Statement at the End of a Staff Visit to Grenada

IMF News, March 22, 2017

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An IMF team led by Nicole Laframboise visited Grenada from March 15-22, 2017 to conduct discussions on the Sixth Review of Grenada’s IMF-supported program under the Extended Credit Facility (ECF).
The ECF arrangement was approved on June 26, 2014 for an amount of SDR 14.04 million (then US$19.4 million, or 120 percent of Grenada’s quota at the IMF).
Thus far, total resources of SDR 12.04 million (about US$17.5 million) have been made available to Grenada under the arrangement.
Based on a stated SDR-dollar rate of 1USD=SDR 0.724485 as of March 22, 2017.

Real GDP is estimated to have expanded by 3.9 percent in 2016.
Annual real GDP growth of 5.8 percent on average from 2014-2016.
Activity in 2016 was driven by tourism, construction, and some pick up in domestic demand; agriculture experienced weather-related contraction.
Growth is expected to moderate to 2.5 percent in 2017, near its estimated potential.
Average CPI inflation rose to 1.7 percent in 2016 and is forecast at 2.6 percent in 2017 as oil and food prices start to rise.
With steady tourism momentum, the external position remains stable.

The government achieved a primary surplus in 2016 of 5.3 percent of GDP.
Expenditures were kept under firm control; tax revenues performed well across all categories, driven by improvements in compliance and administration as well as robust activity.
Of the stock outstanding at program inception, over 90 percent has been restructured.
Public debt is forecast to fall to 72 percent at end-2017, a drop of 36 percentage points from its peak of 108 percent in 2013.
The decline in the debt-to-GDP ratio is attributed to debt relief and restructuring, fiscal adjustment, and strong GDP growth.
Debt remains “relatively high” and further effort is needed to reach the medium term target and build resilience.

The government met all performance criteria and structural benchmarks due at end-December 2016; all indicative targets were met except for minor under-spending on the World Bank-supported SEED program due to extra time needed to process candidates under the new eligibility system.
Employment has grown on average by about 4 percent annually since 2014, but unemployment remains high, particularly for the youth.
Labor force statistics suggest an important skills mismatch; recommended actions include a review of education curriculums and new labor market programs to improve training and job search tools, in collaboration with the private sector.
Authorities are focusing on structural reforms to improve the supply response:
- Move toward some liberalization in agriculture and continue in that direction.
- Remove impediments to doing business, including streamlining property registration processes and customs procedures, and strengthening building quality control and regulation.
- Further consultations with the private sector could help identify pressure points to be addressed.

Grenada is a small open economy susceptible to external shocks, including natural disasters, swings in key tourism markets, commodity price shocks, and potential volatility of Citizen-by-Investment revenues.
With these vulnerabilities, lower debt and higher reserve buffers are recommended to help mitigate the impact of external shocks and avoid output losses and setbacks in income and social progress.
Continued policy resolve is needed to safeguard progress and achieve medium term debt reduction goals.
Imperatives identified:
- Adhere to the strengthened policy framework.
- Follow through on the Fiscal Responsibility legislation.
- Maintain the full set of systems and practices of public finance management developed over the past three years to secure fiscal sustainability and build credibility in a rules-based policy framework.

The government is preparing a three-year strategy to modernize the management of the public sector to improve operations, efficiency, and develop a fair and rational system of compensation and incentives.
The strategy will involve extensive consultation with all stakeholders during its preparation and implementation.

The IMF staff commended the government and people of Grenada for achievements during the Home Grown program, particularly debt reduction, growth, and a strengthened fiscal policy framework, noting strong country ownership and high degree of consultation with stakeholders including the Committee of Social Partners and the Home Grown Monitoring Committee.
The IMF remains committed to supporting Grenada and the team is grateful for constructive discussions with authorities, private sector, labor, civil society, financial institutions, the Eastern Caribbean Central Bank, and the Caribbean Development Bank.

Source: Statement at the End of a Staff Visit to Grenada, IMF staff statement, March 22, 2017.