Press Release No. 08/169

Press Release: IMF Executive Board Completes First Review under PRGF Arrangement with Grenada, Extends Arrangement, and Approves US$4.8 Million Disbursement

July 8, 2008

The Executive Board of the International Monetary Fund (IMF) has completed the first review of Grenada's economic performance under the Poverty Reduction and Growth Facility (PRGF) and approved the disbursement of an amount equivalent to SDR 2.98 million (about US$4.8 million). Given the delay in completing this review and sharp increases in world food and fuel prices, the Board also approved a one-year extension of the PRGF arrangement to 2010. It further approved the rephasing the remaining disbursements and augmenting the arrangement by SDR 1.46 million (about US$2.4 million).

The first review was delayed because of the time needed to address an unregulated bank, fiscal slippages, and the slow pace of structural reforms. The Executive Board also granted the authorities' request for a waiver of a missed 2006 quantitative performance criterion on the central government primary balance, which was missed in part because of higher-than-anticipated costs of reconstruction.

The three-year PRGF arrangement with Grenada was originally approved for a total amount equivalent to SDR 10.53 million (about US$17.1 million) on April 18, 2006 (see Press Release No. 06/75). Following the augmentation, the total amount of the arrangement will be equivalent to SDR 11.99 million (about US$19.4 million).

Following the Executive Board discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"The authorities are to be commended for implementing policies to bring the economic reform program back on track. Grenada's economy has rebounded from the devastation of Hurricanes Ivan and Emily, driven by spending for reconstruction and by tourism. While annual inflation is projected to increase in 2008, reflecting rising world fuel and food prices, medium-term prospects are favorable, given several major tourism projects under way and in the pipeline.

"The authorities have made considerable progress with their reform agenda, including introducing the National Reconstruction Levy and a flexible fuel pricing mechanism, strengthening tax administration, reducing vulnerabilities, and enhancing transparency and the investment environment. However, more progress needs to be made in strengthening fiscal policies.

"Restoring fiscal and debt sustainability remains the centerpiece of the authorities' program. The fiscal program targets an overall deficit for 2008 in line with debt sustainability. The authorities are taking steps to improve expenditure control and strengthen capacity to screen and prioritize capital projects.

"The authorities are working on a resolution strategy for an unregulated bank. The establishment of the Grenada Authority for the Regulation of Financial Institutions (GARFIN) will promote financial sector stability by enhancing supervision of the broader financial sector, including the insurance sector.

"The revised structural reform agenda reflects the authorities' priorities and implementation capacity and will focus in 2008 on enhancing the investment climate, reforming the tax concessions regime, and improving tax and customs administration.

"The authorities remain committed to reducing poverty and improving social indicators. They aim to address the impact of rising world fuel and food prices through targeted assistance to vulnerable groups. The Fund has approved an increase in its financial assistance to Grenada to help with the higher food import bill. Completion of the Country Poverty Assessment in December 2008 will support preparation of the full Poverty Reduction Strategy Paper," Mr. Portugal said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.