IMF Executive Board Approves US$13.3 Million Arrangement Under the Extended Credit Facility for Grenada

Press Release No. 10/133
April 2, 2010

The Executive Board of the International Monetary Fund (IMF) today approved Grenada’s request for a new three-year arrangement under the Extended Credit Facility (ECF),1 totaling SDR 8.775 million (about US$13.3 million). Approval of the program makes an initial disbursement of SDR 1.275 million (about US$1.9 million) available immediately.

The new arrangement aims at helping Grenada cushion the effects of the global crisis and support the country’s agenda of economic reforms aimed at boosting growth, reducing poverty, strengthening the private sector and the business climate, and reducing vulnerabilities in the financial sector.

The Executive Board also completed the fifth and last review of Grenada’s economic performance under the country’s previous ECF arrangement, allowing for the immediate disbursement of an amount equivalent to SDR 1.68 million (about US$2.6 million), bringing total disbursements to SDR 16.38 million (about US$24.9 million). The Executive Board also approved the request for a waiver of the missed performance criteria on the primary balance excluding grants and on the non-accumulation of external official arrears.

The three-year ECF with Grenada was approved on April 17, 2006 (see Press Release No. 06/75), and in July 2008 was augmented to SDR 12.0 million (about US$18.2 million) to help mitigate the impact of food and fuel price shocks and extended by one year to April 16, 2010 (see Press Release No. 08/169). The arrangement was augmented again to SDR 16.4 million (about US$24.9 million) in June 2009 (see Press Release No. 09/200) to help mitigate the impact of the global downturn and financial turmoil.

Following the Executive Board discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, issued the following statement:

“The global economic crisis has had a significant adverse impact on Grenada. Economic activity slowed, reflecting sharply weaker tourism receipts and FDI-financed construction, resulting in a deterioration of the fiscal situation. In addition, the collapse of the Trinidad and Tobago-based CL Financial Group has increased financial uncertainty and can have fiscal implications. The authorities are continuing to focus on coping with the impact of the external shocks, while laying the foundation for fiscal consolidation and growth over the medium term. The new IMF arrangement under the Extended Credit Facility will support the authorities’ efforts to continue with their economic reform program.

“The authorities have taken appropriate actions to improve expenditure control and ensure timely debt service payments. They are adopting a three-year rolling budget with explicit annual targets on the public debt-to-GDP ratio. To help safeguard debt sustainability, it is important to base the decision on the possible external loan to build a luxury hotel on an objective assessment of the project’s returns, availability of concessional financing, and majority private sector participation.

“The banking sector has remained resilient, and the authorities have made important progress in strengthening the capacity for nonbank financial supervision and regulation, including the enactment of the new Insurance Act. They are working closely with regional governments to contain the fallout from the collapse of the CL Financial Group.

“Progress has been made with structural reforms, including introduction of a valued added tax in February 2010. The completion of a Country Poverty Assessment will serve as a basis for preparing a new Poverty Reduction Strategy,” Mr. Portugal said.


Recent Developments

Grenada’s economic activity contracted significantly in 2009, reflecting a decline in tourist arrivals and a collapse in foreign direct investment (FDI)-financed construction activity, which on a year-on-year basis fell 13 percent and 52 percent, respectively. Tightening financial conditions and increasing unemployment also undermined domestic demand. However, a slower decline in both stay-over arrivals and FDI-financed construction in the last quarter of 2009 suggests that the economy is bottoming out. The current account deficit is estimated to have narrowed by more than 10 percentage points of GDP, as a sharp reduction in imports more than offset lower tourism receipts.

In an effort to ameliorate the impact of the crisis, the authorities expanded public spending by accelerating the execution of donor-financed capital projects and overrunning current expenditure, resulting in an expansionary fiscal stance in 2009. The public debt-to-GDP ratio increased by more than 20 percentage points to 122 percent by the end of the year, with about 8 percentage points due to lower GDP.

Although the banking sector has resisted well the effects of the crisis, maintaining strong capital adequacy ratios (15.9 percent as of December, 2009) well above the minimum required ratio of 8 percent, commercial banks’ portfolio has deteriorated. Reflecting the weak economy, the ratio of nonperforming loans to total loans worsened to 5.9 percent in December 2009 from 3.5 percent one year earlier. The main financial sector challenge for the authorities is to address the problems created by the collapse of the Trinidad and Tobago-based CL Financial Group and its potential fiscal implications.

Program summary

In the 2010 Budget Statement the government reaffirmed its commitment to continue its comprehensive medium-term economic reform program with strategic objectives to ensure fiscal and debt sustainability, reduce vulnerabilities in the financial sector, generate high and sustained growth through structural reforms that will support private sector-led growth, and reduce poverty.

The fiscal framework for 2010 calls for a significant adjustment, given both the available financing and the high debt level; the primary deficit excluding grants is expected to improve from 7.9 percent of GDP in 2009 to 3.6 percent in 2010. Although the fiscal adjustment is large, it remains achievable by limiting growth in the wage bill and capital spending, reducing spending on goods and services, and improving commitment control. Over the medium term the program targets a primary surplus excluding grants in the range of 2-2.5 percent of GDP, which would enable the debt-to-GDP ratio to decline gradually to the Eastern Caribbean Currency Union (ECCU) target of 60% by 2020.

For reducing vulnerabilities in the financial sector the authorities are continuing their effort to strengthen nonbank regulation to avoid repeating the experience with the CL Financial Group, comply with the internationally agreed standard for the exchange of tax information, and strengthen the framework for Anti-Money Laundering and Combating the Financing of Terrorism.

With respect to generating high and sustained growth and reduce poverty, the government underscores the need to diversify the sources of growth, by reducing the dependence on tourism and encouraging private sector-led growth in areas such as health and education services, energy development, agro-processing, and information and communication technology. The authorities are committed to continue implementing structural reforms for improving the business and investment climate in favor of stronger private sector participation.

The fiscal framework under the program allows for spending aimed at reducing poverty to support the authorities social development agenda. Based on a recent report by the World Bank, UNICEF, and UNFEM on Grenada, which underscored the need to strengthen and rationalize existing social programs, the government intends to implement several measures, including the consolidation of major cash transfer programs.

Grenada: Selected Economic and Financial Indicators, 2007–11


Rank in UNDP Human Development Index


Infant mortality rate per '000 births (2006)


out of 179 countries (2008)


Adult illiteracy rate in percent (2004)


Life expectancy at birth in years (2006)


Poverty headcount index (2008)


GDP per capita in US$ (2007)

  Est. Prel. Proj. 1/ Rev. Proj.
  2007 2008 2009 2010 2011
  (Annual percentage change; unless otherwise specified)

National income and prices


Real GDP

4.9 2.2 -6.2 -7.7 0.8 2.0

GDP deflator

3.4 10.2 0.7 -1.2 3.2 2.0

Consumer prices 2/


End-of-year 2/

7.4 5.2 -0.4 -2.4 4.7 2.0

Period average 2/

3.9 8.0 0.2 -0.3 3.6 1.9

External sector


Exports of goods (value)

26.1 -7.4 -5.7 -1.8 6.1 9.5

Imports of goods (value)

10.6 5.0 -40.1 -30.5 4.2 8.8

Exports of goods (volume)

16.5 -20.2 19.7 17.2 -3.0 6.7

Imports of goods (volume)

0.4 -6.6 -28.3 -19.7 -2.8 6.2

Current account balance (including grants; in percent of GDP)

-43.2 -38.7 -22.1 -25.7 -25.0 -26.0

FDI (net, in percent of GDP)

24.8 21.2 7.0 11.3 11.5 12.1

Real effective exchange rate (end of period, depreciation -)

0.2 6.6 ... -6.8 ... ...

Banking system


Net foreign assets 3/

-1.0 -9.3 -5.1 1.8 -1.9 -3.0

Net domestic assets 3/

12.1 13.4 3.2 1.5 6.7 7.8

Of which


Credit to public sector (net) 3/

1.5 1.0 -0.8 -1.8 1.2 0.0

Credit to private sector 3/

12.0 10.2 4.1 4.1 5.5 9.9

Money and quasi-money (M2)

11.0 4.1 -1.9 3.3 4.8 4.9

Weighted average deposit rate (in percent)

3.0 3.2 3.1 3.0 ... ...

Weighted average lending rate (in percent)

9.6 9.2 10.7 10.7 ... ...
  (In percent of GDP)

Central government finances 4/


Total revenue and grants

27.1 29.4 28.3 28.5 28.2 28.3

Of which



1.0 4.1 3.6 4.1 3.9 3.0

Total expenditure

34.9 34.5 32.9 35.1 31.1 29.5

Current expenditure

21.4 22.8 24.3 25.6 23.5 22.5

Of which


Salaries and allowances

9.6 11.0 11.4 11.5 11.1 10.9

Capital expenditure

13.5 11.7 8.7 9.5 7.6 7.0

Primary balance (excluding grants)

-6.9 -7.0 -5.2 -7.9 -3.6 -1.0

Primary balance (including grants)

-5.8 -3.0 -1.6 -3.8 0.3 2.0

Current balance

4.6 2.6 0.4 -1.2 0.8 2.8

Overall balance (including grants)

-7.9 -5.1 -4.7 -6.6 -2.9 -1.2

Public and publicly guaranteed debt (end-period)

111.0 102.2 116.9 122.3 119.1 116.3
  (In millions of U.S. dollars)

Nominal GDP

610.3 678.5 614.8 614.8 645.2 676.6

Sources: Ministry of Finance; Eastern Caribbean Central Bank; United Nations, Human Development Report 2008; World Bank, WDI 2007; and IMF staff estimates and projections.
1/ Corresponds to projections in IMF Country Report No. 10/14 with all ratios expressed as a percent of revised GDP.
2/ Assumes that VAT introduction in February 2010 will increase prices by 3.5 percentage points.
3/ As a percent of broad money at the beginning of the year.
4/ Measured using above-the-line information.

1 Under the New Architecture of Facilities for Low Income Countries, Poverty Reduction and Growth Facility (PRGF) arrangements were converted into ECF arrangements on January 7, 2010. The ECF has replaced the PRGF as the Fund’s main tool for medium-term financial support to low-income countries by providing a higher level of access to financing, more concessional terms, enhanced flexibility in program design features, and more focused streamlined conditionality.


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