IMF Executive Board Concludes 2023 Article IV Consultation with Grenada
IMF News, July 19, 2023
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- Published: July 19, 2023
Economic performance (recent)
- Growth is estimated to have reached 6.4 percent in 2022, driven by a tourism rebound and construction activity.
- Inflation rose moderately to 2.9 percent by end-2022, as the authorities’ policy response dampened the pass through from rising global food and fuel prices.
- Grenada’s tourism-dependent economy continued to recover from the pandemic amidst rising energy and food prices.
- Public debt is now back on a downward trend.
- The financial sector is well-capitalized and liquid although non-performing loans (NPLs) of credit unions have risen.
Outlook and risks
- Real GDP is projected to expand by 3.9 percent in 2023.
- Inflation is expected to peak at 3.2 percent toward the end of 2023.
- Downside risks: an economic slowdown of key tourist source markets; renewed increases in food and fuel prices; a natural disaster; an abrupt decline in revenues from the Citizenship-by-Investment (CBI) program — any of which could weaken growth, worsen the fiscal position, and threaten debt sustainability.
- Upside scenarios: shifting demand for services in advanced economies could lead to stronger tourism demand; investment projects may have a more front-loaded impact on the economy.
Fiscal policy and public debt
- The government triggered the escape clause in 2020–22 to address the pandemic fallout and is committed to a return to the fiscal rules in 2023.
- Planned amendment of the Fiscal Responsibility Law in 2023 to support sustainable development.
- Public debt is assessed to be on a downward path and sustainable, but Grenada remains “in debt distress” due to outstanding arrears of about US$37.6 million to official bilateral creditors, including Trinidad and Tobago and Algeria.
- Immediate priority: return to the fiscal rules to preserve credibility; reduce spending on relief measures as the initial food and fuel price spike dissipates.
- Recommendations to improve fiscal management:
- Use the Fiscal Responsibility Framework amendment to simplify fiscal rules, institute a more effective medium-term fiscal framework, and enhance accountability and oversight.
- Clarify speed of debt return to medium-term path following a shock.
- Fully operationalize a contingency fund to smooth government expenditure and provide insurance for major shocks.
- Enhance transparency by publishing public sector and SOE audited financial statements and improving data on CBI flows and their usage.
- Increase efficiency of tax system and public spending; update the tax incentive framework based on reassessment of rationales, costs, and benefits.
- Strengthen public investment management to address implementation bottlenecks, improve project oversight, and strengthen procurement transparency and accountability.
Social protection, pensions, and public employment
- Focus on structurally improving effectiveness and targeting of social assistance programs (including improvements in determination of eligibility) and moving away from broad-based support.
- Reforms to the National Insurance Scheme (NIS): phased increase in the contributory rate and pensionable age to improve NIS financial position; implement quickly.
- New pension system for new entrants to public service should be designed to be actuarially sound.
- Regularization of public sector workers should be guided by a review of job functions to assess allocation of resources and support retraining.
- Conduct a comprehensive wage review and payroll audits to ensure the wage grid reflects current labor market conditions.
Financial sector and supervision
- The financial sector is stable, liquid, and resilient to shocks amid tightening global financial conditions, but NPLs at credit unions are at elevated levels.
- Recommended actions for credit unions:
- Tighten lending standards and provisioning requirements.
- Enforce corrective actions for institutions not meeting prudential requirements.
- Strengthen debt collection efforts, internal governance, and risk management practices.
- To achieve effective risk-based, forward-looking supervision: obtain more granular information, build better analytical capacity, and implement well-designed stress testing.
- Improve financial literacy and encourage financial institutions to leverage the ECCU regional credit bureau when it comes into operation.
Competitiveness, productivity, and resilience
- Increase domestic value-added of tourism by strengthening linkages with agriculture and fisheries.
- Boost agricultural productivity and build resilience to adverse weather events.
- Address identified gender gaps and incentivize female labor force participation.
- Training and apprenticeship programs should increase technical and entrepreneurial skills, better integrate academic institutions and employers, and facilitate transition to employment.
- Implement the Disaster Resilience Strategy and expedite transition to renewable energy to enhance resilience and competitiveness.
- Improve regulatory framework to incentivize renewable energy adoption; use concessional financing from multilaterals and climate funds to catalyze private financing for renewables and climate adaptation.
- Improve communication about environmental impacts of renewable energy projects to foster public support and private financing.
Executive Board assessments (selected)
- Fiscal buffers built up over the past decade allowed authorities to respond swiftly to the pandemic and to higher energy and food prices; relief measures in 2022 protected the population but could have been better targeted.
- The external position is assessed to be weaker than the level implied by fundamentals and desirable policies. Estimated imputed reserves are assessed as adequate.
- Public debt is back on a downward path and assessed sustainable, but the presence of about US$37.6 million in outstanding official bilateral arrears means Grenada remains classified as “in debt distress.”
Key statistics (selected; annual or end-period as shown)
- Growth (GDP at constant prices): 2020 -13.8; 2021 4.7; 2022 6.4; 2023 3.9; 2024 3.8; 2025 3.5; 2026 3.2; 2027 2.7.
- GDP deflator: 2020 -0.3; 2021 1.2; 2022 1.8; 2023 3.0; 2024 2.8; 2025 2.0; 2026 2.2.
- Consumer prices, end of period: 2020 -0.8; 2021 1.9; 2022 2.9.
- Credit to private sector (end of period): 2020 3.1; 2021 2.1; 2022 5.2; 2023 4.8; 2024 4.6; 2025 4.2.
- Broad money (M2): 2020 9.1; 2021 8.5; 2022 9.9; 2023 5.7; 2024 4.3; 2025 3.3.
- Central government revenue and grants (percent of GDP): 2020 28.1; 2021 32.1; 2022 33.7; 2023 30.5; 2024 29.9; 2025 29.6; 2026 28.8; 2027 28.5; 2028 28.4.
- Central government expenditure (percent of GDP): 2020 32.7; 2021 31.7; 2022 28.0; 2023 27.6; 2024 28.6.
- Capital expenditure (percent of GDP): 2020 9.6; 2021 8.7; 2022 10.5; 2023 7.3; 2024 6.9; 2025 6.7; 2026 7.1; 2027 7.0.
- Primary balance (percent of GDP): 2020 -2.6; 2021 2.6; 2022 3.6; 2023 1.6; 2024 1.3; 2025 1.0.
- Overall balance (percent of GDP): 2020 -4.5; 2021 0.3; 2022 0.2; 2023 0.0; 2024 -0.2.
- Public debt (incl. guaranteed, percent of GDP): 2020 71.4; 2021 71.0; 2022 64.6; 2023 61.1; 2024 58.3; 2025 55.0; 2026 51.9; 2027 49.3; 2028 47.1.
- Domestic: 2020 16.2; 2021 15.6; 2022 13.1; 2023 9.3; 2024 8.0; 2025 6.3; 2026 5.1.
- External: 2020 55.2; 2021 55.4; 2022 51.4; 2023 50.3; 2024 47.7; 2025 45.6; 2026 43.6; 2027 42.0.
- Savings-Investment balance (percent of GDP): 2020 -16.4; 2021 -13.2; 2022 -17.3; 2023 -14.8; 2024 -12.2; 2025 -12.3; 2026 -11.8; 2027 -11.5.
- Savings: 2020 15.2; 2021 15.4; 2022 10.7; 2023 12.4; 2024 13.7; 2025 14.7; 2026 15.5.
- Investment: 2020 31.6; 2021 28.7; 2022 25.5; 2023 25.6; 2024 25.9; 2025 27.0; 2026 27.3; 2027 27.7.
- Gross international reserves (millions of dollars): 2020 290.9; 2021 324.2; 2022 352.6; 2023 384.6; 2024 412.6; 2025 414.6; 2026 422.6; 2027 430.1; 2028 451.7.
- In months of imports: 2020 5.6; 2021 5.5; 2022 5.8; 2023 5.4.
- Exports of goods and services (percent of GDP): 2020 41.1; 2021 48.4; 2022 52.9; 2023 58.6; 2024 58.2; 2025 57.2; 2026 56.4; 2027 55.9.
- Imports of goods and services (percent of GDP): 2020 52.2; 2021 56.3; 2022 62.8; 2023 63.3; 2024 61.2; 2025 59.1; 2026 57.3; 2027 56.6.
- External debt (gross, percent of GDP): 2020 92.9; 2021 95.5; 2022 92.7; 2023 88.2; 2024 83.6; 2025 79.5; 2026 76.0; 2027 72.8; 2028 70.2.
Selected social and demographic indicators (as shown)
- Rank in UNDP Human Development Index: 68 (out of 189 countries, 2021).
- Infant mortality rate per '000 births (2021): 14.4.
- Adult illiteracy rate in percent (2014): 1.
- Life expectancy at birth in years (2021): 75.
- Poverty rate in percent of population (2019): 25.
- GDP per capita in US$ (2021): 9010.
- Unemployment rate (2021 Q2): 16.6.
- Population in millions (2021): 0.12.
Press Release No. 23/267 — IMF Communications Department, July 19, 2023.