Thursday, 20 March 2014

Grenada: IMF Agreement; Reading through the Lines

On March 14th 2014, Ms Aliona Cebotari, IMF  mission Chief for Grenada issued a statement to the effect that an agreement was concluded with the Fund subject to a final approval of the Agreement by its Executive Board.

Since the electoral victory of the NNP In 2013, the new administration has been in engagement with the IMF so as to mobilise support for its Home Grown’ Structural Adjustment Program.

The release describes as ‘ambitious’ the program to correct the country’s imbalance and lift sustainable growth and the public financial management reforms. My curiosity was aroused with the use of that description as the track record of the NNP administration with the IMF suggests that what she really meant is that the task cannot ‘be easily done or achieved’.
Grenada has been in continuous IMF supported programs since 2006.However due to non compliance and weak implementation of  agreed reforms, the country’s economic reality have in fact worsened over the period.
The statement also indicated that US $ 21.9 million has been approved to support the Structural Adjustment Program for 3 years. On the heels of this announcement, the country’s Prime Minister and Minister of Finance announced that a further US$100 can be mobilised through the World Bank, the Caribbean Development Bank and the European Union (EU). In fact he said that in regards to the EU, grant funding will be provided and that “the sky is the limit’. Dr Mitchell did indicate that certain conditionalities have to be met in order to benefit from this ‘windfall’.
This sales pitch approach cannot suffice at this stage. The much talked about Letter of Intent is yet to be finalised. That will only be the first step as it will provide the policy framework. Thereafter, the government will have to negotiate the detail arrangements to include performance benchmarks, time lines and implementation schedules.

 Therein lays the problem. The government has a credibility problem with the Fund as in the previous programs implementation was weak or in some cases not achieved at all. Back in 2006/07, a review of structural benchmarks indicates that 40 % was never achieved.
The country faces some significant disadvantages
Weak management capacity in the Ministry of Finance
Expenditure controls needs strengthening
Debt management capacity is almost non existent
There has been slippage in the Doing Business Indicators according to the World Bank
There is limited political will to curb tax incentives as a means to attract investment
Grenada’s status as a middle income country limits access to concessionary financing provided by the World Bank and its affiliates.
Political considerations supersede sound economic policy implementation
The country waits with bated breath, the agreed benchmark indicators and implementation timelines. It is only then the citizenry will be in a position to internalise Dr. Mitchell’s assertion that over US$100 million will be available to Grenada to assist in its efforts to achieve sustainable economic development.
It is interesting that the projection set out to bring our Debt to GDP ratio to 60% is the year 2020, six years from now. Is the IMF indicating that the 3 year program is simply, ambitious or that a sensible and achievable Structural Adjustment Program will take longer?

      You just have to read through the IMF lines.

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