IMF Executive Board Completes Final Review Under the Extended Credit Facility Arrangement for Grenada
May 18, 2017
· >The completion of the Review enables final disbursement of US$2.8 million.>
· >Grenada successfully met its original reform program targets, which included fiscal adjustment and debt reduction.>
· >Grenada’s economy grew by about 3.9 percent in 2016, reflecting strong construction activity and steady external demand for tourism services.>
The Executive Board of the International Monetary Fund (IMF) today completed the sixth and final review of Grenada’s performance under a program supported by a three-year arrangement under the Extended Credit Facility (ECF).
The completion of the review enables the disbursement of the equivalent of SDR 2 million (about US$2.8 million), bringing total resources made available to Grenada to the equivalent of SDR 14.04 million (about US$19.4 million). The ECF arrangement was approved by the Executive Board on June 26, 2014 (see Press Release No. 14/310 ).
The government met all continuous and end-December 2016 performance criteria and structural benchmarks. The economy grew by about 3.9 percent in 2016, reflecting continued strong construction activity and steady external demand for Grenada’s tourism services. The pace of restructuring of public debt was accelerated in recent months and Grenada’s debt-to-GDP ratio declined to 83.4 percent at end-2016 from 108 percent in 2013.
Grenada succeeded in meeting the core objectives of the ECF-supported program of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for sustainable growth. With successful fiscal adjustment, debt restructuring and stronger growth during the program period, the debt-to-GDP ratio is well on track to meet the medium-term goal.
The authorities also passed a substantial number of legislative reforms that helped strengthen the fiscal policy framework, including the Fiscal Responsibility, Public Debt Management, and Public Finance Management Acts. The government raised total social spending under the program and improved the targeting of social transfers to those most in need. In addition, Grenada’s banking sector has strengthened and financial stability has improved.
While recent progress is commendable, Grenada remains a small open economy susceptible to external shocks, including from natural disasters and swings in tourism demand and commodity prices. While prospects for debt sustainability have vastly improved, public debt is still relatively high and the authorities need to continue their efforts to reach medium term debt targets and to lower unemployment, raise productivity, and broaden the base of growth.
Following the Executive Board’s discussion on Grenada, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“Grenada’s performance during the last phase of the ECF-supported program remained strong. The authorities met all performance criteria and structural benchmarks for the sixth review. Moreover, the program’s core objectives of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for sustained growth have been achieved. Going forward, the authorities should focus on advancing structural reforms that promote broad-based growth and lower unemployment, while adhering to the strengthened fiscal policy framework to secure debt sustainability.
“The authorities have made significant progress in reducing the debt-to-GDP ratio, but public debt is still high and the outlook remains vulnerable to shocks. Going forward, the authorities should adhere to the new rules-based fiscal policy framework to meet medium-term debt targets and build up reserve buffers to help the country mitigate the impact of future shocks. It will also be important to regularize all outstanding arrears and conclude discussions with remaining creditors as soon as possible.
“Significant progress has been made in improving public finance management, public debt management, tax administration, and targeting of social transfers. The next phase of reform calls for concerted implementation of the legislation passed during the program and follow through on the systems of accountability accompanying the fiscal framework to secure lasting success.
“To improve Grenada’s competitiveness and growth potential, priorities should focus on removing impediments to private sector activity, advancing institution-specific reforms to state-owned enterprises, and revitalizing the agriculture sector. Efforts to lower unemployment should focus on strengthening labor market skills and mobility and on implementing the public service management reform.
“The balance sheet of the banking system has been strengthened and financial stability has improved. Continued efforts are needed now to strengthen the regulation and supervision of the non-bank financial sector and ensure that the financial system contributes more effectively to private sector growth.”
INTERNATIONAL MONETARY FUND
Press Release No. 17/94
FOR IMMEDIATE RELEASE
March 22, 2017
Statement at the End of a Staff Visit to Grenada
|End-of-Visit press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.|
An International Monetary Fund (IMF) team led by Nicole Laframboise visited Grenada from March 15-22, 2017 to conduct discussions on the Sixth Review of Grenada’s IMF-supported program under the Extended Credit Facility (ECF). The ECF arrangement was approved on June 26, 2014 for an amount of SDR 14.04 million (then US$19.4 million, or 120 percent of Grenada’s quota at the IMF). Thus far, total resources of SDR 12.04 million (about US$17.5 million) have been made available to Grenada under the arrangement.
At the conclusion of the visit, Ms. Laframboise made the following statement:
“Overall performance during this last phase of the ECF-supported Home Grown program has been strong. The government has continued with steadfast implementation of reforms and made progress toward achieving the key program goals of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for durable growth.
“The mission team has assessed that the government met all of the performance criteria and structural benchmarks due at end-December 2016. All the indicative targets were met, except for a minor under-spending on the World Bank-supported SEED program because of extra time needed to process candidates under the new eligibility system. Nonetheless, it is worth noting that the results so far point to an improvement in the effectiveness and targeting of programs to those most in need.
“Real GDP is estimated to have expanded by 3.9 percent in 2016, implying annual real GDP growth of 5.8 percent on average from 2014-2016. Activity in 2016 was driven by tourism, construction, and some pick up in domestic demand, while agriculture experienced weather-related contraction. Growth is expected to moderate to 2.5 percent in 2017, near its estimated potential. Average CPI inflation rose to 1.7 percent in 2016 and is forecast at 2.6 percent in 2017 as oil and food prices start to rise. With steady tourism momentum, the external position remains stable.
The government achieved a primary surplus (fiscal balance excluding interest payments) in 2016 of 5.3 percent of GDP. Expenditures were kept under firm control, and tax revenues performed well across all categories, driven by improvements in compliance and administration as well as robust activity.
“Grenada has also taken important steps towards completing the comprehensive debt restructuring started in 2014. Of the stock outstanding at program inception, over 90 percent has been restructured. Public debt is forecast to fall to 72 percent at end-2017, a drop of 36 percentage points from its peak of 108 percent in 2013. This sizeable decline in the debt-to-GDP ratio is attributed to all three key factors: debt relief and restructuring, fiscal adjustment, and strong GDP growth.
“While improvements in economic indicators are noteworthy, there is still much to do to improve job prospects. Employment has grown on average by about 4 percent annually since 2014, but unemployment in Grenada is high, particularly for the youth. Labor force statistics suggest an important skills mis-match in the economy. A review of education curriculums and new labor market programs to improve training and job search tools, in collaboration with the private sector, would help address this mis-match.
“To achieve broader-based growth, the government is focusing on structural reforms to improve the supply response. Based on the natural endowments and market brand, the agriculture sector could be a more important source of growth and employment in Grenada. The authorities are moving toward some liberalization in the sector and staff urges them to continue in that direction. The government is also taking steps to remove impediments to doing business, including streamlining property registration processes and customs procedures, and strengthening building quality control and regulation. Further consultations with the private sector in these areas could help identify pressure points to be addressed.
“Despite marked progress, it is important to note that public debt is still relatively high and further effort is needed to reach the medium term target. Grenada is a small open economy susceptible to external shocks, including from natural disasters, swings in key tourism markets, commodity price shocks, as well as potential volatility of Citizen-by-Investment revenues. With these types of vulnerabilities, lower debt and higher reserve buffers will help the country mitigate the impact of external shocks to avoid output losses and setbacks in income and social progress.
“In this light, continued policy resolve will be needed to safeguard the progress thus far and achieve the country’s medium term debt reduction goals. The government agreed with staff on the imperative of adhering to the strengthened policy framework. Follow through on the Fiscal Responsibility legislation and the full set of systems and practices of public finance management developed over the past three years is critical to secure fiscal sustainability for future generations. It will also build credibility in the rules-based policy framework.
In support of this goal, the government is preparing a strategy to modernize the management of the public sector. This three-year strategy will aid in improving the operations and efficiency of the public sector as well as develop a fair and rational system of compensation and incentives. There will be extensive consultation on the strategy and its implementation with all stakeholders.
The government and people of Grenada should be commended for their achievements during the Home Grown program, particularly with respect to debt reduction, growth, and the strengthened fiscal policy framework. This success is due in no small part to the strong country ownership and high degree of consultation and collaboration with stakeholders, in particular the Committee of Social Partners and the Home Grown Monitoring Committee. We encourage Grenada to press ahead with its medium term goals and to focus on ways to promote growth further and lower unemployment to improve the economic opportunities for all Grenadians.
The IMF remains committed to supporting Grenada. The team is grateful for the warm welcome extended to us by the authorities and representatives of the private sector, labor, civil society, and financial institutions, and for the very constructive discussions.
The team met with the Prime Minister and Minister of Finance and Energy,
Dr. The Rt. Hon. Keith C. Mitchell; the Minister of Communication, Works, Physical Development, Public Utilities and ICT, Hon. Gregory Bowen; the Minister of Economic Development, Trade, Planning, Cooperatives and International Business, Hon. Oliver Joseph; the Minister of Health and International Business, Nickolas Steele; the Cabinet Secretary, Beryl Isaac; the Permanent Secretary of the Ministry of Finance, Kim Frederick; the Executive Director of the Grenada Authority for the Regulation of Financial Institutions, Angus Smith; other senior officials, representatives of the private sector, labor, and civil society, and the Monitoring Committee for the Home-Grown Programme. Representatives from the Eastern Caribbean Central Bank and the Caribbean Development Bank accompanied the team during the visit.