Washington, DC:
An International Monetary Fund (IMF) team led by Ms. Huidan Lin met
virtually with the authorities of Grenada during January 6–12 to discuss
recent economic developments and follow upon the policy priorities raised
during the 2019 Article IV Consultation and the 2020 Request for
Disbursement under the Rapid Credit Facility.
At the end of the mission, Ms. Lin issued the following statement:
“The Grenadian economy is gradually recovering from the pandemic. The
recovery has been led by construction and agriculture, supporting an
expected expansion of real output by around 5 percent in 2022.
Following a slow recovery, tourism initially responded positively to
the lifting of domestic quarantine requirements in late 2021. Food,
fuel, and transport prices are expected to continue pushing up
inflation, also reflecting the impact of strained global supply chains.
The current account deficit has widened, as weak tourism receipts,
higher fuel prices and import demand from construction offset the
recovery in agricultural exports. Public debt is estimated to have
declined to 68.9 percent of GDP in 2021 (from 71.7 percent in 2020) and
expected to continue declining supported by the economic recovery.
“The main risk to the outlook is a prolonged pandemic, with implications
for tourism and students’ return to Saint George’s University (SGU). The
ongoing outbreak globally and locally, coupled with a slow vaccination rate
(with only one-third of the total population, or less than half of the
eligible population, having received two doses, due to vaccine hesitancy)
could weigh on tourism recovery and students’ return to the SGU campus
(tourism and offshore education directly account for one quarter of the
economy). This could then require additional government spending,
exacerbating fiscal and external imbalances.
“The authorities’ comprehensive response has been critical in limiting
the impact of the pandemic. In 2020–21, the escape clause was
appropriately triggered under the Fiscal Responsibility Law and two
stimulus packages were launched (2.4 percent and 1.2 percent of GDP,
respectively) that provided targeted support including wage subsidies,
income support, social transfers, and additional health spending.
Given the ongoing pandemic, the 2022 Budget aims to increase social
spending and capital expenditure to support the vulnerable, resilience
building, and aggregate demand, with the escape clause triggered for
the third year. The hard-won credibility of Grenada’s fiscal framework
can be further enhanced through continued efforts to strengthen revenue
administration, public investment management, and fiscal governance and
transparency.
“The impact on the financial sector has so far been limited, partly
reflecting loan moratoria. Credit growth has been moderate, particularly to
businesses and individuals exposed to hard-hit sectors of offshore
education and tourism. Loans under moratoria are slowly trending down as
case-by-case workouts progress, but still represented a significant share
of total loans for some banks as of end‑2021. Nonperforming loans are
rising, albeit from a low level. Provisions will need to be strengthened
among credit unions, if nonperforming loans were to continue rising. The
enhanced frequency and intensity of monitoring of credit unions and
insurers by the national nonbank regulator is welcome and should continue
for the months ahead.
“The authorities remain committed to building resilience to natural
disasters and climate change. Commendable progress has
been made in the areas of marine and coastal protection, disaster
resilience in schools, and registry of public assets to prepare for proper
insurance and maintenance. The pandemic has also brought to the fore the
urgency to further improve competitiveness to advance the authorities’
objectives of promoting sustainable growth and job creation.
“The mission team thanks the authorities for the open and productive
discussions and expressed solidarity with the people and government of
Grenada as they respond to the COVID pandemic.”
