Grenada Sets Stage for Sustainable Growth

IMF News, May 23, 2017

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Publication date: May 23, 2017.
The economy grew by about 3.9 percent in 2016—helped by strong construction activity and steady tourism demand.
Grenada remains susceptible to external shocks, including from natural disasters and swings in tourism demand and commodity prices.
In June 2014, the IMF’s Executive Board approved a $22 million Extended Credit Facility to restore fiscal sustainability and improve Grenada’s growth prospects.
Grenada completed its final review under the IMF-supported program and planned to move to surveillance-only engagement with the IMF.

Broad national ownership and consultation:
- Regular involvement of Grenada’s Committee of Social Partners and the Home Grown Monitoring Committee (representing trade unions, private companies, the Council of Churches, and nongovernment development organizations) provided grassroots feedback and monitored performance.
Extensive technical assistance:
- Targeted assistance from the IMF, the Caribbean Regional Technical Assistance Center, and other development partners addressed capacity gaps and supported program objectives.
Favorable external conditions:
- Stronger growth in key export markets, a rebound in Caribbean tourism, and a recovery in agriculture aided outcomes.
Political context:
- A government holding a full majority in Parliament helped expedite reforms.

Public debt reduction:
- Between 2014 and the end of this year, public debt as a share of GDP will have declined from 108 percent to 72 percent.
- Drivers of the decline: about one quarter due to the comprehensive debt restructuring, another quarter to fiscal adjustment, and about half driven by growth in GDP.
Fiscal framework overhaul:
- Introduction of a fiscal responsibility law supported by additional fiscal laws, regulations, and budget practices to lock in discipline and encourage productive government spending.
Management of citizenship-by-investment inflows:
- Legal framework established to prudently manage inflows; described as the gold standard in the region for transparency.
Social spending and targeting improvements:
- Increased social spending with improved targeting supported by the World Bank.
- Shift to an improved beneficiary information system with a cash transfer feature that has started to produce improvements in education attainment.

Capacity constraints:
- Grenada is a micro economy with a population of just over 100,000, making it difficult to sustain deep capacity across specialized fields required for large-scale government overhauls.
- Capacity bottlenecks led to delays in implementing structural reform objectives and the debt restructuring.
Program flexibility:
- The IMF allowed flexibility on program deadlines to accommodate implementation timing and help the government complete reforms.

Public debt and vulnerability:
- Public debt remains relatively high and the country is vulnerable to shocks; continuation of the current fiscal path is needed.
Public sector reform:
- Implement the public sector reform developed over the last six months to introduce greater efficiency, strengthen competitiveness, and support growth.
Labor market and unemployment:
- Unemployment is high; staff analysis identified structural issues related to skills shortages and mismatches and suggested labor market programs to address structural unemployment.
Agriculture and business environment:
- Revitalize the agriculture sector and continue improving the doing business environment.
Pension system sustainability:
- Reform of the pension system for public servants and the national scheme to ensure long-term sustainability.

The IMF mission chief highlighted the honor of working on Grenada and noted the hospitality and quiet dignity of its people.

International Monetary Fund