Post-IMF fiscal resilience rebuilds confidence
Back in December 2013, after nearly eight years of consistent engagement with the IMF had failed to put Grenada on the road to recovery and after a debt-to-GDP ratio of 108% had necessitated a major restructuring, the fund was frank in its assessment.
“Performance under the fund-supported programmes was weak and most objectives were not met,” said the IMF.
Five years later, the turnaround has been remarkable. Not only did Grenada show impressive results under its next IMF programme — successfully completed in May 2017 — but in the year and a bit since then it has continued on the right track.
Prime minister and finance minister Dr Keith Mitchell, who had announced the restructuring within a month of taking office for the second time in February 2013, has overseen a consistent reduction in debt levels to below 71% of GDP by the end of 2017. The IMF forecasts it will be below 53% by 2021. The primary surplus continues to increase, up to 5.75% of GDP last year.
Dr Mitchell says that communication with all segments of the island nation’s population of just over 100,000 has been key. The IMF programme had the buy-in of the public, having involved trade unions, business leaders, NGOs and the church.
“We made clear that the future of the country was at stake, and that the sacrifice would benefit us all in the future,” Dr Mitchell told GlobalMarkets.
Perhaps the toughest test, however, was maintaining discipline once the programme was over.
“Grenada’s fiscal performance has continued to be strong even after the end of the programme,” said Nathalie Marshik, managing director, head of sovereign research at Oppenheimer & Co. “This is pretty impressive, especially when you consider there are political pressures to spend when you come out of such a difficult IMF programme.”
A fiscal responsibility act and the new Fiscal Responsibility Oversight Committee, which reports to parliament rather than the executive branch, are crucial. But Dr Mitchell says that the key lies in ensuring people continue to understand that the rules implemented under the programme are simply good policy and management.
“We were spending too much money on public service salaries instead of productive activities,” he said.
Striking the magic combination of strong GDP growth — above expectations at 4.5% in 2017 — alongside the belt-tightening helps, especially because it is “not just growth but job-related growth”, according to the prime minister.
“Moving from 40% unemployment to 23% in five years under a structural adjustment programme gives confidence in what we are doing at all levels,” he said. “The message has been strong: we must keep helping people to understand that the reason we are seeing growth and jobs — and thus better quality of life — is because of measures like the fiscal responsibility rule.”