Grenada Failed To Capitalize On Successive Assistance Programs: IMF

WASHINGTON, DC, CMC – The International Monetary Fund (IMF) said, on Tuesday, that despite two consecutive financial arrangements with Grenada, totaling more than US$28 million, the island missed the key program objectives of securing a sustainable fiscal position and a higher growth path.

The IMF said, that Grenada, during the period 2006-11, had received US$15.2 million in assistance under its Poverty Reduction and Growth Facility (PRGF) arrangement and a successor US$13.3 million Extended Credit Facility (ECF) arrangement that was approved in April 2010.

The IMF said, on January 13, this year, its executive board discussed the ex-post assessment (EPA) of the longer term program engagement in Grenada, and “broadly agreed with the staff’s assessment that engagement with the Fund, under two consecutive arrangements during 2006-2011, had helped Grenada cope with major shocks and advance key reforms, including the introduction of a value-added tax and improved financial regulations.

“Nonetheless, they considered that the overall economic performance under the Fund-supported programs had proved uneven, and the key program objectives of securing a sustainable fiscal position and a higher growth path, had largely been missed.”

The Washington-based financial institution said, against this background, the IMF has drawn “lessons that should inform the design of future programs with Grenada and comparable small economies.”

It said, the IMF executive directors highlighted the importance of choosing program objectives that are consistent with extensive capacity and institutional constraints and the critical need of securing program ownership by country authorities.

The IMF said, a new program, “along these lines could benefit Grenada by catalyzing external financing and helping restore fiscal sustainability.

“Strong, prior actions would strengthen the credibility of the authorities’ objectives and boost the likelihood of their achievement.”

The IMF agreed, that a new program should support urgently needed fiscal consolidation, promote faster and more inclusive growth, and focus on a few macro-critical reforms.

“In this regard, ambitious steps to enhance competitiveness and the private sector’s participation in the economy would be critical.

“Fiscal adjustment and reform, possibly including debt restructuring, would also be necessary to create space for priority spending and put the public finances on a sound footing. Greater emphasis on regional collaboration and further technical assistance from the Fund and other development partners would also be important,” the IMF added.

The IMF said, Grenada’s engagement with it in the past, played an important role in supporting the small island economy after it was buffeted by major adverse shocks.

“Fund support catalyzed substantial donor aid in the wake of unprecedented damage from two hurricanes and provided additional resources when the global crisis hit. Key reforms were also advanced, including the implementation of a VAT (Value Added Tax) and strengthening of the non-bank regulatory framework. Nevertheless, a series of adverse shocks, in particular the global recession, took a heavy toll on growth which declined during Grenada’s engagement with the IMF,” the IMF said.

Late last year, Prime Minister Dr. Keith Mitchell told nationals that while the international community was willing to restructure the island’s debt, the country would have to make sacrifices.

Mitchell, whose New National Party (NNP) came to office in February last year, said, Grenada was unable to pay its creditors and was seeking the assistance of the international community to restructure its debt.

Since then there have been several activities aimed at finding a solution to restructuring the debt that is estimated at more than two billion EC dollars (One EC Dollar = US$0.37 cents)

The government has appointed the London-based White Oak Advisory — which describes itself as an independent financial advisory firm providing specialist, high-level and impartial advice to governments and other clients on matters relating to sovereign finances and sovereign debt — to advise it.

“It is now time for Grenada to confront the fact that it cannot continue to pay its debts on current terms, and that the restoration of growth requires the debt overhang to be resolved. We need a fresh start, and it is therefore imperative that we approach our creditors, promptly, to discuss an orderly restructuring of our liabilities,’ Mitchell said.