Grenada economy projected to decline by over 9% in 2020

Compiled by: Sandra C A Ferguson

• “The economy is now projected to contract by over 9% in 2020. Local outbreaks of Covid-19 (with 14 reported cases) could cause yet deeper and more prolonged contraction in activity. Grenada’s solid fiscal position and strong macroeconomic performance prior to the Covid-19 crisis are key mitigants.” pg.1, Executive Summary, IMF Country Report No. 20/161, May 2020. 

• Excerpts from Compliance Assessment Report: Supplementary Budget 2020 submitted to Parliament by the Rt. Hon. Prime Minister/Hon. Minister of Finance on 17 April 2020:
  • pg. 4: “…In-house analysis of the Ministry of Finance has preliminarily estimated a contraction of 12.9% in real GDP in 2020” (own emphasis).
  • Pg. 9: “The economic impact of Covid-19 is broad based, but the main assumptions for the pronounced decline in GDP estimated for 2020 are; a 50% decline in Tourism value added, 20% reduction in private education, and a 15% decrease in private construction activity as well as wholesale and retail trade” (own emphasis).

1. Rapid Credit Facility:

A 28 April Press Release from the IMF advised that IMF Executive Board had approved a US$22.4 million disbursement for Grenada from the Rapid Credit Facility (RCF) mechanism to help cover “balance of payment needs stemming from the outbreak of the Covid-19 pandemic.” Grenada was accessing 100% of its quota under this facility. The IMF Report^[1] supporting Grenada’s request was published on 13 May.

• Purpose:

The Press Release advised that the Rapid Credit Facility disbursement would support the following:

• Implementation of Covid-19 Measures: provide resources for the measures announced by the authorities of the borrowing countries: “essential health-related expenditures and income support to ease the impact of Covid-19 on the population.”
• Balance of Payments Support: help fill the balance of payments needs of the 3 countries balance of payments needs/Grenada’s projected BOP need in 2020, is around US$110 million, or 10% of GDP.
• Donor Support: catalyse further donor support to close the remaining balance of payments needs.

2. Press Release from Office of Prime Minister:

A 15 May Press Release from the Office of the Prime Minister – IMF predicts economic growth of 6.25% for Grenada in 2021 – was posted on GIS^[2] Facebook. It was also on a number of other websites including Caribbean Business Report.^[3] The Press Release seems to have IGNORED the rest of 2020 and went straight to 2021!! In respect of 2021, the IMF report noted as follows: “…a modest recovery is ASSUMED beginning Q4 2020 (ie October–December), leading to a perceptible rebound in 2021 and project growth of about 6¼ percent.” (own emphasis).

The Press Release from the Office of the Prime Minister OMITTED:

• the forecast contained in the IMF Report – “The economy is now projected to contract by over 9% in 2020.”
• the caution sounded in respect of growth projections for 2021-22. “…staff’s projection of a solid economic recovery in 2021-22 is subject to significant downside risks.”

3. Economic Forecast:

Re the economic outlook, the following was forecasted:

• Challenging Short Term Outlook: The short term economic outlook is challenging. Prior to the Covid-19 crisis Grenada’s key macroeconomic indicators were expected to remain broadly at 2019 levels.
• Sharp Decline in Growth: Growth is projected to DECLINE SHARPLY to –9.2% in 2020 (own emphasis).
• Decline in Tourism Exports: Tourism exports could decline by 50% by year on year in 2020; almost no arrivals in Q2 and Q3, ie no arrivals over the period March to September.
• St George’s University: A resumption of classes is not expected for some time.
• Projections 2021: A modest recovery is assumed beginning Q4 2020 (ie October–December), leading to a perceptible rebound in 2021 and project growth of about 6¼%.

4. Risks Identified^[4]:

“…Staff’s projection of a solid economic recovery in 2021–22 is subject to significant downside risks…”

Among the risks identified by the IMF Report were the following:

• Things Could Get Worse: Covid-19 spread could increase both globally and locally, putting more pressure on economic activity. It would have the following impacts:
  • Global Recession: “a larger than expected global contraction” which would have local impact.
  • Impact on Tourism: Travel would be negatively impacted. There would be less travel and “the global contraction” might create “a more protracted halt in tourism.”
  • Disruption of Local Economy: Commercial activity would be disrupted, affecting demand for and supply of goods/services with its impact on jobs, employment, income and revenues.
• Vulnerability to Natural Disasters: An additional risk is Grenada’s vulnerability to natural disasters.
• Higher than Expected External and Fiscal Needs Financing Needs: Financing needs could be higher as a result of:
  • Underestimation of the impact of Covid-19
  • Uncertainty over trade
  • Decline in tax revenues as a result of contraction in imports
  • An increased need to support the private sector, including support to the financial need to support the private sector to address potential liquidity and solvency issues.
  • Additional pressures that would result should there be a sudden stop in government and/or private sector financing flows.
  • Impact of ICSID Judgement re Grenlec: This could result in a significant outflow of liquidity which would cause deterioration in the fiscal financing outlook. It is useful to note there that according to the Supplementary Budget, EC$8 million has been allocated for payment Grenlec to support the announced 30% reduction in electricity rates over the next 3 months. Even more interesting is the announcement by Minister Bowen that both Grenlec and the Government of Grenada have agreed not to make any public statements about this arrangement?
  • Anti-Money Laundering/Combatting Financing Terrorism Vulnerabilities: Grenada’s vulnerabilities could affect its Correspondent Banking Relations and this would affect the flow of remittances.

5. Spin Production?

Even the Supplementary Estimates and Compliance Assessment Report laid before Parliament on 17 April by the Rt Hon. Prime Minister/Minister of Finance advises as follows: “…In-house analysis of the Ministry of Finance has preliminarily estimated a contraction of 12.9% in real GDP in 2020” (own emphasis).

Was the press release from the Office of the Prime Minister the production of a SPIN room and to WHAT end?

^[1] IMF Country Report No. 20/161, May 2020

^[2] https://www.facebook.com/GISgrenada/photos/a.1887044398187611/3240594792832558/

^[3] https://caribbeanbusinessreport.com/news/grenada-will-grow-by-6-25-in-2021-imf/

^[4] IMF Country Report No. 20/161, May 2020, para 8-9, pg. 6.