The Executive Board of the International Monetary Fund (IMF) has approved a three-year arrangement for Grenada under the Poverty Reduction and Growth Facility in a total amount equivalent to SDR 10.53 million (about US$15.2 million) to support the government’s comprehensive medium-term economic reform programme.

An initial disbursement of SDR 1.56 million (about US$2.2 million) under the arrangement will become available immediately. The PRGF is the IMF’s concessional facility for low-income countries.

It is intended that PRGF-supported programmes are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP).

This is intended to ensure that PRGF-supported programmes are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period on principal payments.

Following the Executive Board discussion on Grenada, on April 17, 2006, Agustín Carstens, Deputy Managing Director and Acting Chair, said: “A modest economic recovery is underway in Grenada from the devastating effects of Hurricanes Ivan in 2004 and Emily in 2005. Economic growth rebounded in 2005, following a decline in 2004, with brisk activity in the construction sector offsetting the slowdown in agriculture and tourism.

“Near-term growth prospects are encouraging, reflecting ongoing construction activity and the expected recovery in tourism. “While a substantial increase in domestic fuel prices led to an increase in inflation in 2005, second-round price increases have been limited and price rises are expected to moderate in the coming months.

“With reconstruction activity broadly on-track, the Grenadian authorities have turned their attention to the longer term challenges that the country faces. “These include alleviating poverty, promoting sustained high economic growth, restoring fiscal and debt sustainability, as well as reducing vulnerabilities to extreme weather events and financial sector developments.

“The Fund welcomes the government’s commitment to address these challenges through a comprehensive medium-term reform programme. “The 2006 budget has been used to launch this reform programme. The programme aims to sharply reduce public debt from its present high level to some 60 percent of GDP by 2015.

“To this end, a primary surplus (excluding grants) of 2.5 percent of GDP will be targeted, beginning in 2008. The shift in the fiscal stance that this requires will be phased in over the next three years so as to accommodate large reconstruction-related spending needs in 2006 and 2007.

“The fiscal adjustment will be evenly distributed between revenues and expenditure measures. “Importantly, these fiscal reforms make room for increased social expenditure, particularly with a view to addressing the social needs arising from the dislocation caused by the hurricanes and higher energy prices.

“The authorities’ reform programme also aims to address the other economic challenges the country faces. To raise growth potential, improvements in the investment climate are planned, including a transparent and investor-friendly framework and the removal of regulatory barriers.

“Relatedly, the process through which investors acquire land will be simplified greatly, by ensuring that land controlled by the government is made available through open and well-publicised auctions. “To reduce vulnerabilities in the financial sector, the programme includes measures to strengthen the regulatory framework.

“The authorities’ comprehensive programme is promising. With steadfast implementation, growth and poverty reduction will be enhanced, the resilience of Grenada’s economy to shocks will improve, and debt and fiscal sustainability will be restored,” added Carstens.