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Grenada: 2019 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Grenada

Author(s):
International Monetary Fund. Western Hemisphere Dept.
Published Date:
July 2019
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Economic and Political Context

1. Grenada’s impressive economic performance over the past five years is marked by a virtuous cycle of high growth and falling debt. At the root of this success are fiscal and structural reforms implemented under the authorities’ homegrown program that was supported by the 2014–17 ECF arrangement. Notwithstanding the large and sustained fiscal consolidation, growth surged in 2014–18, averaging 5½ percent per year. Good agriculture harvests early in this period, strong FDI into large tourism projects, solid US growth, and confidence effects from fixing fiscal imbalances and other policy improvements supported this expansion. Central government and government-guaranteed debt is set to fall below the regional target of 60 percent of GDP this year, after peaking at 108 percent of GDP in 2013.

Real GDP

(growth in percent)

Sources: ECCB and IMF Staff estimates.

2. The focus needs to shift toward making growth more sustainable, resilient, and inclusive. Implementation of many of the recommendations from the 2018 Article IV surveillance has begun, but progress has been mixed (Annex I). Without further progress in improving policies, Grenada’s long-term growth is unlikely to exceed 3 percent and unemployment would not decline further significantly. The economy’s potential is held back by gaps in infrastructure, external sustainability, public sector efficiency, and human development, and is exacerbated by emigration and related brain drain. Susceptibility to natural disasters further saps Grenada’s potential. Sizable regional disparities highlight the need for more inclusive growth. Financial sector soundness needs to be maintained to support sustainable growth. These challenges call for an intensification of well-tailored “second-generation” reforms.

3. Getting a broad buy-in to advance and deepen the reform agenda is a key challenge. While the government that was re-elected in 2018 fully controls the House of Representatives, it has been confronted by pressures to augment the already significant increases in public workers’ pension benefits. Pressures for higher spending could also emerge in other areas, including the cost of health care and the forthcoming round of government wage negotiations. The improved fiscal position and financing situation are lessening the appeal of fiscal prudence and further reforms. At the same time, implementation of an ambitious reform agenda is constrained by gaps and mismatches in the quality and efficiency of the public service.

Recent Developments

4. Growth remained vigorous in 2017–18, but was uneven across sectors. Activity expanded by 4–5 percent, led by booming construction in FDI-financed tourism-related projects. Tourism-related industries, including hotels and restaurants, and transportation grew by about 10 percent in 2018, with activity in these sectors being further temporarily boosted by cruise passenger traffic and port storage demand diverted from the region’s hurricane-struck countries at the turn of 2017/18. Unemployment declined from 23½ percent in 2017 to 21¾ percent in mid-2018, but remained elevated, with youth unemployment remaining particularly high (but also on a declining trend). Solid Citizenship-by-Investment (CBI) inflows (4½ percent of GDP) supported growth through FDI and financing of public projects. 1

Real growth per sector, 2018

(percent change)

Source: ECCB and IMF Staff estimates.

5. Inflation has remained subdued. CPI growth continued to be under 1 percent in 2018 (year-average basis) and was below the ECCU average due to relatively slower growth of regulated prices, and curbed by still-high unemployment and public wage restraint.

Average Inflation

(In percent, year-on-year growth)

Source: ECCB.

CPI and Components

(In percent, year-on-year growth)

Source: ECCB.

6. Compliance with the fiscal responsibility law (FRL) has facilitated record budget surpluses and rapid debt reduction. The primary surplus increased further to 6¾ percent of GDP in 2018, reflecting a combination of strong revenues (due to robust economic growth and strengthened tax administration) and rule-based expenditure restraint. Wage bill growth was curbed by continued limits on the hiring of public employees. Low execution of grant financing and institutional bottlenecks in project implementation combined to keep capital outlays subdued at 2¾ percent of GDP. Government debt fell from 70 to 63½ percent of GDP in 2018. This measure of debt excludes non-guaranteed debt of public enterprises of 3½ percent of GDP and the debt of PDV Grenada to Petrocaribe (some 11½ percent of GDP). Arrears to three bilateral creditors (about US$19 million, or 1.6 percent of GDP) remain to be regularized, which impedes an upgrading of Grenada’s in-distress rating (see DSA). The authorities are progressing with operationalizing a contingency fund to deal with shocks and natural disasters. Reflecting the improved fiscal position and sizable access to concessional loans, the government’s average borrowing costs continued to fall perceptibly.

Grenada’s Fiscal Performance in 2018
Fiscal Rule Targets2018 Article IV2018 Outcome
Primary Balance Rule3.5% of GDP surplus5.66.8
Primary Expenditure Rule 1/2% real growth cap2.02.0
Wage Bill/GDP9% of GDP ceiling8.47.9
Public Debt/GDP65.063.4

Excludes grants and NTF funded capital spending.

Excludes grants and NTF funded capital spending.

7. The fiscal surplus strengthened further in early-2019, despite moderate tax cuts. The top personal income tax rate and the corporate income tax rate were both reduced from 30 to 28 percent starting from 2019. Staff estimates a combined loss of 0.2 percent of GDP from these cuts. Nonetheless, the 2019 Q1 fiscal surplus has further increased year-over-year.

8. The external current account deficit likely narrowed in 2018. Imports continued to see double-digit growth in 2018, but they were more than offset by robust services exports due to strong tourist arrivals. The current account deficit is estimated to have fallen to 11 percent of GDP in 2018. FDI, partly related to the CBI programs, has been the main source of financing. Imputed reserves increased from US$195 million to US$236 million. These external indicators reflect two recent statistical revisions of BoP data, which on balance resulted in a widening of the external deficit by 3½-8 percent of GDP for 2014–18 relative to levels estimated during the 2018 Article IV consultation, due to revised services trade and primary income accounts.2

9. Bank credit growth has gained momentum, while lending by credit unions continued to expand rapidly. Banks have solid capital buffers while the NPL ratio, helped by effective enforcement procedures for delinquent loans, fell below 2½ percent in 2018. Supported by improved soundness and economic growth, the bank lending cycle swung into positive phase in 2017–18 after experiencing protracted deleveraging. This pattern is consistent with the longer duration and amplitude of the financial cycle than the business cycle observed in Grenada and some other ECCU countries. Tourism was a key contributor to 2018 bank credit growth. Credit union lending (which is dominated by mortgages and personal loans) grew by 12 percent in 2018, chipping away at banks’ market share. In late 2018, Canada-based Scotiabank announced the sale of its banks in the region to Trinidad-based Republic of Financial Holdings Limited (RFHL), which already has a subsidiary in Grenada.

Grenada: Financial Cycle VS. Business Cycle

(annual percentage growth, 3 year moving average)

Sources: ECCB and IMF Staff estimates.

Banks’ Capital Adequacy and Asset Quality 1

(in percent)

1/ Capital adequacy ratio is only for domestic banks.

Source: ECCB.

Credit Growth to Private Sector

(percent)

Sources: ECCB and IMF Staff claculations.

Grenada: Heatmap of Banking Sector Soundness 1/
Grenada2015Q12015Q22015Q32015Q42016Q12016Q22016Q32016Q42017Q12017Q22017Q32017Q42018Q12018Q22018Q32018Q4
Overall Banking Sector RatingMLLLLLLLLMMMLLLL
Credit cycleLLLLLLLLLLLLLLLL
Change in credit/ GDP ratio (pp, annual)(10.0)(8.6)(7.0)(7.0)(4.2)(3.9)(4.1)(3.5)(4.9)(4.7)(3.6)(2.7)(2.1)(1.8)(1.9)(1.6)
Grouch of credit/ GDP (%, annual)(14.1)(12.6)(10.8)(11.1)(6.9)(6.6)(7.0)(6.2)(8.7)(8.5)(6.7)(52)(4.1)(3.5)(3.8)(3.2)
Balance Sheet SoundnessMLLLLLLLLMMMLLLL
Balance Sheet Structural RideLLLLLLLLLMMMLLLL
Deposit-to-loan ratio152.1155.2155.7165.5165.0162.0166.8170.0176.3---#N/A#N/A#N/A#N/A
FX liabilities % (of total liabilities)7.78.79.58.88.88.89.08.79.69.710.311.111.411.612.212.4
FX loans % (of total loans)4.54.74.95.35.65.75.54.84.74.75.04.95.05.68.28.8
Balance Sheet BuffersMLLLLLLLLLLLLLLL
LeverageMMMMMMMMMMMMMMMM
Leverage ratio (%)4.64.85.15.15.05.45.55.76.06.56.56.76.46.06.05.6
ProfrtabTirtyHLLLLLLLLLLLLLLL
ROA(0.3)0.10.61.51.71.81.81.51.41.31.31.11.21.21.21.0
ROE(6.3)1.012.931.334.335.834.228.425.722.520.517.218.218.118.715.8
Asset qualityLLLLLLLLLLLLLLLL
NPL ratio13.713.011.610.08.27.97.36.76.15.24.73.93.53.12.62.4
NPL ratio change (%, annual)(2.8)(10.2)(20.8)(31.6)(40.1)(39.6)(37.3)(32.7)(25.6)(33.2)(35.6)(41.8)(42.6)(41.6)(45.4)(38.5)

The indicators do not reflect the forthcoming prudential regulations or the introduction of IFRS9 and thus the map can potentially underestimate the provisioning needs and related risks.

Source: ECCB

The indicators do not reflect the forthcoming prudential regulations or the introduction of IFRS9 and thus the map can potentially underestimate the provisioning needs and related risks.

Source: ECCB

Sectoral Share of Bank Credit to Private Sector

Sources: ECCB and IMF Staff calculations.

Sectoral Contribution of Bank Credit Growth in 2018

(percent)

Sources: ECCB and IMF Staff calculations.

10. Grenada’s external position is weaker than that implied by medium-term fundamentals and desirable policies (Annex II). The EBA-lite current account model points to the cyclically adjusted current account being 2¾ percent of GDP lower than the current account norm, implying a 7 percent REER overvaluation. The external sustainability approach suggests a real depreciation of 22 percent is needed to maintain NIIP at the current level. By contrast, the real effective exchange rate model suggests a 30 percent undervaluation, but this approach is less reliable for Grenada due to short data series. International reserves are at 250 percent of the IMF’s adequacy metric for credit-constrained economies. To resolve the remaining competitiveness gap, policies need to ensure continued prudence in current public spending while channeling the increases in public investment to address critical infrastructure and resilience gaps, catalyzing overall investment in renewable energy, and boosting the business environment to reduce costs in tradable sectors. Economy wide wage growth should also be contained.

Grenada: External Balance Assessment (EBA) Estimates(2018, in percent of GDP unless otherwise noted)
Multilaterally Consistent Cyclically adjusted Current Account NormCyclically adjusted Current Account BaselineCurrent Account GapElasticityREER gap 1/2/
Current Account Regression-7.3-10.1-2.8-0.407.1
External Sustainability Approach22.0
REER Regression-30.0

Positive number suggests overvaluation.

In percent.

Positive number suggests overvaluation.

In percent.

Outlook and Risks

11. Growth is set to remain above potential in 2019, but moderate going forward, consistent with a waning of FDI-driven construction. The baseline outlook projects long-term potential growth of 2¾ percent, continued compliance with the FRL, minor tax cuts announced in the 2019 budget, and modest progress on supply-side and structural fiscal reforms. It also internalizes the average economic and fiscal cost of natural disasters.3 Large fiscal surpluses would persist in 2019–2021, but the fiscal position would be loosened thereafter within the constraints of the fiscal rule, providing some support to the economy. The current account deficit would narrow only moderately as the gradual normalization of the construction-related imports would be broadly offset by the envisioned fiscal expansion. Bank credit is expected to register positive rates of growth.

Grenada: Medium-Term Scenario(In percent of GDP, unless otherwise noted)
EstimateProjections
20172018201920202021202220232024
Real GDP growth (percent)5.14.23.52.72.73.23.23.0
Inflation (percent, average)0.90.80.81.71.91.91.91.9
Primary fiscal balance5.76.86.26.56.64.52.50.0
Public sector gross debt70.063.558.853.850.648.345.044.2
External current account balance-12.0-11.2-11.2-10.2-8.6-9.1-10.0-9.9
Credit to GDP ratio51.250.050.350.349.748.947.446.4
Sources: Grenada’s authorities, ECCB, and Fund staff estimates.
Sources: Grenada’s authorities, ECCB, and Fund staff estimates.

12. Risks to the outlook are two-way, but on balance are tilted to the downside (Annex III). External downside risks are linked to the prospects for U.S. growth, retreat from international multilateralism, and tighter global financial conditions. Key domestic risks are mixed. On the one hand, the use of the fiscal space for productive investment could help sustain strong growth, along with a further up-tick in tourism-related FDI. On the other hand, boosting spending without gains in efficiency could undermine long-term growth, while possible difficulties in maintaining correspondent banking relationships could affect financial intermediation. Other risks include the perennial threat of large natural disasters, pension settlements or other spending that could breach the FRL, and an adverse court judgment on the Grenlec power company that could cause a one-off increase the public debt path.4

Authorities’ Views

13. The authorities broadly agreed with staff’s baseline growth projection and risk assessment. While they also expected the growth in the construction sector to moderate in the medium term, they thought that the current pipeline of FDI projects in the tourism sector as well as planned public investments to build climate resilience could support a higher growth trajectory than projected by staff. They were also hopeful that the stronger linkage between the agriculture and tourism sectors that was witnessed in 2018 would further gain momentum and bolster agricultural output. The authorities also noted that several initiatives they were implementing to boost youth employment (in agriculture, manufacturing, and ICT areas) would substantially contribute to inclusive growth. They agreed that the efficiency of public spending would be a key consideration in determining future growth and risks to it.

Fiscal Policies

14. The FRL has been successful in guiding fiscal policy, but its next phase of implementation should strike a proper balance between fiscal prudence and much-needed increases in productive spending. The government’s 3-year medium-term fiscal plan charts a policy course of large primary surpluses through 2021. Thereafter, once the public debt ratio reaches 55 percent of GDP, the FRL allows for recalibrating the primary balance target to stabilize debt at that level. An effective and prudent use of the fiscal space would be crucial to maximizing the economy’s productive potential and resilience to shocks, and to address pressing social issues related to poverty alleviation. However, if the fiscal space is used to finance large-scale unproductive spending, it could fuel debt sustainability concerns.

Grenada’s Fiscal Responsibility Law
Phase IPhase IIPhase III
Period/Milestone2015–20162017 until Debt/GDP reaches 55%After Debt/GDP reached 55%
Primary Balance RuleECF-utablerefported program targets3.5% of GDP surplus0.7% of GDP deficit 1/
Primary Expenditure Rule 2/2% real growth cap2% real growth cap3% real growth cap
Wage Bill/GDP9% of GDP ceiling9% of GDP ceiling9% of GDP ceiling

Staff assessment of debt-stabilizing primary balance based on current projections once the public debt-to-GDP target of 55 percent is reached

Excludes grants and NTF funded capital spending. The expenditure rule of 2 percent was based on the long-term average output growth estimated in 2014 and the 3 percent estimate is based on staff assessment at end 2018. Under the FRL, upon reaching phase III and every 5 years thereafter, potential growth and the debt stabilizing primary balance are to be re-estimated or recalibrated.

Staff assessment of debt-stabilizing primary balance based on current projections once the public debt-to-GDP target of 55 percent is reached

Excludes grants and NTF funded capital spending. The expenditure rule of 2 percent was based on the long-term average output growth estimated in 2014 and the 3 percent estimate is based on staff assessment at end 2018. Under the FRL, upon reaching phase III and every 5 years thereafter, potential growth and the debt stabilizing primary balance are to be re-estimated or recalibrated.

15. Grenada’s general infrastructure and resilience gaps are the main priorities to be addressed with the increased resource envelope.

  • Infrastructure gap. Public capital spending has been particularly low in recent years.5 The authorities’ assessments of infrastructure indicates a substantial maintenance gap -- a consequence of cumulative underinvestment and lack of maintenance of infrastructure objects in the past. Evidence suggests that future maintenance of neglected infrastructure would be costly as it would increasingly involve rehabilitation. In addition, Grenada has a broader infrastructure gap related to under-investment in areas that could catalyze new sources of growth, such as ICT, tourism, and transport infrastructure. Total infrastructure needs are estimated to be in the order of 5 percent of GDP annually.
  • Climate-resilience gap. Advances are being made in understanding Grenada’s climate resilience-building needs and benefits. The recent climate change policy assessment (CCPA) has documented progress and proposed a comprehensive approach to address climate risks. The authorities’ national adaptation plan identifies the needs for climate-related investment projects of 3 percent of GDP that are additional to those identified in the general infrastructure gap (Box 1). It is desirable that a significant part of these projects be financed with grants or concessional loans, although own resources are needed to back-stop and leverage process.

Long-term GDP Return of Resilient Investment

(Percent change relative to no resilient investment)

Source: IMF Staff estimates.

Box 1.Climate Resilience and the CCPA

The CCPA – prepared jointly by the IMF and World bank staffs – has assessed Grenada’s vulnerability to climate change and policy priorities.

Vulnerability. Grenada is highly vulnerable to climate events, both due to recurring damages from natural disasters and the effect of rising projected temperatures. Staff analysis indicates substantial negative long-run effects of the climate change on output and other economic variables.

Grenada: Economic Impact of Global Warming

(In percent change relative to 2018, unless otherwise indicated)

Source: Staff calculations based on authorities’ data.

1/ Based on increase of athmospheric temperatures in the RCCP8.5 scenario, the IPCC 2014 report: Low: 1.2 and 3.0 degrees Celsius by 2050 and 2100 respectively. Mean: 1.7 and 4.3 degrees Celsius by 2050 and 2100 respectively. High: 2.2 and 5.6 degrees Celsius by 2050 and 2100 respectively.

2/ In percentage points of GDP.

Preparedness. Grenada made strides in improving climate planning, including through detailed and costed 2017 Climate Change Policy and National Adaptation Plan. The operational capacity of the National Disaster Management Agency and other key institutions has been strengthened. Notable progress is being made in attracting grant financing, including climate funds, helped by the creation of a separate Ministry dedicated to climate resilience.

Key recommendations. Key areas for addressing the remaining agenda include (i) implementing mitigation measures (a modest carbon tax and/or feebates for cars); (ii) scaling up adaptation investment spending through 2030 (a key element of “structural” resilience); (iii) adopting a layered insurance approach for financial protection, including a dedicated contingency/saving fund (“financial resilience”); and (iv) pursuing a broad range of steps to improve government capacity in climate-related areas, including to improve disaster preparedness, social resilience, and private sector response (key elements of “post-disaster” resilience).

Financing. The financing needs are large and include scaling up public investment by 3 percent of GDP annually for climate resilience projects alone (of which about 2½ percentage points would be at the central government level) and financing additional insurance and self-insurance needs (with total size of the estimated protection of around 10 percent of GDP). While Grenada may have some options for own debt financing of some of this spending, it would be critical to maximize grant support to safeguard other essential spending needs. Staff simulations within a pro-active scenario suggest that financing all the core infrastructure and climate-related spending by debt could result in an upward public debt trajectory over the next decade.

Disaster Resilience Strategy. Grenada could benefit from a single operational document that integrates the three pillars of resilience-building (structural, financial, and post-disaster resilience) and secures its predictable financing.

Capital Spending

Public Debt

16. Staff’s scenario analysis illustrates policy trade-offs in the next FRL phase and the need for supporting reforms. The fiscal and economic outcomes would crucially depend both on specific policy choices and the pace of absorptive capacity improvements. The baseline scenario assumes modest reforms and capacity improvements, wherein the large fiscal expansion permitted by the FRL could result in spending on inefficient projects, with limited benefits for the economy. Instead, staff recommends pro-actively improving the capacities for implementation and strengthening accountability systems in the public service in parallel with using the fiscal space to improve service delivery and address infrastructure and resilience-building objectives (“pro-active” scenario). Staff’s simulations indicate that this scenario would have a higher payoff in terms of sustained growth. Given the substantial capacity bottlenecks in Grenada, the pace of improvements will likely be gradual. In this context, there are substantial risks that the pace of capacity improvements could surprise on the downside. Should these risks materialize, staff recommended saving financial resources until the capacity can be fully upgraded.

Figure 1.Grenada: Transition to Phase III of the FRL (in percent of GDP unless indicated)

Scenario definitions:

1. Baseline – uses current parameters of the FRL including a 3-year transition to Phase III with full upward adjustment in spending levels to achieve a debt-stabilizing balance. Assumes a modest implementation of the Public Sector Modernization Strategy and that general grant financing is sustained through 2024 before declining.

2. Pro-Active -- assumes a more gradual 5-year transition period to Phase III, which allows for implementation of fiscal reforms including (i) significantly improved quality of capital spending, (ii) stronger implementation of the Public Sector Modernization Strategy, (iii) greater well-targeted social protection schemes; and (iv) improved revenue efficiency and unproductive spending savings that helps generate savings for increased social protection.

3. Multipliers – draws on WP/19/72 that calculates fiscal multipliers for small states (investment shock), using the upper range and longer-horizons for the pro-active scenario due to improved efficiency of its spending relative to other scenarios.

4. Note: For comparability, the differences between the scenarios have concentrated on capital spending path. None of the scenarios assume additional impact of CCPA-related spending that could be financed by grants. All scenarios include the public pension payments as per the MoU in Annex V, excluding the cost of lump-sum benefits withdrawal.

Source: Staff estimates and projections.

17. There is scope for moderately amending the FRL to ensure a smooth transition to the next phase and support resilience-building while reinforcing fiscal sustainability. As foreshadowed in the 2018 Article IV Consultation, the authorities have been evaluating ambiguities in the FRL and other laws in the context of clarifying the operation of the rules and of alternative options for implementing the expenditure rule. Consistent with recent FAD technical assistance, staff discussed options to prioritize resilient investment while reinforcing fiscal prudence, focusing on:

  • Building further debt buffers by targeting a safer debt level below the FRL’s 55 percent of GDP trigger and fixing ambiguities in the FRL’s definition of the public debt threshold opting for a broader coverage (to include non-guaranteed SOE debt). This would improve the resilience of the budget to macroeconomic shocks and natural disasters and enable countercyclical fiscal policy. The size of the needed buffer would depend on the adequacy of savings funds and insurance protection.
  • Strengthening analysis of fiscal risks through comprehensive assessments of public enterprises, public private partnerships, and other contingent liabilities, while building capacity for evaluating risks from natural disasters, climate change, and long-term aging.
  • Reframing the primary expenditure rule. One option would be to shift to a current primary expenditure rule. Staff underscored that while this option had important benefits for upscaling resilient investment, it also carried risks of circumvention, necessitating significant improvements in accountability and capacity to classify, implement, and report capital spending. Another option discussed was exempting specific resilience-related projects from the primary expenditure rule. Staff underscored that this option also carried risks and entailed substantial capacity and governance requirements.
  • Reaping low-lying fruit. There were several options for modestly tweaking the expenditure rule with more limited risks, including: (i) exempting local counterpart funding for grant financing from the rule (grants themselves are already exempt); (ii) allowing only concessional loans to finance rule exemptions for resilience projects; and (iii) allowing the spending rule to follow a predetermined multi-year path instead of an annual ceiling based on prior-year spending.Staff advised that changes to the FRL should be carefully prepared with enough time allocated for devising consistent and well-sequenced implementation steps. Involving the fiscal responsibility oversight committee (FROC) in assessing and scrutinizing such changes would support public confidence and transparency.

18. The pursuit of “second-generation” reforms should anchor improvements in government efficiency, implementation capacity, and policy inclusiveness. A concerted policy commitment with advances in public financial management is required in the following areas:

  • Public service. Implementation of the 4-pillar Public Sector Management Reform Strategy (2017–19) has lagged due to inadequate financial and human resource capacity (Annex IV). Little progress has been made on re-tooling the public service and strategic compensation management. Thus, functional reviews and the job analysis and evaluations -- critical to assessing strategic staffing needs and the framework for wage bargaining for the 2020–22 period, set to kick-start in June-- are mostly at the initial stages.6 A review of the quantitative performance target indicators of ministries to improve transparency, accountability, and efficiency has not been undertaken. Given these lags, it is particularly important to set prudent wage-setting parameters for the 2020–22 cycle.
  • Public investment management. The authorities expect improved outcomes from the new procedure for project execution that was adopted in early-2019. Project accounts management was moved to the Treasury and capacity enhanced while the responsibilities for project coordination and implementation were shifted to the Ministry of Implementation, but staff with critical skills (for example engineers) are needed. The Priority and Planning Consultative Committee, headed by Permanent Secretary at the Ministry of Finance, has been tasked to select prioritized projects, monitor project implementation, and report to the Cabinet on a quarterly basis. The Treasury aims to complete a registry of government’s physical assets to facilitate their valuation and management by end 2019.
  • Public enterprises. All 24 entities provided financial reports for 2018. With technical assistance from CARTAC and the World Bank, the authorities strengthened monitoring and established key performance indicators, and quantified risk assessments are expected in 2019. The second phase of reforms to adjust tariffs to reflect cost recovery and investment needs has started for the water and solid waste entities and should be completed in 2019. It is crucial that reviews of the other entities proceed expeditiously and the oversight committee on SOE operations and investment be re-activated. There has been no progress on restructuring the Concrete and Postal enterprises. PDV Grenada Ltd., a joint venture between Venezuela’s PDVSA and the government, is insolvent and the authorities have sought legal advice on its status to help devise a resolution strategy.7 Commissioners and Chief Executive Officer for the Utilities Regulatory Commission were appointed in April, with the Commission expected to become operational by end-2019.
  • Social assistance. The core targeted assistance program, Support for Education, Employment and Development (SEED) added almost 500 beneficiaries in 2018. However, plans to further enhance the level and targeting of social assistance hinge on a completion of the Country Poverty Assessment, which is taking longer than anticipated.
  • Pensions. Drawing on the government-commissioned actuarial report, the national insurance scheme has engaged the public about the need for containing and financing the costs of future pension liabilities. Increases in social security contribution rates from 9 to 11 percent and a phased raising of the retirement age from 60 to 65 are a part of a package of measures that are being discussed. Staff underscored the importance of persevering with these reforms given the unfavorable demographic trends over the next few decades and the uncertain spill-overs from the public sector pension benefit situation, which will depend on the outcome of the arbitration process (Annex V). Staff advised continued efforts to contain the fiscal costs and identification of offsetting measures should the court rule unfavorably, while applying parametric reforms both to public and private segments of the system. The measures should include raising the pensionable age for public employees, given adverse incentives of the duality of the pension system for private sector employment.
  • Tax administration. The Inland Revenue Division (IRD) and Customs and Excise Division (CED) are expected to benefit from new initiatives to enhance compliance by using third party information, tax compliance certificates, and public outreach. However, staffing needs and shortcomings in HR and risk management capacities in both divisions need to be addressed. IRD’s arrears collections have averaged 1 percent of GDP annually from a stock of about 20 percent of GDP. A stronger effort is needed to determine collectible amounts and set a time bound period (3 years) for collections, in line with the tools under the 2016 Tax Administration and Procedures Act. Staff welcomed plans and encouraged prompt action to upgrade IT systems at the IRD.

Public Investment Management Assessment – 2018

Source: IMF staff and Authourities’ estimates.

Illustrative Scenario of Pension System Flows, Combined Public and Private, 2015–2050

(Percent of GDP)

Source: National Insurance Scheme, United Nations, and IMF Staff Estimates and Projections.

1/ The scenario is illustrative and assumes that increases in total spending on benefits are entirely driven by demographic projections. As such, it implicitly assumes that any initiatives to contain the level of current pension benefits are defeated or reversed.

2/ Assumes that pensionable age increases from 60 to 65 in gradual steps to be completed by 2030.

3/ Assumes that contribution-based revenue remains constant in terms of GDP at the 2015 level.

19. The improved fiscal situation offers an opportunity to upgrade asset/liability management. To this effect, staff recommended: (i) regularizing all remaining bilateral arrears; (ii) fully operationalizing the contingency fund to address natural disasters; (iii) building insurance layering by optimizing CCRIF coverage and using other instruments for comprehensive risk management as recommended in the CCPA; and (iv) pre-paying expensive existing debt.

20. A comprehensive disaster resilience strategy (DRS) would be a key vehicle to close the climate-resilience gap. The country-led and country-owned DRS could integrate existing plans and frameworks, including the authorities’ mitigation and adaptation plans and operational disaster response documents, augmenting them with a fully-fledged disaster risk management framework. It could also build on the successes in attracting climate fund financing and the ongoing work to better understand general infrastructure and climate resilience gaps. The DRS could be operationalized by seeking inputs from all relevant stakeholders, including government and private sector partners, official donors, and climate funds. The key parameters would be imbedded in a quantified macroeconomic framework and synchronized with the budget processes and documents.

Authorities’ Views

21. The authorities emphasized the importance of the FRL in providing discipline and underlined their commitment to the rules. Efforts were underway to strengthen the FRL to monitor debt in the broadest sense. With respect to reframing the expenditure rule, the authorities indicated commitment to a prudent approach, leaning toward considering limited exemptions for specific resilience-building projects, and recognizing the need for improving capacity before making substantial changes. They also noted that the FROC would have a role in assessing these changes. They indicated that they were actively working to regularize arrears with the remaining bilateral creditors and expected an agreement with Algeria in mid-2019. While committed to reforming pensions and expanding health care coverage and benefits consistent with the dialogue with stakeholders, they noted that the costs would fit within the framework of the FRL and fiscal sustainability more generally. They reaffirmed readiness to take offsetting measures to mitigate risks arising from pension liabilities. They acknowledged the criticality of fiscal structural reforms and recognized the 2017–19 public service reforms’ delays. They were committed to intensify implementation of the public service reform management strategy. They re-affirmed commitment to prudent wage-setting for the 2020–22 cycle. They indicated that the Country Poverty Assessment is underway and would be completed in 2020. They expressed interest in pursuing an integrated DRS and looked forward to next steps.

Financial Sector Policies

22. Rapid growth of lending by credit unions and ongoing changes in the financial sector’s ownership and regulations warrant monitoring. Staff’s estimation based on historical bank data and growth-at-risk methodology (Annex VI) suggests that rapid credit growth is associated with lower subsequent GDP growth, as the vulnerabilities that accumulate during credit booms materialize over time. As documented by the recent technical assistance, the oversight, data, and capital of credit unions need further strengthening. Additionally, buoyant property markets and proliferation of other nonbank financial intermediaries raise the need for a comprehensive assessment of systemic risks. In the banking sector, concentration risks from the sale of Scotiabank should be monitored (the merged bank would have about one-half of banking assets). The introduction of IFRS9 and the new ECCB prudential standards also warrants monitoring.

Credit Growth and Real GDP Growth in the Medium Term

Source: staff estimates

Note: The columns are regression coefficients that represents a percentage point change in the 12 quarters ahead real GDP growth forecast associated with a one standard deviation increase in bank credit growth rate, at different quantiles (for quantiles regression) and by OLS estimation. The error bars represent 10 percent confidence intervals. See IMF WP/19/36 for further description of empirical methodology.

23. Correspondent banking relationships (CBRs) and AML/CFT continue to elicit policy imperatives. While Grenadian banks have not experienced a significant loss in CBRs, Scotiabank’s move could entail a potential re-evaluation of existing relationships following the exit. Non-bank financial institutions may have trouble maintaining access to banks based on AML/CFT concerns. While Grenada was removed from EU’s grey list of tax havens, its CBI program is listed by the OECD among schemes posing a potential high-risk to the integrity of the Common Reporting Standard.

24. Further enhancement of regulation and supervision by the local regulator in coordination with the ECCB and regional peers would bolster financial stability and integrity:

  • The institutional capital ratio for the credit unions should be raised from 7 to 10 percent and its definition should be tightened in line with World Council of Credit Unions standards through a phased approach. Regulations on asset classification and provisioning for credit unions should be issued, and their regular stress tests should be continued and extended to insurance companies.
  • The capacity of the local regulator should be strengthened while improving cross-border coordination with ECCB and ECCU’s local regulators in the context of ongoing steps toward regional harmonization of oversight of the non-bank financial sector, which is particularly important for the foreign-dominated insurance sector. Regional coordination is also important for contingency planning and monitoring of systemic risks, with the need for further progress in identification and monitoring of systemically important financial institutions, analyzing interconnectedness, and assessing risks of overheating in property markets.
  • Forceful compliance with AML/CFT standards and strict enforcement of the due diligence requirements needs to be ensured. Cooperation between the local regulator (GARFIN), Grenada’s Financial Intelligence Unit, and the ECCB on AML/CFT aspects of financial sector supervision that started in 2018 should be intensified.

Authorities’ Views

25. The authorities agreed with staff regarding the direction of policies while clarifying details of implementation. Although they would increase the institutional capital ratio to 10 percent as agreed regionally, they noted that the definition of institutional capital would still need to be coordinated and envisaged a transition period of 3 years. They confirmed that the progress on the reginal integration of insurance supervision is more advanced than that of credit unions given the international nature of the insurance industry. In this context, they emphasized that adequate resources were needed to be secured for supervision of credit unions, which for now would stay at the national level. The authorities emphasized they were forcefully complying with financial integrity requirements but expressed concerns over recurrence and incremental nature of such requirements, which increase transaction costs and undercut competitiveness of financial institutions relative to other jurisdictions. Given limited human resources and tight deadlines, these efforts divert resources from other critical priorities.

Ease of Doing Business Compared with the ECCU Countries

(Ranking higher = worse)

Source: Doing Business (World Bank).

Performance in the Doing Business Ranking

Source: Doing Business (World Bank).

Supply Side Reforms

26. Improving the business environment should complement fixing the infrastructure and resilience gaps for a more broad-based and resilient growth. Grenada’s ranking in the WB Doing Business Index denotes sizable gaps in construction permits, property registration, and trading across borders. The barriers to business environment and high export/import costs limit opportunities for further growth in construction, tourism, and other sectors. Better labor market institutions are needed to match those opportunities with Grenada’s still-young labor force. Reform acceleration is needed in:

  • Tourism. This dynamic sector accounts for a quarter of the economy, but cross-country comparisons suggest potential for greater contribution. Enhancing links between tourism and other sectors, including through agri-tourism, medical tourism, and integrating hotel services with the economy could enhance positive spillovers.
  • Energy. Nearly 99 percent of Grenada’s energy is sourced from imported fuel. Significant projects in wind, geothermal, and photovoltaic energy have been put on hold pending operationalization of regulations to the 2016 electricity supply act, which is critically important to kick-start progress.
  • Trade facilitation. Ongoing efforts to simplify trading and registration procedures should be accelerated. The customs administration should take the lead in implementing the WTO’s Trade Facilitation Agreement, increasing communication with importers, and fully deploying the automated system for customs data.
  • Labor Markets. Unemployment is particularly concentrated among the unskilled and the young. Upgrading education opportunities and active labor market policies, including better vocational and ICT training (through a review of educational curriculum and of the effectiveness of existing government programs) and employment matching services (through well-functioning central depository of labor market data), would help tap the labor force’s potential.

Tourism Contributions to GDP in the ECCU

(in percent)

Sources: World Travel and Tourist Council estimates.

Unemployment Rate

(in percent)

Source: Central Statistical Office

Job Supply vs Demand by Education

(2018, number of persons/jobs)

Authorities’ Views

27. The authorities confirmed plans to intensify efforts to address gaps in doing business. In this regard, they indicated that a Digital for Resilience Governance Project is currently being appraised by the World Bank. The authorities shared plans to expand CBI tourism-related projects to the North of the island, which will help reduce unemployment in the rural areas. They elaborated on plans to boost training opportunities, upscale employment programs for the young, and create a usable employment-matching database.

Other Issues

28. Governance. The authorities should continue improving fiscal governance (revenue institutions, spending outcomes, PFM controls), the regulatory framework (ease of doing business, state import/export monopoly for certain products), and the rule of law.

29. Statistics. More reliable and timely statistics are needed to inform inclusive growth policies. Priorities include: (i) extended coverage of the public sector; (ii) compiling pre-2014 BOP data under BPM6; (iii) updating data on the income distribution (not available since 2008), and (iv) compiling timely quarterly GDP. Better coordination and data sharing should be promoted among the statistics office, survey respondents, and the ECCB.

30. Long-term planning. Grenada’s forthcoming 2020–35 development plan should be supported by realistic medium-term plans to operationalize progress and costing estimates.

Authorities’ Views

31. The authorities agreed with the need to bolster statistics, as well as monitoring and evaluation systems to better support evidence-based decision making. They pointed to recent initiatives to improve governance, including for project implementation procedures.

Staff Appraisal

32. The Grenadian economy continues to grow robustly, helped by external tailwinds and the fruits of reforms. Vigorous activity in tourism and construction has sustained solid GDP growth. However, unemployment remains high, particularly among the young. Going forward, efforts should focus on making growth more sustainable, resilient, and inclusive. While the outlook is promising, various risks could weigh on growth and stability.

33. Adherence to the fiscal responsibility law (FRL) has served Grenada well. The FRL has incentivized prudent expenditures and impressive debt reduction. Contrary to conventional wisdom, the fiscal prudence has not impaired high growth. Improved debt situation has facilitated access to concessional financing and helped lower borrowing costs. Existing FRL provisions allow for reducing the fiscal balance substantially upon attaining the 55 percent of GDP debt trigger. An effective and prudent use of the fiscal space would be crucial to maximize the economy’s potential and resilience in the face of proliferating pressures for other spending.

34. Grenada’s infrastructure and resilience gaps are key priorities that need to be addressed with the increased resource envelope. Based on the authorities’ national adaptation plan, the recent climate change policy assessment has identified the need for resilience-related public investment of up to 3 percent of GDP annually over the next 10 years. In addition, Grenada has sizable general infrastructure and maintenance gaps. Fixing these gaps will have a considerable payoff in terms of sustained growth and economic and fiscal resilience. Concessional external financing should be maximized to address these gaps, and domestic resource mobilization can usefully back-stop this progress.

35. The fiscal framework could be further enhanced to facilitate more productive spending while safeguarding debt sustainability. There are options to reframe the primary expenditure rule to create space for resilient investment. To safeguard against risks of the rule being circumvented, improved procedures and classification criteria robustly prioritizing efficient spending and distinguishing current from capital spending should precede the reframing of the rule. Debt-financed investment projects not meeting key efficiency and cost-benefit criteria should await improvements in implementation capacity. Given that the latter would increase gradually, targeting safer debt levels below the FRL’s ceiling would usefully protect Grenada’s fiscal position from shocks. Any changes to the FRL should be carefully prepared to allocate enough time for consistent and well-sequenced implementation.

36. Ambitious fiscal structural reforms should underpin improvements in the spending quality, implementation capacity, and mitigation of fiscal risks. The implementation capacities and accountability systems in the public service should be substantially strengthened. To this effect, ongoing delays in the implementation of the 2017–19 public service reform need to be forcefully addressed. The key pillars of this reform, combined with using the fiscal space to improve service delivery and address infrastructure and resilience gaps, would catalyze productive spending. At the same time, to safeguard these gains from being crowded out by other spending pressures, sectoral structural reforms, including in the areas of aging-related spending, tax administration, public enterprise efficiency, and asset/liability operations are needed. Continued improvements in public financial management would maximize gains from these reforms.

37. Financial sector policies need to monitor potential imbalances to solidify the sector’s contribution to growth. Growing property markets and proliferation of non-bank financial intermediaries raise the need for contingency planning and monitoring of systemic risks. The capacity of local regulator and its coordination with ECCB and ECCU’s peer regulators should be further strengthened, with a view to continually harmonizing oversight of non-banks. The rapid expansion of lending by credit unions should be matched by strengthening their oversight, data, and capital. Strict compliance with AML/CFT standards should help maintain Corresponding Banking relationships and pre-empt any financial integrity concerns.

38. Addressing impediments to business climate is essential for better competitiveness and growth. Sizable current account deficits highlight the need for structural reforms to boost competitiveness. Longstanding efforts to close gaps in the business environment through digitalization of procedures should be accelerated in tandem with steps to reduce export/import costs. Ongoing sectoral reforms should be advanced to enhance penetration of tourism and unlock investment in renewable energy. Further improvements in labor market institutions and education and training programs are needed to match job opportunities with Grenada’s still-young labor force.

39. Grenada could benefit from integrated strategies that leverage improved operational planning, governance, and statistics. Grenada’s strategy documents, including the forthcoming 2020–35 Development Plan, should aim to build resilience and be supported by realistic short-to-medium-term plans to operationalize progress. In this context, a national Disaster Resilience Strategy could target comprehensive improvements in resilient infrastructure, financial protection, and post-disaster response. The strategy could act as a platform for coordinated action and support from development partners. These strategies should rely on improved statistics, with the overdue update of social data being essential to the design of inclusive growth policies. All these steps require improved economic governance and better coordination between government agencies.

40. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle.

Figure 2.Grenada: Recent Economic Developments

Figure 3.Grenada: Unemployment and the Labor Market

Figure 4.Grenada: External Developments

Figure 5.Grenada: Monetary Developments

Figure 6.Grenada: Fiscal Developments

Figure 7.Grenada: Financial Sector Developments

Table 1.Grenada: Selected Economic and Financial Indicators, 2014–24
Rank in UNDP Human Development Index79Infant mortality rate per ‘000 births (2016)9.9
out of 179 countries (2016)Adult illiteracy rate in percent (2004)4
Life expectancy at birth in years (2014)73Poverty headcount index (2008)38
GDP per capita in US$ (2018)10,950Unemployment rate (2018)21.7
Population in millions (2018)0.11
20142015201620172018201920202021202220232024
Projections
(Annual percentage change, unless otherwise specified)
Output and prices
Real GDP7.36.43.75.14.23.52.72.73.23.23.0
Nominal GDP8.29.46.56.15.24.74.64.85.35.35.1
Consumer prices, end of period-0.61.10.90.51.40.91.91.91.91.91.9
Consumer prices, period average-1.0-0.61.70.90.80.81.71.91.91.91.9
Output gap (percent of potential GDP) 1/-0.11.50.40.80.80.60.0-0.4-0.30.00.1
Real effective exchange rate-3.52.5-0.2-2.6-2.4
Central government balances (accrual)(In percent of GDP, unless otherwise specified)
Revenue24.524.526.225.626.525.625.525.325.325.124.8
Taxes18.219.020.921.422.021.521.521.421.421.421.4
Non-tax revenue 2/2.22.21.81.71.61.61.61.61.61.61.6
Grants4.13.23.52.62.92.42.42.32.22.11.8
Expenditure 3/29.225.723.922.621.721.520.920.522.424.226.3
Current primary expenditure16.414.016.917.317.016.516.516.416.717.217.7
Interest payments3.53.32.92.72.02.11.91.81.71.61.5
Capital expenditure9.28.34.22.62.72.82.52.44.05.47.1
Primary balance 2/-1.12.15.25.76.86.26.56.64.52.50.0
Overall balance-4.7-1.22.33.04.84.14.64.82.80.9-1.4
Public debt (incl. guaranteed) 4/101.890.181.670.063.458.753.750.648.344.944.2
Domestic34.128.725.022.619.016.714.312.010.49.59.8
External67.761.456.647.444.542.039.438.637.935.434.4
Money and credit, end of period (annual percent change)
Broad money (M2)4.15.21.34.05.94.74.64.85.35.34.8
Credit to private sector-5.1-3.8-0.20.62.85.24.73.63.72.22.7
Balance of payments
Current account balance, o/w:-11.6-12.2-11.0-12.0-11.2-11.2-10.2-8.6-9.1-10.0-9.9
Exports of goods and services52.551.249.351.354.254.054.154.153.953.653.4
Imports of goods and services54.150.949.853.155.254.954.152.552.853.352.9
Capital account balance7.13.34.75.95.25.25.15.04.94.84.5
Financial account balance-6.2-5.8-2.2-5.8-5.8-6.0-5.1-3.6-4.2-5.2-5.4
Errors and omissions-1.83.24.10.20.20.00.00.00.00.00.0
External debt (gross)143.0133.2125.7117.4108.0106.6101.798.996.091.388.2
Savings-Investment balance-11.6-12.2-11.0-12.0-11.2-11.2-10.2-8.6-9.1-10.0-9.9
Savings6.75.59.19.011.09.09.110.110.811.213.1
Investment18.317.720.120.922.220.219.318.719.921.222.9
Memorandum items:
Nominal GDP (EC$ million)2,4612,6922,8663,0433,2023,3523,5083,6773,8734,0804,289
Net imputed international reserves
Months of imports of goods and services3.74.34.03.64.14.14.03.83.63.63.6
Sources: Ministry of Finance; Eastern Caribbean Central Bank; United Nations, Human Development Report 2008; World Bank WDI 2007; and Fund staff estimates and projections.

The output gap is based on an HP-filter decomposition of actual and projected real GDP into cycle and trend (with lamda equal to 6.25) and end-of-period trend growth assumed at 2.7 percent. In some periods, including 2016, trend growth is higher than actual growth, causing the output gap to shrink even when the actual growth is above long-term trend growth.

Includes Citizenship-by-Invesetment (CBI) related non-tax revenue.

The Chart of Accounts for expenditure classification was revised in 2016 from GFSM 1986 form at to GFSM 2014 form at.

Includes the impact of the debt restructuring agreement for the 2025 bonds.

Sources: Ministry of Finance; Eastern Caribbean Central Bank; United Nations, Human Development Report 2008; World Bank WDI 2007; and Fund staff estimates and projections.

The output gap is based on an HP-filter decomposition of actual and projected real GDP into cycle and trend (with lamda equal to 6.25) and end-of-period trend growth assumed at 2.7 percent. In some periods, including 2016, trend growth is higher than actual growth, causing the output gap to shrink even when the actual growth is above long-term trend growth.

Includes Citizenship-by-Invesetment (CBI) related non-tax revenue.

The Chart of Accounts for expenditure classification was revised in 2016 from GFSM 1986 form at to GFSM 2014 form at.

Includes the impact of the debt restructuring agreement for the 2025 bonds.

Table 2a.Grenada: Operations of the Central Government, 2014–2024(In EC$ million)
201420152016201720182019201920202021202220232024
Est.BudgetProj.
Total revenue and grants602.8658.5751.6778.2849.1964.1857.3894.6931.8978.01,023.61,064.9
Revenue502.3571.3651.6700.1754.8780.4775.9811.9847.8892.9937.3985.7
Tax revenue448.1511.8600.5651.9703.0726.5721.7755.2788.4830.3871.4916.3
Taxes on income and profits89.9101.7127.3140.6153.9157.4153.2160.3168.0177.0186.4196.0
Taxes on property21.323.323.924.329.228.023.925.026.227.629.030.5
Taxes on goods and services193.4214.0244.8263.7276.4287.3288.9302.3316.8333.6351.4369.7
Taxes on international trade143.5172.8204.5223.3243.4253.8255.8267.7277.5292.1304.5320.1
Nontax revenue54.259.551.148.251.853.954.256.759.462.666.069.3
Citizenship by Investment Program0.316.33.44.93.33.13.43.53.73.94.14.3
Fees, fines and sales19.018.523.122.825.417.7
Licenses30.018.416.618.219.019.7
Grants100.587.2100.078.194.3183.781.582.783.985.186.279.2
Total expenditure and net lending 1/717.6690.6685.6686.6695.3834.3719.1734.6754.7867.7985.91,126.0
Current expenditure490.9467.0565.5605.9608.5637.9624.3646.7667.1711.0766.9821.3
Wages and salaries242.4215.3240.4246.9251.6275.4260.6272.2284.7306.7331.3357.9
NIS contributions11.410.611.218.412.713.513.213.814.515.717.018.4
Goods and services72.275.9117.6126.5130.7124.8129.8135.8137.8148.8165.2178.0
Transfers77.775.3113.9133.2150.3152.2151.0157.2165.4175.9189.1203.9
Transfers Abroad (Contributions)13.113.814.320.819.6
Grants & Subventions (other private sector)24.223.741.448.156.5
Public Assistance0.00.016.920.621.5
Pensions40.337.841.443.752.655.651.152.155.459.464.068.8
Interest payments87.289.982.381.063.272.069.867.664.863.964.363.1
Capital expenditure and net lending226.7223.6120.180.686.8196.494.887.987.6156.6219.0304.7
o/w natural disaster16.817.518.419.420.421.4
Grant-financed90.687.274.064.274.9178.576.377.478.679.680.773.7
Non-grant financed136.1136.546.116.411.917.918.510.59.077.0138.3231.0
Primary balance 2/-27.657.8148.3172.6217.0201.8208.0227.6241.9174.3102.02.0
Overall balance-114.8-32.266.091.6153.8129.8138.3160.0177.1110.337.6-61.1
Public Debt2,504.52,425.42,338.12,130.92,030.81,983.81,968.11,884.81,860.01,871.11,833.51,894.6
Memo items:
Nominal GDP (EC$ millions)2,4612,6922,8663,0433,2023,3523,3523,5083,6773,8734,0804,289
Sources: Country authorities and Fund staff estimates.

The Chart of Accounts for expenditure classification was revised in 2016 from GFSM 1986 format to GFSM 2014 format.

The primary balances include non-tax revenue from the Citizenship by Investment program.

Sources: Country authorities and Fund staff estimates.

The Chart of Accounts for expenditure classification was revised in 2016 from GFSM 1986 format to GFSM 2014 format.

The primary balances include non-tax revenue from the Citizenship by Investment program.

Table 2b.Grenada: Operations of the Central Government, 2014–2024(In percent of GDP)
201420152016201720182019201920202021202220232024
BudgetProj.
Total revenue and grants24.524.526.225.626.528.825.625.525.325.325.124.8
Revenue20.421.222.723.023.623.323.123.123.123.123.023.0
Tax revenue18.219.020.921.422.021.721.521.521.421.421.421.4
Taxes on income and profits3.73.84.44.64.84.74.64.64.64.64.64.6
Taxes on property0.90.90.80.80.90.80.70.70.70.70.70.7
Taxes on goods and services7.98.08.58.78.68.68.68.68.68.68.68.6
Taxes on international trade5.86.47.17.37.67.67.67.67.57.57.57.5
Nontax revenue2.22.21.81.61.61.61.61.61.61.61.61.6
Grants4.13.23.52.62.95.52.42.42.32.22.11.8
Total expenditure and net lending 1/29.225.723.922.621.724.921.520.920.522.424.226.3
Current expenditure19.917.319.719.919.019.018.618.418.118.418.819.1
Wages and salaries9.98.08.48.17.98.27.87.87.77.98.18.3
NIS contributions0.50.40.40.60.40.40.40.40.40.40.40.4
Goods and services2.92.84.14.24.13.73.93.93.73.84.04.2
Transfers3.22.84.04.44.74.54.54.54.54.54.64.8
Transfers Abroad (Contributions)0.50.50.50.70.6
Grants & Subventions (other private sector)1.00.91.41.61.8
Public Assistance0.00.00.60.70.7
Pensions and Gratuities1.61.41.41.41.61.51.51.51.51.61.6
Interest payments3.53.32.92.72.02.12.11.91.81.71.61.5
Capital expenditure and net lending9.28.34.22.62.75.92.82.52.44.05.47.1
Grant-financed3.73.22.62.12.35.32.32.22.12.12.01.7
Non-grant financed5.55.11.60.50.40.50.60.30.22.03.45.4
Primary balance 2/-1.12.15.25.76.86.06.26.56.64.52.50.0
Overall balance-4.7-1.22.33.04.83.94.14.64.82.80.9-1.4
Public Debt101.890.181.670.063.459.258.753.750.648.344.944.2
Memo item:
Nominal GDP (EC$ millions)2,4612,6922,8663,0433,2023,3523,3523,5083,6773,8734,0804,289
Sources: Country authorities and Fund staff estimates.

The Chart of Accounts for expenditure classification was revised in 2016 from GFSM 1986 format to GFSM 2014 format.

The primary balances include non-tax revenue from the Citizenship by Investment program.

Sources: Country authorities and Fund staff estimates.

The Chart of Accounts for expenditure classification was revised in 2016 from GFSM 1986 format to GFSM 2014 format.

The primary balances include non-tax revenue from the Citizenship by Investment program.

Table 3.Grenada: Public Sector Debt, 2015–2018(Year end, in millions of U.S. dollars)
2015201620172018 (prel.)
Percent ofPercent ofPercent ofPercent of
StockTotal DebtGDPStockTotal DebtGDPStockTotal DebtGDPStockTotal DebtGDP
Public Sector debt898.3100.090.1866.2100.081.6789.2100.070.0752.2100.063.4
Central government debt857.995.586.0837.196.678.8762.596.667.7752.1100.063.4
Central-government guaranteed debt40.44.54.129.13.42.726.73.42.40.10.00.0
Other public sector debt
External debt611.968.161.4600.869.456.6534.767.747.4527.270.144.5
A. Central Government591.365.859.3586.767.755.3521.366.146.3527.170.144.4
1. Multilateral280.031.228.1288.233.327.1293.937.226.1314.441.826.5
CDB134.715.013.5141.316.313.3136.317.312.1132.517.611.2
IDA77.78.67.878.59.17.492.111.78.2122.016.210.3
IBRD14.91.71.513.81.61.312.71.61.114.82.01.3
IMF29.33.32.928.93.32.728.63.62.523.13.11.9
Other Multilateral23.42.62.325.63.02.424.23.12.122.02.91.9
2. Official bilateral97.010.89.794.310.98.988.711.27.984.811.37.2
Paris Club 1/10.81.21.18.91.00.88.21.00.77.21.00.6
Belgium0.00.00.00.00.00.00.00.0
France4.50.50.44.00.50.43.80.50.33.50.50.3
Russian Federation0.20.00.00.20.00.00.10.00.00.00.00.0
U.S.3.00.30.32.70.30.32.50.30.22.00.30.2
U.K.3.20.40.32.00.20.21.90.20.21.60.20.1
Other86.29.68.785.49.98.080.510.27.177.610.36.5
Kuwait17.01.91.716.21.91.515.62.01.414.01.91.2
Taiwan Province of China 2/19.42.21.919.42.21.818.32.31.616.82.21.4
Trinidad and Tobago32.93.73.332.93.83.132.94.22.932.94.42.8
Venezuela10.01.11.010.01.20.97.71.00.76.50.90.6
Other Bilateral6.90.80.76.90.80.75.90.80.57.41.00.6
3. Commercial debt188.120.918.9178.520.616.8117.314.910.4108.314.49.1
US$ 2040 Bonds 5/179.219.918.0170.219.616.0112.314.210.0103.313.78.7
Other Bonds8.91.00.98.31.00.85.00.60.45.00.70.4
Others0.00.00.00.00.00.00.00.0
4. External arrears on interests3.40.40.33.90.40.44.80.60.45.40.70.5
5. Overdue membership fees22.82.52.321.82.52.116.72.11.514.21.91.2
B. Central-government guaranteed20.62.32.114.11.61.313.31.71.20.10.00.0
of which:0.00.00.00.00.00.00.00.0
Paris Club0.00.00.00.00.00.00.00.0
Domestic debt286.431.928.7265.530.625.0254.532.322.6225.029.919.0
A. Central Government266.629.726.7250.428.923.6241.130.621.4225.029.919.0
1. Treasury bills117.913.111.8113.313.110.776.69.76.859.77.95.0
RGSM 3/35.94.03.634.64.03.333.54.23.023.63.12.0
3 month initial maturity13.01.41.313.01.51.212.01.51.15.60.70.5
1 year initial maturity23.02.62.321.62.52.021.42.71.918.12.41.5
Private placements82.09.18.278.79.17.443.15.53.836.04.83.0
National Insurance Scheme14.81.61.514.81.71.414.81.91.314.82.01.2
Petrocaribe Grenada34.83.93.534.84.03.315.82.01.40.00.00.0
Other private placements32.43.63.229.03.42.712.51.61.121.22.81.8
2. Treasury Notes0.00.00.00.00.00.01.50.20.110.51.40.9
3. Bonds111.412.411.2115.713.410.9138.817.612.3132.217.611.2
EC$ 2040 Bonds 5/68.97.76.967.37.86.357.17.25.155.57.44.7
RGSM 3/0.00.00.00.00.00.00.00.00.00.00.00.0
Private Placements37.94.23.843.55.04.179.310.07.075.210.06.3
Other Bonds4.60.50.54.90.60.52.50.30.21.50.20.1
4. Domestic arrears on interests4.40.50.41.60.20.11.30.20.10.00.00.0
5. Compensation claims14.81.61.514.81.71.421.52.71.921.22.81.8
6. Commercial Bank Loans7.00.80.75.00.60.51.40.20.11.30.20.1
7. Overdraft0.00.00.00.00.00.00.00.00.00.00.00.0
8. Supplier arrears0.00.00.00.00.00.00.00.00.00.00.00.0
9. Other 4/11.11.21.10.00.00.00.00.00.00.00.00.0
B. Central-Government Guaranteed19.82.22.015.11.71.413.41.71.20.00.00.0
Memorandum items:
Nominal GDP997.01061.61126.91185.9
Other Public Debt 6/140.114.1162.315.3168.815.0178.315.0
Sources: Grenadian authorities and Fund staff estimates.

Debt service obligations to the Paris Club were rescheduled in May 2006.

New debt issued after restructuring in December 2014

Regional Government Securities Market placements.

Includes unpaid claims < 60 days, and ECCB temporary advance

Prior to the restructuring that took place in November 2015 was the US$ 2025 bonds.

Non-guaranteed public debt (available from 2016 onwards) and PetroCaribe debt. Legal nature of the PetroCaribe debt is uncertain.

Sources: Grenadian authorities and Fund staff estimates.

Debt service obligations to the Paris Club were rescheduled in May 2006.

New debt issued after restructuring in December 2014

Regional Government Securities Market placements.

Includes unpaid claims < 60 days, and ECCB temporary advance

Prior to the restructuring that took place in November 2015 was the US$ 2025 bonds.

Non-guaranteed public debt (available from 2016 onwards) and PetroCaribe debt. Legal nature of the PetroCaribe debt is uncertain.

Table 4.Grenada: Medium-Term Central Government Financing, 2015–2018(In EC$ million)
2015201620172018
Stock of deposits at beginning of the period 4/82.7134.7131.5184.1
Inflows1392.7496.2577.2463.2
Primary surplus57.8148.3172.6217.0
Debt placement336.9280.1246.3231.1
External134.976.245.5112.3
o/w Exceptional financing82.642.112.4
Domestic202.0203.9200.8118.8
Arrears accumulation55.938.1
Debt stock reduction from restructuring 1/153.614.6158.315.1
New debt issued under restructuring 2/788.615.1
Outflows1,340.7499.4524.6401.7
Primary deficit
Interest bill89.982.381.063.2
Scheduled Amortization264.7332.1300.7244.3
External50.787.190.391.4
Domestic214.0245.0210.4152.9
Arrears clearance 3/169.6
Debt restructuring775.329.7158.315.1
Acquisition of financial assets12.281.0
Other 5/41.243.1-15.4-1.9
Net cash flow (+surplus/-deficit)52.1-3.352.661.5
Stock of deposits at the end of the period 4/134.7131.5184.1245.6
Memorandum:
Stock of deposits at the end of the period (in percent of GDP)5.04.66.07.7
Overall fiscal balance-32.266.091.6153.8
Public Debt2,425.42,338.12,130.92,030.8
(in percent of GDP)90.181.670.063.4
Domestic773.4716.1687.2607.5
External1,652.11,622.01,443.61,423.4

Includes debt stock reduction from the debt exhange for the 2025 bonds, the Export-Import Bank of Taiwan Province, other external commercial debt and restructured domestic debt. Under inflows, the total restructured amount is the sum of debt restructuring and debt forgiveness. Under outflows, the counterpart is debt restructuring and regularization of arrears.

Includes new debt issued under restructuring agreements executed with the Export-Import Bank of Taiwan Provice of China, holders of Grenada’s 2025 international bonds, Paris Club creditors, the National Insurance Scheme, and other domestic creditors.

Remaining stock of arrears in 2016 is comprised of debts and overdue payments on which a restructuring agreement has not been reached, including overdue contributions to organizations.

Net of advances in the ECCB government operations account.

Includes changes in unpaid invoices < 60 days, unpresented cheques, and in the stock of capital grants received but not spent.

Includes debt stock reduction from the debt exhange for the 2025 bonds, the Export-Import Bank of Taiwan Province, other external commercial debt and restructured domestic debt. Under inflows, the total restructured amount is the sum of debt restructuring and debt forgiveness. Under outflows, the counterpart is debt restructuring and regularization of arrears.

Includes new debt issued under restructuring agreements executed with the Export-Import Bank of Taiwan Provice of China, holders of Grenada’s 2025 international bonds, Paris Club creditors, the National Insurance Scheme, and other domestic creditors.

Remaining stock of arrears in 2016 is comprised of debts and overdue payments on which a restructuring agreement has not been reached, including overdue contributions to organizations.

Net of advances in the ECCB government operations account.

Includes changes in unpaid invoices < 60 days, unpresented cheques, and in the stock of capital grants received but not spent.

Table 5.Grenada: Balance of Payments Summary, 2014–2024
Projections
20142015201620172018201920202021202220232024
(In millions of US dollars)
Current account-105.3-122.0-116.5-134.8-132.8-138.8-132.6-117.5-129.9-151.3-157.0
Trade balance for goods and services-14.43.7-5.1-20.5-11.4-10.70.721.616.53.97.0
Exports of goods and services478.6510.8523.5578.2642.9670.4702.9736.9773.3809.8847.6
Nutmeg6.14.94.63.84.14.24.34.44.64.74.8
Tourism388.1421.6437.4482.0541.0566.5592.8620.5649.6680.2707.4
Imports of goods and services492.9507.1528.7598.7654.3681.1702.2715.2756.8805.9840.5
Mineral fuels79.355.449.748.766.258.160.662.464.867.877.7
Foodstuffs79.277.979.791.1101.0102.0106.6109.5113.0116.6127.7
Other goods147.3173.7178.3230.0243.7269.3275.2274.4299.3326.5324.6
Services187.2200.0221.0228.9243.4251.5259.9268.9279.7295.0310.6
Net Income-82.8-114.2-97.1-104.5-111.2-116.4-121.8-127.7-134.5-141.7-149.0
Current transfers-8.1-11.5-14.3-9.8-10.2-11.6-11.5-11.5-11.9-13.5-15.1
Capital account65.132.449.766.961.764.766.568.370.372.571.6
Capital transfers65.132.449.766.961.764.766.568.370.372.571.6
o.w. debt forgiveness 1/17.248.44.549.50.00.00.00.00.00.00.0
Financial account-56.6-57.6-23.7-65.7-68.8-74.0-66.1-49.2-59.6-78.8-85.4
Foreign direct investment-97.2-134.3-96.9-139.3-151.6-131.5-131.1-130.6-130.4-137.4-144.5
Portfolio investment (net)-2.966.070.261.786.189.793.597.6102.1106.8111.7
Other investment (net)21.5-17.9-7.120.9-38.1-38.6-32.4-17.8-33.3-57.4-62.2
Change in imputed reserves21.928.510.1-8.934.86.43.91.62.09.19.5
Errors and omissions-16.432.043.12.22.30.00.00.00.00.00.0
Overall balance0.00.00.00.00.00.00.00.00.00.00.0
(In percent of GDP, unless otherwise specified)
Current account-11.6-12.2-11.0-12.0-11.2-11.2-10.2-8.6-9.1-10.0-9.9
Trade balance for goods and services-1.60.4-0.5-1.8-1.0-0.90.11.61.10.30.4
Exports of goods and services52.551.249.351.354.254.054.154.153.953.653.4
Tourism42.642.341.242.845.645.645.645.645.345.044.5
o.w. Student receipts 2/2.92.75.75.45.25.15.04.94.74.64.5
Imports of goods and services54.150.949.853.155.254.954.152.552.853.352.9
o.w. Mineral fuels8.75.64.74.35.64.74.74.64.54.54.9
Net income-9.1-11.5-9.1-9.3-9.4-9.4-9.4-9.4-9.4-9.4-9.4
o.w. Public interest payment-2.4-2.3-2.1-2.0-1.5-1.5-1.4-1.4-1.3-1.3-1.2
Net current transfers-0.9-1.1-1.3-0.9-0.9-0.9-0.9-0.8-0.8-0.9-0.9
Capital account7.13.34.75.95.25.25.15.04.94.84.5
Capital transfers7.13.34.75.95.25.25.15.04.94.84.5
o.w. debt forgiveness 1/1.94.90.44.40.00.00.00.00.00.00.0
Financial account-6.2-5.8-2.2-5.8-5.8-6.0-5.1-3.6-4.2-5.2-5.4
Foreign direct investment-10.7-13.5-9.1-12.4-12.8-10.6-10.1-9.6-9.1-9.1-9.1
Portfolio investment (net)-0.36.66.65.57.37.27.27.27.17.17.0
Other investment (net)2.4-1.8-0.71.9-3.2-3.1-2.5-1.3-2.3-3.8-3.9
Change in imputed reseves2.42.90.9-0.82.90.50.30.10.10.60.6
Error and Omission-1.83.24.10.20.20.00.00.00.00.00.0
Overall balance0.00.00.00.00.00.00.00.00.00.00.0
Memorandum Items:
Gross external debt (in percent of GDP)143.0133.2125.7117.4108.0106.6101.798.998.295.794.7
External public and publicly guaranteed d67.761.456.647.444.542.039.438.637.935.434.4
Foreign liabilities of private sector 3/75.371.869.170.063.564.562.360.360.360.360.3
Nominal GDP911.5997.01061.61126.91185.91241.41299.11361.71434.41511.01588.5
Sources: Ministry of Finance and Planning; ECCB; and Fund staff estimates and projections.

Debt forgiveness as a result of debt restructuring.

Living expenses of international students at St Georges University. Increase in 2016 represents upward revision.

Comprises foreign liabilities of commercial banks and other liabilities under the “Other investment” item of financial account.

Sources: Ministry of Finance and Planning; ECCB; and Fund staff estimates and projections.

Debt forgiveness as a result of debt restructuring.

Living expenses of international students at St Georges University. Increase in 2016 represents upward revision.

Comprises foreign liabilities of commercial banks and other liabilities under the “Other investment” item of financial account.

Table 6.Grenada: Summary Accounts of the Monetary Sector, 2014–2024
20142015201620172018201920202021202220232024
Projections
(In millions of EC dollars; end of period)
Net foreign assets582.2852.51,003.21,053.51,315.01,378.51,455.51,516.01,564.51,623.21,675.8
ECCB427.3509.0543.7526.1623.2640.5651.1655.4660.8685.4711.1
Of which: Net imputed reserves427.3509.0543.7526.1623.2640.5651.1655.4660.8685.4711.1
Commercial banks (net)154.8343.5459.5527.4691.8738.0804.4860.6903.7937.8964.8
Assets672.7855.9966.81,112.51,246.71,255.81,325.41,392.31,440.71,477.91,504.6
Liabilities517.9512.4507.3585.0555.0517.8521.0531.7537.0540.1539.9
Net domestic assets1,435.81,269.91,147.81,182.71,053.91,101.31,139.51,204.01,300.71,395.11,497.2
Public sector credit (net)-86.9-232.3-307.7-351.8-500.2-534.1-572.6-568.3-535.8-479.4-426.6
Central government17.6-65.6-58.8-120.6-201.3-239.5-248.2-219.9-171.2-101.2-31.6
ECCB-9.8-55.8-56.5-42.0-109.7-167.7-213.8-287.9-352.7-363.4-374.5
Commercial banks27.4-9.8-2.3-78.6-91.6-171.8-234.5-332.0-418.5-437.9-457.1
Net credit to rest of public sector-104.3-166.4-201.5-206.5-211.2-215.9-221.1-226.8-232.7-238.9-245.4
National Insurance Scheme-74.7-92.0-97.0-102.1-106.7-111.4-116.6-122.3-128.3-134.5-141.0
Credit to private sector1,613.91,552.41,548.61,558.51,602.01,685.51,764.61,827.41,894.41,935.61,988.0
Other items (net)-91.1-50.2-93.1-24.1-47.9-50.2-52.5-55.0-58.0-61.1-64.2
Broad money2,018.02,122.42,151.02,236.22,368.92,479.82,595.02,720.02,865.23,018.33,173.1
Money466.5543.0577.9625.1702.3766.1834.5897.2966.01,043.01,122.9
Currency in circulation124.1131.5135.7151.4143.9156.9170.9183.8197.9213.6230.0
Cash in commercial banks342.4411.4442.2473.7558.4609.2663.6713.4768.2829.3892.9
Quasi-money1,551.51,579.41,573.11,611.21,666.61,713.71,760.51,822.81,899.21,975.42,050.1
Time deposits287.1271.4242.6215.6191.0196.4201.7208.9217.6226.3234.9
Savings deposits1,167.91,160.51,174.71,216.31,265.31,301.01,336.61,383.91,441.91,499.71,556.5
Foreign currency deposits96.4147.4155.9179.3210.3216.3222.2230.1239.7249.3258.7
(Annual percentage change, unless otherwise specified)
Net foreign assets65.246.417.75.024.84.85.64.23.23.73.2
Net domestic assets-9.5-11.6-9.63.0-10.94.53.55.78.07.37.3
Public sector credit, net51.8167.232.414.342.26.87.2-0.7-5.7-10.5-11.0
Credit to private sector-5.1-3.8-0.20.62.85.24.73.63.72.22.7
Broad money4.15.21.34.05.94.74.64.85.35.35.1
NFA contribution11.913.47.12.311.72.73.12.31.82.01.7
NDA contribution-7.8-8.2-5.81.6-5.82.01.52.53.63.33.4
Money22.416.46.48.212.49.18.97.57.78.07.7
Quasi-money-0.41.8-0.42.43.42.82.73.54.24.03.8
(In percent of GDP)
Net foreign assets23.731.735.034.641.141.141.541.240.439.839.1
Net domestic assets, o.w.58.347.240.038.932.932.932.532.733.634.234.9
Public sector credit, net-3.5-8.6-10.7-11.6-15.6-15.9-16.3-15.5-13.8-11.8-9.9
Private sector credit, net65.657.754.051.250.050.350.349.748.947.446.4
Broad money (M2)82.078.875.073.574.074.074.074.074.074.074.0
Money19.020.220.220.521.922.923.824.424.925.626.2
Quasi-money63.058.754.953.052.051.150.249.649.048.447.8
Interest rates (percent per year)
ECCB policy rate6.56.56.56.56.5
US policy rate0.10.10.41.01.8
Time deposit rate2.01.61.30.91.2
Demand deposit rate0.30.30.10.10.1
Weighted average lending rate9.08.78.48.07.6
Sources: Eastern Caribbean Central Bank; Ministry of Finance; and Fund staff estimates.
Sources: Eastern Caribbean Central Bank; Ministry of Finance; and Fund staff estimates.
Table 7.Grenada: Indicators of Capacity to Repay the Fund, 2014–2024(In millions of SDRs, unless otherwise indicated)
Projections
20142015201620172018201920202021202220232024
Existing Fund credit (stock)
In percent of quota174.3180.8131.3122.3101.289.080.769.653.836.619.5
In millions of SDRs20.421.221.520.116.614.613.211.48.86.03.2
In millions of US$29.729.329.027.022.319.717.815.411.98.14.3
In percent of GDP3.32.92.72.41.91.61.41.10.80.50.3
Proposed Extended Credit Facility (stock)
In percent of quota0.00.00.00.00.00.00.00.00.00.00.0
In millions of SDRs0.00.00.00.00.00.00.00.00.00.00.0
In millions of US$0.00.00.00.00.00.00.00.00.00.00.0
In percent of GDP0.00.00.00.00.00.00.00.00.00.00.0
Outstanding Fund credit (end of period)
In percent of quota174.3180.8131.3122.3101.289.080.769.653.836.619.5
In millions of SDRs20.421.221.520.116.614.613.211.48.86.03.2
In millions of US$29.729.329.027.022.319.717.815.411.98.14.3
In percent of exports of goods and services6.25.75.54.73.52.92.52.11.51.00.5
In percent of debt service24.527.253.148.242.243.236.231.924.817.49.8
In percent of GDP3.32.92.72.41.91.61.41.10.80.50.3
In percent of Imputed Net International Reserves18.815.514.413.99.78.37.46.34.93.21.6
Fund obligations based on existing and prospective1.83.23.63.53.51.81.51.92.72.92.9
Repurchases and repayments1.83.23.63.53.51.71.41.82.62.82.8
Charges and interest0.00.00.00.00.00.10.10.10.10.10.1
Fund obligations based on existing and prospective credit
In millions of US$2.74.55.04.84.92.52.12.73.94.14.1
In percent of exports of goods and services0.60.91.00.80.80.40.30.40.50.50.5
In percent of debt service2.24.29.28.69.35.64.25.78.18.99.4
In percent of GDP0.30.50.50.40.40.20.20.20.30.30.3
In percent of Imputed Net International Reserves1.72.42.52.52.11.10.91.11.61.61.6
In percent of quota15.227.722.121.221.211.09.011.816.617.917.9
Net use of Fund credit2.30.80.4-1.5-3.5-1.7-1.4-1.8-2.6-2.8-2.8
Disbursements4.04.04.02.00.00.00.00.00.00.00.0
Repayments and Repurchases1.83.23.63.53.51.71.41.82.62.82.8
Memorandum items:
Exports of goods and services (in millions of US$)478.6510.8523.5578.2642.9670.4702.9736.9773.3809.8847.6
Debt service (in millions of US$)121.3107.754.656.152.945.549.248.248.046.544.0
GDP (in millions of US$)911.5997.01061.61126.91185.91241.41299.11361.71434.41511.01588.5
Imputed Net International Reserves (in millions of US$)158.3188.5201.4194.9230.8237.2241.2242.7244.7253.8263.4
Quota (in millions of SDR)11.711.716.416.416.416.416.416.416.416.416.4
Source: Staff estimates and projections.
Source: Staff estimates and projections.
Table 8.Grenada: Financial Sector Indicators, 2010–2018 1/
201020112012201320142015201620172018
(Percent of GDP)
Balance Sheet
Total Assets136.0137.2128.8122.4114.8111.7109.7110.5110.4
Gross Loans96.295.891.682.071.461.857.053.752.8
o/w NPLs7.39.010.811.310.46.23.82.1...
Provisions for NPLs2.12.53.64.04.12.61.91.31.0
Total Liabilities133.6134.8126.4120.2112.8109.8107.9108.3108.3
Deposits115.1114.9108.5107.1104.1101.197.095.596.0
Capital2.42.42.42.22.11.91.82.22.0
(Percent)
Profitability
Interest Income/Total Income87.884.682.382.177.975.677.2......
Interest Exp./Total Income33.734.030.827.626.417.618.5......
Net Interest Income/Total Income54.150.651.554.551.458.058.6......
Net Non-Interest Income/Total Income /50.33.05.6-12.9-18.9-10.8-18.0......
Operating Expenses/Total Income45.646.443.058.567.452.859.3......
Gross Profits/Total Income7.216.8-3.6-15.1-8.046.833.0......
Interest Spread 2/1.11.11.11.21.11.21.1......
ROAE 6/16.53.26.9-28.7-1.031.328.417.215.8
ROAA1.20.20.5-1.9-0.11.51.51.11.0
Capital Adequacy
CAR 6/16.915.414.514.113.612.614.213.813.2
T1R15.013.613.212.211.710.211.4......
RWA/ Assets66.267.570.870.268.469.265.9......
Asset Quality
NPL Ratio7.59.411.813.814.610.06.73.92.4
Provisions/NPL28.628.433.235.839.342.949.963.9...
Past Due/Gross Loans3.32.92.12.02.92.01.9......
Net NPL/Capital49.470.485.8109.0112.268.036.317.410.9
FX Risk
FX Assets/Assets8.07.47.77.78.69.710.19.811.6
FX Liabilities/Liabilities8.89.18.77.17.48.98.711.112.6
NOP/Capital34.724.637.765.2102.7172.2209.7......
Liquidity Risk
Liquid Assets/Total Assets20.722.922.927.732.837.540.842.345.0
Liquidity Coverage Ratio 3/23.025.225.230.435.540.844.946.449.1
Liquid Assets/Total Deposits24.427.427.231.736.241.446.148.951.8
Funding Risk
Core/Non-Core Liabilities 7/635.3589.7619.3831.81,222.61,186.9901.9766.9796.8
Core/Non-Core Liabilities (ECD) 7/796.0729.8821.6978.31,545.81,463.81,020.2797.4796.2
Core/Non-Core Liabilities (FX) 7/153.9153.7115.2229.7275.5352.1372.4578.0801.4
Costs of Funds 4/0.70.70.60.60.50.30.3......
Leverage and Concentration Risk
LD Ratio83.683.484.576.668.661.258.856.255.0
LD Ratio (ECD)83.783.783.677.369.462.460.459.557.0
LD Ratio (FX)82.978.6101.262.754.745.338.727.440.2
C1 Borrower Loan/Capital Ratio15.817.418.422.421.419.217.0......
C1 Sector Loan/Capital Ratio399.2435.6459.1453.5439.8409.2337.4......
Government Assets/Assets9.59.25.66.57.79.711.6......
Government Liabilities/Liabilities9.79.45.76.67.99.811.8......
Sources: ECCB and Staff Estimations.

ECCB stopped reporting some of the indicators after 2017Q1.

Yield on Average Earning Assets less Average Cost of Funds

Liquid Assets/Current Liabilities (Short-term liabilities).

Interest Expense/Average Interest Bearing Liabilities.

Excluding provisions for loan losses.

Data on foreign banks not available.

Core = Deposits + Equity.

Sources: ECCB and Staff Estimations.

ECCB stopped reporting some of the indicators after 2017Q1.

Yield on Average Earning Assets less Average Cost of Funds

Liquid Assets/Current Liabilities (Short-term liabilities).

Interest Expense/Average Interest Bearing Liabilities.

Excluding provisions for loan losses.

Data on foreign banks not available.

Core = Deposits + Equity.

Annex I. Implementation of IMF Policy Recommendations of the 2018 Article IV Consultation
RecommendationsImplementation Status
Fiscal Policy
Identify and address ambiguities in the FRL to address operational issues. Undertake a comprehensive review of the FRL with technical assistance from the IMF.Partial implementation. Amendments to the FRL are pending a review of the recommendations of the recent IMF technical assistance and approval by Cabinet.
Broaden the tax base to include investment income and promote equity by lowering the PIT income threshold.Partial implementation. Income tax rates on the top tax category was reduced from 30 to 28 percent in January 2019. Elements to broaden the tax base have not been implemented.
Broaden the corporate income tax base by restricting deductions and taxing foreign-source interests, rents, royalties, and fees. Reduce the tax burden by lowering rates to 25%.Partial implementation. Corporate income tax rates were reduced from 30 to 28 percent in January 2019.
Strengthen management of the public wage bill.Ongoing. An earlier attrition rule established in 2014 is ongoing. Functional reviews have been conducted for one ministry, but implementation of recommendations has not proceeded. Implementation of other core elements of the strategy is proceeding with delays.
Establishing and monitoring a physical asset registry to facilitate management of the physical capital stock.Ongoing. Treasury department has solicited bids for software for asset registry.
Strengthen the effectiveness social assistance programs by using the framework of the SEED beneficiary system.Pending.
Parametric reforms of the National Insurance Scheme.Ongoing.
Commence (i) annual risk assessments of SOEs and (ii) second phase of SOE reforms for tariff adjustments and reforms for cost recovery and investment. .Partial implementation. Annual risk assessments were conducted for 2019 budget exercise based on financial statements received on most SOE’s. The second phase of reforms tariff adjustments is commencing in the water sector.
Improving transparency in the recording of CBI inflows and establishing a natural disaster fund from a portion of the savings of the National Transformation FundOngoing. Inflows of all CBI receipts are not recorded in the budget. Resource allocations to the savings fund were made in August 2018 and the regulations for its usage are under review.
Financial Sector
Ensure compliance with AML/CFT regulations at all levels, including strict enforcement of risk-mitigating measures of the CBI program, to ensure continued access to stable cross-border payments.Ongoing. National authorities’ and the ECCB’s joint audits of banks commenced. FIU received additional staff to focus on due diligence process of the CBI program. Grenada was removed from the EU’s grey list of tax havens in March 2019.
Strengthen the regulation and oversight of non-bank financial sector and take steps toward a single regional non-bank supervisor.Ongoing. The Grenada Authority for the Regulation of Financial Institutions (GARFIN) improved its capacity for credit quality review and stress testing of credit unions. Work is ongoing for the development of a national crisis management plan. Work also continues on the draft ECCU uniform insurance bill and envisaged Eastern Caribbean Financial Services Commission (ECFSC).
Growth Policy
Accelerate structural reforms reinforcing corporate governance, simplifying customs procedures and reducing port charges, strengthening building quality control and supervision, and collaborating more with regional partners on joint solutions, such as a regional credit registry.Ongoing. Efforts to address delays in the judicial system include promotion of the case management system, additional hiring, and development of a commercial division of the court. The regional credit registry system has been approved by the ECCB’s monetary council but has not been established.
Revise and align the education curriculum with the needs of the labor market. Provide technical and vocational training opportunities in collaboration with the private sector to address the skills gap.Ongoing. The youth skills training and apprenticeship program has been revamped and there is greater collaboration with the private sector. Digitalization to help simplify ease of doing business procedures is ongoing, but the results have not yet been achieved. Grenada is working to establish a labor market information system, but progress is slow.
Annex II. External Sector and Competitiveness Assessment

Grenada’s external position is weaker than implied by medium-term fundamentals and desirable policies. EBA-lite current account model estimates point to a current account deficit that is around 2¾ percent of GDP larger than the norm and the need for a 7 percent real depreciation to close the gap, while the external sustainability approach suggests a need for a 22 percent real depreciation to stabilize net international asset at the present level of -115 percent of GDP. Continued fiscal restraint, containing the growth in nominal wages, and efforts to raise productivity will help address this current account gap. While the EBA-lite exchange rate model points to an undervaluation of 30 percent, short length of some data series makes the estimate unreliable. The tourism sector appears to be cost competitive relative to other countries in the Caribbean. The level of international reserves is adequate.

A. Current Account Position

1. Grenada’s current account deficit remained high in 2018 and projected to stay at a relatively high level over the medium term. Estimated current account deficit is around 11 percent of GDP, slightly lower than in 2014–17, as private sector-led import increase was more than offset by services export growth. Going forward, the tapering construction boom will put a downward pressure on the current account deficit, which will be offset by the effects of the rise in public sector spending on the current account deficit.

2. The EBA-lite current account model finds Grenada’s cyclically adjusted current account to be substantially weaker than the estimated “norm” of -7.3 percent of GDP by 2¾ percentage points. Meanwhile the external sustainability approach suggests that given (i) an NIIP of -115 percent of GDP; (ii) trade deficit projections (inclusive of secondary transfers) projected in the medium-term; (iii) a foreign currency share of foreign assets (foreign liabilities) of about 99 percent (46 percent); and (iv) a trade elasticity of -0.40, a real effective exchange rate depreciation of 22 percent is required to stabilize the NIIP at -115 percent of GDP. While the real effective exchange rate model shows Grenada to be around 30 percent undervalued, results from this approach is less reliable due to short data series for certain variables.

3. The current account deficit is more than fully financed by FDI and capital transfers, despite sizable portfolio outflows. FDI to GDP ratio average 11.7 percent in 2014–18.

Grenada: External Balance Assessment (EBA) Estimates(2018, in percent of GDP unless otherwise noted)
Multilaterally Consistent Cyclically adjusted Current Account NormCyclically adjusted Current Account BaselineCurrent Account GapElasticityREER gap 1/2/
Current Account Regression-7.310.1-2.8-0.407.1
External Sustainability Approach22.0
REER Regression-30.0

Positive number suggests overvaluation.

In percent.

Positive number suggests overvaluation.

In percent.

B. Nominal and Real Effective Exchange Rates

4. Grenada experienced a real appreciation in 2018 in line with strengthening of the U.S. dollar. Grenada’s nominal effective exchange rate (NEER) appreciated in the second half of 2018, reversing the trend since early 2017, and was approaching the end-2016 peak by end-2018. The underlying driving force for the 2018 real and nominal appreciation is the appreciation of the U.S. dollar, to which the regional currency is pegged. The divergence of NEER and REER since 2014 largely reflects inflation undershooting that of trading partners.

Nominal and Real Effecitive Exchange Rates

(index, 2005= 100)

Sources: INS and IMF staff Calculation

Effective Exchange Rates

(Based on CPI, index, 2010 = 100)

Sources: ECCB and Fund staff estimates.

C. Reserve Adequacy

5. Grenada’s reserves remain

adequate. Imputed reserves stood at US$236 million at end-2018, covering 4.5 months of imports or 27 percent of broad money, and appeared to be adequate for cushioning external shocks and preventing disorderly market conditions. The imputed reserve position is 250 percent of ARA metric for credit-constrained economies, which suggests 1.8 month of imports as optimal level using a risk-based model tailored to low-income economies.1,2

Gross International Reserve and Adequacy

(in millions of US dollar)

Sources: IMF staff calculation

D. Labor Costs and Productivity

6. Grenada’s labor costs have been stable in recent years. Labor productivity fell sharply during the global financial crisis resulting in an increase in unit labor costs. As the economy exited a four-year long recession, labor productivity started to recover, reducing unit labor costs, but since 2015 labor costs have leveled out at levels above that prior to the global financial crisis. Labor market reforms and a modernization of the public sector are essential to improve flexibility, so that labor can be allocated to its best use and strong performance rewarded. Additional reforms are needed to match human capital to the needs of the economy. Active labor market policies should be upgraded, including better vocational training, to support long run productivity growth and reduce relative labor costs. There is a strong need to make the public service more flexible, so that staff can be allocated to their best uses and so that strong performance is rewarded.

National: Real Wages and Productivity Index: 2006 = 100

Source: Staff estimates based on N IS data

7. Supply-side reforms are needed to further spur growth and job creation. Prioritizing rural infrastructure investments and reducing export and import costs, improving air cargo logistics and storage, improving technology and research, clarifying land ownership rights, and promoting crop insurance would enhance the production and export capacity of the agricultural sector. Energy markets need to be re-examined to facilitate competition, particularly the entry of renewable energy, and to ensure pricing practices are not generating unwarranted monopoly rents. Continuing the efforts on climate change mitigation, adaptation, resilience planning, and disaster preparedness by upgrading legal and institutional frameworks and targeted public infrastructure investments would increase Grenada’s resilience to natural disasters.

E. Tourism: Arrivals, Market Share, and Price

8. Grenada’s tourism market share is gradually growing. After the devastating hurricanes in 2004 and 2005, Grenada suffered a 30 percent drop in its share of total stay-over visitors in the ECCU. The tourism industry was hit hard again during the global financial crisis in 2008–09. Grenada has started to regain its market share in 2014 helped by intensified marketing, the establishment of a new Grenada Tourism Authority, and the opening of a large brand-name luxury resort. While tourism costs in the Caribbean are high relative to other global beach destinations, comparisons against other Caribbean destinations suggest prices in Grenada are competitive.

Tourist Arrival Growth by Country

(contribution to growth, in percent yoy)

Source: Caribbean Tourism Organization.

Grenada’s Share of the ECCU’s Stay-over Tourist Arrivals (In percent, 12-month moving average)

Sources: ECCB and IMF Staff Calculation

January 2019: W@tB Index— Trip Advisor (3–4 “bubble” rating average, Bahamas=100

Source: W@tB Index

Annex III. Risk Assessment Matrix1
Source of RisksRelative LikelihoodImpact/Time HorizonChannelRecommended Policy
Rising protectionism and retreat from multilateralismHighMedium/Short to Medium TermLower tourist arrivals and FDICarry through with responsible fiscal policies anchored by the FRL and structural reforms to build buffers and improve productivity and competitiveness.
Weaker-than-expected global growthMediumHigh/Short to Medium TermLower growth and worsening of fiscal and external balancesCarry through with responsible fiscal policies anchored by the FRL and structural reforms to build buffers and improve productivity and competitiveness.
Sharp tightening of global financial conditions

Market expectation of tighter U.S. monetary policy

Sustained rise in risk premium
Low

Medium
Medium/Short term

Medium/Short term
Lower growth and worsening of fiscal and external balancesCarry through with responsible fiscal policies anchored by the FRL and structural reforms to build buffers and improve productivity and competitiveness.
Spillovers from Venezuela crisisHighMedium/Short TermWorsening of fiscal balancesCarry through with responsible fiscal policies anchored by the FRL.
Higher than expected increase in public investmentMediumMedium/Short to Medium TermHigher growth, worsening of fiscal balancesImprovement in public investment management capacity.
Higher than expected construction and real estate sector growthMediumMedium/Short to Medium TermHigher growth, worsening of financial sector soundnessStrengthening financial supervision and monitoring of real estate markets
Initiatives on pension and health care, higher than expected public sector wage increase and delays in public sector wage bill reforms could push the expenditure above the FRL-mandated expenditure-growth ceiling.MediumMedium/Short to Medium TermWorsening fiscal balancesInternalize future aging costs in the FRL based on robust costing assessments. Adopt parametric reforms of the pension system. Carry through with prudent fiscal policies anchored by the FRL and structural reforms to build buffers and improve productivity and competitiveness.
Hurricanes could cause severe damage to infrastructure and disrupt tourism flows.MediumHigh/Short to Medium TermLower growth and worsening of fiscal and external balancesEnact an integrated disaster resilience strategy (DRS). Build buffers by saving receipts from the citizenship by investment program; adhere to the fiscal rules in the FRL. Over the long-term, work with the World Bank and donors to build resilience to climate change.
Annex IV. Public Service Management Reform1

1. Grenada has reduced its wage bill to levels below that of many comparator countries.2 Grenada’s civil service wage bill was high and unsustainable and reached 10.7 percent of GDP (55 percent of domestic revenue) in 2013 (Figure 1). This was higher than the wage bill in other ECCU governments and comparable to the average in other Small Island Developing States (SIDS).3,4 During the three-year Home Grown Adjustment Program, the government tackled the wage bill problem with a combination of temporary wage freezes agreed with labor unions and manpower control measures such as the implementation of a temporary attrition policy (filling 3 of 10 vacancies except for several priority sectors). In 2016, a revision of the government’s Chart of Accounts consistent with methodologies in the 2014 Government Financial Statistics led to the reclassification of expenditure on temporary employees from the wage bill. Reflecting the expenditure-curbing measures, accounting changes, and Grenada’s vigorous GDP growth in recent years the wage bill fell to 7.8 percent of GDP in 2018, below the average of comparator countries including the ECCU peers.5

Figure 1.Public Service Management Reform Logical Framework

Wage Bill and Employment

Source: Country Authories

Wage bill in Small Developing States in 2018

(Percent of GDP)

Source : IMF WEO Database

2. The distribution of employees is sub-optimal and needs to be right-sized. Senior civil servants in many ministries, departments and agencies indicate critical shortages of skilled staff at the technical, professional and middle management levels while there are excess numbers of unskilled and semi-skilled staff. Consequently, the quality and effectiveness of institutions in the public service are adversely affected. IMF Working Paper 19/110 indicate that across the ECCU, the composition and quality of employees in the education and health sectors is inadequate and could be contributing to sub-optimal outcomes – as reflected in low pass rates at the secondary school level and an increasing prevalence of non-communicable diseases. Comparisons with OECD and other peer countries indicate above average teacher/student and health worker per population ratios but significantly lower corresponding ratios for trained teachers, nurses and medical specialists.

Government Effectiveness Indicator Performance ratings range from +2.5 (strong) to -2.5 (weak)

Source: World Bank -Worldwide Governance Indicators N. B .Changes in method ology and data sources in 2014 negatively affected the country score.

3. Inadequate compensation and poor opportunities for career advancement contribute to the difficulty in attracting and retaining skilled staff. Government employees in semi and unskilled skilled jobs in the public sector are equally or better paid than their private sector counterparts. This situation, when combined with job security in the public sector, likely explains the preponderance of unskilled and semi-skilled workers. However, the remuneration of higher skilled civil servants at the managerial, professional, and technical levels is lower in comparison to those employed in medium to large entities in the private sector, particularly in financial intermediation and utility companies. This could reflect an outdated compensations system – the last pay and grade reform of the civil service took place in 1994. Opportunities for career advancement are largely based on seniority rather than merit. Performance evaluation-based systems that are linked to career paths or promotion systems are not rigidly applied. Consequently, younger, mid-level civil servants and nurses tend to get frustrated and leave for the private sector or emigrate, particularly upon utilizing training opportunities.

4. The government adopted the Public Service Management Reform Strategy (PSMRS) to overhaul and modernize the public service.6 It was recognized that the wage bill measures, while necessary, were insufficient for sustainable expenditure management (Table 1). The PSMRS intended to build on the reform momentum under the Home-Grown Adjustment Program, engaging key stakeholders in its formulation. Importantly, the wage bill rule and the primary expenditure rule of the 2015 Fiscal Responsibility Law (FRL) would provide specific controls on compensation and expenditure. The PSMRS aims to make the public service affordable and responsive to the needs of citizens, facilitate national development, and enhance Grenada’s competitiveness and growth. The PSMRS identifies targeted institutional and organizational reforms for implementation during 2017–2019 across four pillars: (i) re-engineering the public service, (ii) human resource management, (iii) compensation management; and (iv) integrating of information communications technology (Figure 1).

Table 1.PESTEL Analysis of the Operation Environment for Public Service Reform
Political□□Strong political will and commitment

□□Strong public sector unions
Economic□□Demonstrated results of the Homegrown Structural Adjustment Programme

□□Strong initial economic recovery with evidence of a moderate growth path

□□Positive medium-term outlook



□□Significant growth in foreign direct investment

□□High rate of unemployment particularly among the youth sector

□□High correlation between unemployment and education levels
Social□□Strong and vocal civil society groups

□□Disproportionate income distribution levels
Technological□□Inadequate use of technology to facilitate human resource management

□□Weak technological infrastructure in the Public Service

□□Moderate level of donor technical and funding assistance available
Legal□□The Fiscal Responsibility Law and other legislative provisions provide a framework that requires strict adherence to fiscal discipline on the part of Government

□□Outdated legal and regulatory provisions for the management of the Public Service

□□Weak performance management system
Factors that are strengths or opportunities that can be readily leveraged;Factors that are clear constraints or threats to reform; andFactors that can either support or hinder the reform process (depending on how they are approached and managed).Source: Grenada – Public Service Management Reform Strategy 2017–19
Factors that are strengths or opportunities that can be readily leveraged;Factors that are clear constraints or threats to reform; andFactors that can either support or hinder the reform process (depending on how they are approached and managed).Source: Grenada – Public Service Management Reform Strategy 2017–19

5. PSMRS’ implementation has been slow, and while the reform agenda for 2019 is ambitious, key reforms are not expected to be completed before 2021. Inadequate financial and human resource capacity are the main factors behind the disappointing outcomes. The following is the status of implementation:

  • Re-Engineering the Public Service – a white paper on the new vision for the public service was launched and a functional review for the Ministry of Climate Resilience was completed.7 There has not been any implementation of the recommendations identified in the functional review. The government plans to start the second phase of functional reviews for the remaining 13 ministries in 2019. Work has not commenced on the (i) delineation of roles and responsibilities of centers of government, and (ii) strengthening the legislation, regulations and policy instruments for governance and accountability arrangements.
  • Strategic Human Resource Management – data collection for the human resource management information systems is completed and it is about 40% operational. A needs assessment for the public service was completed and four learning development programs have been established for training and capacity development. The government anticipates drafting the Training & Development Plan this year with implementation to start in 2020. However critical work on (i) performance management systems, and (ii) manpower management function for the medium to long-term, which would facilitate central personnel management has not commenced.
  • Strategic Compensation Management – a compensation management policy framework for public pensions was developed. Still outstanding are (i) the revision of the architecture for compensation across employment categories to develop competitive and performance-based remuneration, (ii) completion of job evaluations and analysis and (iii) systems for regular payroll audits. These are critical inputs into the wage negotiation framework and will not be incorporated in time for the 2020/22 agreement with public unions which should be completed by November.
  • Integrated Information & Communication Technology (ICT) – to improve the ease and cost of doing business by leveraging ICT particularly in enhancing service delivery and creating efficiencies in various government operations is currently under consideration under a 3-year financing arrangement with the World Bank.

6. A well-functioning public service is critical to Grenada’s ambitions for sustainable development and improved living standards. This requires a deeper commitment of financial and human resources to accelerate reform implementation. Success of the reforms will also require active participation of senior members of government and the legislature as well as the establishment of a highly consultative process to encourage domestic ownership. The timing is important, the current period of good economic times should provide a better opportunity to get traction from stake holders for the implementation of civil service reforms than in crises situations. Additionally, the forthcoming phase of implementation of the FRL is set to provide more fiscal space. Strengthening the public service and making it affordable, increases the likelihood that the fiscal space is used wisely for Grenada’s development.

Annex V. Risks of Additional Obligations on Public Pensions1

1. Background. Until recently, and in line with the 1958 law, all public retirees received non-contributory pension benefits with guaranteed replacement rates of 67 percent after less than 27 years of service that were summed up to additional benefits earned within the contributory National Insurance Scheme (NIS), which operates on a pay-as-you-go basis. These benefits were being sharply reduced to a system whereby a new cohort of public workers that were hired after mid-1980s and are now beginning to retire would have been entitled to NIS-only benefits (a maximum of 60 percent with 40 years of service). Pressures have been building to reduce the drop-off in their benefits.

2. Recent developments. A Memorandum of Understanding (MoU) between the government and unions has been signed guaranteeing replacement rates of 70 percent after 26.7 years of service to “established” public workers hired between 1985 and 2018. The government committed to do so by topping-up NIS pensions, which otherwise would earn a replacement rate of a little below 50 percent for the same number of years. An impasse occurred when the unions pushed for large lump-sum withdrawal benefits that were afforded by the 1958 law and for waiving the retirement age of 60 for this cohort, with which the government disagreed arguing that both moves were fiscally unaffordable. After several failed attempts at negotiation these matters are now awaiting Court arbitration.

3. Impact. The fiscal impact of the MoU hinges on several scenarios that are still being fully quantified by the authorities. Short-to-medium term impact would crucially depend on the ruling. Should the government’s position prevail, the extra fiscal costs would be around ¼ percent of GDP in the initial few years. If the unions have their way, the extra annual costs could quickly approach 1 percent of GDP or even top that amount if the retirement age of 60 is not adhered to. Long-term projections calculated by staff suggest that the cumulative cost of the MoU’s additional benefits (relative to the pre-2018 situation) could be around 20 percent of GDP spread over some 50 years. In the unions’ scenario of waiving the retirement age of 60, this cumulative cost would be augmented by up to 10 percentage points of GDP, even without accounting for the knock-on effects on lowering funding from reduced contributory periods.

4. Knock-on policy risks. In light of the recent developments, further policy pressures could be triggered for: (i) unestablished workers (some 30 percent of public workers); (ii) post-2018 hires; (iii) NIS benefit pressures (with private sector participants potentially asking for higher pensions); (iv) various types of legal risks, including from the outstanding Court cases; and (v) potential need for budget support for NIS due to its deteriorating financial situation (with the scheme already losing reserves, which are projected to run out in 2035).

5. Assessment. Grenada’s population aging trends imply that total old-age pension benefits in the public and private sectors could almost triple in terms of GDP by the year 2050 if the level of individual benefits per retiree is not contained relative to current levels. (These purely demographic effects form the basis of an illustrative scenario calculated by staff). At the same time, the (non-budget) funding of these obligations is unlikely to increase as a share of GDP without further reforms. A comprehensive pension reform based on full costing of the implications and fair burden-sharing across cohorts is needed to reduce those pressures on the fiscal position. At the same time, the duality of the pension system needs to be addressed due to adverse incentives for private sector employment. Further technical assistance could help map out these reform options.

Grenada: Illustrative Scenario of Pension System Flows, Combined Public and Private, 2015–2050

(Percent of GDP)

Source: National Insurance Scheme, United Nations, and IMF Staff Estimates and Projections.

1/ The scenario is illustrative and assumes that increases in total spending on benefits are entirely driven by demographic projections. As such, it implicitly assumes that any initiatives to contain the level of current pension benefits are defeated or reversed.

2/ Assumes that pensionable age increases from 60 to 65 in gradual steps to be completed by 2030.

3/ Assumes that contribution-based revenue remains constant in terms of GDP at the 2015 level.

4/ Assumes that the contribution rate is increased from 9 to 11 percent of wages starting from 2020.

Annex VI. Growth at Risk1

Staff finds that favorable external real conditions forecast favorable real GDP growth and high credit growth forecasts negative real GDP growth in the short and medium term, while the forecasting power of global financial conditions is limited. A deterioration in financial soundness indicators forecasts somewhat higher growth in the short term with no effect in the medium term. The forecasting power of natural disasters is limited. Credit union data should be added to the analysis once longer data series become available. Credit growth of both banks and credit unions should be monitored carefully.

1. Methodology. Growth at Risk (GaR) framework (Prasad and others (2019)).2

2. Data. 2001–17 quarterly data are used for estimation, limited by the availability of bank financial soundness indicators. Predictors of real GDP growth are partitioned into the following categories: (i) credit aggregates; (ii) financial soundness of domestic banks; (iii) external real conditions; (iv) global financial conditions; (v) lag of real GDP growth; and (vi) incidence of natural disasters (Figure 1).

Quarterly GDP data are available only from 2006 for Grenada. Where quarterly GDP data are not available, they are estimated using the method of Chow and Lin (1971).3

Figure 1:RHS Variables and Partition

3. Interpretation of the partitioned variables and their dynamics. An analysis of the correlation between the index and its component variables and matching each partition with historical events makes it clear that an increase in financial indicators index represents a worsening of financial soundness; an increase in the external real condition represents a worsening of external real condition; an increase in financial indicators represents a worsening of global financial conditions; and an increase in financial indicators represents a worsening in soundness of domestic banks (Figure 23).

Figure 2.Time Series of Partitioned Variables

Figure 3.Correlation between Selected Partitions and their Components

4. Regression Results (Figure 45)

  • Favorable external real conditions forecast favorable real GDP growth, while high credit growth forecasts negative real GDP growth in the short and medium term,4
  • Forecasting power of global financial conditions is limited.
  • A deterioration in financial soundness indicators forecasts somewhat higher growth in the short term, while no effect is observed in the medium term.
  • Natural disasters predict somewhat higher real GDP growth in the short term, but the effects are small and not statistically significant5
  • External real conditions have the largest effect in the short term, while credit growth has the largest effect in the medium term.

Figure 4.1-year Ahead Forecast

Figure 5.3-year Ahead Forecast

5. Monitoring of credit unions. This study includes credit growth data only for banks, given that data for credit unions are not sufficiently long. However, it is likely that credit growth of credit unions affects future growth in a similar mechanism as bank credit growth (vulnerabilities accumulated during credit booms materializing over time). Therefore, credit growth of both banks and credit unions need to be carefully monitored, and credit union data should be added to the analysis once longer data series become available.

1Grenada’s CBI program offers citizenship in return for a real estate investment or a contribution to the public sector.
2There were also substantial revisions to the IIP, largely due to the downward revision of the stock of inward FDI.
3The annual fiscal cost of natural disasters is assumed at ½ percent of GDP (this is broadly consistent with the World Bank-modeled losses that yield an estimate of 0.3 percent of GDP but excludes some types of natural disasters and the effects of climate change).
4Grenada Private Power (GPP), the majority commercial partner in Grenlec, claims that the Energy Supply Act enacted in 2016 breaches the terms of their 80-year contract as sole energy provider. In 2016 GPP demanded that the government repurchase its shares in Grenlec at an estimated price equivalent to 5.5 percent of GDP. The matter is in arbitration. A ruling mandating the repurchase would increase public debt unless the government drew down some of its deposits in the banking system or found a suitable strategic investment partner.
5The historical comparisons are affected by the tightening of classification of capital spending from 2016, but even against this benchmark capital spending has been underperforming.
6A functional review was completed only for the Ministry of Climate Resilience.
7See IMF Country Report No. 14/196 for background information on PDV Grenada.
1International Monetary Fund, 2015, Assessing Reserve Adequacy—Specific Proposals,
2This assessment does not take into consideration the need for cushions to deal with natural disasters.
1The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.
1Prepared by Wayne Mitchell
2The government wage bill refers to outlays of the central government, government agencies and local governments that are reflected in the government’s budget but excludes state-owned enterprises.
3The ECCU comprises the six sovereign countries: Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines and excludes the two British Overseas Territories of Anguilla and Montserrat.
4Small states are defined as sovereign states that are Fund members with populations less than 1.5 million as of 2011.
5The wage freeze ended in 2016 and the attrition policy was modified in 2018 allowing refilling of vacancies in several ministries and departments.
6There were earlier attempts at public service reforms. The implementation of the 2006–10 public-sector modernization plan was limited to the introduction of corporate planning and Disclosure of Information Policy. A Public Service Management Bill was then drafted but not enacted.
7The full title is the Ministry of Climate Resilience, the Environment, Forestry, Fisheries, Disaster Management & Information.
1Prepared by Bogdan Lissovolik and Wayne Mitchell
1Prepared by Takuji Komatsuzaki
2Prasad, Elekdag, Jeasakul, Lafarguette, Alter, Feng, and Wang (2019), “Growth at Risk: Concept and Application in IMF Country Surveillance”, IMF Working Paper 19/36
3Chow and Lin (1971), “Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series”, Review of Economics and Statistics vol. 53, pp. 372–75
4The negative effect of credit growth on real GDP growth forecast disappears in an even shorter term forecast (one-quarter ahead forecast).
5This result is intuitive once one notices that the bulk of the growth effect of natural disasters falls on the period in which the natural disasters occur, and its effect on future output growth is not very clear. This result is also consistent with existing literature.

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