Press Release No. 04/102

Press Release: Statement of the IMF Mission in Grenada

May 28, 2004

The following statement was released in St. George's on May 27, 2004, by an International Monetary Fund (IMF) mission:

"An IMF staff mission visited Grenada from May 13 to May 25, 2004 to conduct the 2004 Article IV Consultation discussions. The mission benefited from constructive discussions and exchange of views with the Prime Minister, other senior government officials and the leader of the Opposition, as well as representatives from the private sector, trade unions, and other members of civil society.

"Following two years of decline, the economy grew strongly in 2003 and is expected to continue to grow in 2004 by about 4 percent. Growth has been driven by a rebound in tourism and a surge in public sector construction activity, but agricultural and manufacturing production have declined. The fiscal outcome was mixed: an improved current balance was offset by large capital expenditures, and public debt continued to rise. Unemployment and poverty remain high even as private sector wages, including the minimum wage, have risen recently. Welcome improvements in the supervisory and regulatory regime of the offshore financial sector led to the removal of Grenada from the Financial Action Task Force (FATF) list of noncooperative countries and jurisdictions.

"The mission welcomes the government's objective of achieving a significant decline in the public debt-to-GDP ratio over the medium-term. However, the current fiscal stance-combining sizeable capital spending, control over current expenditures and efforts to strengthen revenue collections—is unlikely to be sufficient to achieve that objective and there is a need to pursue a comprehensive approach comprising fiscal adjustment, growth enhancing structural reforms, and debt management. With specific reference to fiscal adjustment, the government should adopt without delay an appropriately stronger fiscal position in order to, at least, stabilize the debt to GDP ratio in 2004, and establish clear targets for a significant reduction in the ratio over the medium-term. Moreover, it is crucial that the private sector becomes the engine of growth in the economy; to this end, the government should continue its efforts to create an enabling investment climate for the private sector, rather than providing concessions.

"The mission welcomes the government's recent efforts at building consensus for key economic reforms through consultations with the public. In a similar vein, the government is encouraged to generate support for the implementation of the needed reforms through enhanced efforts at public awareness programs."