Grenada restoring fiscal and external sustainability: IMF

In response to a request from the Grenada's authorities, an IMF mission visited Grenada's to hold discussions on a four-year arrangement under the IMF's Extended Fund Facility (EFF).

Concluding statement of the 2016 Article IV Consultation Visit and Fourth Review under the Extended Credit Facility (ECF), IMF Mission describes that since the last Article IV consultation in June 2014, Grenada has made major strides toward restoring fiscal and external sustainability. Economic activity has picked up, debt has been reduced, and the balance of payments position has strengthened. The government has also pushed through important legislative reforms to build a fiscal framework that will lock-in fiscal discipline over the long term. As the country heads into the last year of its ECFsupported program, renewed policy resolve will be essential to secure lasting success of the home-grown program and broaden the reach of its benefits. The key priorities in 2016 include execution of the budget in line with program commitments and the new Fiscal Responsibility Act (FRA); focused reforms to ensure prudent and sustainable management of the public sector wage bill; application of the new system to register beneficiaries for social assistance; and follow through on growthenhancing reforms in the areas of business facilitation and labor legislation.

Activity in 2015 remained robust. Fueled by growth in agriculture, tourism and construction, the economy is estimated to have expanded by 4.6 percent. Grenada experienced deflation of 1.3 percent (annual average) in 2015 due mostly to lower energy prices. The external current account deficit fell to an estimated 15.1 percent of GDP in 2015 from a peak of 23.2 percent in 2013 on the back of stronger tourism receipts and lower international oil prices. The current account deficit was adequately financed by tourism-related FDI and private capital inflows, and foreign reserves rose to 6 months of imports at end-2015. The real effective exchange rate has appreciated by 3.6 percent since mid 2014 due to the rise in the U.S. dollar, but this was partly offset by relatively lower domestic price inflation in Grenada.

Fiscal performance under the ECFsupported program was strong in 2015. The government met all quantitative performance criteria at end December. Stronger activity, recent revenue measures, and improvements in tax administration contributed to higher revenue collections, and current expenditure was contained. The primary surplus (fiscal balance excluding interest payments) is estimated at 2.2 percent of GDP (including Citizenship-by-Investment revenues). The government cleared all budget expenditure arrears in 2015, completing a key step to restore liquidity and confidence in the domestic economy. After intense efforts, Grenada concluded several important debt restructuring agreements in 2015. Public debt as a percentage of GDP was reduced from a peak of 107 percent in 2013 to 92.7 percent at end 2015.