Press Release No. 22/07

IMF Staff Concludes 2022 Virtual Staff Visit to Grenada

January 14, 2022

• The Grenadian economy is gradually recovering from the pandemic. The main risk to the outlook is a prolonged pandemic, with implications for recovery in tourism and offshore education sectors.
• The authorities’ comprehensive response has been critical in limiting the impact of the pandemic. Fiscal policy in the near term aims to continue supporting the vulnerable, resilience building and aggregate demand.
• The pandemic’s impact on the financial sector has so far been limited, partly reflecting loan moratoria. The enhanced frequency and intensity of monitoring of credit unions and insurers by the national nonbank regulator is welcome and should continue for the months ahead.

Washington, DC: An International Monetary Fund (IMF) team led by Ms. Huidan Lin met virtually with the authorities of Grenada during January 6–12 to discuss recent economic developments and follow upon the policy priorities raised during the 2019 Article IV Consultation and the 2020 Request for Disbursement under the Rapid Credit Facility.

At the end of the mission, Ms. Lin issued the following statement:

“The Grenadian economy is gradually recovering from the pandemic. The recovery has been led by construction and agriculture, supporting an expected expansion of real output by around 5 percent in 2022. Following a slow recovery, tourism initially responded positively to the lifting of domestic quarantine requirements in late 2021. Food, fuel, and transport prices are expected to continue pushing up inflation, also reflecting the impact of strained global supply chains. The current account deficit has widened, as weak tourism receipts, higher fuel prices and import demand from construction offset the recovery in agricultural exports. Public debt is estimated to have declined to 68.9 percent of GDP in 2021 (from 71.7 percent in 2020) and expected to continue declining supported by the economic recovery.

“The main risk to the outlook is a prolonged pandemic, with implications for tourism and students’ return to Saint George’s University (SGU). The ongoing outbreak globally and locally, coupled with a slow vaccination rate (with only one-third of the total population, or less than half of the eligible population, having received two doses, due to vaccine hesitancy) could weigh on tourism recovery and students’ return to the SGU campus (tourism and offshore education directly account for one quarter of the economy). This could then require additional government spending, exacerbating fiscal and external imbalances.

“The authorities’ comprehensive response has been critical in limiting the impact of the pandemic. In 2020–21, the escape clause was appropriately triggered under the Fiscal Responsibility Law and two stimulus packages were launched (2.4 percent and 1.2 percent of GDP, respectively) that provided targeted support including wage subsidies, income support, social transfers, and additional health spending. Given the ongoing pandemic, the 2022 Budget aims to increase social spending and capital expenditure to support the vulnerable, resilience building, and aggregate demand, with the escape clause triggered for the third year. The hard-won credibility of Grenada’s fiscal framework can be further enhanced through continued efforts to strengthen revenue administration, public investment management, and fiscal governance and transparency.

“The impact on the financial sector has so far been limited, partly reflecting loan moratoria. Credit growth has been moderate, particularly to businesses and individuals exposed to hard-hit sectors of offshore education and tourism. Loans under moratoria are slowly trending down as case-by-case workouts progress, but still represented a significant share of total loans for some banks as of end‑2021. Nonperforming loans are rising, albeit from a low level. Provisions will need to be strengthened among credit unions, if nonperforming loans were to continue rising. The enhanced frequency and intensity of monitoring of credit unions and insurers by the national nonbank regulator is welcome and should continue for the months ahead.

“The authorities remain committed to building resilience to natural disasters and climate change. Commendable progress has been made in the areas of marine and coastal protection, disaster resilience in schools, and registry of public assets to prepare for proper insurance and maintenance. The pandemic has also brought to the fore the urgency to further improve competitiveness to advance the authorities’ objectives of promoting sustainable growth and job creation.

“The mission team thanks the authorities for the open and productive discussions and expressed solidarity with the people and government of Grenada as they respond to the COVID pandemic.”