Review of IMF Grenada assessment which came out in january 2014

A few highlights from IMF: Grenada. Ex-Post Assessment of Longer-Term Program Engagement. IMF Country Report No. 14/19 (January 2014)[1]

Beside the normal Art.IV consultation, which the IMF does with all its member countries annually (at least in theory), the Fund does special evaluations of some programs, particularly those, which are somewhat more exceptional. In the present document the IMF staff assessed program success and failure of two longer term Fund programs in Grenada:

  • A program under the Poverty Reduction and Growth Facility (PRGF), which guided government policies and provided Fund financing between 2006 and 2010.
  • A program under the successor to the PRGF, the Extended Credit Facility, which ran from April 2010 until April 2013.

Both programs combined IMF financing of about US-$ 39m combined[2], with adjustment measure by the government of Grenada (GoG) under Fund guidance (pt.1)

The report provides very good and updated insights into the Grenadian economy in the middle of its worst debt crisis. Some highlights:

  • High debt but still underestimated. External public debt stands at 108% at end-2012. However, this is still looks relatively benign because a major revision of the GDP at current prices by the IMF technical support unit in the Caribbean CARTAC, led to higher denominators, than previous methodology would have shown.
  • Over-optimistic Fund projections. Figure 2 (p. 22) shows quite nicely, how IMF projections constantly missed Grenadian reality by assuming to positive outcomes from major indicators in a country in crisis. As new financings and economic policies regularly relied on the over-optimistic Fund projections this marks a clear co-responsibility of the key advisor of the GoG for the economic impasse, in which the country finds itself today.
  • Too little debt relief too late. The track record of fiscal adjustment in Grenada has been poor: Not enough financing was available to allow for a sufficient fiscal stabilization without a major recessionary impact – in the absence of debt relief. Grenada clearly is a case in point for the “too little relief too late” syndrome, which the IMF had self-diagnosed early 2013 with regard to a broader range of its programs. (Box 6, p.23). In particular it shows that reducing current paxyment obligation in 2005 without a clear cut into principal was insufficient to prevent the country from sliding into recession. This is very much in line with the CCG’s insistence on debt reduction rather than only rescheduling during its workshop in St.George’s in October 2015.
  • Shocks should better be taken into account. The document concludes a few guidelines for any future program, which “will need to take into account the volatility of growth and exposure to shocks, including downside scenarios and more realistic forecasts.” Which present programs have obviously failed to do.
  • Debt restructuring is unavoidable. While the IMF tends to avoid mentioning the need for debt restructuring in its country analyses, wherever possible, it can not help but underlining it in the case of Grenada (pt.54). While this has already been largely a consensus among all stakeholders when the IMF said it, it is still useful for the GoG to avoid the notorious “debt restructuring hampers future access to capital markets” counterarguments from creditors.
  • Public Investment needed. With the need for debt relief already largely uncontroversial end-2013, it is very useful that the IMF points to the need to create fiscal space to overcome bottleneck infrastructure and to create jobs, i.e. to move from restrictive fiscal policies in order to mobilize resources for debt service to one of investing public resources (p.36 and pt. 30)
  • Fear for medium term debt sustainability. A huge Chinese infrastructure financing of US-$ 85-100m is still pending. The IMF discourages the government from taking it, by confirming its zero-ceiling for non-concessional borrowing (pts. 16, 24, 17), which has been obeyed by Grenada since 2006.

 

Jürgen Kaiser, erlassjahr.de, Feb. 4th 2014

 


[1] http://www.imf.org/external/pubs/cat/longres.aspx?sk=41282.0. References to the document are either to pages (p.) or to points (pt.)

[2] o/w about US-$ 28m still need to be repaid.

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