Chart/series titles retained:
  - "Nonperforming Loans (in percent of total loans)"
  - "Provisions to Nonperforming Loans (provisions for loan losses to non-performing loans, in percent)"
  - "Interest Margin/Gross Income (in percent)"
  - "Return on Average Assets (Net Profit before Taxes/Average Assets, in percent)"
  - "Commercial Banks' Capital Adequacy (Total Capital/Risk Weighted Assets, in percent)"
  - "Commercial Banks' Liquidity (in percent)"

### Key quantitative highlights (selected)
- Program process and approvals:
  - Staff supports completion of the third review under the ECF-arrangement, modification of quantitative performance criteria, and completion of the financing assurances review.
- Exchange rate / reserves:
  - REER appreciation: "about 2¼ percent" since mid-2014 trough.
  - Imputed reserves: "around 5 months" of prospective imports as of July 2015.
- Fiscal headline from tables and projections (selected series titles referenced in source):
  - "Primary balance" and "Overall balance" trends are presented in the fiscal figures and tables; debt dynamics include contributions from "Debt reduction by primary surplus", "Debt reduction by automatic debt dynamics", and "Debt reduction by debt restructuring."
- Banking sector:
  - "Banks’ excess reserves at the central bank have reached historical highs."
  - "Nonperforming loans are elevated across the banking system" and "Provisioning to NPLs ... is low, particularly for indigenous banks."

*Source: IMF staff report content in _cr15333 - 43.      Risks to the program are balanced but should be monitored closely.*

### 1.  Multilateral221.124.626.2245.126.726.9245.627.225.7

### 1.  Multilateral221.124.626.2245.126.726.9245.627.225.7

### Arrears (Table 5: Grenada: Arrears, 2014-15Q2)
- Total arrears:
  - US$mln: 75.9 (2014 Interest), 30.8 (% of GDP), 106.7 (2014 Principal), 11.7 (% of GDP), 64.0 (2015 Q2 Interest), 40.0 (% of GDP), 104.0 (2015 Q2 Principal), 10.9 (% of GDP)
- External arrears:
  - US$mln: 42.9 (2014 Interest), 21.8 (% of GDP), 64.7 (2014 Principal), 7.1 (% of GDP), 42.9 (2015 Q2 Interest), 28.5 (% of GDP), 71.4 (2015 Q2 Principal), 7.5 (% of GDP)
- Bilateral arrears (subset):
  - Bilateral total: US$mln 13.3 (2014 Interest), 1.5 (% of GDP), 14.8 (2014 Principal), 1.6 (% of GDP), 13.5 (2015 Q2 Interest), 2.4 (% of GDP), 15.8 (2015 Q2 Principal), 1.7 (% of GDP)
  - Paris Club: US$mln 3.8 (2014 Interest), 0.4 (% of GDP), 4.3 (2014 Principal), 0.5 (% of GDP), 4.5 (2015 Q2 Interest), 0.5 (% of GDP), 5.0 (2015 Q2 Principal), 0.5 (% of GDP)
  - France: US$mln 1.7 (2014 Interest), 0.3 (% of GDP), 2.0 (2014 Principal), 0.2 (% of GDP), 2.1 (2015 Q2 Interest), 0.3 (% of GDP), 2.4 (2015 Q2 Principal), 0.3 (% of GDP)
  - Russia: US$mln 0.2 (2014 Interest), 0.0 (% of GDP), 0.2 (2014 Principal), 0.0 (% of GDP), 0.2 (2015 Q2 Interest), 0.0 (% of GDP), 0.2 (2015 Q2 Principal), 0.0 (% of GDP)
  - UK: US$mln 1.1 (2014 Interest), 0.1 (% of GDP), 1.2 (2014 Principal), 0.1 (% of GDP), 1.0 (2015 Q2 Interest), 0.1 (% of GDP), 1.0 (2015 Q2 Principal), 0.1 (% of GDP)
  - US: US$mln 0.8 (2014 Interest), 0.1 (% of GDP), 0.9 (2014 Principal), 0.1 (% of GDP), 1.3 (2015 Q2 Interest), 0.1 (% of GDP), 1.4 (2015 Q2 Principal), 0.1 (% of GDP)
- Commercial arrears:
  - US$mln: 5.6 (2014 Interest), 20.3 (% of GDP), 25.9 (2014 Principal), 2.8 (% of GDP), 5.6 (2015 Q2 Interest), 26.1 (% of GDP), 31.7 (2015 Q2 Principal), 3.3 (% of GDP)
- Unpaid contributions to organizations:
  - US$mln: 23.9 (2014 Interest), 0.0 (% of GDP), 23.9 (2014 Principal), 2.6 (% of GDP), 23.8 (2015 Q2 Interest), 0.0 (% of GDP), 23.8 (2015 Q2 Principal), 2.5 (% of GDP)
- Budget expenditure arrears:
  - US$mln: 33.1 (2014 Interest), 8.9 (% of GDP), 42.0 (2014 Principal), 4.6 (% of GDP), 21.1 (2015 Q2 Interest), 11.5 (% of GDP), 32.6 (2015 Q2 Principal), 3.4 (% of GDP)
- Domestic debt under restructuring:
  - US$mln: 8.7 (2014 Interest), 8.9 (% of GDP), 17.6 (2014 Principal), 1.9 (% of GDP), 8.7 (2015 Q2 Interest), 11.5 (% of GDP), 20.2 (2015 Q2 Principal), 2.1 (% of GDP)
- Supplier arrears:
  - US$mln: 24.4 (2014 Interest), 0.0 (% of GDP), 24.4 (2014 Principal), 2.7 (% of GDP), 12.4 (2015 Q2 Interest), 0.0 (% of GDP), 12.4 (2015 Q2 Principal), 1.3 (% of GDP)
- Sources: Grenadian authorities and staff estimates.

### Balance of Payments Summary (Table 6: 2012-2020)
- Current account (US$mln):
  - 2012: -168.5
  - 2013: -195.5
  - 2014: -141.8
  - 2015: -131.4
  - 2016: -131.0
  - 2017: -161.0
  - 2018: -170.3
  - 2019: -177.6
  - 2020: -185.1
- Trade balance for goods and services (US$mln):
  - 2012: -164.4; 2013: -184.2; 2014: -133.1; 2015: -120.1; 2016: -117.3; 2017: -129.3; 2018: -141.1; 2019: -149.7; 2020: -158.5
- Exports of goods and services (US$mln):
  - 2012: 28.9; 2013: 28.5; 2014: 28.9; 2015: 28.8; 2016: 29.0; 2017: 30.1; 2018: 30.3; 2019: 30.6; 2020: 30.8
- Tourism (US$mln):
  - 2012: 15.2; 2013: 14.4; 2014: 15.7; 2015: 16.2; 2016: 16.6; 2017: 16.8; 2018: 16.9; 2019: 17.1; 2020: 17.2
- Net Income (US$mln):
  - 2012: -34.3; 2013: -29.6; 2014: -34.7; 2015: -33.7; 2016: -36.7; 2017: -55.5; 2018: -53.8; 2019: -54.4; 2020: -55.0
  - Public interest payment (part of Net Income, percent of GDP): -2.3 (2012), -2.4 (2013), -2.7 (2014), -2.0 (2015), -2.0 (2016), -1.9 (2017), -1.5 (2018), -1.4 (2019), -1.2 (2020)
- Capital and financial account (US$mln):
  - 2012: 139.1; 2013: 201.4; 2014: 125.4; 2015: 146.4; 2016: 122.1; 2017: 165.4; 2018: 183.3; 2019: 188.8; 2020: 195.3
- Capital transfers (US$mln):
  - 2012: 58.6; 2013: 43.9; 2014: 82.5; 2015: 100.9; 2016: 45.8; 2017: 117.2; 2018: 72.9; 2019: 78.3; 2020: 82.0
  - o.w. debt forgiveness (US$mln): ...... (2012), 17.2 (2013), 48.4 (2014), 0.0 (2015), 49.5 (2016), 0.0 (2017), 0.0 (2018), 0.0 (2019)
- Foreign direct investment (US$mln):
  - 2012: 31.5; 2013: 113.1; 2014: 39.9; 2015: 62.3; 2016: 59.7; 2017: 79.8; 2018: 84.5; 2019: 92.9; 2020: 97.6
- Public sector borrowing (net) (US$mln):
  - 2012: 5.1; 2013: 53.8; 2014: 40.3; 2015: -28.0; 2016: -4.1; 2017: -54.5; 2018: -11.3; 2019: -12.9; 2020: -15.9
- Overall balance (US$mln):
  - 2012: -7.7; 2013: 9.4; 2014: 39.5; 2015: 15.1; 2016: -8.9; 2017: 4.5; 2018: 13.0; 2019: 11.2; 2020: 10.2
- Gross external debt (Memorandum, percent of GDP):
  - 2012: 141.0; 2013: 143.9; 2014: 144.0; 2015: 136.1; 2016: 132.8; 2017: 122.6; 2018: 117.4; 2019: 112.3; 2020: 107.3
- External public and publicly guaranteed debt (percent of GDP):
  - 2012: 67.6; 2013: 70.0; 2014: 66.9; 2015: 60.8; 2016: 59.4; 2017: 51.1; 2018: 47.1; 2019: 43.1; 2020: 39.2
- Nominal GDP (Memorandum):
  - 2012: 800; 2013: 842; 2014: 912; 2015: 957; 2016: 1,005; 2017: 1,055; 2018: 1,108; 2019: 1,164; 2020: 1,223

### Banking System Summary (Table 7: 2009-16, end of period, EC$ millions)
- Net foreign assets (EC$ mln):
  - 2009: 283.7; 2010: 242.3; 2011: 165.8; 2012: 113.8; 2013: 352.4; 2014: 582.2; 2015: 772.9; 2016: 888.9
- ECCB holdings (EC$ mln):
  - 2009: 303.4; 2010: 277.5; 2011: 282.9; 2012: 280.8; 2013: 365.6; 2014: 427.3; 2015: 480.3; 2016: 511.7
- Commercial banks (net) (EC$ mln):
  - 2009: -19.8; 2010: -35.2; 2011: -117.0; 2012: -167.0; 2013: -13.2; 2014: 154.8; 2015: 292.6; 2016: 377.2
- Broad money (EC$ mln):
  - 2009: 1,820.0; 2010: 1,837.4; 2011: 1,849.7; 2012: 1,862.2; 2013: 1,938.7; 2014: 2,018.0; 2015: 2,162.1; 2016: 2,275.0
- Money components (EC$ mln):
  - Money: 332.3 (2009), 342.3 (2010), 325.2 (2011), 333.3 (2012), 381.2 (2013), 466.6 (2014), 579.6 (2015), 652.3 (2016)
  - Currency in circulation: 106.7 (2009) ... 136.8 (2016)
  - Demand deposits: 225.6 (2009) ... 515.6 (2016)
  - Quasi-money: 1,487.8 (2009) ... 1,622.6 (2016)
    - Time deposits: 339.2 (2009) ... 253.6 (2016)
    - Savings deposits: 1,014.4 (2009) ... 1,262.9 (2016)
    - Foreign currency deposits: 134.2 (2009) ... 106.1 (2016)
- Broad money (annual percentage change):
  - 2009: 3.0; 2010: 1.0; 2011: 0.7; 2012: 0.7; 2013: 4.1; 2014: 4.1; 2015: 7.1; 2016: 5.2
- Interest rates (percent per year):
  - ECCB policy rate: 6.5 (2009) through 2014: 6.5; 2015: 6.5; 2016: ...
  - US policy rate: 0.1 (2009) through 2014: 0.1; 2015: 0.1; 2016: ...
  - Interbank market rate: 6.5 (2009); 6.2 (2010); 4.9 (2011); 6.3 (2012); 6.4 (2013); 6.0 (2014); 2015: ...
  - Time deposit rate: 4.4 (2009); 4.3 (2010); 3.8 (2011); 3.2 (2012); 2.7 (2013); 2.0 (2014); 2015: ...
  - Demand deposit rate: 0.3 (2009) ... 0.3 (2014)
  - Weighted average lending rate: 10.7 (2009); 9.5 (2010); 10.3 (2011); 9.2 (2012); 9.1 (2013); 9.0 (2014)

### Indicators of Capacity to Repay the Fund (Table 8: 2014-22, in millions of SDRs unless otherwise indicated)
- Existing Fund credit (stock):
  - In percent of quota: 174.3 (2014), 163.7 (2015), 132.7 (2016), 103.1 (2017), 73.4 (2018), 56.3 (2019), 44.7 (2020), 31.7 (2021), 20.6 (2022)
  - In millions of SDRs: 20.4 (2014), 19.2 (2015), 15.5 (2016), 12.1 (2017), 8.6 (2018), 6.6 (2019), 5.2 (2020), 4.0 (2021), 2.8 (2022)
  - In millions of US$: 29.7 (2014), 27.0 (2015), 22.0 (2016), 17.1 (2017), 12.2 (2018), 9.4 (2019), 7.4 (2020), 5.7 (2021), 4.0 (2022)
  - In percent of GDP: 3.3 (2014), 2.8 (2015), 2.2 (2016), 1.6 (2017), 1.1 (2018), 0.8 (2019), 0.6 (2020), 0.4 (2021), 0.3 (2022)
- Proposed Extended Credit Facility (stock):
  - In percent of quota: 0.0 (2014), 17.1 (2015), 51.2 (2016), 68.3 (2017), 68.3 (2018), 68.3 (2019), 68.4 (2020), 58.2 (2021), 43.7 (2022)
  - In millions of SDRs: 0.0 (2014), 2.0 (2015), 6.0 (2016), 8.0 (2017), 8.0 (2018), 8.0 (2019), 8.0 (2020), 7.4 (2021), 6.0 (2022)
  - In millions of US$: 0.0 (2014), 2.8 (2015), 8.5 (2016), 11.3 (2017), 11.3 (2018), 11.3 (2019), 10.5 (2020), 8.5 (2021)
  - In percent of GDP: 0.0 (2014), 0.3 (2015), 0.8 (2016), 1.1 (2017), 1.0 (2018), 0.9 (2019), 0.8 (2020), 0.6 (2021)
- Outstanding Fund credit (end of period):
  - In percent of quota: 174.3 (2014), 180.7 (2015), 183.9 (2016), 171.3 (2017), 141.7 (2018), 124.6 (2019), 113.1 (2020), 89.9 (2021), 64.3 (2022)
  - In millions of SDRs: 20.4 (2014), 21.1 (2015), 21.5 (2016), 20.0 (2017), 16.6 (2018), 14.6 (2019), 13.2 (2020), 11.4 (2021), 8.8 (2022)
  - In millions of US$: 29.7 (2014), 29.9 (2015), 30.5 (2016), 28.4 (2017), 23.5 (2018), 20.7 (2019), 18.8 (2020), 16.2 (2021), 12.5 (2022)
  - In percent of exports of goods and services: 11.2 (2014), 10.8 (2015), 10.5 (2016), 9.0 (2017), 7.0 (2018), 5.8 (2019), 5.0 (2020), 4.1 (2021), 3.0 (2022)
  - In percent of debt service: 24.5 (2014), 27.7 (2015), 56.0 (2016), 50.5 (2017), 39.7 (2018), 35.4 (2019), 34.3 (2020), 29.0 (2021), 21.2 (2022)
- Fund obligations based on existing credit (repurchases and repayments, charges and interest):
  - Repurchases and repayments: 1.8 (2014), 3.2 (2015), 3.6 (2016), 3.5 (2017), 3.5 (2018), 2.0 (2019), 1.4 (2020), 1.2 (2021), 1.2 (2022)
  - Charges and interest: 0.00 for all years listed
- Fund obligations based on existing and prospective credit (in millions of US$):
  - 2.7 (2014), 4.6 (2015), 5.1 (2016), 4.9 (2017), 5.0 (2018), 2.9 (2019), 2.0 (2020), 2.6 (2021), 3.8 (2022)
- Net use of Fund credit:
  - 2.3 (2014), 0.8 (2015), 0.4 (2016), -1.5 (2017), -3.5 (2018), -2.0 (2019), -1.4 (2020), -1.8 (2021), -2.6 (2022)
- Disbursements:
  - 4.0 (2014), 4.0 (2015), 4.0 (2016), 2.0 (2017), 0.0 thereafter
- Repayments and Repurchases:
  - 1.8 (2014), 3.2 (2015), 3.6 (2016), 3.5 (2017), 3.5 (2018), 2.0 (2019), 1.4 (2020), 1.8 (2021), 2.6 (2022)
- Memorandum items:
  - Exports of goods and services (US$ mln): 263.9 (2012), 275.9 (2013), 291.5 (2014), 317.0 (2015), 336.2 (2016), 356.2 (2017), 376.2 (2018), 397.2 (2019), 419.6 (2020)
  - Debt service (US$ mln): 121.3 (2012), 107.7 (2013), 54.6 (2014), 56.3 (2015), 59.2 (2016), 58.5 (2017), 54.8 (2018), 55.8 (2019), 59.1 (2020)
  - GDP (US$ mln): 911.8 (2014), 957.2 (2015), 1,005.0 (2016), 1,054.8 (2017), 1,108.2 (2018), 1,164.3 (2019), 1,223.2 (2020), 1,285.0 (2021), 1,350.0 (2022)
  - Imputed Net International Reserves (US$ mln): 158.3 (2014), 177.9 (2015), 189.5 (2016), 191.9 (2017), 200.4 (2018), 209.8 (2019), 220.3 (2020), 228.4 (2021), 237.0 (2022)
  - Quota (SDR mln): 11.7 for listed years

### Financial Sector Indicators (Table 9: 2009-2015; latest available values noted)
- Regulatory capital to risk-weighted assets:
  - 15.9 (2009), 16.5 (2010), 15.1 (2011), 13.9 (2012), 13.6 (2013), 13.0 (2014), 13.2 (2015, Jun-15)
- Regulatory Tier 1 capital to risk-weighted assets:
  - 13.8 (Jun-15), 15.0 (2010), 13.6 (2011), 13.2 (2012), 12.2 (2013), 11.7 (2014), 11.3 (2015, Jun-15)
- Nonperforming loans net of provisions to capital:
  - 25.2 (Jun-15), 33.8 (2010), 50.2 (2011), 49.7 (2012), 61.6 (2013), 59.5 (2014), 49.2 (2015, Jun-15)
- Nonperforming loans to total gross loans:
  - 5.9 (2009), 7.6 (2010), 9.4 (2011), 11.8 (2012), 13.8 (2013), 14.6 (2014), 13.0 (2015, Jun-15)
- Sectoral distribution of loans to total loans (percent):
  - Residents: 94.4 (2009), 95.0 (2010), 95.9 (2011), 96.2 (2012), 96.0 (2013), 96.3 (2014), 96.3 (2015, Jun-15)
  - General government: 9.0 (2009), 7.6 (2010), 7.0 (2011), 5.5 (2012), 5.3 (2013), 4.9 (2014), 4.5 (2015, Jun-15)
  - Nonfinancial corporations: 28.9 (2009), 30.6 (2010), 30.0 (2011), 31.4 (2012), 28.9 (2013), 27.5 (2014), 28.3 (2015, Jun-15)
  - Nonresidents: 5.6 (2009), 5.0 (2010), 4.1 (2011), 3.8 (2012), 4.0 (2013), 3.7 (2014), 3.7 (2015, Jun-15)
- Profitability and liquidity indicators (selected):
  - Return on assets: 1.3 (Jun-15), 1.2 (2010), 0.2 (2011), 0.5 (2012), -1.8 (2013), -0.1 (2014)
  - Return on equity: 12.1 (Jun-15), 9.2 (2010), -2.8 (2011), 3.1 (2012), -22.3 (2013), -2.5 (2014)
  - Net interest income to Total income: 52.7 (2009), 53.0 (2010), 50.9 (2011), 51.9 (2012), 50.6 (2013), 51.1 (2014), 56.5 (Jun-15)
  - Liquid assets to total assets: 21.7 (2009), 20.7 (2010), 22.9 (2011), 22.9 (2012), 27.7 (2013), 32.8 (2014), 36.7 (Jun-15)
  - Liquid assets to short-term liabilities: 24.1 (2009), 23.3 (2010), 25.4 (2011), 25.4 (2012), 29.8 (2013), 34.9 (2014), 39.2 (Jun-15)
- External sector and public indicators:
  - Exchange rate (per US$, end of period): 2.7 (2009-2015, Oct-15)
  - Gross international reserves of the ECCB (US$ mln): 898.4 (2009), 991.8 (2010), 1,069.2 (2011), 1,181.1 (2012), 1,222.4 (2013), 1,457.1 (2014), 1,504.0 (2015, Mar-15)
  - Public and publicly-guaranteed gross external debt (percent of GDP): 91.1 (2009), 96.9 (2010), 100.7 (2011), 103.3 (2012), 106.7 (2013), 100.5 (2014, Dec-14)
  - Central government overall balance (after grants, percent of GDP): -5.2 (2009), -3.6 (2010), -5.2 (2011), -5.9 (2012), -7.3 (2013), -4.7 (2014, Dec-14)

### Extended Credit Facility: Schedule of Disbursement (Table 10)
- Quota: SDR 11.7 million (Memorandum note)
- Amounts and availability dates:
  - June 26, 2014: SDR 2.040 (Percent of quota 17.436) — Executive Board approval of the arrangement
  - September 30, 2014: SDR 2.000 (Percent of quota 17.094) — Observance of continuous and end-June 2014 performance criteria and completion of the first review
  - March 31, 2015: SDR 2.000 (Percent of quota 17.094) — Observance of continuous and end-December 2014 performance criteria and completion of the second review
  - September 30, 2015: SDR 2.000 (Percent of quota 17.094) — Observance of continuous and end-June 2015 performance criteria and completion of the third review
  - March 31, 2016: SDR 2.000 (Percent of quota 17.094) — Observance of continuous and end-December 2015 performance criteria and completion of the fourth review
  - September 30, 2016: SDR 2.000 (Percent of quota 17.094) — Observance of continuous and end-June 2016 performance criteria and completion of the fifth review
  - March 31, 2017: SDR 2.000 (Percent of quota 17.094) — Observance of continuous and end-December 2016 performance criteria and completion of the sixth review
  - Total: SDR 14.041 (Percent of quota 120)

### Recent and Ongoing Legislative Reform (Table 11)
- Financial Legislation:
  - Banking Act 2015: Approved by Parliament (✓✓), Entered into Force (N/A), Regulations Entered into Force (N/A)
  - Cooperative Societies (Amendment) Act: Entered into Force (N/A)
  - ECCB Agreement Act**: Entered into Force (N/A) — Note: Parliamentary consideration is pending receipt of the legislation from the ECCB.
  - Uniform Insurance Act: Entered into Force (N/A)
- Fiscal Legislation:
  - Fiscal Responsibility Act 2015: Approved by Parliament (✓)
  - Public Debt Management Act 2015: Approved by Parliament (✓)
  - Public Finance Management Act 2015: Approved by Parliament (✓✓✓)
  - Public Procurement and Disposal of Property Act 2014: Approved by Parliament (✓✓✓)
  - National Transformation Fund Regulations 2015*: Approved by Cabinet (✓)
- Tax and Investment Legislation:
  - Customs Act 2015: Approved by Parliament and Entered into Force (✓✓)
  - Income Tax (Amendment) Act 2015: Approved by Parliament (✓)
  - Annual Stamp Tax (Amendment) Act 2015: Approved by Parliament (✓)
  - Investment Act 2014: Approved by Parliament (✓)
  - Property Transfer Tax (Amendment) Act 2015: Approved by Parliament (✓)
  - Value-Added Tax (Amendment) Act 2015: Approved by Parliament (✓)
  - Tax Administration Act 2015: Entered into Force (N/A)
  - List of Conditional Duty Exemptions: Entered into Force (N/A)
  - Property Tax (Amendment) Act: Entered into Force (N/A)
- Business Environment, Energy, and Labor reforms: Various bills and acts listed as N/A or pending (Bankruptcy and Insolvency Bill 2015; Grenada Industrial Development Corporation (Amendment) Act; Electricity Supply Act; Public Utilities Regulatory Commission (Amendment) Act; Employment (Amendment) Act; Labor Relations (Amendment) Act).
- Note: *Approved by Cabinet. **Parliamentary consideration is pending receipt of the legislation from the ECCB.

### Debt Sustainability Analysis (Annex I: Key finding)
- Summary statement:
  - "Debt is in distress but prospects are improving."
- DSA baseline assumptions and scope:
  - Incorporates already agreed debt restructurings into the baseline, including restructuring underway with the largest block of private creditors holding the U.S. and E.C. dollar commercial bonds in 2015 (see staff report ¶7).
  - The DSA does not assume any debt restructuring on Paris Club debt, or other bilateral or domestic debt under restructuring negotiations.
  - Compared to the previous DSA, the economic outlook has improved significantly, underpinned by higher than anticipated growth in 2014 and 2015.
  - In the medium term, growth is expected to converge to its potential.

*Source: Grenadian authorities and Fund staff estimates and projections (excerpts from the provided IMF chapter/section PDF).*

### 2.      The progress achieved with debt restructuring marks a critical milestone in the

### 2.      The progress achieved with debt restructuring marks a critical milestone in the

### Progress with debt restructuring and debt dynamics
- Public debt peaked at about 106.7 percent of GDP in 2013.
- Public debt declined to 100.5 percent of GDP in 2014.
- Public debt is now expected to decline to 76 percent of GDP by 2017.
- The restructuring of debt noted above is expected to contribute about 13.5 percentage points of the total reduction in public debt anticipated over 2014-2017.

### Fiscal consolidation and policy implications
- Continued steadfast implementation of the programmed fiscal consolidation remains essential to put debt on a firm downward path.
- The programmed fiscal consolidation is expected to contribute over 8 percentage points to the improvement in the debt-to-GDP ratio.
- Improved debt dynamics are expected to account for the remainder of the reduction over the program period.
- Completion of broader debt restructuring with all remaining creditors, including the Paris Club and domestic creditors, as well as continued fiscal prudence over the medium-term, will be needed to ensure a sustainable debt path.
- Public domestic debt is equivalent to about 34 percent of GDP and related vulnerabilities need to be monitored closely.

### External debt, DSA findings, and remaining risks
- The restructuring of Grenada’s public external debt with private creditors has reduced the stock of external debt.
- Combined with the programmed fiscal consolidation, the debt restructuring is expected to reduce public external debt to 39.2 percent of GDP by 2020 (compared to 43.2 percent at the second review), from 66.9 percent of GDP in 2014.
- The baseline scenario of the DSA update finds that the debt thresholds on the present value of the debt-to-GDP, debt-to-revenue, and debt-to-exports ratios are breached; these breaches are described as relatively minor and temporary.
- Grenada’s external debt would remain “in distress” until all debt restructuring steps are completed and arrears to official creditors are cleared.
- Completion of the debt restructuring with private creditors holding the US and EC dollar commercial bonds will put public and external debt on a firm downward trajectory toward sustainability.
- Broader restructuring of all public external debt remains critical to further reducing Grenada’s risk of external debt distress.

### Key statistics and projections (selected)
- Peak public debt: about 106.7 percent of GDP in 2013.
- Public debt in 2014: 100.5 percent of GDP.
- Projected public debt by 2017: 76 percent of GDP.
- Contribution of noted restructuring to 2014–2017 debt reduction: about 13.5 percentage points.
- Contribution expected from programmed fiscal consolidation: over 8 percentage points.
- Public domestic debt: about 34 percent of GDP.
- Public external debt: 66.9 percent of GDP in 2014; expected 39.2 percent of GDP by 2020; 43.2 percent at the second review benchmark.

*Source: IMF staff report text and accompanying Debt Sustainability Analysis tables and figures in the provided document.*

### Annex II.  Strengthening the Transparency and Governance of

### Annex II.  Strengthening the Transparency and Governance of Grenada’s Citizenship-By-Investment (CBI) Program

### Overview
- Launched in 2014, government revenue from the CBI program was "about 0.4 percent of GDP during the first half of 2015".
- As the program matures, its revenues have the potential to provide meaningful support to public investment, public finance, and growth, provided the proceeds are managed in a transparent and sustainable manner.
- Interest is expected to increase as Grenada recently finalized visa waiver agreements with China and the European Union.

### Reforms Undertaken to Strengthen Governance and Transparency
- Published CBI Program Statistics
  - In July 2015, the authorities began publishing quarterly statistics on their CBI program (a structural benchmark under their IMF-supported program), strengthening transparency of the program.
  - Grenada is the only ECCU country with a CBI program publishing statistics on its program.
- National Transformation Fund (NTF) Regulations (finalized August 2015)
  - The NTF is a special public fund into which foreign nationals can make a donation to obtain Grenadian citizenship.
  - The regulations put in place a governance framework for the fund and its investment decisions.
  - As the bulk of government CBI revenues are expected to be received by the NTF, the regulations are a critical component of the government’s overall effort to manage fiscal risks from a sudden stop of CBI flows while maximizing their impact on potential growth.
  - Specific provisions of the regulations:
    - Enhance transparency of the CBI program by mandating the publication of information on all NTF-financed projects and spending, its financial statements, and annual expenditure plan.
    - Clarify the governance framework for the NTF by establishing a Board of Directors and outlining reporting requirements to central government.
    - Guard against an unsustainable scaling up of public investment by mandating the use of NTF resources be balanced between debt reduction and transformational investment spending.
      - Consistent with the Fiscal Responsibility (FR) Act (2015), the first "40 percent" of total NTF resources must be saved for arrears repayment, debt reduction and contingency financing for natural disaster relief.
      - Consistent with the authorities’ program commitment to clear all budget expenditure arrears by end-2015, the regulations require that the first "EC$24 million" of NTF revenues in 2015 be devoted to arrears clearance.
    - Mitigate potential fiscal risks by fully integrating NTF investment into the central government budget and setting a cap on annual NTF spending.
    - Maximize the impact of CBI revenue on potential growth by:
      - requiring rigorous project evaluation and selection aligned with Grenada’s development priorities identified in its GPRS 2014-18 and National Sustainable Development Plan 2030; and
      - full integration of NTF projects with Grenada’s Public Sector Investment Program (PSIP).

### Complementary Safeguards and Integrity Measures
- Fiscal safeguards
  - The Fiscal Responsibility (FR) Act (2015) includes a cap on the total sum of CBI program receipts to be used for meeting the primary balance targets at "1.5 percent of GDP" (effective from 2018).
  - Over the program period, CBI revenues cannot be used to meet fiscal targets.
- Due diligence and financial integrity measures
  - Authorities have focused on putting in place a strong due diligence framework, with safeguards to prevent financial integrity and security risks, to ensure the program’s sustainability.
  - Authorities have engaged reputable international groups to strengthen the screening of applicants.
  - Authorities are holding bilateral discussions with important stakeholders from the international community on collaborative information sharing.
  - Continuation of these efforts, including through effective implementation of the anti-money laundering and combating the financing of terrorism (AML/CFT) framework targeted to applicants and new citizens, will be critical to ensuring the sustainability of the CBI program.

*IMF staff summary based on Annex II of the provided Grenada country document.*

### Annex III, IMF Country Report No. 15/193). Furthermore,

### _cr15333 - Annex III, IMF Country Report No. 15/193)

### Public Financial Management (PFM) legal and institutional reforms
- The 2015 PFM Act sets out fundamental financial management principles applicable to the sector.
- The 2015 PDM Act specifies new procedures for the issuance of government guarantees for SOE debt.
- The 2015 FR Act (completed structural benchmark under the authorities' ECF-supported program with the IMF) requires a fiscal risk statement (including risks from SOEs and SBs) to be included in the annual budget.
- The PFM Act 2015 eliminates the use of special warrants.

### Capital investment, non-financial assets, and SOE oversight
- Conclusion: capital projects are appropriately assessed and a suitable framework is in place for government investment decisions; progress is needed to ensure recurrent costs of capital projects (including donor funded projects) are fully included in the budget.
- Recommendation: Full life cycle costing should be implemented.
- Government maintains a complete and accurate database on approved capital projects.
- Records of the government's ownership interest in SOEs are appropriately maintained, but should be complemented by an analysis of asset performance.
- Recommendation: Strengthen the quality of central government non-financial asset monitoring.
- A database of property in Grenada is maintained, but:
  - There is no regular reporting or analysis undertaken on asset holdings.
  - No other major asset categories are captured in registers.
- SOE reforms:
  - A new performance monitoring framework requires SOEs to disclose a series of financial and non-financial indicators on a regular basis to central government.
  - A draft dividend policy has been prepared to ensure the government receives an appropriate return on its capital investment once formalized.
  - The Policy Unit within the Ministry of Finance has been given oversight responsibility of the SOEs and their compliance with the new regulatory framework.

### Debt management, fiscal rules, and related legislation
- Domestic and foreign debt records are complete, accurate, updated and reconciled on a timely basis and comprehensive debt management and statistical reports are produced on a timely basis.
- Central government's contracting of loans and issuance of guarantees are made against transparent criteria and fiscal targets and are approved by a single responsible entity.
- The PDM Act 2015:
  - Modernizes the legislative framework for public debt management.
  - Establishes the sole authority of the Minister of Finance to contract loans on behalf of the government with the approval of Parliament and to issue central government guarantees for SOE debt.
  - Requires the Minister to prepare an annual borrowing plan, consistent with the authorities' Medium-Term Debt Management Strategy (MTDS) and annual cash flow forecast for the public sector.
- The FR Act sets:
  - A limit on government debt at 55 percent of GDP.
  - Limits contingent liabilities associated with public private partnerships to less than 5 percent of GDP.
- A draft MTDS was approved by Cabinet in February 2015 and is expected to be approved by Parliament by end year.

### Procurement and disposal of non-financial assets
- Processes for disposal of non-financial assets are appropriately enshrined in legislation and sales of non-financial assets are conducted transparently.
- The Public Procurement and Disposal of Public Property (PPDPP) Act 2014 outlines a clear policy and procedures for disposal of government assets.

### Policy-based planning and budgetary framework
- The budget process commences with the development of a fiscal strategy document informed by the latest economic projection; however, the assessment of macroeconomic risks could be strengthened.
- Actual fiscal outcomes differ from the original Budget by a significant margin, though this margin has narrowed in the context of the home-grown program.
- The PFM Act 2015 requires that a medium-term budget framework paper be included in the Budget.
- The FR Act 2015 sets limits on the fiscal strategy the Government can adopt in its annual budget framework (through the rules-based fiscal policy framework).
- The PFM Act provides for a schedule of information required as part of the budget documentation, including:
  - Main policies and programs of the government in the area of taxation.
  - Other revenues that have budgetary implications.
  - Proposed tax expenditures for the budget year, with details of tax relief and exemptions for the budget year and projected next two fiscal years.
- The methodology used to forecast revenues and the assumptions underpinning it are clearly understood, but baseline revenue forecasts should be complemented with an assessment of risk.
- The Budget should include a discussion of the fiscal impact of revenue policy changes.
- Few sector strategies exist that remain valid and contain costed action plans that inform the budget process.
- Recommendation: Reconciliation of top-down and bottom-up approaches in the medium-term budget framework should be extended beyond the current budget year to the forward estimates for outer years.
- Government initiative: require public agencies to prepare corporate plans to link development planning, performance management, and budget preparation at the ministry level.
- Budget processes are conducted according to a clear budget calendar with clear and comprehensive guidance on the preparation of budget submissions.
- The budget has been approved by the start of the fiscal year in two of the last three years.

### Predictability and control in budget execution
- Revenue administration: appropriate information is provided to individuals and taxpayers about obligations and rights; however:
  - Assessment of risks to revenue and the use of audit and fraud investigation practices should be strengthened.
  - Taxpayer arrears need to be addressed more proactively.
- Recommend strengthening predictability of funds for commitment of expenditures by:
  - Consolidating the government's cash balances.
  - Strengthening cash flow monitoring and forecasts.
  - Improving communication throughout government on expenditure commitment ceilings.
- The Government is developing a cash flow forecasting model.
- Procurement processes and transparency should be strengthened; the 2014 PPDPP Act is expected to improve procurement processes and transparency.
- Internal audit effectiveness (coverage, management response, compliance with professional standards) should be strengthened.
- The 2015 PFM Act requires an internal audit unit within each department, agency and other public bodies.

### Accounting, recording and reporting
- Bank accounts are reconciled periodically, but timeliness of reconciliation should be improved.
- Advance accounts are reconciled annually by the Accountant General, but outstanding amounts should be collected on a timely basis.
- Detailed in-year budget execution reports are prepared, but scope should be broadened to include information regarding the level of committed expenditure and to present execution reports according to administrative classification as well as the economic classification currently prepared.
- Coverage of the government's financial statements is broadly appropriate, but timeliness should be strengthened: the latest financial statements are for the financial year ending December 31, 2012.
- Recommendation: Government's financial statements should be prepared in accordance with the International Public Sector Accounting Standards (IPSAS).

### External scrutiny and audit
- Coverage, auditing standards, and timeliness of audits of central government entities is broadly appropriate.
- Need for more consistent follow-up to audit recommendations.
- To ensure accountability and positive change in PFM, timeliness of the examination of audit reports by the legislature and issuance of recommendations and follow-up on implementation should be strengthened.
- The Public Accounts Committee was reconvened in 2014 and has commenced examination of the Public Accounts.

### Letter of Intent highlights (November 3, 2015) and programme status
- Grenada reports meeting all quantitative performance criteria under the Homegrown Programme and progress to restore fiscal and debt sustainability.
- In 2015, Grenada expects to achieve the first primary surplus in a decade and to complete a comprehensive debt restructuring resulting in a major reduction in the stock of public debt.
- Government requests IMF Executive Board to:
  - Complete the third review of the arrangement under the ECF and the financing assurances review.
  - Approve proposed new performance criteria for December 2016, proposed modifications to performance criteria, proposed structural benchmarks, and the fourth disbursement under the arrangement of the equivalent of SDR 2 million.
- Government consents to publication of the letter and attachments.

### Memorandum of Economic and Financial Policies (MEFP) fiscal consolidation and measures for 2015–16
- Programme implementation status:
  - IMF Executive Board completed the Second Review of the three-year arrangement under the Extended Credit Facility on June 29, 2015.
  - All quantitative targets were met for the third review.
  - Progress on structural reforms includes increased CBI transparency, NTF regulations, and bringing into force regulations for the 2015 PFM Act.
- Fiscal performance:
  - The Government achieved the first primary surplus in a decade in the first half of 2015.
  - Primary surplus during the first sixth months of 2015: 1.2 percent of GDP (outperformed the programme target by a large margin).
  - As of June 2015, the Government has undertaken a total fiscal adjustment of 5½ percent of GDP, completing about two-thirds of the total consolidation contemplated under the home-grown programme.
  - The primary surplus for 2015 as a whole is marginally below the 1.3 percent of GDP target for the year.
- 2016 fiscal adjustment required:
  - A further fiscal consolidation in 2016 to achieve the 3½ percent of GDP primary surplus target.
  - Specifically, a fiscal adjustment of 1.9 percent of GDP will be required for 2016.
- Fiscal adjustment package measures and expected budgetary impact:
  - Annual stamp tax increase:
    - Change approved June 2015; VAT threshold increased from EC$120,000 to EC$300,000.
    - Effective 2016 tax year: small businesses with annual gross receipts less than EC$300,000 taxed at stamp tax rate of 0.5% (compared to 0.25% before) and exempted from taxes on business income.
    - Businesses with annual gross receipts ≥ EC$300,000 taxed at stamp tax rate of 0.75% (compared to 0.5% before).
    - Expected revenue: 0.1 percent of GDP.
  - VAT on St. George’s University on-campus housing:
    - Full implementation began in August 2015 at VAT rate of 10 percent.
    - Expected revenue: about 0.1 percent of GDP a year.
  - VAT on fee-based financial intermediation services:
    - Amendment passed June 2015 clarifies applicability; Government committed to registering all qualified financial institutions.
    - Expected increase in VAT revenue: 0.1 percent of GDP in 2016.
  - Petrol tax increase:
    - Increased by EC$1 per imperial gallon in September 2015 and by EC$0.50 per imperial gallon in October 2015.
    - Combined expected revenue: 0.6 percent of GDP.
  - Government telecommunication cost savings:
    - New contract finalized and signed in September 2015.
    - Expected savings: about 0.1 percent of GDP starting in 2016.
  - Wage freeze and waste reduction:
    - Public sector wage freeze maintained during the programme period.
    - Expected reduction in recurrent spending: 0.4 percent of GDP.
  - Streamlining capital spending:
    - Further steps to streamline non-grant financed capital expenditure.
    - Expected expenditure saving: 0.7 percent of GDP.
- Structural benchmark:
  - As a proposed new structural benchmark for end-December 2015, adopt measures required to fully implement the fiscal adjustment package for 2016.
  - The Government will submit the proposed 2016 budget to Parliament in November which will comprise all measures noted above, including VAT on fee-based financial intermediation services.

*Source: Annex III, IMF Country Report No. 15/193 (content unit _cr15333).*

### 7.      To ensure that the fiscal consolidation remains on track in the face of an uncertain

### 7.      To ensure that the fiscal consolidation remains on track in the face of an uncertain outlook

### Contingent fiscal measures
- Government has identified a number of contingent fiscal measures as outlined in the June 2014 MEFP and its December 2014 Supplement and remains committed to enacting them should fiscal risks materialize.

### Debt restructuring and regularization of arrears
- Debt to private creditors (2025 International Bonds):
  - Formal bond exchange opened on October 5, 2015 and is scheduled to close on November 12, 2015.
  - Creditor committee announced on October 7 that all of its members will participate, ensuring universal participation.
  - Restructuring will result in a 50 percent nominal principal reduction.
  - Half of the principal reduction is to be provided immediately upon closing of the formal exchange and the latter half will be provided in 2017, contingent upon completion of the sixth review of the IMF ECF arrangement.
  - Upon completion of the exchange, the stock of public debt immediately declined by 6 percent of GDP and is expected to decline by a further 5½ percent of GDP when the remainder of the principal reduction is granted.
  - New bonds have an annual coupon rate of 7 percent and a maturity of 15 years.
  - Interest arrears on the 2025 bonds and interest due in 2015 on the new bonds are capitalized and will not receive a haircut.
- CBI revenue sharing for bondholders:
  - Bondholders will receive a portion of revenues that may be generated by Grenada’s CBI programme after the expiry of the IMF ECF arrangement.
  - Sharing amount depends on CBI revenue magnitude but will be capped at 35 percent of the face value of the new bonds (in NPV terms).
  - Revenue sharing will begin only after the second haircut is completed.
- Hurricane clause:
  - Triggered by any natural disaster covered by Grenada’s CCRIF Policy if calculated loss to Grenada is greater than US$15 million.
  - If triggered, Grenada may elect to defer payment (either one or two payments depending on severity); deferred payment amount will continue to be repayable and will continue to accrue interest.
- Other private creditors:
  - Government is re-engaging with outstanding creditors of the original commercial bonds that did not participate in the 2005 debt exchange to restructure outstanding claims of US$5.6 million.
- Bilateral official debt:
  - Government has tentatively agreed to discuss treatment of its claims with the Paris Club in mid-November.
  - All other non-Paris Club bilateral official creditors are being contacted to request comprehensive restructuring of their claims on Grenada.
- Debt and arrears clearance commitments:
  - Interest arrears on the 2025 bonds will be capitalized as part of the debt restructuring expected to conclude on November 12.
  - Government has not incurred additional arrears outside the restructuring process and remains committed to staying current on obligations.
  - Budget expenditure arrears reduced by half between December 2014 and June 2015, lowering outstanding arrears to EC$33.5 million, almost EC$10 million below the end-June 2015 programme ceiling.
  - On-lending agreement with the Grenada Solid Waste Management Authority (GSWMA) on June 29, 2015 resulted in a reduction in budget expenditure arrears of EC$15.7 million.
  - Commitment to clear all arrears by end-2015, as agreed under the programme.
  - First EC$24 million of the annual inflows received by the National Transformation Fund in 2015 will be transferred to the central government for settlement of arrears.
  - Government is strengthening cash management, including flow forecasting, implementation of commitment control and an arrears clearance strategy.
- Membership fees arrears:
  - Strategy finalized to repay membership arrears to regional and international organizations; strategy will involve seeking restructuring agreements with some main organizations.

### Fiscal structural reforms and fiscal framework
- Overview:
  - Fundamental transformation of fiscal policy framework to ensure fiscal discipline and lock-in gains from fiscal consolidation.
  - Reform strategy focuses on: implementing strengthened fiscal policy framework; SOE and statutory body reform; strengthening tax administration; sustainable management of CBI revenue; modernization of the public sector.
- 2016 budget and Fiscal Responsibility Act of 2015:
  - 2016 Budget will be aligned with IMF-supported program and the rule-based fiscal policy framework (proposed new structural benchmark for end-December 2015).
  - 2016 Budget will target a primary balance of 3.5 percent of GDP and will cap real expenditure growth at 2 percent.
  - Ratio of expenditure on the wage bill shall not exceed 9 percent of GDP; public sector wage freeze will remain in effect and attrition policy operational.
  - New rules-based framework establishes a debt ceiling of 55 percent of GDP.
- National Transformation Fund (NTF) regulations (implementing structural benchmark for end-February 2015):
  - Regulations put in place in August 2015.
  - Forty percent of monthly inflows into the NTF will be saved for general budget financing purposes, including contingency spending, natural disasters and debt reduction.
  - All NTF-financed capital spending will be fully integrated into Government’s PSIP and the central government Budget.
- Public Debt Management (PDM) Act and Public Financial Management (PFM) Act:
  - Regulations needed to support implementation of the 2015 PDM Act will be drafted with IMF technical assistance.
  - Regulations for the 2015 PFM Act were drafted with IMF technical assistance, finalized and brought into force in September 2015 (implementing the structural benchmark for end-June 2015).
  - PFM implementation challenges include strengthening accounting and auditing framework and preparing a PFM manual.
  - 2016 Budget will be prepared in the context of a medium-term fiscal framework based on fiscal year estimates and two consecutive years thereafter.
- Chart of Accounts (COA):
  - Commitment to implement updated COA, with CARTAC technical assistance, for the 2016 Budget (end-December 2015 structural benchmark).
  - COA implementation will facilitate fiscal reporting under both old and new COA for consistency.

### State-owned enterprises (SOEs) and statutory bodies (SBs)
- Oversight and strategy:
  - Cabinet-approved strategic plan (February 2015) to strengthen financial position of SOEs and SBs.
  - Committee established comprising Ministry of Finance representatives and SOE managers to oversee implementation and monitoring.
  - Policy Unit within the Ministry of Finance delegated oversight responsibility over SOEs/SBs, including monitoring compliance with reporting requirements and reform agenda; commitment to allocate sufficient resources to the Policy Unit.
- Progress and specific reforms:
  - Reporting requirements under new PFM Act clarified in a detailed directive; quarterly reporting templates distributed and quarterly reporting has commenced.
  - Guidance note on salary negotiation prepared with CARTAC to ensure sustainable wage bill management practices; all statutory bodies receiving subventions are required to adhere to the public sector wage freeze.
  - Commitment to issue a dividend policy applicable to commercial SOEs by end-2015.
  - Institution-specific restructuring commenced:
    - Anticipated US$5 million financing from the World Bank to complete restructuring of Gravel, Concrete and Emulsion Production Corporation and the Grenada Postal Corporation.
    - Revamping tariff-setting regime of the National Water and Sewerage Authority and the Solid Waste Management Authority to resolve revenue weaknesses and provide greater revenue certainty.

### Tax incentive regime, CBI management, and tax administration
- Tax incentives and Investment Act:
  - Strategic reform to make tax incentive regime rules-based and transparent and eliminate discretion.
  - Parliament approved amendments to income tax, value added tax, and property transfer tax acts in June 2015 required to implement new tax incentive regime.
  - Plan to remove discretion from granting of customs duty exemptions after coordination with CARICOM.
  - Parliament approved the Investment Act in November 2014; accompanying regulations expected to be approved by March 2016.
  - Bring new tax incentive regime into full force by end-December 2015 (proposed new structural benchmark).
- Citizenship by Investment (CBI) receipts management:
  - As of end-June 2015, EC$9.4 million of associated revenues set aside for arrears clearance in line with commitment to prioritize NTF revenues for arrears clearance.
  - Government committed to effective, transparent and sustainable management of CBI receipts.
  - Started publishing on the Ministry of Finance website all CBI-related statistics, as outlined in the TMU (¶20), on a quarterly basis starting July 31, 2015 (meeting the associated quarterly structural benchmark).
- Tax and customs administration strengthening:
  - New Tax Administration Act, drafted with IMF technical assistance, being finalized and expected to be approved by Parliament in line with end-November 2015 structural benchmark.
  - Inland Revenue Department (IRD) reforms with CARTAC and IMF assistance:
    - Establishment of a Large and Medium Taxpayer Service (LMTS) unit to strengthen IRD capacity.
    - Strengthening performance management systems and improving information technology.
    - Complete establishment and operationalization of the LMTS and Small Taxpayers Service Units by end-December 2015 (proposed new structural benchmark).

### Civil service and public sector modernization
- Civil service reforms:
  - Comprehensive corporate planning exercise, review of new employment arrangement framework and attrition policy.
  - Focus on key priorities to strengthen public sector organization and effectiveness.
  - Intend to enact a new Public Service Bill by mid-2016.
  - Aim to finalize a strategic plan in line with the end-March 2016 structural benchmark, although mid-2016 appears a more realistic timeframe.

### Structural reforms to support competitiveness and growth
- Growth and Poverty Reduction Strategy (GPRS) 2014-18:
  - GPRS is the main guiding policy document for all Ministries; implementation is centered on Government’s PSIP fully aligned with GPRS priorities.
  - Strengthened monitoring and evaluation framework: Department of Economic and Technical Cooperation within the Ministry of Finance responsible for consistency of PSIP with GPRS.
  - GPRS will be a key input into the National Sustainable Development Plan 2030 expected to be finalized by end-June 2016; national steering committee and technical working group constituted.
- Business environment reforms:
  - Introduce new insolvency legislation:
    - Bankruptcy and insolvency bill drafted with assistance from Commonwealth Fund for Technical Cooperation (CFTC).
    - Expect bill to be approved by parliament by end-2015.
  - Reform Grenada Industrial Development Corporation (GIDC):
    - Assessment completed with IFC assistance.
    - Implement strategic realignment and corporate restructuring to reinforce executive capacity and reposition investment promotion.
    - Revise GIDC Act with IFC assistance; parliamentary approval of revised act proposed as a new structural benchmark for end-June 2016.
  - Support creation of an ECCU-wide credit bureau:
    - Committed to regional initiative supported by ECCB Monetary Council; pending approval will present required legislation to Grenada’s Parliament.
- Labour market reforms:
  - Finalize revisions to the Labour Code:
    - Extensive review of 1999 Labour Code against International Labour Standards and Conventions.
    - New Labour Code will consist of the Employment Act and the Labour Relations Act; aims to enhance labour mobility and reduce impediments to hiring while protecting workers’ rights.
    - Priority areas: termination provisions, types of employment contracts, working week, overtime provisions.
    - Proposed new structural benchmark: seek Parliamentary approval of new Grenada Labour Code by end-August 2016.
  - Strengthen labour market statistics:
    - New annual Labour Force Survey (LFS) introduced in 2013 and conducted in 2014; committed to annual continuation.
    - In 2015, new section on multidimensional poverty indicators to be incorporated into LFS; expected launch in September with final results expected by the first quarter of 2016.
    - Introduce Job Opening and Labour Turnover Study in 2015 as part of Regional Labour Market Information System project with the ILO; results expected by year-end.
    - Seek technical assistance to address gap in labour costs data beginning with the 2016 LFS.
    - Strengthen capacity of Central Statistics Office with World Bank technical assistance to process and analyze labour market data.

*IMF staff report content unit: _cr15333 - 7.      To ensure that the fiscal consolidation remains on track in the face of an uncertain*

### 20. Reforms to the regulatory environment for energy remain vital to strengthening

### 20. Reforms to the regulatory environment for energy remain vital to strengthening

### Energy regulatory reforms
- Amendments to the Public Utilities Regulatory Commission Act and a new Electricity Supply Act were drafted and underwent public consultations in February 2015.
- Public comments were incorporated into the draft legislation and the draft was published for a subsequent round of public consultation.
- Expectation: the new legislation to be approved in early 2016.
- The legislation will:
  - put in place a new regulatory authority responsible for tariff-setting by establishing a new national regulator;
  - have the new national regulator supported by the regional advisory authority (the Eastern Caribbean Energy Regulatory Authority (ECERA) when established);
  - set the legislative framework to encourage competition in the electricity sector and guide Grenada’s transition to renewable energy.

### Agricultural sector reforms and growth-enhancing measures
- Objective: expand capacity, raise productivity, and unlock growth opportunities.
- Integration of the agricultural supply chain into the tourism sector:
  - Policy approved by Cabinet to strengthen tourism and agribusiness linkages by transforming the Marketing and National Importing Board (MNIB) into a service provider of information on markets, product quality, and standards.
  - Objective to promote further integration by improving product quality and reliability of supply through enhanced production planning to reduce food imports.
- Commercialization of government-owned agricultural estates:
  - About 500 acres in four main estates are being leased to the private sector for strategic agricultural production.
  - Commercialization status: two of the four estates completed; remaining estates expected to be commercialized by 2016.
  - Early results: increasing production base, strengthening product diversification, and increasing exports of nontraditional agricultural products.

### Social protection — SEED programme reforms
- Support for Education Empowerment and Development (SEED) programme reforms:
  - New beneficiary system installed and undergoing final testing; implementation strategy approved by Cabinet in August 2015.
  - Processing of new applications was delayed due to system delays; risk of missing the end-December 2015 indicative floor on social spending.
  - Processing of new applicants resumed in September 2015, allowing for gradual recovery in spending under the programme.
  - Commitment: maintain SEED spending at or above the programmed floor for the remainder of the ECF-supported programme.

### Financial sector reforms — banking, nonbank, insurance, credit unions, pensions
- Banking sector (ECCU regional strategy):
  - ECCB Monetary Council approved a new legislative framework for bank regulation, supervision, and resolution in February 2015.
  - Grenada’s Parliament approved the revised Banking Act in April 2015.
  - Commitment to approve the new ECCB Agreement Amendment Act country-by-country when the draft is received by the ECCB.
  - Monetary Council committed to drafting regionally harmonized legislation to introduce deposit-insurance and reform foreclosure proceedings.
  - Regional AQR, viability assessments, and regional assessment of potential mergers/groupings of assets and liabilities across banks are complete; results are being considered holistically by the ECCB with national authorities to assess financial strength and estimated capital needs.
  - Commitment: take immediate action as necessary to strengthen commercial banks while safeguarding fiscal sustainability; private sector solutions considered first-best option.

- Nonbank financial sector (GARFIN):
  - Independent evaluation of GARFIN operations and supervisory practices undertaken by CARTAC in early 2015.
  - Draft report acknowledges significant progress since GARFIN’s establishment in 2007 and identifies need to increase staffing at GARFIN to fulfill oversight responsibilities.
  - Commitment to address the GARFIN resource gap.

- Insurance sector and regional single market:
  - Support for establishment of the Eastern Caribbean Financial Services Regulatory Commission as regional regulator and supervisor of the proposed single insurance market in the ECCU.
  - Projected launch date for the single insurance market and single regulator: the first quarter of 2017.
  - Commitment to enact the new uniform ECCU Insurance legislation once finalized.
  - Interim GARFIN measures: on-site examination of insurance companies ongoing; revised quarterly reporting forms introduced; enhanced cooperation with home country regulators to strengthen consolidated supervision.

- Credit union sector:
  - GARFIN implemented risk-based supervision and, with CARTAC assistance, conducted credit quality reviews.
  - Commitment to revise the Cooperative Societies Act in 2016 to enhance credit unions’ capital adequacy.
  - Commitment to issue the uniform ECCU regulations for the credit union sector.
  - Consideration (with Caribbean Association of Credit Union Supervisors, CARTAC, and regional counterparts) of a risk-weighted capital adequacy framework for credit unions.

- Pensions:
  - GARFIN completed registering most pension plans in Grenada.
  - Offsite supervision ongoing via review of audited financial statements and actuarial reports.
  - Detailed interim reporting forms to be introduced before year end.
  - Training workshop for trustees planned in the coming months.
  - On-site supervision (asset/investment quality and corporate governance) to commence in 2016.

### Programme monitoring, conditionality, and timing
- Reviews and timing:
  - Programme subject to semiannual reviews and semiannual performance criteria, indicative targets and structural benchmarks, and continuous performance criteria (set out in Tables 1–2 and the TMU).
  - Anticipated dates for the fourth, fifth, and sixth reviews: on or after March 31, 2016, September 30, 2016 and March 31, 2017, respectively.
  - Reviews will require observance of continuous performance criteria and of the conditionality for end-December 2015, end-June 2016, and end-December 2016, respectively.
  - Commitment to provide detailed statistical information as specified in the TMU.
  - Progress may be monitored on a quarterly basis through staff visits.

- Selected quantitative programme targets and monitoring indicators (from Table 1)
  - Performance criteria:
    - A. Cumulative floor on central government primary balance (EC$ mln): 2013 Dec. Act. -90; 2014 Jun. Act. -2 Met; 2014 Dec. Act. -28 Met; 2015 Jun. Act. 92 Met; 2015 Dec. Prog. 634 Met; 2016 Jun. Prop. 3139 94
    - B. Cumulative ceiling on central government primary spending (EC$ mln): 2013 Dec. Act. 564; 2014 Jun. Act. 285 Met; 2014 Dec. Act. 630 Met; 2015 Jun. Act. 281 301 284 Met; 2015 Dec. Prog. 550 268 526
    - C. Ceiling on stock of central government budget expenditure arrears (EC$ mln): 2013 Dec. 86 80 Met; 2014 Jun. Act. 66 Met; 2014 Dec. Act. 434 334 Met; 2015 Jun. Act. 0 00
    - D. Ceiling on accumulation of external debt arrears (continuous): 0 Met; 0 Met; 0 00 Met; 0 00
    - E. Ceiling on contracting of non-concessional external debt by the central government (continuous, US$ mln): 0 Met; 10 Not met; 0 00 Met; 0 00
  - Indicative targets:
    - F. Cumulative ceiling on net change in central government and central government guaranteed debt (EC$ mln) 2/ 3/: 73 Met; 48 Met; 39 38 -30 Met; 66 131 5
    - G. Floor on social spending by central government (EC$ mln): 6.2 Not met; 11.4 Not met; 6.7 6.7 5.4 Not met; 13.4 7.0 14.0
  - Monitoring:
    - H. Wage bill target: 227 111 Met; 219 Met; 110 110 109 Met; 220 110 219
    - I. Public employment target: 775 571 68 Met; 751 5 Met; 753 475 347 096 Met; 748 474 347 384
  - Memorandum item:
    - Projected new concessional external debt (US$ mln): 2 1 10 10

  - Note: table entries preserved exactly as presented in the source.

### Technical Memorandum of Understanding (TMU) — definitions and adjustments to targets
- Definitions:
  - Central government covers all items included in the government budget.
  - External debt defined per Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangement Executive Board Decision No. 6230-(79/140), as subsequently amended.
  - External debt: central government contracted or guaranteed debt owed to creditors residing outside of Grenada.
  - Domestic debt: central government contracted or guaranteed debt owed to residents of Grenada.
  - For monitoring, securities issued at the Regional Government Securities Market (RGSM) and debt owed to ECCB are considered domestic debt.
- Cumulative floor on the central government primary balance (measurement and recording rules):
  - Primary balance measured from above the line as total revenue and grants less total non-interest expenditure.
  - Total revenues and grants recording rules include: (i) project grants only to the extent spent; (ii) half of budgetary grants recorded when received and saved to settle supplier arrears, remaining budgetary grants treated as project grants and recorded when spent on capital outlays; (iii) transfers from the National Transformation Fund (NTF) for settlement of arrears recorded as non-tax revenue and treated similarly to CBI receipts.
  - Expenditures recorded on an accrual basis: (a) budget execution data reported by Ministry of Finance (MOF); (b) data on unprocessed claims to be collected and reported by MOF.
  - Primary balance also monitored from below the line as the negative sum of specified financing categories (i)–(vii) and adjustments (viii)–(ix) as listed in the TMU.
  - Consultation trigger: if difference between above-the-line and below-the-line measures is larger than EC$6 million in 2015 and EC$3 million in 2016 the MOF will consult with IMF staff.
- Adjustments to the floor on the central government primary balance:
  - Upward by the amount of fees received from the citizenship-by-investment (CBI) programme and by transfers from the NTF for settlement of arrears.
  - Upward by one half of revenue outperformance (excluding CBI and NTF transfers) during January–June to allow additional capital spending.
  - Upward by half of budgetary grants received in excess of projections.
  - Upward for any shortfall in targeted cash transfers (SEED) from their indicative target.
  - Downward for cost of technical assistance related to public sector modernization less grants received for this purpose (up to a cumulative maximum of US$300 thousand).
  - Downward for advisor fees related to debt restructuring less grants received for this purpose (up to a cumulative maximum of US$5 million) for the end-December 2015 target.
  - Downward for the cost of severance payments associated with restructuring Grenada Concrete Emulsion and Production Corporation and Grenada Postal Corporation (up to a cumulative maximum of US$4 million).
  - Downward by amount paid by government to reimburse policy holders of failed regional insurance companies BAICO and CLICO, less the grant-financed share.
- Programmed revenues and grants, 2015–16 (EC$ millions; cumulative from end of the previous year):
  - Non grant revenue: 2015 Dec. 504.4; 2016 Jun. 284.7; 2016 Dec. 565.9
  - Budgetary grants: 2015 Dec. 0 0 0
  - Capital spending: 2015 Dec. 176.5; 2016 Jun. 76.5; 2016 Dec. 148.8
    - o.w. financed by capital grants: 2015 Dec. 77.1; 2016 Jun. 27.9; 2016 Dec. 55.9

*Italicized source attribution line as provided in the original content.*

### 6.      The authorities will consult with IMF staff on corrective measures in the event of shortfalls in

### _cr15333 - 6.      The authorities will consult with IMF staff on corrective measures in the event of shortfalls in

### Consultation and safeguarding of revenue over-performance
- The authorities will consult with IMF staff on corrective measures in the event of shortfalls in government revenue and financing.
- The Government will safeguard the over-performance in revenue achieved in the first half of any year by increasing the capital budget allocations for the last two quarters of the year only up to 2/3 of the over-performance.

### B. Cumulative Ceiling on Central Government Primary Spending
- Primary spending of the central government = sum of revenues and grants utilized minus the primary balance as measured in section A.
- The performance criterion on primary spending is subject to the same adjustors as the primary balance target with the exceptions of the adjustors specified in ¶5 points (v), (vi) and (vii).
- Additional adjustor to allow full use of available project grants and half of budgetary grants:
  - Target adjusted upward by the full amount of additional capital grants received and spent on capital outlays in excess of programmed levels.
  - Target adjusted upward by the amount of budgetary grants received and spent on capital outlays in excess of programmed levels (but only up to half of the total budgetary grants received).
  - Target adjusted downward by half of the shortfall in capital grants compared to programmed levels.
- Additional upward adjustments to the primary spending target:
  - (i) Cost of technical assistance related to public sector modernization reforms (up to a cumulative maximum of US$300 thousand).
  - (ii) Advisor fees related to the debt restructuring, for the end-December 2015 targets only (up to a cumulative maximum of US$5 million).
  - (iii) Cost of severance payments associated with the restructuring of Grenada Concrete Emulsion and Production Corporation and the Grenada Postal Corporation (up to a cumulative maximum of US$4 million).
  - (iv) Amount paid by government to reimburse the policy holders of BAICO and CLICO.

### C. Ceiling on the Stock of Central Government Budget Expenditure Arrears
- Ceiling: stock of central government budget expenditure arrears equal to EC$0 million at each of end-December 2015, end-June 2016 and end-December 2016.
- Definition of budget expenditure arrears:
  - (i) Any invoice received by a spending agency for goods, services, and capital goods delivered and verified, for which payment has not been made within the contractually agreed period (taking into account any applicable contractual grace period), or in the absence of a grace period, within 60 days after the due date.
  - (ii) Wages, pensions, or transfers (including to the Solid Waste Company), for which payment has been pending for longer than 60 days to domestic or foreign residents.
  - (iii) Interest and amortization payments on domestic debt for which payment has not been made within the contractually agreed period (taking into account any applicable contractual grace period).
- Exclusion: Arrears resulting from the nonpayment of debt service for which a clearance framework has been agreed or a rescheduling agreement is being sought.
- Reporting: Data reported by the Accountant General’s office.

### D. Non-Accumulation of External Debt Arrears (Continuous)
- The central government will not incur new arrears in the payment of their external obligations (contracted or guaranteed) at any time during the arrangement.
- Arrears defined as a payment of debt not made within the contractually agreed period (taking into account any applicable contractual grace period).
- Exclusions:
  - Overdue membership fees to regional and international organizations.
  - Arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or for which the government or the institution with government guaranteed debt is actively and in good faith pursuing a debt restructuring.
- The performance criterion applied on a continuous basis under the programme.

### E. Ceiling on Contracting of Non-Concessional External Debt by the Central Government (Continuous)
- Applies to contracting or guaranteeing by the central government of medium and long-term external debt (maturity greater than one year).
- Exclusions from the ceiling:
  - Borrowing from regional financial institutions or markets (Caribbean Development Bank, the World Bank, and the RGSM).
  - Debt instruments to be issued as part of a debt restructuring.
- Monitoring and reporting:
  - Contracting and guaranteeing of non-concessional external debt will be monitored and reported to Fund staff by the Debt Management Unit (DMU), after reconciliation with the Accountant General’s office, on a monthly basis.
  - Government will consult with IMF staff on the terms and concessionality of any proposed new debt in advance of contracting such external debt.
- Performance criterion applied on a continuous basis.

- Definition of non-concessional debt:
  - A debt is non-concessional if the grant element in net present value (PV) terms relative to face value is less than 35 percent.
  - The discount rate used for this purpose is 5 percent.

- PV calculation for variable-rate debts:
  - For debts with variable interest rate = benchmark interest rate plus fixed spread, PV calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract.
  - Program reference rate for the six-month USD LIBOR is 3.34 percent and will remain fixed for the duration of the program.
  - Spread of six-month Euro LIBOR over six-month USD LIBOR is -250 basis points.
  - Spread of six-month JPY LIBOR over six-month USD LIBOR is -300 basis points.
  - Spread of six-month GBP LIBOR over six-month USD LIBOR is -100 basis points.
  - For interest rates on currencies other than Euro, JPY, and GDP, the spread over six-month USD LIBOR is -200 basis points.
  - Where the variable rate is linked to a benchmark interest rate other than the six-month USD LIBOR, a spread reflecting the difference between the benchmark rate and the six-month USD LIBOR (rounded to the nearest 50 bps) will be added.

### II. Indicative Targets
F. Cumulative Ceiling on Net Change in Central Government and Central Government Guaranteed Debt
- Net change defined as the difference in the stock of central government and central government guaranteed debt between two specified periods; stock measured on a disbursement basis.
- PPP facilitation: where government facilitates PPP financing by concessionaires, central government debt increased by the present value (at the inception of the lease) of all lease payments expected during the agreement period excluding payments that cover operation, repair or maintenance.
- Adjustors to the ceiling:
  - Upward by the amount paid by the government to reimburse the policy holders of the failed regional insurance companies BAICO and CLICO, less the grant-financed share of these payments.
  - Upward to a maximum amount of 5 percent of GDP to accommodate PPP related expenditures.
  - Downward by the amount of nominal debt forgiveness in the case of debt restructuring.
  - Upward for the cost of technical assistance related to public sector modernization reforms less grants received for this purpose (up to a cumulative maximum of US$300 thousand).
  - Upward for advisor fees related to debt restructuring less grants received for this purpose (up to a cumulative maximum of US$5 million).
  - Upward for the cost of severance payments associated with the restructuring of Grenada Concrete Emulsion and Production Corporation and the Grenada Postal Corporation (up to a cumulative maximum of US$4 million).
- Monitoring data: Provided by the DMU, after reconciliation with the Accountant General’s office, on a monthly basis.

G. Indicative Floor on Social Spending by the Central Government
- Indicative floor applies only to expenditures incurred by the central government on the SEED programme (Support for Education Empowerment and Development).
- SEED spending reported by the Ministry of Finance on a quarterly basis.

H. Memorandum Item: Wage Bill Target
- Wage bill includes expenditures by the central government towards payment of wages, salaries and personnel allowances.
- Reported by the Ministry of Finance on a quarterly basis.

I. Memorandum Item: Public Employment
- Public employment includes established (permanent), unestablished (temporary) workers, and project workers.
- Reported by the Ministry of Finance on a quarterly basis.

### III. Publication of Citizenship-by-Investment (CBI) Statistics
- The Ministry of Finance, on a quarterly basis beginning July 31, 2015, will supply to the IMF and publish on its external website all CBI-related statistics including, but not limited to:
  - (i) Number of CBI applications received, by type of application (National Transformation Fund (NTF) donation or investment option).
  - (ii) Number of CBI-programme applications approved (NTF donation or investment option).
  - (iii) Number of new citizens under the CBI programme.
  - (iv) Number of CBI-programme applications rejected.
  - (v) Total amount of revenues received into the NTF.
  - (vi) Total amount of CBI programme application fees received by the central government.
  - (vii) Total transfers of NTF funds from the NTF to the central government.
  - (viii) Total central government spending financed by CBI-programme related revenue (direct central government financing and NTF-financed projects).
- The data will be reported as outlined in Table 1.

### IV. Programme Reporting Requirements
- Performance monitored from data supplied to the IMF by the Ministry of Finance and the Central Statistics Office as outlined in Table 1.
- Authorities will transmit promptly to IMF staff any data revisions and other information necessary to monitor the arrangement.

### Summary of selected reporting frequencies and responsible agencies (excerpt from Table 1)
- Citizenship-by-Investment Program data: Quarterly; reporting deadline 30 days after the end of quarter; Responsible: MOF.
- Central Government budget and outturn: Monthly; reporting deadline 30 days after the end of month; Responsible: AG/Budget Office.
- Spending on SEED program: Monthly; reporting deadline 30 days after the end of month; Responsible: AG.
- Employment data for established and un-established workers: Quarterly; reporting deadline 30 days after the end of quarter; Responsible: AG.
- Debt data (external and domestic, disbursements, amortization, interest, stock, arrears): Monthly; reporting deadline 30 days after the end of month; Responsible: DMU (after reconciliation with AG).
- Consolidated balance sheet for all credit unions: Quarterly; reporting deadline 30 days after the end of quarter; Responsible: GARFIN.
- Updates on annual National Accounts: Annually; reporting deadline within 6 weeks after availability; Responsible: CSO/MOF.

### Supplementary information on debt restructuring and related developments
- Debt exchange with holders of Grenada’s 2025 international bonds:
  - Exchange offer launched on October 5.
  - Attracted 94 percent of creditors of the U.S. dollar 2025 bonds and 100 percent of creditors of the E.C. dollar 2025 bonds (excluding the portion held by Grenada’s National Insurance Scheme).
  - Tender level of U.S. dollar bonds triggered the collective action clause, ensuring universal participation and eliminating the possibility of holdouts.
  - Deal concluded on November 12 when all outstanding 2025 bonds offered were exchanged into new bonds maturing in 2030.
  - Terms included a principal haircut of 50%, of which half became effective immediately and the remaining to be effective upon completion of the sixth review of the current ECF arrangement.
  - Agreement includes sharing of receipts from the citizen-by-investment (CBI) program after the full principal haircut is granted, and includes a clause allowing a delay in debt service following a qualifying natural disaster.
- Restructuring with Grenada’s National Insurance Scheme (NIS):
  - On November 6, government agreed with NIS to restructure their holdings of the 2025 bonds into new long-term debt instruments with a 25-year tenor, 10 year grace period and 3 percent interest rate.
  - No principal haircut; restructuring terms entail cash flow savings of 63 percent in net present value terms for the government.
- Paris Club agreement in principle (November 18):
  - Reschedule outstanding Paris Club debts and arrears.
  - Consolidation period from November 2015 to June 2017.
  - 50 percent of existing arrears (past due principal and interest) to be repaid in cash in two installments in 2016 and 2020.
  - Remaining arrears and principal and interest due during consolidation period rescheduled over 20 years with 7 years grace for ODA claims and over 15 years with 8 years grace for non-ODA claims.
  - No principal reduction.
  - Agreement includes a hurricane clause allowing creditors to consider further relief in the event of a qualifying natural disaster.
  - Exact rescheduling terms to be agreed bilaterally between Grenada and each Paris Club creditor.
- Ongoing negotiations:
  - Authorities engaged the new government in Trinidad and Tobago on two outstanding debts contracted in 2005 and 2013 seeking more favorable terms than the Paris Club rescheduling agreement.
  - Negotiations with domestic commercial creditors to restructure the majority of outstanding domestic debt on terms comparable to those of the U.S. dollar 2025 bonds restructuring, excluding sharing of any CBI flows.
  - Plan to convert most of the T-bills issued through private placement into new instruments with longer maturity and lower interest to reduce rollover risks.

*Document: _cr15333 - 6.      The authorities will consult with IMF staff on corrective measures in the event of shortfalls in*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15333.pdf_