IMF Executive Board Concludes 2019 Article IV Consultation with Grenada

IMF News, July 3, 2019

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IMF Executive Board Concludes 2019 Article IV Consultation with Grenada

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Bibliographic details

• Published: July 3, 2019

Overview and recent performance

• On June 12, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Grenada.
• GDP expanded by 4¼ percent in 2018, driven by strong activity in construction and tourism.
• Unemployment has been falling, but it remains high at 21.7 percent as of mid-2018.
• Inflation has remained low and bank credit growth is positive.
• The external current account deficit is estimated to have narrowed in 2018 due to strong tourism receipts, but it remains elevated at around 11 percent of GDP.
• Robust FDI flows, including from the citizenship-by-investment (CBI) program, are financing the external deficit while supporting economic growth.

Fiscal policy, public debt, and public investment

• Adherence to the Fiscal Responsibility Law (FRL) has enabled further debt reduction.
• The fiscal surplus increased further in 2018, reflecting a combination of strong revenues and the FRL-mandated expenditure restraint.
• Low execution of grant financing and institutional bottlenecks in project execution combined to keep capital outlays subdued at 2¾ percent of GDP.
• Central government debt fell from 70 to 63½ percent of GDP in 2018.
• Arrears to Algeria, Libya, and Trinidad and Tobago remain to be regularized.
• The fiscal position is projected to loosen over the medium term in line with the FRL’s provisions that take effect after public debt falls below 55 percent of GDP and should provide some support to the economy.

External sector and financial stability

• Current account deficits remain elevated despite narrowing in 2018; external financing is supported by FDI and CBI-related flows.
• Gross international reserves (GIR) rose to 230.8 million dollars in 2018.
• Directors welcomed steady improvements in bank credit growth and banking soundness indicators.
• Concerns noted: continued fast growth in lending by credit unions, rising property markets, and the need for proactive supervision and regulation of the non-bank financial sector.
• Directors highlighted the importance of ensuring compliance with AML/CFT regulations to support correspondent banking relationships and preempt financial integrity concerns.

Outlook and risks

• Growth is set to remain above potential in 2019, but is projected to ease somewhat over the medium-term, consistent with a waning of FDI-driven construction.
• External risks are mainly on the downside and are centered on prospects for U.S. growth and global financial conditions.
• Domestic risks are two-way and partly hinge on the efficiency of the envisioned fiscal expansion that is permitted by the FRL.

Executive Board assessment and policy recommendations

• Executive Directors welcomed Grenada’s continued strong economic and fiscal performance and sustained debt reduction, underpinned by sound policies.
• Key recommended policy priorities (as stated by Directors):
  • Make growth more resilient, sustainable, and inclusive, addressing vulnerability to economic shocks and natural disasters and long-standing structural weaknesses (high unemployment, external competitiveness gap).
  • Prudently and efficiently use fiscal space to address infrastructure and resilience gaps.
  • Enhance the business climate and competitiveness, including improvements in labor market institutions.
  • Implement education and training programs to better match job opportunities with the labor force.
  • Enhance and consistently implement the FRL to facilitate more productive spending while safeguarding debt sustainability; improve procedures for expenditure planning and classification.
  • Implement pension reform and healthcare coverage initiatives consistent with the FRL and fiscal sustainability.
  • Advance fiscal structural reforms to improve spending quality and mitigate fiscal risks.
  • Implement the public-sector management reform strategy to improve productivity and service delivery.
  • Strengthen social assistance programs; continue public investment management and public enterprise reforms; regularize bilateral arrears.
  • Elaborate a comprehensive disaster resilience strategy to help catalyze concessional financing for infrastructure and resilience gaps.
  • Strengthen supervision and regulation of the non-bank financial sector and coordinate with the ECCB and ECCU peer regulators.
  • Continue efforts to ensure compliance with AML/CFT regulations.

Selected economic indicators and key statistics

• Human Development and social indicators:
  • Rank in UNDP Human Development Index: 79 (out of 188 countries) (2016)
  • Infant mortality rate per '000 births: 9.9 (2016)
  • Adult illiteracy rate in percent: 4 (2004)
  • Life expectancy at birth in years: 73 (2014)
  • Poverty headcount index: 38 (2008)
  • GNI per capita in US$: 10,950 (2018)
  • Population in millions: 0.11 (2018)
• National income and prices (annual percentage change, unless otherwise specified):
  • GDP at constant prices: 2015: 6.4; 2016: 3.7; 2017: 5.1; 2018: 4.2; 2019 (proj): 3.5; 2020 (proj): 2.7; 2021 (proj): 3.2; 2022 (proj): 3.0
  • GDP deflator: 2015: 2.8; 2016: 2.6; 2017: 1.0; 2018: 1.2; 2019 (proj): 1.9; 2020 (proj): 2.1
  • Consumer prices, end of period: 2015: 1.1; 2016: 0.9; 2017: 0.5; 2018: 1.4
  • Real effective exchange rate (annual average, depreciation): 2015: 2.5; 2016: -0.2; 2017: -2.6; 2018: -2.4
• Money and credit, end of period:
  • Credit to private sector: 2015: -3.8; 2016: 0.6; 2017: 5.2; 2018: 4.7; 2019 (proj): 3.6; 2020 (proj): 2.2
  • Broad money (M2): 2015: 1.3; 2016: 4.0; 2017: 5.9; 2018: 4.6; 2019 (proj): 4.8; 2020 (proj): 5.3
  • Lending rate (in percent): 2015: 8.7; 2016: 8.4; 2017: 8.0; 2018: 7.6
  • Deposit rate (in percent): 2015: 1.6
• Central government balances (accrual, in percent of GDP):
  • Revenue: 2015: 24.5; 2016: 26.2; 2017: 25.6; 2018: 26.5; 2019 (proj): 25.5; 2020 (proj): 25.3; 2021 (proj): 25.1; 2022 (proj): 24.8
  • Expenditure: 2015: 25.7; 2016: 23.9; 2017: 22.6; 2018: 21.5; 2019 (proj): 20.9; 2020 (proj): 20.5; 2021 (proj): 22.4; 2022 (proj): 24.2
  • o.w. Capital expenditure: 2015: 8.3; 2016: 2.4; 2017: 5.4; 2018: 7.1
  • Primary balance: 2015: 5.7; 2016: 6.8; 2017: 6.2; 2018: 6.5; 2019 (proj): 6.6; 2020 (proj): 4.5; 2021 (proj): 0.0
  • Overall balance: 2015: -1.2; 2016: 2.3; 2017: 4.1; 2018: -1.4
• Public debt (incl. guaranteed) 2/ (percent of GDP):
  • 2015: 90.1; 2016: 81.6; 2017: 70.0; 2018: 63.4; 2019 (proj): 58.7; 2020 (proj): 53.7; 2021 (proj): 50.6; 2022 (proj): 48.3; 2023 (proj): 44.9; 2024 (proj): 44.2
  • Domestic: 2015: 28.7; 2016: 25.0; 2017: 19.0; 2018: 16.7; 2019 (proj): 14.3; 2020 (proj): 12.0; 2021 (proj): 10.4; 2022 (proj): 9.5; 2023 (proj): 9.8; 2024 (proj): 9.8
  • External: 2015: 61.4; 2016: 56.6; 2017: 47.4; 2018: 44.5; 2019 (proj): 42.0; 2020 (proj): 39.4; 2021 (proj): 38.6; 2022 (proj): 37.9; 2023 (proj): 35.4; 2024 (proj): 34.4
• Savings–Investment and external debt:
  • Savings–Investment balance: 2015: -12.2; 2016: -11.0; 2017: -12.0; 2018: -11.2; 2019 (proj): -10.2; 2020 (proj): -8.6; 2021 (proj): -9.1; 2022 (proj): -10.0; 2023 (proj): -9.9
  • Savings: 2015: 5.5; 2016: 9.1; 2017: 9.0; 2018: 11.0; 2019 (proj): 10.1; 2020 (proj): 10.8; 2021 (proj): 11.2; 2022 (proj): 13.1
  • Investment: 2015: 17.7; 2016: 20.1; 2017: 22.2; 2018: 20.2; 2019 (proj): 19.3; 2020 (proj): 18.7; 2021 (proj): 19.9; 2022 (proj): 21.2
  • External debt (gross): 2015: 133.2; 2016: 125.7; 2017: 117.4; 2018: 108.0; 2019 (proj): 106.6; 2020 (proj): 101.7; 2021 (proj): 98.9; 2022 (proj): 96.0; 2023 (proj): 91.3; 2024 (proj): 88.2
• External sector:
  • Gross international reserves (millions of dollars): 2015: 188.5; 2016: 201.4; 2017: 194.9; 2018: 230.8; 2019 (proj): 237.2; 2020 (proj): 241.2; 2021 (proj): 242.7; 2022 (proj): 244.7; 2023 (proj): 253.8; 2024 (proj): 263.4
  • GIR (in months of imports): 2015: 4.3; 2016: 3.8
  • Exports of goods and services (percent of GDP): 2015: 51.2; 2016: 49.3; 2017: 51.3; 2018: 54.2; 2019 (proj): 54.0; 2020 (proj): 54.1; 2021 (proj): 53.9; 2022 (proj): 53.6; 2023 (proj): 53.4
  • Imports of goods and services (percent of GDP): 2015: 50.9; 2016: 49.8; 2017: 53.1; 2018: 55.2; 2019 (proj): 54.9; 2020 (proj): 52.5; 2021 (proj): 52.8; 2022 (proj): 53.3; 2023 (proj): 52.9

IMF Press Release No. 19/265 — July 3, 2019; Executive Board conclusions and selected staff estimates and projections as presented in the Article IV consultation materials.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Algeria and the IMF
• Grenada and the IMF
• Libya and the IMF
• Trinidad and Tobago and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home