IMF Says Grenada Recorded Near Four Percent Economic Growth Last Year

1. GEORGE’S, Grenada, March 23, 2017 (CMC) – Grenada’s performance during the last phase of the International Monetary Fund (IMF) Extended Credit Facility (ECF) supported Home Grown Program has been strong, with the island recording economic growth of just under four percent last year, the IMF said yesterday.

An IMF delegation, headed by Nicole Laframboise, has ended a one-week visit here, undertaking a sixth review of Grenada’s IMF-supported ECF program of US$19.4 million that was approved in 2014.

Laframboise said overall performance during this last phase of the ECF-supported Home Grown Program has been strong and that the government has made progress toward achieving the key program goals of restoring fiscal sustainability, strengthening the financial sector, and setting the stage for durable growth.

She said that the government has met all of the performance criteria and structural benchmarks due at end-December 2016.

“All the indicative targets were met, except for a minor under-spending on the World Bank-supported SEED program, because of extra time needed to process candidates under the new eligibility system.

“Nonetheless, it is worth noting that the results, so far, point to an improvement in the effectiveness and targeting of programs to those most in need,” she said.

The IMF official said that real gross domestic product (GDP) is estimated to have expanded by 3.9 percent in 2016, implying annual real GDP growth of 5.8 percent on average from 2014-2016.

She said activity in 2016 was driven by tourism, construction, and some pick up in domestic demand, while agriculture experienced weather-related contraction.

“Growth is expected to moderate to 2.5 percent in 2017, near its estimated potential. Average consumer price index (CPI) inflation rose to 1.7 percent in 2016 and is forecast at 2.6 per cent in 2017 as oil and food prices start to rise. With steady tourism momentum, the external position remains stable.”

She said the government achieved a primary surplus – fiscal balance excluding interest payments – in 2016 of 5.3 percent of GDP and that expenditures were kept under firm control, and tax revenues performed well across all categories, driven by improvements in compliance and administration as well as robust activity.

“Grenada has also taken important steps towards completing the comprehensive debt restructuring started in 2014. Of the stock outstanding at program inception, over 90 percent has been restructured.

“Public debt is forecast to fall to 72 percent at end-2017, a drop of 36 percentage points from its peak of 108 percent in 2013. This sizeable decline in the debt-to-GDP ratio is attributed to all three key factors: debt relief and restructuring, fiscal adjustment, and strong GDP growth.”

Laframboise said while improvements in economic indicators are noteworthy, there is still much to do to improve job prospects.

She said employment has grown on average by about four percent annually since 2014, but unemployment in Grenada is high, particularly for the youth.

“Labour force statistics suggest an important skills mismatch in the economy. A review of education curriculums and new labour market programs to improve training and job search tools, in collaboration with the private sector, would help address this mismatch,” she added.

Laframboise said to achieve broader-based growth, the government is focusing on structural reforms to improve the supply response.

“Based on the natural endowments and market brand, the agriculture sector could be a more important source of growth and employment in Grenada. The authorities are moving toward some liberalization in the sector and staff urges them to continue in that direction.

“The government is also taking steps to remove impediments to doing business, including streamlining property registration processes and customs procedures, and strengthening building quality control and regulation. Further consultations with the private sector in these areas could help identify pressure points to be addressed,” she said.

Laframboise said that despite marked progress, it is important to note that public debt is still relatively high and further effort is needed to reach the medium term target.

“Grenada is a small, open economy, susceptible to external shocks, including from natural disasters, swings in key tourism markets, commodity price shocks, as well as potential volatility of Citizen-by-Investment revenues.

“With these types of vulnerabilities, lower debt and higher reserve buffers will help the country mitigate the impact of external shocks to avoid output losses and setbacks in income and social progress.”

She said that the Keith Mitchell government has agreed on the imperative of adhering to the strengthened policy framework.

“Follow through on the Fiscal Responsibility legislation and the full set of systems and practices of public finance management developed over the past three years is critical to secure fiscal sustainability for future generations. It will also build credibility in the rules-based policy framework,” said Laframboise, who held talks with Prime Minister Mitchell, senior government ministers as well as private sector and labour unions.

She said in support of this goal, the government is preparing a strategy to modernize the management of the public sector.

“This three-year strategy will aid in improving the operations and efficiency of the public sector as well as develop a fair and rational system of compensation and incentives. There will be extensive consultation on the strategy and its implementation with all stakeholders.”