IMF Executive Board Concludes 2023 Article IV Consultation with Grenada
July 19, 2023
Washington, DC: On July 17, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation [1] with Grenada and considered and endorsed the staff appraisal without a meeting. [2]
Grenada’ tourism-dependent economy continued to recover from the pandemic amidst rising energy and food prices. Growth is estimated to have reached 6.4 percent in 2022, driven by a tourism rebound and construction activity. Inflation rose moderately to 2.9 percent by end-2022, as the authorities’ policy response dampened the pass through from rising global food and fuel prices. Public debt is now back on a downward trend. The financial sector is well-capitalized and liquid although non-performing loans (NPLs) of credit unions have risen.
Economic growth is expected to continue in 2023, although at a slower pace of 3.9 percent, led by activity in tourism-related sectors. Inflation is expected to peak at 3.2 percent toward the end of this year. An economic slowdown of key tourist source markets, renewed increases in food and fuel prices, a natural disaster, or an abrupt decline in revenues from the Citizenship-by-Investment (CBI) program could weaken growth, worsen the fiscal position, and threaten debt sustainability. On the upside, shifting demand for services in advanced economies could make for even stronger tourism demand and investment projects may prove to have a more front-loaded impact on the economy.
The government is committed to a return to the fiscal rules in 2023, after triggering the escape clause in 2020–22 to address the fallout of the pandemic. It planned to amend the Fiscal Responsibility Law this year to best support the country’s sustainable development. The government is seeking international support to facilitate the implementation of its Disaster Resilience Strategy and a transition towards renewable energy, critical for enhancing resilience to natural disasters and economic competitiveness.
Executive Board Assessment
Fiscal buffers built up over the past decade have allowed the authorities to respond swiftly both to the pandemic and to higher energy and food prices.The government’s relief measures in 2022 helped protect the population from rising global food and fuel prices. However, more could have been done to target this support and preserve fiscal resources.
The economic recovery is taking hold, but important near-term downside risks remain. Real GDP is projected to expand by 3.9 percent in 2023. An economic slowdown of key tourist source markets, renewed increases in food and fuel prices, a natural disaster, or an abrupt decline in revenues from the CBI program could weaken growth, worsen the fiscal position, and threaten debt sustainability. On the upside, shifting demand for services in advanced economies could make for even stronger tourism demand and investment projects may prove to have a more front-loaded impact on the economy.
The external position is assessed to be weaker than the level implied by fundamentals and desirable policies. Estimated imputed reserves are assessed as adequate.
Public debt is now back to a downward path and debt is assessed to be sustainable. However, Grenada is found to remain “in debt distress” due to its outstanding arrears of about US$37.6 million to official bilateral creditors, including Trinidad and Tobago and Algeria.
The immediate policy priority is to return to the fiscal rules to preserve credibility.Spending on relief measures should decline as the initial food and fuel price spike dissipates. The focus should be on structurally improving the effectiveness and targeting of social assistance programs (including through improvements in the determination of eligibility) and moving away from broad-based support.
The planned amendment of the Fiscal Responsibility Framework should be used to simplify the fiscal rules, institute a more effective medium-term fiscal framework, and enhance accountability and oversight.Maintaining the framework’s current focus on debt reduction will continue to underpin debt sustainability. There is also a need for greater clarity on how fast debt should return to its medium-term path following a shock. A fully operationalized contingency fund will help smooth government expenditure and provide insurance for major shocks. Transparency should be enhanced by publishing public sector and SOE audited financial statements and improving data on CBI flows and their usage.
To make space for critical spending will require increasing the efficiency of both the tax system and public spending. The tax incentive framework should be updated based on a reassessment of the rationales, costs, and benefits of various incentives. Public investment management should be strengthened to address major bottlenecks in project implementation, improve project oversight, and strengthen the transparency and accountability of the procurement process.
The sustainability of public finances should be improved. Reforms to the National Insurance Scheme (NIS) through a phased increase in the contributory rate and pensionable age will help improve the financial position of the NIS and should be quickly implemented. The new pension system for new entrants to public service should be designed to be actuarially sound. The ongoing regularization of public sector workers should be guided by a thorough review of job functions that assesses the allocation of resources and help retrain public sector workers. A comprehensive wage review and payroll audits are needed to ensure the wage grid reflects the current labor market conditions.
The financial sector is stable, liquid, and resilient to shocks amid tightening global financial conditions, but NPLs at credit unions are at elevated levels. Lending standards and provisioning requirements should be tightened for credit unions while continuing to enforce corrective actions for those institutions that do not meet prudential requirements. Credit unions should strengthen their own debt collection efforts and bolster their internal governance and risk management practices. Achieving an effective risk-based and forward-looking supervisory approach will require more granular information, better analytical capacity, and well-designed stress testing. The authorities should find ways to improve financial literacy and should encourage financial institutions to leverage the ECCU regional credit bureau when it comes into operation.
To enhance competitiveness, Grenada should increase the domestic value-added of tourism, promote gender equality, and improve labor skills.Strengthening linkages with agriculture and fisheries will help increase the domestic value-added of tourism. Measures to boost agricultural productivity and build resilience to adverse weather events will be critical to securing future production. Policy efforts are needed to address identified gender gaps and incentivize female labor force participation. Training and apprenticeship programs should focus on increasing technical and entrepreneurial skills, better integrating academic institutions and employers, and facilitating the transition to employment.
Building resilience requires the government’s resolute implementation of its Disaster Resilience Strategy and an expeditious transition to renewable energy.Continued improvement in the regulatory framework can help incentivize the adoption of renewable energy. Concessional financing from multilaterals and climate funds can help catalyze private financing for investments in renewables and climate adaptation. Communication about the environmental impact of renewable energy projects would help foster public support and incentivize private financing of such projects.
[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] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
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Grenada: Selected Social and Economic Indicators, 2020-2028 |
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|
Rank in UNDP Human Development Index |
68 |
Infant mortality rate per '000 births (2021) |
14.4 |
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|
out of 189 countries (2021) |
Adult illiteracy rate in percent (2014) |
1 |
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|
Life expectancy at birth in years (2021) |
75 |
Poverty rate in percent of population (2019) |
25 |
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|
GDP per capita in US$ (2021) |
9010 |
Unemployment rate (2021 Q2) |
16.6 |
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|
Population in millions (2021) |
0.12 |
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|
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
|
|
Est. |
Proj. |
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|
(Annual percentage change, unless otherwise specified) |
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|
National income and prices |
|
|
|
|
|
|
|
|
|
|
GDP at constant prices |
-13.8 |
4.7 |
6.4 |
3.9 |
3.8 |
3.5 |
3.2 |
2.7 |
2.7 |
|
GDP deflator |
-0.3 |
1.2 |
1.8 |
3.0 |
2.8 |
2.0 |
2.2 |
2.2 |
2.2 |
|
Consumer prices, end of period |
-0.8 |
1.9 |
2.9 |
3.2 |
2.8 |
2.0 |
2.0 |
2.0 |
2.0 |
|
Money and credit, end of period |
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|
Credit to private sector |
3.1 |
3.8 |
2.1 |
5.2 |
4.8 |
4.6 |
4.2 |
3.8 |
3.5 |
|
Broad money (M2) |
9.1 |
8.5 |
9.9 |
5.7 |
4.3 |
3.3 |
3.2 |
2.8 |
2.8 |
|
(In percent of GDP, unless otherwise specified) |
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|
Central government balances (accrual) |
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|
Revenue and grants |
28.1 |
32.1 |
33.7 |
30.5 |
29.9 |
29.6 |
28.8 |
28.5 |
28.4 |
|
Expenditure |
32.7 |
31.7 |
32.7 |
28.4 |
28.0 |
27.6 |
28.5 |
28.5 |
28.6 |
|
o.w. Capital expenditure |
9.6 |
8.7 |
10.5 |
7.3 |
6.9 |
6.7 |
7.3 |
7.1 |
7.0 |
|
Primary balance |
-2.6 |
2.1 |
2.6 |
3.6 |
3.6 |
3.6 |
1.6 |
1.3 |
1.0 |
|
Overall balance |
-4.5 |
0.3 |
1.0 |
2.1 |
1.9 |
2.0 |
0.2 |
0.0 |
-0.2 |
|
Public debt (incl. guaranteed) 1/ |
71.4 |
71.0 |
64.6 |
61.1 |
58.3 |
55.0 |
51.9 |
49.3 |
47.1 |
|
Domestic |
16.2 |
15.6 |
13.1 |
9.3 |
8.0 |
7.3 |
6.3 |
5.7 |
5.1 |
|
External |
55.2 |
55.4 |
51.4 |
51.9 |
50.3 |
47.7 |
45.6 |
43.6 |
42.0 |
|
Savings-Investment balance |
-16.4 |
-13.2 |
-17.3 |
-14.8 |
-13.2 |
-12.2 |
-12.3 |
-11.8 |
-11.5 |
|
Savings |
15.2 |
15.4 |
14.4 |
10.7 |
12.4 |
13.7 |
14.7 |
15.5 |
16.2 |
|
Investment |
31.6 |
28.7 |
31.7 |
25.5 |
25.6 |
25.9 |
27.0 |
27.3 |
27.7 |
|
External Sector |
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|
Gross international reserves (millions of dollars) |
290.9 |
324.2 |
352.6 |
384.6 |
412.6 |
414.6 |
422.6 |
430.1 |
451.7 |
|
(in months of imports) |
5.6 |
5.2 |
5.2 |
5.5 |
5.8 |
5.6 |
5.5 |
5.4 |
5.5 |
|
Current account balance, o/w: |
-16.4 |
-13.2 |
-17.3 |
-14.8 |
-13.2 |
-12.2 |
-12.3 |
-11.8 |
-11.5 |
|
Exports of goods and services |
41.1 |
48.4 |
52.9 |
58.6 |
58.2 |
57.2 |
56.4 |
55.9 |
55.4 |
|
Imports of goods and services |
52.2 |
56.3 |
62.8 |
63.3 |
61.2 |
59.1 |
58.3 |
57.3 |
56.6 |
|
External debt (gross) |
92.9 |
95.5 |
92.7 |
88.2 |
83.6 |
79.5 |
76.0 |
72.8 |
70.2 |
|
Sources: Ministry of Finance; Eastern Caribbean Central Bank; United Nations, Human Development Report; World Bank WDI; and IMF staff estimates and projections. |
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1/ Includes the impact of the debt restructuring agreement for the 2025 bonds. |
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