Grenada: Ex Post Assessment of Longer-Term Program Engagement

EXECUTIVE SUMMARYGrenada'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 bymajor adverse shocks. It catalyzed substantial donor aid in the wake of unprecedenteddamage from two hurricanes and responded flexibly when the global crisis hit byproviding additional resources and adjustments to program targets. There was alsoprogress on important reforms, such as the implementation of the VAT andstrengthening of the non-bank regulatory framework. The successor arrangement underthe Extended Credit Facility (ECF) had some early success, but then went off track.In general, performance under the Fund-supported programs was weak and mostprogram objectives were not met. This outcome illustrates the difficulties of programimplementation in the midst of major shocks and the need to reflect the macroeconomicand institutional challenges of small countries in program design. In particular, programgrowth projections were too optimistic and the large number of structural reformmeasures, which were largely unmet, did not sufficiently take into account Grenada'ssignificant capacity and institutional constraints. Program ownership was also in questionduring both the first and second PRGF/ECF arrangements manifested in difficulties inmeeting both the fiscal and structural reform objectives of the programs.A new ECF-supported program would be useful for Grenada, including as a catalyst forexternal financing and in restoring fiscal sustainability. The ex-post assessment finds thata new ECF arrangement could benefit from:Establishing clear ownership and a track record by including comprehensive prioractions and indicative fiscal targets to meet prior to Board consideration of theprogram, given previous weak performance. Technical assistance to support theprogram would also be needed given limited capacity.Focusing on a few macro-critical reforms with greater emphasis on growth, includingimprovements in the business environment. Higher growth could help reducepoverty and unemployment and would usefully be assisted by the World Bank andCaribbean Development Bank. Fiscal and financial measures that promote inclusivegrowth will need to be identified.