The following is the first part of the Letter of Intent from Grenada to the International Monetary Fund (IMF). The full document can be viewed on the IMF website.
Letter of Intent
St. George’s, Grenada
June 25, 2014
Ms. Christine Lagarde
International Monetary Fund
Washington, D.C. 20431
Dear Ms. Lagarde,
The Grenadian economy has faced unprecedented challenges over the past decade. In addition to the long-standing problems of low growth and high unemployment, the country has faced its largest natural disaster and the most prolonged recession since independence. This in turn exacerbated its already weak fiscal position, despite our attempts to strengthen it in the context of the previous two IMF-supported programmes. These challenges have been feeding each other in a vicious circle, coming to a head in 2012-13 in a full-blown fiscal crisis. Public debt reached about 110 percent of GDP at end 2013, and the inability to meet financial obligations led to the announcement of a debt restructuring in early 2013.
In the February 2013 elections, the New National Party government took office with a very strong mandate to govern. The Government sees this mandate as an opportunity to fundamentally tackle the challenges facing the Grenadian economy. With this in mind, it has developed a comprehensive home-grown reform programme for 2014-17, as described in the attached Memorandum of Economic and Financial Policies (MEFP). The programme aims to restore macroeconomic stability in the short term and promote strong, sustainable, and inclusive growth in the medium term. The main pillars of the programme include an ambitious fiscal adjustment supported by public financial management reforms and debt restructuring; structural reforms to promote a business-friendly environment, growth and job creation; and measures to strengthen financial system safety and stability.
In support of our economic programme, the Government requests a 36-month arrangement under the Extended Credit Facility from the International Monetary Fund in an amount equivalent to SDR 14.04 million (120 percent of Grenada’s quota, about US$21.9 million at current exchange rates). The ECF arrangement will provide needed financing during the adjustment period and signal our determination to implement sound policies, catalyze additional financial and technical assistance from other international donors, and boost investor and business confidence. Progress in the implementation of our programme will be assessed through semi-annual reviews, quantitative performance criteria, indicative targets, and agreed structural benchmarks as described in the attached memorandum.
We are confident that the policies set forth in the memorandum are adequate to meet the objectives of the programme. We stand ready to take any additional measures that may become appropriate for this purpose as circumstances change. As is customary under Fund-supported programmes, we will consult with the Fund on the adoption of such measures in advance of necessary policy revisions. We will also provide the Fund staff with all the relevant information required to complete programme reviews and monitor performance.
We consent to the publication of this letter, the attached MEFP and Technical Memorandum of Understanding, and the related staff report.
Hon. Keith Mitchell
Prime Minister, Minister of Finance and Energy Grenada