Request for Disbursement Under the Rapid Credit Facility; Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Grenada;

Abstract

Request for Disbursement Under the Rapid Credit Facility; Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Grenada;

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Grenada’s debt definition in the current DSA is unchanged from the previous DSA of 2019. Grenada’s Composite Indicator score is 3.03 and its debt-carrying capacity is moderate.

Grenada’s external public debt is classified as “in debt distress” due to remaining unresolved arrears to official bilateral creditors of some 1.8 percent of GDP, but its debt remains sustainable, a conclusion that is unchanged from the previous DSA of 2019. The risk rating for external debt was “moderate” in the May 2019 DSA and is now “high” due to threshold breaches of the debt-services-to-exports ratio for 2020–2023, essentially due to the COVID-19 shock. The large COVID-19 related contraction in output, decline in tax revenues, and increase in health and social expenditures would cause an uptick in the debt ratio to 68¾ percent of GDP in 2020, but the subsequent economic recovery should help reverse this rise. The underlying medium-term dynamics, being anchored by the Fiscal Responsibility Law (FRL), follow a downward path. The primary fiscal surplus is projected to increase above the FRL’s 3.5 percent of GDP floor after 2020 as the economy normalizes, anchoring debt sustainability. Medium-term financing needs are moderate and are expected to be covered by external borrowing with a substantial concessional component. Risks to these debt dynamics include the possibility of a more prolonged impact of COVID-19, possible delays in the return to the FRL’s core parameters, natural disasters, and a one-off increase in debt if Grenlec-related payment obligations are met by debt issuance.

Fully regularizing external arrears would help tangibly improve the country’s DSA rating. Arrears of 1.8 percent of GDP remain with three official bilateral creditors: Algeria, Libya, and Trinidad and Tobago. In mid-2019, Grenada signed the protocols on the consolidation of its debt to Algeria and reported submitting those documents to Algeria’s UN mission. Grenada continued making payments on outstanding fees owed to international organizations as per schedule agreed in 2017, with some EC$13.3 million in such payments made during 2019. Ongoing improvements in monitoring SOE debt, which is estimated at around 5 percent of GDP at end-2019 (excluding Petrocaribe-related obligations), should permit a broadening of the coverage of public debt, which is under consideration by the authorities. With Grenada’s Petrocaribe arrangement essentially having ceased operations since the turn of 2017–18, we are in discussions with the authorities on the status of their obligations (which in the current DSA are included in external non-public debt).

Table 1.

Grenada: External Debt Sustainability Framework, Baseline Scenario 2017 – 2038

(in percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

1/ Includes both public and private sector external debt.

Derived as [r – g – ρ(1 +g) + εα (1 +r)]/(1 +g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, ε =nominal appreciation of the local currency, and a= share of local currency-denominated external debt in total external debt.

2/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

3/ For 2020 it includes all sources of exceptional financing under the RCF. For 2021 and beyond it includes Eximbank China lending to an SOE.

4/ Current-year interest payments divided by previous period debt stock.

5/ Defined as grants, concessional loans, and debt relief.

6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

7/ Assumes that PV of private sector debt is equivalent to its face value.

8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.

Table 2.

Grenada: Public Sector Debt Sustainability Framework, Baseline Scenario 2017 – 2038

(in percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Coverage of debt: The central government, government-guaranteed debt . Definition of external debt is Residency-based.2/ Reflects financing to SOEs from Exim Bank China and World Bank.3/ Includes fluctuations of government bank deposits.4/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.5/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.6/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.7/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Figure 1.
Figure 1.

Grenada: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020–2030

Citation: IMF Staff Country Reports 2020, 161; 10.5089/9781513543635.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ This scenario assumes that the currently projected effects of Covid-19 for 2020 remain similarly strong throghout 2021. Especifically, it assumes 5 percentage points lower real GDP growth in 2021 compared to the baseline and a one year delay in recovery afterwards, while exports, imports and FDI as a share of GDP remain at their 2020 level.
Figure 2.
Figure 2.

Grenada: Indicators of Public Debt under Alternative Scenarios, 2020–2030

Citation: IMF Staff Country Reports 2020, 161; 10.5089/9781513543635.002.A002

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ This scenario assumes that the currently projected effects of Covid-19 for 2020 remain similarly strong throghout 2021. Specifically, it assumes 5 percentage points lower real GDP growth in 2021 compared to the baseline and a one year delay in recovery afterwards, while total public expenditure-to-GDP in 2021 remains equal to its 2020 value.
Table 3.

Grenada: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020–2030

(in percent, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold. The Prolonged Covid-19 scenario assumes that the currently projected effects of the pandemic for 2020 remain similarly strong throghout 2021.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Grenada: Sensitivity Analysis for Key Indicators of Public Debt, 2020–2030

(in percent, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark. The Prolonged Covid-19 scenarios assume that the currently projected effects of the pandemic for 2020 remain similarly strong throghout 2021.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

Figure 3.
Figure 3.

Grenada: Drivers of Debt Dynamics – Baseline Scenario

Citation: IMF Staff Country Reports 2020, 161; 10.5089/9781513543635.002.A002

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Grenada: Realism Tools

Citation: IMF Staff Country Reports 2020, 161; 10.5089/9781513543635.002.A002

Grenada: Request for Disbursement Under the Rapid Credit Facility; Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Grenada
Author: International Monetary Fund. Western Hemisphere Dept.
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    Grenada: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020–2030

  • View in gallery

    Grenada: Indicators of Public Debt under Alternative Scenarios, 2020–2030

  • View in gallery

    Grenada: Drivers of Debt Dynamics – Baseline Scenario

  • View in gallery

    Grenada: Realism Tools