Grenada : Ex Post Assessment of Longer-Term Program Engagement

EXECUTIVE SUMMARY Grenada’s first arrangement under the Poverty Reduction and Growth Facility (PRGF) played an important role in bolstering the small island economy after it was buffeted by major adverse shocks. It catalyzed substantial donor aid in the wake of unprecedented damage from two hurricanes and responded flexibly when the global crisis hit by providing additional resources and adjustments to program targets. There was also progress on important reforms, such as the implementation of the VAT and strengthening of the non-bank regulatory framework. The successor arrangement under the Extended Credit Facility (ECF) had some early success, but then went off track. In general, performance under the Fund-supported programs was weak and most program objectives were not met. This outcome illustrates the difficulties of program implementation in the midst of major shocks and the need to reflect the macroeconomic and institutional challenges of small countries in program design. In particular, program growth projections were too optimistic and the large number of structural reform measures, which were largely unmet, did not sufficiently take into account Grenada’s significant capacity and institutional constraints. Program ownership was also in question during both the first and second PRGF/ECF arrangements manifested in difficulties in meeting both the fiscal and structural reform objectives of the programs. A new ECF-supported program would be useful for Grenada, including as a catalyst for external financing and in restoring fiscal sustainability. The ex-post assessment finds that a new ECF arrangement could benefit from: Establishing clear ownership and a track record by including comprehensive prior actions and indicative fiscal targets to meet prior to Board consideration of the program, given previous weak performance. Technical assistance to support the program would also be needed given limited capacity. Focusing on a few macro-critical reforms with greater emphasis on growth, including improvements in the business environment. Higher growth could help reduce poverty and unemployment and would usefully be assisted by the World Bank and Caribbean Development Bank. Fiscal and financial measures that promote inclusive growth will need to be identified