November 21, 2023
- The Grenadian economy continues to grow robustly, supported by public and private construction and sustained strong tourism activity.
- Strong revenue performance has improved the near-term fiscal outlook and creates fiscal space for higher public investment. The new Fiscal Resilience Act includes important measures to simplify the existing rules-based framework and strengthen longer-term fiscal discipline.
- The financial sector remains stable and liquid. Persistently elevated non-performing loans in credit unions have prompted intensifying supervisory measures.
An International Monetary Fund (IMF) team led by Mr. Janne Hukka met with the authorities of Grenada during November 15–17 to discuss recent economic developments and follow up on the policy priorities raised during the 2023 Article IV Consultation.
At the end of the mission, Mr. Hukka issued the following statement:
The Grenadian economy continues to grow robustly, expected to surpass its pre-pandemic level in 2023. Growth has been driven by continued strength in construction and a sustained increase in tourist arrivals, in part due to successful efforts to improve airlift. Record revenues from the Citizenship-by-Investment program have supported both public and private investment. At the same time, headline inflation remains low (2.3 percent y/y in September) and still-elevated food price inflation (6.8 percent y/y) is gradually easing from recent highs. Key risks to the outlook include external shocks disrupting tourism or CBI inflows, potential commodity price volatility amid heightened geopolitical uncertainty, and the ever-present risk of natural disasters.
The near-term fiscal outlook has improved with recent strong revenue performance. This reflects the buoyant economic activity as well as a surge in government CBI revenue, which is anticipated to normalize after the current backlog of CBI applications is cleared. The 2023 supplementary budget utilized some of the additional fiscal space to scale up public investment, although execution delays are anticipated to result in a higher-than-budgeted central government surplus. Central government debt remains on a downward path.
The authorities are advancing an ambitious fiscal reform agenda. The new Fiscal Resilience Act takes important steps to simplify Grenada’s existing fiscal rules framework in guiding longer-term fiscal discipline. It also broadens the coverage of the framework’s public debt anchor, strengthens the role of the medium-term fiscal framework in guiding revenue and expenditure policies, and enhances the role of the Fiscal Resilience Oversight Committee (FROC). An appropriately phased regularization of public sector workers, guided by the ongoing review of job functions, can help improve efficient delivery of public services alongside the broader public sector service reforms. The government is also in process of modernizing the tax administration to facilitate online payments. The authorities’ parametric pension reforms, including the recently approved phased increase in the retirement age to 65, will materially help shore up the National Insurance Scheme’s longer-term sustainability. An actuarially sound and carefully coordinated reform of the public sector pension scheme remains a high priority to contain the fiscal burden on government finances.
The Grenadian financial sector remains stable and liquid. Bank credit growth has increased with greater demand for construction and durable consumer goods loans. Non-performing loans in credit unions remain elevated, prompting intensifying supervisory measures to tighten lending standards and enforce corrective actions for institutions that do not meet prudential requirements. Encouraging all financial institutions to leverage the ECCU regional credit bureau once it becomes operational can mitigate credit quality risks and support local lending.
The mission team expresses its gratitude to the Grenadian authorities for the candid and productive discussions and their warm hospitality.