IMF says signs of fragile economic recovery in Grenada

A report from the International Monetary Fund (IMF) says there are signs of fragile economic growth in Grenada.

This report published on Wednesday, following a recent visit by an IMF team for the Fund’s annual bilateral discussion with borrowing member countries, said the island experienced a 1.1% growth in Real Gross Domestic Product (GDP) in 2011 and is forecast to see a marginal 1.5% growth in 2012.

It also stated that inflation is expected to remain stable at about 3% this year.

Despite the projection for slight economic recovery, the report, prepared by Ms. Nita Thacker, head of the IMF Mission which visited Grenada between May 7th and 17th, 2012, said the country’s fiscal situation remains in a depressed state and “significant downside risks remains”.

“These include the high public sector debt level and budget financing constraints, high current account deficits and net external liabilities, and financial sector vulnerabilities, including potential spillover from the region,” the IMF Mission head reported.

Thacker’s report indicated that current account deficit is expected to remain around 25 percent of GDP, which reflects high food and fuel prices.

“On the fiscal front, the high public sector debt combined with budgetary rigidities and limited sources of financing are key challenges and underscore the urgent need for more lasting and significant fiscal consolidation.”

In its report, the mission has recommended that government address its recurrent expenditure particularly its wage bill and streamline its tax incentives, in order to create avenues for budget growth and capital expenditure.

“Addressing existing budgetary rigidities on current spending, in particular with respect to the high wage bill, will strengthen the budget’s pro-growth orientation and create space for capital expenditure.”

“On the revenue side, reducing and streamlining tax incentives and exemptions could generate fiscal space for much-needed investments in infrastructure and other development priorities to ensure sustained growth and create buffers against future shocks.”

In 2011 the country had a revenue shortfall of EC $121.8 million, before grants which represented 5.5% of GDP.©

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