IMF Issues Statement On Grenada

by Amanda Banks, Tax-News.com, London

30 September 2008

Catherine Pattillo, head of an International Monetary Fund (IMF) staff mission to Grenada, issued a statement last week supporting the government's attempts at fiscal consolidation, including the planned introduction of value-added tax (VAT).

According to Ms Pattillo, the mission, which ran between September 15 and 23, concluded that:

"Economic growth in 2008 has slowed, and the outlook for the year has deteriorated, reflecting the global slowdown. Real GDP is projected to grow by around 1.6% in 2008 as weakened global demand and temporary disruptions in airlift capacity to Grenada are expected to dampen tourism receipts.

"Spending pressures in the run up to the July elections resulted in serious fiscal slippages and accumulation of unpaid claims (domestic arrears) in the first half of 2008. Capital expenditure was significantly higher than programmed, and there were some overruns on current expenditure driven by higher spending on social programs. Thus, fiscal performance fell short of program targets. In this context, the new authorities quickly developed a set of corrective measures, which the mission supports," she added, going on to explain:

"These include issuing a finance circular to significantly reduce capital expenditures below budgeted levels, and bringing forward the cutoff date for new expenditure commitments. Some social spending programs are also being rationalized to ensure that the benefits are targeted to the most vulnerable groups. To ensure full cost-recovery pricing, the mission encouraged the authorities to reinstate soon the automatic fuel price mechanism, following missed adjustments since May 2008, and to restore the ECD3 per gallon specific tax."

On the subject of taxation, Ms Pattillo continued:

"The mission agreed with the government on the importance of fiscal consolidation in 2009 and beyond to achieve the overarching objectives of fiscal and debt sustainability. The mission welcomed the planned introduction of the VAT; this is a major reform that will help widen the tax base and enhance revenues, as has been the case in neighboring countries.

"The authorities also plan to strengthen tax administration and efforts to collect tax arrears. On the expenditure side, the main challenges are to slow the pace of capital expenditure, rationalize social programs while protecting transfers to vulnerable groups, and moderate growth in the public sector wage bill. The reorganization in the Ministry of Finance, aimed at supporting strengthened economic and fiscal management, should enhance the quality of the 2009 budget preparation."

Bringing her statement to a close, Ms Pattillo concluded:

"Progress on structural reforms has been slower than anticipated and meeting most of the structural benchmarks for the second review will be delayed. The authorities plan to move forward with an action plan to improve Grenada’s Doing Business Indicators, a Fraud Control Plan for customs, and new investment incentives legislation. On the latter, the new Investment Code under preparation will provide a clear and transparent framework for resident and non-resident investors. The government intends to use the findings of the Country Poverty Assessment (CPA), currently underway, to strengthen its strategy to reduce poverty."

"Overall, the new government has made a good start on credible efforts to strengthen implementation of the economic and structural reform program supported by the PRGF arrangement. IMF staff will continue to work closely with the authorities to assist them in such efforts. Discussions will continue in the next two months on a framework for the 2009 budget," she finished.

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