GRENADA-ECONOMY-IMF official attributes Grenada’s ‘impressive progress’ to broad-based ownership

WASHINGTON, May 24, CMC – The outgoing International Monetary Fund (IMF) Mission Chief for Grenada, Nicole Laframboise, has attributed the island’s “impressive progress” under the IMF program to broad-ownership and consultation across the country on the government’s reform programme.
In an IMF interview here, Laframboise said on Tuesday that Grenada’s Committee of Social Partners and the Home-Grown Monitoring Committee―representing trade unions, private companies, the Council of Churches, and nongovernment development organizations―were consulted regularly and involved in monitoring performance.
“They provided grassroots feedback to policymakers about how the program was affecting people in the country,” said Laframboise in reflecting on the government’s most significant achievements and the country’s remaining economic challenges, including how to preserve hard-won gains and spread the benefits of reform to all Grenadians.
She also said Grenada benefited from extensive technical assistance from the IMF and its Caribbean Regional Technical Assistance Center, and from other development partners during the program.
“This assistance was targeted to areas with the biggest capacity gaps, and those that would best help the government achieve the program objectives,” she said.
In addition, Laframboise said luck “played a helping hand,” stating that while the authorities worked hard throughout, Grenada benefited from some positive external forces, namely stronger growth in key export markets and a rebound in tourism to the Caribbean, as well as a recovery in agriculture.
“Finally, when a government holds a full majority in Parliament, it helps get things done,” she said. “All of these factors helped sustain the reform momentum―right until the last review.”
In June 2014, the IMF’s Executive Board approved a US$22 million Extended Credit Facility to restore fiscal sustainability and improve Grenada’s growth prospects.
Grenada just completed its final review and plans to move to surveillance-only engagement with the IMF.
The Washington-based financial institution said Grenada’s economy grew by about 3.9 per cent in 2016—helped by strong construction activity and steady tourism demand.
But despite recent progress, the IMF warned that Grenada remains susceptible to external shocks, including from natural disasters and swings in tourism demand and commodity prices.
Laframboise said the sizable reduction in the debt-to-Gross Domestic Product (GDP) ratio is the “most obvious and important accomplishment,” in Grenada’s reform program.
Between 2014 and the end of this year, she said public debt as a share of GDP declined from 108 percent to 72 percent ― “that’s a substantial drop.”
Of this, she said about one quarter was due to the comprehensive debt restructuring, another quarter to fiscal adjustment, and about half was driven by growth in GDP.
Laframboise said another key achievement is the overhaul of the fiscal policy framework, anchored by the fiscal responsibility law and backed up by an array of supporting fiscal laws, regulations and budget practices.
She noted that the Grenada government also set up a legal framework to “prudently manage the inflows from the citizenship-by-investment programme which, by the way, is the gold standard in the region for transparency.
“This rules-based fiscal framework should lock in discipline and encourage productive government spending for future generations,” Laframboise said.
She said increased social spending―and improved targeting―are other important accomplishments.
With support from the World Bank, the IMF official said the Keith Mitchell administration has shifted to an improved beneficiary information system “that better allocates resources to those most in need, with a cash transfer feature that has started to produce improvements in education attainment.”
But Laframboise said the biggest challenge to the IMF program for the Grenada government is capacity constraints, stating that Grenada is a micro economy, with a population of just over 100,000.
“It is hard for a country this size to have deep capacity in all the relevant specialized fields needed to overhaul the machinery of government,” she said.
“Contrast that with the scope of the reforms undertaken, and you get some bottlenecks,” she added. “This led to delays in implementing structural reform objectives and the debt restructuring.”
Still, Laframboise said “an impressive number of reforms were implemented.
“I think the IMF showed sufficient flexibility on program deadlines to allow the government to get things done in time,” she said.
On Grenada’s remaining economic and financial challenges, she noted that public debt is still relatively high, and the country is vulnerable to shocks.
“So, they need to persevere on the current fiscal path and implement the reform of the public sector developed over the last six months,” Laframboise urged. “In addition to fiscal prudence, this reform will introduce greater efficiency into the economy and, thereby, strengthen competitiveness and growth.
Additionally, she said unemployment is high and needs urgent attention.
She said IMF staff analysis had pointed to structural issues related to skills shortages and mismatches, and made suggestions on various labor market programs to address structural unemployment.
Laframboise said efforts to revitalize the agriculture sector and continue improving the doing business environment should also top the agenda.
She also noted that the government has committed to reform of the pension system for public servants, as well as the national scheme to ensure its long-term sustainability.