Grenada: 2014 Article IV Consultation and Request for An Extended Credit Facility Arrangement-Staff Report; and Press Release

KEY ISSUESBackground. Grenada is in the midst of a deep fiscal crisis. Public debt reached about 110 percent of GDP at end-2013, in part reflecting attempts to run countercyclical fiscalpolicies since the outset of the global crisis. The government that took office in March 2013 found that it was unable to meet its financial obligations and immediately announced that it would seek a "comprehensive and collaborative" debt restructuring. The economy is meanwhile recovering slowly after a long period of negative growth.Article IV Discussions. The discussions focused on the main challenges facing the economy: the fiscal crisis and the debt overhang, weak competiveness and a weakened financial system. These challenges must be fundamentally addressed to unlock sustainable high quality growth in Grenada.The Proposed Program. To address these challenges, the authorities have designed a comprehensive adjustment program focused on:• Strengthening competiveness to improve medium-term growth prospects by tightening income policies, removing constraints to growth through reforms in the energy and other sectors, improving the investment environment, and putting in place the legal infrastructure for public private partnerships.• Restoring fiscal sustainability through a comprehensive three pillar approach consisting of: (i) a significant and frontloaded fiscal adjustment to address flow imbalances, (ii) a comprehensive debt restructuring to address stock imbalances, and (iii) ambitious fiscal structural reforms to support fiscal sustainability.• Strengthening the financial sector. Grenada is participating in the ongoing regional strategy to strengthen financial regulation and supervision in the ECCU and will undertake additional reforms to further strengthen financial institutions in Grenada.Request for an Extended Credit Facility Arrangement. In support of their comprehensive adjustment program, the authorities have requested a three year Extended Credit Facility (ECF) in the amount of SDR14.04 million (120 percent of quota, about US$21.9 million).SDR2.04 million will be available upon Board approval of the ECF and the remainder in six subsequent installments of SDR 2 million upon successful completion of semiannualreviews.