The FINANCIAL — The Executive Board of the International Monetary Fund (IMF) on May 18 completed the sixth and final review of Grenada’s performance under a program supported by a three-year arrangement under the Extended Credit Facility (ECF).
The completion of the review enables the disbursement of the equivalent of SDR 2 million (about US$2.8 million), bringing total resources made available to Grenada to the equivalent of SDR 14.04 million (about US$19.4 million). The ECF arrangement was approved by the Executive Board on June 26, 2014.
The government met all continuous and end-December 2016 performance criteria and structural benchmarks. The economy grew by about 3.9 percent in 2016, reflecting continued strong construction activity and steady external demand for Grenada’s tourism services. The pace of restructuring of public debt was accelerated in recent months and Grenada’s debt-to-GDP ratio declined to 83.4 percent at end-2016 from 108 percent in 2013, according to IMF.
Grenada succeeded in meeting the core objectives of the ECF-supported program of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for sustainable growth. With successful fiscal adjustment, debt restructuring and stronger growth during the program period, the debt-to-GDP ratio is well on track to meet the medium-term goal.
The authorities also passed a substantial number of legislative reforms that helped strengthen the fiscal policy framework, including the Fiscal Responsibility, Public Debt Management, and Public Finance Management Acts. The government raised total social spending under the program and improved the targeting of social transfers to those most in need. In addition, Grenada’s banking sector has strengthened and financial stability has improved.
While recent progress is commendable, Grenada remains a small open economy susceptible to external shocks, including from natural disasters and swings in tourism demand and commodity prices. While prospects for debt sustainability have vastly improved, public debt is still relatively high and the authorities need to continue their efforts to reach medium term debt targets and to lower unemployment, raise productivity, and broaden the base of growth.
Following the Executive Board’s discussion on Grenada, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“Grenada’s performance during the last phase of the ECF-supported program remained strong. The authorities met all performance criteria and structural benchmarks for the sixth review. Moreover, the program’s core objectives of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for sustained growth have been achieved. Going forward, the authorities should focus on advancing structural reforms that promote broad-based growth and lower unemployment, while adhering to the strengthened fiscal policy framework to secure debt sustainability.
“The authorities have made significant progress in reducing the debt-to-GDP ratio, but public debt is still high and the outlook remains vulnerable to shocks. Going forward, the authorities should adhere to the new rules-based fiscal policy framework to meet medium-term debt targets and build up reserve buffers to help the country mitigate the impact of future shocks. It will also be important to regularize all outstanding arrears and conclude discussions with remaining creditors as soon as possible.
“Significant progress has been made in improving public finance management, public debt management, tax administration, and targeting of social transfers. The next phase of reform calls for concerted implementation of the legislation passed during the program and follow through on the systems of accountability accompanying the fiscal framework to secure lasting success.
“To improve Grenada’s competitiveness and growth potential, priorities should focus on removing impediments to private sector activity, advancing institution-specific reforms to state-owned enterprises, and revitalizing the agriculture sector. Efforts to lower unemployment should focus on strengthening labor market skills and mobility and on implementing the public service management reform.
“The balance sheet of the banking system has been strengthened and financial stability has improved. Continued efforts are needed now to strengthen the regulation and supervision of the non-bank financial sector and ensure that the financial system contributes more effectively to private sector growth.”