20220509-IMF-Grenada_2022_Article_IV_Consultation-Press_Release_Staff_Report_and_Statement_by_the_Executive_Director_for_Grenada_91页_2mb

GRENADA 2022 ARTICLE IV CONSULTATION SUMMARY

Core Content

The 2022 Article IV consultation with Grenada by the International Monetary Fund (IMF) assessed the country's economic recovery from the pandemic and outlined policy recommendations to support long-term growth and resilience. The consultation included a Press Release, Staff Report, and Statement by the Executive Director, with key discussions on fiscal policy, economic recovery, and risks to the outlook.

Main Points

Economic Impact of the Pandemic

• Grenada's tourism-dependent economy was severely affected by the pandemic, with real GDP declining by 14% in 2020.
• Tourism accounted for 40% of value-added, 25% of employment, and 80% of exports.
• Over 14,000 jobs were lost, and real GDP contracted by 14% in 2020.
• The tourism recovery has been slow, and the suspension of in-person classes at Saint George's University (SGU) further impacted economic activity.

Fiscal Response

• The government triggered the escape clause under the Fiscal Responsibility Framework (FRF) in 2020 and 2021 to allow for counter-cyclical fiscal policy.
• Two stimulus packages were launched, totaling 2.1% and 1.2% of GDP, respectively, with measures including health sector expenditure, wage subsidies, credit support, and price support for farmers.
• The primary surplus fell from 6.8% to 2.1% of GDP during 2019–2021, and central government debt rose from 59% to 70% of GDP.

Economic Outlook

• Growth is expected to continue in 2022 at 3.6%, driven by construction and agriculture.
• Tourism recovery is projected to be slow, with tourist arrivals expected to return to 2019 levels by 2025.
• The war in Ukraine poses a significant risk by increasing global commodity prices and inflation.
• The current account deficit is projected to widen further in 2022 but is expected to improve in 2023 with increased tourism receipts and reduced fuel imports.

Risks to the Outlook

• Major risks include a prolonged pandemic, further increases in global commodity prices, and potential worsening of supply chain disruptions.
• Natural disasters and climate change are also key risks, with rising sea levels and more frequent extreme weather events.
• A sharp rise in pension liabilities is a domestic risk that could affect fiscal sustainability.

Policy Recommendations

• Return to fiscal rules in 2023 and strengthen the FRF over time.
• Increase domestic value-added in the tourism sector through diversification and improved competitiveness.
• Invest in skills development and renewable energy to enhance resilience and economic diversification.
• Secure concessional financing and mobilize domestic resources to support fiscal sustainability.
• Implement reforms to improve competitiveness and reduce energy costs.
• Continue targeted fiscal support for the most vulnerable and improve spending efficiency and transparency.

Financial Sector

• The financial sector has weathered the crisis well, but asset quality needs close monitoring as loan moratoria expire.
• Increased provisioning and strengthened supervisory oversight of credit unions are recommended.
• Further improvements to the AML/CFT framework are necessary to maintain correspondent banking relationships.

Key Information

• GDP per capita (2020): US$9,680
• Population (2018): 0.11 million
• Poverty rate (2019): 25%
• Unemployment rate (2021 Q2): 15.4%
• Youth unemployment (2021 Q2): 38.6%
• Central government debt (2021): 70% of GDP
• External debt (2021): 55.2% of GDP
• Current account deficit (2021): 24.5% of GDP
• Gross international reserves (2021): US$353.2 million (5.1 months of imports)
• Inflation (end-2021): 1.9%
• Inflation (end-2022): Projected at 5.4%

Document Structure

Sections

• Recovering from the COVID Shock

  • Context
  • A Protracted Recovery
  • Outlook and Risks

• Policy Discussions

  • Supporting the Recovery and Building Resilience
  • Achieving Sustainable Growth and Unleashing Job Opportunities
  • Safeguarding Financial Stability

• Data Issues

• Staff Appraisal

• Boxes

  • Inflation Developments
  • Fiscal Rules

• Figures

  • Recent Economic Developments
  • External Developments
  • Fiscal Developments
  • Financial Sector Developments

• Tables

  • Selected Economic and Financial Indicators, 2017–27
  • Operations of the Central Government, 2017–27
  • Summary Accounts of the Monetary Sector, 2017–27

• Annexes

  • I. Implementation of Past Staff Advice
  • II. External Sector Assessment
  • III. Risk Assessment Matrix
  • IV. Options for Revising Grenada's Fiscal Responsibility Law
  • V. Grenada's Tourism Sector: More Competitive, Nimbler and Visible to Address Challenges

Summary of IMF Executive Board Assessment

• The Executive Board agreed with the staff's appraisal and commended the authorities' timely response to the pandemic.
• They emphasized the need to return to fiscal rules and strengthen the FRF to ensure fiscal credibility and debt sustainability.
• The government's Disaster Resilience Strategy and transition to renewable energy were welcomed.
• The financial sector's resilience was acknowledged, with recommendations to monitor asset quality and improve AML/CFT frameworks.
• The Board highlighted the importance of securing concessional financing and mobilizing domestic resources.
• They encouraged measures to increase competitiveness in the tourism sector and address labor skills mismatches.

Authorities' Views

• The government broadly agreed with the staff's growth projections and risk assessments.
• They acknowledged the need to moderate public investment in the medium term but emphasized the continued importance of the construction sector in supporting recovery.
• The 2022 Budget was seen as appropriate, with a mix of spending and revenue measures to support economic activity.
• The use of the escape clause for the third time was deemed necessary due to the difficult economic situation.