Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Grenada







July 3, 2019















On June 12, 2019, the Executive Board of the International Monetary Fund
(IMF) concluded the Article IV consultation [1] with Grenada.



The Grenadian economy continues to grow robustly. 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.

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, but
arrears to Algeria, Libya, and Trinidad and Tobago remain to be
regularized.

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. 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 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

[2]

Executive Directors welcomed Grenada’s continued strong economic and fiscal
performance and sustained debt reduction, underpinned by sound policies.
They emphasized that further policy improvements and public support for
reforms are critical to achieve higher and broad-based medium-term growth,
further reduce unemployment, entrench debt sustainability, and strengthen
financial stability.

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Directors underscored the importance of focusing policy efforts on making
growth more resilient, sustainable, and inclusive. They noted that
Grenada’s growth potential is held back by susceptibility to economic
shocks and natural disasters in addition to long-standing structural
weaknesses such as high unemployment and an external competitiveness gap.
In this context, Directors supported making prudent and efficient use of
Grenada’s hard-earned fiscal space to address the country’s infrastructure
and resilience gaps. They highlighted the need to enhance the
business climate and competitiveness, including through improvements in
labor market institutions. They noted that education and training programs
to match job opportunities with the labor force are also needed.

Directors commended the authorities’ steadfast compliance with the Fiscal
Responsibility Law (FRL). They agreed that the FRL could be enhanced, with
a consistent and well-sequenced implementation, to facilitate more
productive spending while safeguarding debt sustainability. In particular,
they emphasized the need to improve the procedures for expenditure planning
and classification. Directors welcomed the authorities’ intention to
implement initiatives on pension reform and healthcare coverage in a manner
that is consistent with the FRL and fiscal sustainability.

Directors encouraged the authorities to move ahead with fiscal structural
reforms to improve spending quality and mitigate fiscal risks. They
stressed the importance of implementing the public-sector management reform
strategy to improve public sector productivity and service delivery. They
recommended further strengthening social assistance programs and continuing
public investment management and public enterprise reforms, while
regularizing bilateral arrears. Directors welcomed the climate change
policy assessment and the authorities’ intention to elaborate a
comprehensive disaster resilience strategy with inputs from key
stakeholders. This should help catalyze concessional financing to address
the infrastructure and resilience gaps.

Directors welcomed steady improvements in bank credit growth and banking
soundness indicators. At the same time, they noted that the continued fast
growth in lending by credit unions and the rising property markets warrant
close monitoring. They called for a proactive approach to strengthening the
supervision and regulation of the non-bank financial sector by the local
regulator and the need for coordination with the ECCB and the ECCU’s peer
regulators. Directors highlighted the importance of continued efforts to
ensure compliance with AML/CFT regulations in all areas to support
correspondent banking relationships and preempt any financial integrity
concerns.

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Grenada: Selected Economic Indicators 2015

–2024

Rank in UNDP Human Development Index

79

Infant mortality rate per ‘000 births
(2016)

9.9

out of 188 countries (2016)

Adult illiteracy rate in percent (2004)

4

Life expectancy at birth in years
(2014)

73

Poverty headcount index (2008)

38

GNI per capita in US$ (2018)

10,950

Unemployment rate (2018)

21.7

Population in millions (2018)

0.11

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Projections

(Annual percentage change, unless
otherwise specified)


National income and prices

GDP at constant prices

6.4

3.7

5.1

4.2

3.5

2.7

2.7

3.2

3.2

3.0

GDP deflator

2.8

2.6

1.0

1.0

1.2

1.9

2.1

2.1

2.1

2.1

Consumer prices, end of period

1.1

0.9

0.5

1.4

0.9

1.9

1.9

1.9

1.9

1.9

Real effective exchange rate

2.5

-0.2

-2.6

-2.4

(annual average, depreciation)


Money and credit, end of period

Credit to private sector

-3.8

-0.2

0.6

2.8

5.2

4.7

3.6

3.7

2.2

2.7

Broad money (M2)

5.2

1.3

4.0

5.9

4.7

4.6

4.8

5.3

5.3

5.1

Lending rate (in percent)

8.7

8.4

8.0

7.6

Deposit rate (in percent)

1.6

1.3

0.9

1.2


Central government balances
(accrual)

(In percent of GDP, unless otherwise
specified)

Revenue

24.5

26.2

25.6

26.5

25.6

25.5

25.3

25.3

25.1

24.8

Expenditure 1/

25.7

23.9

22.6

21.7

21.5

20.9

20.5

22.4

24.2

26.3

o.w. Capital expenditure

8.3

4.2

2.6

2.7

2.8

2.5

2.4

4.0

5.4

7.1

Primary balance

2.1

5.2

5.7

6.8

6.2

6.5

6.6

4.5

2.5

0.0

Overall balance

-1.2

2.3

3.0

4.8

4.1

4.6

4.8

2.8

0.9

-1.4


Public debt (incl. guaranteed) 2/

90.1

81.6

70.0

63.4

58.7

53.7

50.6

48.3

44.9

44.2

Domestic

28.7

25.0

22.6

19.0

16.7

14.3

12.0

10.4

9.5

9.8

External

61.4

56.6

47.4

44.5

42.0

39.4

38.6

37.9

35.4

34.4


Savings-Investment balance

-12.2

-11.0

-12.0

-11.2

-11.2

-10.2

-8.6

-9.1

-10.0

-9.9

Savings

5.5

9.1

9.0

11.0

9.0

9.1

10.1

10.8

11.2

13.1

Investment

17.7

20.1

20.9

22.2

20.2

19.3

18.7

19.9

21.2

22.9

External Sector

Gross international reserves (millions
of dollars)

188.5

201.4

194.9

230.8

237.2

241.2

242.7

244.7

253.8

263.4

GIR (in months of imports)

4.3

4.0

3.6

4.1

4.1

4.0

3.8

3.6

3.6

3.6

Current account balance, o/w:

-12.2

-11.0

-12.0

-11.2

-11.2

-10.2

-8.6

-9.1

-10.0

-9.9

Exports of goods and services

51.2

49.3

51.3

54.2

54.0

54.1

54.1

53.9

53.6

53.4

Imports of goods and services

50.9

49.8

53.1

55.2

54.9

54.1

52.5

52.8

53.3

52.9

External debt (gross)

133.2

125.7

117.4

108.0

106.6

101.7

98.9

96.0

91.3

88.2

Sources: Ministry of Finance; Eastern
Caribbean Central Bank; United Nations,
Human Development Report 2008;

World Bank WDI 2007; and Fund staff
estimates and projections.

1/ The Chart of Accounts for
expenditure classification was revised
in 2016 from GFSM 1986 format to GFSM
2001 format.

2/ Includes the impact of the debt
restructuring agreement for the 2025
bonds.

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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: MEDIA@IMF.org