The Grenada economy is projected to grow by 3.5 per cent this year as well as next year, the International Monetary Fund (IMF) said on Wednesday.
But the Washington-based lending agency cautioned that while the country’s economic outlook is positive, “continued policy resolve and public support for reforms are critical to restoring debt sustainability, improving medium‑term growth prospects, and strengthening the financial sector”.
In a release issued Wednesday, following the conclusion of its Article IV consultation with Grenada on July 13, the Executive Board of the IMF said the projected growth follows on from the economic expansion last year.
“The Grenadian economy grew by an estimated 4.5 per cent in 2017, driven by strong activity in construction, tourism, and education sectors. Weather-related weakness in agriculture has, however, been a headwind,” it said.
“In 2018 and 2019, the economy is projected to grow by 3.5 per cent, benefiting from supportive global economic conditions and continued strength in construction and tourism. Thereafter, growth is expected to ease to the long-term potential rate of 2.75 per cent.”
Inflation is expected to edge up in 2018 reflecting recent global energy price increases, but stabilize at two per cent in the medium term. The IMF said the primary fiscal surplus is expected to remain high in the near term, supporting rapid debt reduction, and once the public debt ratio falls below 55 per cent of GDP (projected for 2020), the fiscal surpluses and the pace of debt reduction are expected to moderate.
“The external current account deficit is projected to increase to 7.5 per cent of GDP in 2018 mostly from recent increases in energy costs, but would decline thereafter as the construction-related imports and energy prices are expected to ease,” it added.
The Executive Directors commended the Dr Keith Mitchell-led government for implementing sound policies leading to a strong economic and fiscal performance and sustained debt reduction.
They welcomed the continued fiscal adjustment in compliance with the framework of the Fiscal Responsibility Law (FRL), which has supported policy credibility.
“They noted that while there is scope to improve the FRL’s operational aspects, more substantive changes to the framework should be approached as part of a comprehensive plan that balances debt reduction with the need to create fiscal space for high‑quality infrastructure spending,” the IMF statement said, adding that the Directors welcomed the authorities’ intention to implement the recent initiatives on pensions and health care in a way that is consistent with the FRL’s targets.
“Directors encouraged the authorities to support the FRL through continued reforms to improve public financial management, expenditure efficiency, and fiscal transparency. They saw scope to further strengthen social assistance programmes to protect the most vulnerable and to strengthen the productivity of state‑owned enterprises.”
The IMF also emphasized the need to continue tax administration reforms and resolve remaining bilateral arrears. They welcomed advances in fiscal transparency, including the establishment of the Fiscal Responsibility Oversight Committee, and encouraged further progress in that area.
It also welcomed indications of a strengthened banking system and considered that banks are better poised to contribute to private sector investment and growth.
“They noted the rapid increase in lending by credit unions and called for strengthening the supervision of the sector by the local regulator to reduce potential financial stability risks. Going forward, they encouraged the authorities to support steps taken at the ECCU [Eastern Caribbean Currency Union] level toward a regional approach to regulation and supervision of the non‑bank financial sector,” the IMF statement continued.
Directors also underscored the importance of implementing structural reforms to boost potential growth, noting Grenada’s susceptibility to natural disasters in addition to structural weaknesses such as high unemployment and the external competitiveness gap.
They emphasized the need for measures to improve the business environment and labour market, address weaknesses in the implementation of public infrastructure spending, and reduce skill mismatches.
