Since 2006, Grenada has had extensive engagement with the Fund, including an initial Poverty Reduction and Growth Facility (PRGF) arrangement that was approved in April 2006 (see Press Release No. 06/75), which was augmented twice and extended before it concluded in April 2010; and a successor Extended Credit Facility (ECF) arrangement that was approved in April 2010 (see Press Release No. 10/133) and expired in April 2013.The ECF was put on hold in mid-2011, when the authorities informed staff of their intention to pursue a debt restructuring, and then subsequently went off track. Grenada is the first member of the Eastern Caribbean Currency Union (ECCU) to come under the Fund’s policy of longer-term program engagement which came into effect in early 2003.1,2
Grenada’s engagement with the Fund 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 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. Progress toward addressing fiscal vulnerabilities was limited and debt sustainability was not attained mainly reflecting uneven program implementation in a context of constrained capacity and uncertain ownership.
Executive Board Assessment
Directors 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.
Against this background, Directors drew lessons that should inform the design of future programs with Grenada and comparable small economies. In particular, they 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.
Directors considered that a new program with the Fund 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.
Directors 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.
1 The other ECCU members are: Antigua and Barbuda, Dominica, St. Kitts and Nevis, Saint Lucia, and St. Vincent and the Grenadines, as well as Anguilla and Montserrat, which are overseas territories of the United Kingdom.
2 A country is considered to have longer-term program engagement when it has spent 7 or more of the last 10 years under Fund-supported financial arrangements without counting time spent under precautionary arrangements that remained undrawn (see, The Acting Chair’s Summing Up–Review of Ex Post Assessments and Issues Related to the Policy on Longer Term Program Engagementhttp://www.imf.org/external/np/sec/pn/2006/pn0696.htm and Ex Post Assessment of Members with longer-term Program Engagement, Revised Guidance Notehttp://www.imf.org/external/np/pp/eng/2010/022510a.pdf.