Grenada: Staff Concluding Statement of the 2022 Article IV Mission
IMF News, February 25, 2022
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- Published: February 25, 2022
Context and key messages
- Tourism-dependent economy hit hard by COVID-19; authorities’ decisive policy response supported by policy space from past fiscal prudence helped contain the virus, protect lives and livelihoods, and pave the way for a gradual recovery.
- Immediate priorities: accelerate vaccination and provide time-bound fiscal support.
- Once recovery is firmly in place, rebuild fiscal buffers — including returning to the fiscal rules in 2023 — while reprioritizing spending to make space for investments in building resilience to climate change.
- Strengthen domestic value added of tourism, including by strengthening agricultural sector linkages, investing in skills development and training, and shifting toward renewable energy.
Macroeconomic developments and outlook
- Real GDP: shrank by 14 percent in 2020; estimated to have expanded by 5.6 percent in 2021; projected to expand by 4.3 percent in 2022.
- Stay-over tourist arrivals: picked up strongly in last months of 2021 but remained at only 25 percent of pre-crisis levels for the year as a whole.
- Sector rebounds: construction and agriculture rebounded faster than tourism.
- Fiscal outcome: fiscal balance excluding interest payments estimated to have maintained a surplus of around 2 percent of GDP in 2021; public debt declined to 70 percent of GDP in 2021.
- Risks:
- Main risk: more prolonged pandemic, with implications for tourism and offshore education.
- Other risks: higher food and oil prices, prolonged supply chain disruption, tighter global financial conditions, natural disasters.
- Upside: effective deployment of public investment and acceleration of growth-enhancing reforms.
Fiscal policy, fiscal framework, and public investment
- 2022 fiscal stance: authorities triggered the escape clause for the fiscal rules for the third year to provide essential support to economic activity.
- Policy guidance:
- Continue time-bound fiscal support in 2022, ensuring fiscal relief measures are temporary.
- Return to the fiscal rules in 2023 while supporting sustainable development and resilience building.
- Sustain recent increases in public investment—particularly those targeted at building resilience to climate change.
- Secure concessional financing and mobilize domestic resources to fund resilience outlays.
- Design and implement comprehensive pension reform (including an increase in contributions and a phased raise of the retirement age) to improve the financial position of the pension system.
- Public spending efficiency:
- Improve implementation of public investment projects while reducing costs and fiscal risks.
- Implement the 2017 Public Service Management Reform Strategy to increase quality of public service delivery.
- Better targeting and enhanced coordination across ministries, including a comprehensive database of beneficiaries, to increase impact of social assistance programs.
- Fiscal framework reform:
- Center on the medium-term debt anchor and simplify while ensuring predictable return to targeted debt path after shocks.
- Embed within a realistic and credible medium-term macro-fiscal framework.
- Strengthen roles and responsibilities of the Fiscal Responsibility Oversight Committee, including in assessing fiscal plans and conditions for activating the escape clause.
- Enhance fiscal transparency by timely publishing audited financial statements of the public sector, audited COVID-related spending, and reports of state-owned enterprises (SOEs).
Supporting the recovery and structural policies for growth and jobs
- Tourism model:
- Facilitate shift toward stay‑over tourists given potential long-lasting reduction in demand for cruises.
- Strengthen domestic value added by aligning local producers with hotels and restaurants.
- Diversify tourism revenues by increasing number of flights, leveraging Saint George’s University to offer health services to visitors, and advancing fishing and eco-tourism ventures.
- Disaster resilience:
- Implement Grenada’s Disaster Resilience Strategy as high priority.
- Establish public asset registry to prioritize maintenance spending on critical resilient infrastructure.
- Enforce building codes and broaden insurance coverage—particularly catastrophe risk insurance.
- Finalize legislative framework for Disaster Risk Management Act and develop a “risk map” for hydro-meteorological and geological hazards.
- Use Citizenship-by-Investment (CBI) Program inflows to ramp up resilience building and developments in other sectors, such as agri-business and ICT.
- Energy and climate:
- Reduce carbon footprint and strengthen external position by shifting to renewables and investing in energy conservation.
- Support via regulatory adjustments, changes to construction standards, and incentives to invest in renewables.
- Assess and mitigate impacts of the energy transition on the poor and vulnerable.
Financial sector stability and supervision
- Overall performance: financial sector weathered the pandemic well.
- Credit quality:
- Nonperforming loans in credit unions rose to 7.4 percent of total loans in end-2021; nonperforming loans among banks remain low.
- Risk of deterioration in asset quality as loan moratoria and regulatory forbearance expire.
- Banks have met ECCB’s recently-revised guidance on loss provisioning; credit unions need to increase provisioning.
- Climate-related financial stability: need to strengthen monitoring of climate-related financial stability risks, particularly for the insurance sector.
- Credit unions oversight:
- Rapid growth, high concentration, and smaller size than banks warrant strengthened oversight.
- Continue enhanced frequency and intensity of monitoring; ensure routine stress tests, strengthened governance, increased capital requirements, and collection/publication of more granular data.
- AML/CFT:
- Continued efforts to strengthen the AML/CFT framework critical to lessen risks to correspondent banking relationships.
- Grenada has designated the ECCB as competent AML/CFT authority for banks.
- Increase cooperation between Grenada Authority for the Regulation of Financial Institutions, Grenada’s Financial Intelligence Unit, and the ECCB.
- Maintain robust due diligence of the CBI program.
Data gaps and statistical capacity
- Data provision: broadly adequate for surveillance but important shortcomings exist.
- CARTAC technical assistance provided on national accounts, consumer price index, and external sector statistics.
- Areas for improvement:
- Collection of high frequency indicators.
- Publication of consolidated financial statements of SOEs.
- Preparation of balance of payments data.
- Constraints: compilation of statistics affected by mobility restrictions during the pandemic and turnover in the statistics office.
- Recommendation: rebuild staffing levels and invest in training.
Selected social and economic indicators
- Social Indicators:
- Rank in UNDP Human Development Index out of 189 countries (2020): 74
- Life expectancy at birth in years (2020): 72
- GDP per capita in US$ (2020): 9,680
- Population in millions (2018): 0.11
- Infant mortality rate per '000 births (2019): 14.7
- Adult illiteracy rate in percent (2014): 1
- Poverty rate in percent of population (2019): 25
- Unemployment rate (2021 Q2): 17
- Economic Indicators (annual percentage change, unless otherwise specified)
- GDP at constant prices: 2019: 0.7; 2020: -13.8; 2021 (Est.): 5.6; 2022 (Proj.): 4.3; 2023: 3.9
- GDP deflator: 2019: 1.2; 2020: -0.5; 2021 (Est.): 1.4; 2022 (Proj.): 3.7; 2023: 2.1
- Consumer prices, end of period: 2019: 0.1; 2020: -0.8; 2021 (Est.): 1.9; 2022 (Proj.): 3.6; 2023: 1.7
- Credit to private sector (end of period): 2019: 3.1; 2020: 4.1; 2021 (Est.): 4.5; 2022 (Proj.): 4.6
- Broad money (M2): 2019: 2.9; 2020: 9.1; 2021 (Est.): 9.2
- Central government balances (accrual) (In percent of GDP, unless otherwise specified)
- Revenue and grants 1/: 2019: 27.2; 2020: 28.8; 2021 (Est.): 32.5; 2022 (Proj.): 29.8; 2023: (not listed)
- Expenditure 2/: 2019: 22.1; 2020: 27.6; 2021 (Est.): 32.1; 2022 (Proj.): 32.7; 2023: 28.2
- Of which: Capital expenditure: 2019: 2.7; 2020: 8.8; 2021 (Est.): 10.5; 2022 (Proj.): 6.8
- Primary balance: 2019: 7.0; 2020: 3.3; 2021 (Est.): 2.2; 2022 (Proj.): -0.9; 2023: 3.5
- Overall balance: 2019: 5.1; 2020: 0.3; 2021 (Est.): -2.9; 2022 (Proj.): 1.6
- Public debt (incl. guaranteed) 3/: 2019: 59.8; 2020: 73.1; 2021 (Est.): 70.3; 2022 (Proj.): 69.9; 2023: 68.1
- Domestic: 2019: 14.9; 2020: 16.6; 2021 (Est.): 19.0; 2022 (Proj.): 18.3; 2023: 16.8
- External: 2019: 44.9; 2020: 56.5; 2021 (Est.): 51.3; 2022 (Proj.): 51.6
- Savings-Investment balance: 2019: -14.9; 2020: -21.5; 2021 (Est.): -22.7; 2022 (Proj.): -22.6; 2023: -16.4
- Savings: 2019: 9.9; 2020: 1.1; 2021 (Est.): 7.5
- Investment: 2019: 24.8; 2020: 25.7; 2021 (Est.): 23.9; 2022 (Proj.): 26.5
- External Sector
- Gross international reserves (in months of imports): 2019: 4.8; 2020: 5.4; 2021 (Est.): 5.2; 2022 (Proj.): 5.3
- Current account balance, of which:
- Exports of goods and services: 2019: 55.7; 2020: 41.4; 2021 (Est.): 41.0; 2022 (Proj.): 49.1; 2023: 56.9
- Imports of goods and services: 2019: 61.2; 2020: 57.6; 2021 (Est.): 59.3; 2022 (Proj.): 63.5; 2023: 63.7
- External debt (gross): 2019: 83.6; 2020: 95.2; 2021 (Est.): 92.1; 2022 (Proj.): 90.1; 2023: 86.8
IMF mission team thanks the Grenadian authorities and other counterparts for their accommodative flexibility, warm hospitality, and constructive discussions.