Press Release No. 08/85

Press Release: Statement by an IMF Staff Mission to Grenada

April 11, 2008

Ms. Catherine Pattillo, head of an International Monetary Fund (IMF) staff mission to Grenada, issued the following statement in St. George's on April 9, 2008:

"An IMF mission visited Grenada during April 1-9 to conduct the first review of the government's home-grown economic program that is supported by the IMF's Poverty Reduction and Growth Facility (PRGF). The mission held constructive discussions with the Prime Minister, Deputy Prime Minister, other government officials, and representatives of public enterprises and the private sector. Discussions centered on recent economic developments, fiscal performance, progress with the government's structural and economic reform agenda, and a policy framework for 2008.

"Economic growth rebounded in 2007, driven by buoyant tourism and construction activity. Looking ahead, growth is expected to decelerate somewhat in 2008, reflecting a small decline in tourism receipts-in part due to a projected slowdown in the global economy-and a cooling off of construction activity. The inflation pressures that emerged in 2007 as a result of the pass-through of rising international fuel and food prices are likely to ease to some extent during the course of 2008.

"The Grenadian authorities have made significant progress in recent years on fiscal measures, including by introducing the National Reconstruction Levy, adopting a flexible fuel pricing mechanism, enhancing efforts to collect tax arrears, and most recently, reaching agreement with public sector workers, except for teachers, on wages for 2006-08.

"Nevertheless, the budgetary situation remains challenging as Grenada's public debt level remains high. The latter reduces the country's flexibility to respond to future shocks, such as natural disasters, and therefore the authorities intend to place debt firmly on a downward trajectory through a determined effort, particularly at fiscal consolidation. This effort will begin in 2008 by targeting a budget deficit that can be financed in a sustainable manner, while accommodating expenditures to address pressing development needs. To this end, the authorities have decided to slow the pace of capital expenditure unless additional resources become available, and to reduce expenditure arrears. The government's ambitious divestment program, including the plan to sell two-thirds of its shares in Cable and Wireless, would provide finance for the budget and for paying down some expensive debt.

"The authorities have made important advances with structural reforms, including a plan for customs reform, training in priorization and implementation of the public sector investment program, improved transparency regarding tax concessions, and steps toward improved building standards. They remain committed to continuing with their reform agenda, with emphasis on further strengthening these areas, improving the investment and business climate, and reforming the regime for tax concessions in 2008. To address the high cost of living the authorities have extended assistance for vulnerable groups and will temporarily suspend the Common External Tariff on a select list of items. The ongoing Country Poverty Assessment (CPA) will provide critical information to allow development of a strategy to tackle poverty.

"The authorities have taken a number of decisive actions in the financial sector. The appointment of a receiver for Capital Bank International Ltd, which was highly illiquid and unable to honor deposit withdrawals, was a courageous and welcome step. Grenada was the first ECCU member to establish a single supervisory authority for nonbank financial institution--Grenada Authority for the Regulation of Financial Institutions (GARFIN). GARFIN is making progress in supervising credit unions, and following recent amendment of the GARFIN Act, setting out a framework for regulating and supervising insurance companies. GARFIN has appropriately warned investors to seek advice only from licensed institutions and to ensure they have full information about investment products, entities, and persons with whom they invest.

"Overall, the authorities are making credible efforts to implement the financial and structural reform program supported by the PRGF arrangement. Upon return to Washington DC, the IMF mission will prepare the necessary documentation for the IMF's Executive Board to consider Grenada's request to complete the first review under the PRGF in June 2008. The IMF will continue to work closely with the authorities to assist them in the implementation of their program.

"The mission thanks the Grenadian government officials for their close cooperation and looks forward to a continued constructive dialogue on the economic challenges facing Grenada."