Despite improvements in the Grenadian economy as a result of the Structural Adjustment Programme, the Washington-based International Monetary Fund (IMF) continues to stress the need for a lowering in the island’s debt and more job creation.
An IMF team led by Nicole Laframboise visited Grenada from March 15-22 to conduct discussions with officials on the sixth review of Grenada’s IMF-supported program under the extended credit facility (ECF).
The ECF arrangement was approved on June 26, 2014 for an amount of SDR 14.04 million (then US$19.4 million, or 120 percent of Grenada’s quota at the IMF).
So far, total resources of SDR 12.04 million (about US$17.5 million) have been made available to Grenada under the arrangement.
At the conclusion of the latest visit, Laframboise made the following statement:
“Overall performance during this last phase of the ECF-supported Home Grown program has been strong.
The government has continued with steadfast implementation of reforms and made progress toward achieving the key program goals of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for durable growth.
The staff team has assessed that the government met all of the performance criteria and structural benchmarks due at end-December 2016. All the indicative targets were met, except for a minor under-spending on the World Bank-supported SEED program because of extra time needed to process candidates under the new eligibility system.
Nonetheless, it is worth noting that the results so far point to an improvement in the effectiveness and targeting of programs to those most in need.
Real GDP is estimated to have expanded by 3.9 percent in 2016, implying annual real GDP growth of 5.8 percent on average from 2014-2016. Activity in 2016 was driven by tourism, construction, and some pick up in domestic demand, while agriculture experienced weather-related contraction. Growth is expected to moderate to 2.5 percent in 2017, near its estimated potential.
Average CPI inflation rose to 1.7 percent in 2016 and is forecast at 2.6 percent in 2017 as oil and food prices start to rise. With steady tourism momentum, the external position remains stable.
The government achieved a primary surplus (fiscal balance excluding interest payments) in 2016 of 5.3 percent of GDP. Expenditures were kept under firm control, and tax revenues performed well across all categories, driven by improvements in compliance and administration as well as robust activity.
Grenada has also taken important steps towards completing the comprehensive debt restructuring started in 2014. Of the stock outstanding at program inception, over 90 percent has been restructured. Public debt is forecast to fall to 72 percent at end-2017, a drop of 36 percentage points from its peak of 108 percent in 2013. This sizeable decline in the debt-to-GDP ratio is attributed to all three key factors: debt relief and restructuring, fiscal adjustment, and strong GDP growth.
While improvements in economic indicators are noteworthy, there is still much to do to improve job prospects. Employment has grown on average by about 4 percent annually since 2014, but unemployment in Grenada is high, particularly for the youth. Labor force statistics suggest an important skills mismatch in the economy.
A review of education curriculums and new labour market programs to improve training and job search tools, in collaboration with the private sector, would help address this mismatch.
To achieve broader-based growth, the government is focusing on structural reforms to improve the supply response. Based on the natural endowments and market brand, the agriculture sector could be a more important source of growth and employment in Grenada.
The authorities are moving toward some liberalisation in the sector and staff urges them to continue in that direction. The government is also taking steps to remove impediments to doing business, including streamlining property registration processes and customs procedures, and strengthening building quality control and regulation.
Further consultations with the private sector in these areas could help identify pressure points to be addressed.
Despite marked progress, it is important to note that public debt is still relatively high and further effort is needed to reach the medium term target.
Grenada is a small open economy susceptible to external shocks, including from natural disasters, swings in key tourism markets, commodity price shocks, as well as potential volatility of citizen-by-investment revenues.
With these types of vulnerabilities, lower debt and higher reserve buffers will help the country mitigate the impact of external shocks to avoid output losses and setbacks in income and social progress.
In this light, continued policy resolve will be needed to safeguard the progress thus far and achieve the country’s medium term debt reduction goals. The government agreed with staff on the imperative of adhering to the strengthened policy framework.
Follow through on the fiscal responsibility legislation and the full set of systems and practices of public finance management developed over the past three years is critical to secure fiscal sustainability for future generations. It will also build credibility in the rules-based policy framework.
In support of this goal, the government is preparing a strategy to modernise the management of the public sector. This three-year strategy will aid in improving the operations and efficiency of the public sector as well as develop a fair and rational system of compensation and incentives. There will be extensive consultation on the strategy and its implementation with all stakeholders.
The government and people of Grenada should be commended for their achievements during the home grown program, particularly with respect to debt reduction, growth, and the strengthened fiscal policy framework. This success is due in no small part to the strong country ownership and high degree of consultation and collaboration with stakeholders, in particular the Committee of Social Partners and the Home Grown Monitoring Committee.
We encourage Grenada to press ahead with its medium term goals and to focus on ways to promote growth further and lower unemployment to improve the economic opportunities for all Grenadians.
The IMF remains committed to supporting Grenada. The team is grateful for the warm welcome extended to us by the authorities and representatives of the private sector, labor, civil society, and financial institutions, and for the constructive discussions.”