IMF: Grenada is Overcoming the Crisis
Saturday, October 25 2014 @ 06:20 AM AST
Contributed by: michaelariston
Grenada Overcoming the Crisis
By Kimberly Beaton
A decade of natural disasters and the global financial crisis coalesced into a deep economic crisis in Grenada. The economy underwent a protracted recession during 2009-11 and, with monetary policy constrained by the peg to the U.S dollar, the government used countercyclical fiscal policy to support economic activity. The fiscal expansion did not have a strong impact on growth but widened fiscal imbalances, with debt reaching 110 percent of GDP by end-2013 and financing pressures mounting. The crisis came to a tipping point in March 2013 when—unable to meet its financial obligations—the government announced it would seek a comprehensive and collaborative restructuring of public debt.
The authorities immediately embarked on a comprehensive reform agenda, supported since June 2014 by a three-year IMF arrangement (under the Extended Credit Facility), as well as by the World Bank and the Caribbean Development Bank.
The authorities’ program focuses on restoring fiscal sustainability, strengthening competitiveness and growth prospects, and securing financing stability. The authorities are addressing fiscal imbalances through a large and frontloaded fiscal consolidation of 7¾ percent of GDP over three years, complemented by efforts to comprehensively restructure and bring it toward the regional debt target of 60 percent of GDP by 2020. Deep fiscal structural reforms will lock in the gains from these combined efforts, including though new fiscal responsibility legislation.
To protect the most vulnerable from the effects of the adjustment, the authorities are strengthening social safety nets and have set a floor on spending under the flagship social program. Boosting private-sector led growth remains an overwhelming priority for the authorities’ program, with structural reforms focusing on improving the business environment, reducing electricity costs, and removing other obstacles to growth. To ensure that the financial system can provide the financial intermediation necessary to support growth, efforts are underway to strengthen regulation and supervision of all segments of the financial system.
Grenada has made a strong start in implementing its program, indicative of the government’s ownership and commitment. The bulk of the measures needed to support the fiscal adjustment have been put in place and are yielding strong results, with the overall fiscal consolidation on track. The strengthening of the fiscal policy framework has already begun with the introduction of a new Public Finance Management Act, which addresses past weaknesses in budget preparation and execution. The first review of Grenada’s program is expected to be considered by the IMF’s Executive Board in November 2014.
Social partners are playing an important role in supporting the program and monitoring its implementation. As a result of a broad consultative process initiated by the authorities, Grenada’s social partners have established a “Monitoring Committee for the Homegrown Programme”, which monitors the implementation of the reforms, assists the government in achieving the targets and recommends corrective actions as necessary.