GRENADA-IMF predicts a continued robust economic outlook for Grenada

ST. GEORGE’S, Grenada, CMC – The International Monetary Fund (IMF) says Grenada’s near-term economic outlook remains robust on the back of post-Beryl reconstruction and other development priority investments.

It said that the gross domestic product (GDP) growth is projected to accelerate to 4.4 per cent in 2025 from an estimated 3.3 per cent last year, with substantial investment and construction activity more than offsetting moderating tourism inflows.

Headline growth will gradually taper to a more modest estimated potential rate of 2.7 per cent by 2029, even as large infrastructure projects, particularly a new teaching hospital under the government’s Project Polaris, sustain high construction activity over the medium term. The IMF, which has just ended a mission to the island, said that, reflecting trends in global fuel and food prices, inflation is expected to normalize to around 2 per cent by 2028 gradually.

The Washington-based financial institution said that current account deficits are projected to narrow gradually but would remain elevated over the medium term due to high construction imports. It said the financial system remains stable amid a strong recovery from historically subdued bank credit growth.

According to the IMF mission, Grenada’s fiscal position remains comfortable, supported by sizeable savings from recent years of the Citizenship by Investment (CBI) revenue.

Under the CBI, foreign investors are granted citizenship of the island in return for making a substantial investment in its socio-economic development.

But the IMF noted that increased public investment, primarily reflecting Beryl-related spending, amid more moderate non-tax revenue, is projected to result in a 2025 primary deficit of 2.8 per cent of GDP.

“The central government is committed to returning to the 1.5 per cent of GDP primary balance floor from 2027, supporting the longer-term sustainability of public debt. Sizeable central government concessional borrowing to fund planned infrastructure investments, including projects implemented through statutory entities, such as Project Polaris, would temporarily halt the decline in general government debt.

“Even so, debt would remain on a sustainable path, with the 60 percent of GDP target projected to be achieved by 2033,” the IMF said.

It said risks to the country’s economic outlook remain tilted to the downside amid heightened global economic and geopolitical uncertainty.

“The key risks stem from Grenada’s high natural disaster vulnerability as well as tourism and import dependency, although the impact of any moderate shocks to the main tourism source market incomes or global commodity or shipping prices is assessed as modest.

“Disruptions to CBI and FDI inflows could amplify the downside risks, materialization of risks in the domestic non-bank financial system, or implementation delays and cost overruns from large investment projects. Faster-than-projected tourism capacity expansion represents the key upside risk.”

The IMF said that maintaining Grenada’s strong fiscal position and its disaster resilience framework remain necessary buffers against shocks.

It noted that the temporary suspension of the primary balance rule has allowed budget space for post-disaster reconstruction outlays without disrupting development priority investments.

“As the rule resumes, continued current expenditure prudence and revenue-enhancing measures would help maintain this space. Near-term options include broadening the domestic tax base, continued strengthening of tax administration, and exploring alternatives to costly tax reductions to incentivize low-emission vehicles.

“Introducing a more rules-based cost-price pass-through formula for gasoline, and improving the targeting and efficiency of social benefits over time, would also help strengthen spending prioritization.”

The IMF said that the planned large public investment projects address essential development needs, but also call for careful management of long-term fiscal risks. Post-completion operating and maintenance costs should be carefully assessed.

“At the same time, to ensure the fiscal rules framework adequately controls for debt-creating investment by statutory entities, pursuing a more comprehensive primary balance rule would align the framework more closely with the general government debt anchor and reinforce policy credibility.

“In the interim, such investments through statutory entities should be included in the central government’s budget planning and adhere to equivalent reporting and auditing requirements.”

The IMF said the increasing importance of state-owned enterprises and, more generally, statutory bodies in government fiscal operations also warrants continued strengthening of their oversight and monitoring.

Improvements to public investment and financial management should proceed alongside the scaled-up public investment. This includes continuing the recent encouraging progress in project management and monitoring, which has improved investment execution.

“Plans for greater catalyzation of private investment, including around Project Polaris, underscore the need to operationalize the public-private partnership framework. Closer integration of government savings with the debt management strategy would help optimize government financing costs.

“Further strengthening of the medium-term fiscal framework projections would support a firmer shift to multi-year budget planning,” the IMF said.

In addressing non-bank vulnerabilities, the IMF mission said that accelerating system-wide credit growth, along with the associated non-bank vulnerabilities, calls for careful monitoring.

It said the strong uptick in bank lending partially reflects normalization of historically subdued credit conditions and is backed by high system liquidity and strong asset quality compared to regional peers.

“Credit union asset quality also shows encouraging signs of improvement, yet ensuring adequacy of loan loss provisioning with prudent treatment of collateral values remains a critical safeguard against risks.

“Stepped-up monitoring of loan forbearance practices, closer alignment of impaired asset treatment with banks, and further enhancement of risk-based supervision and stress testing capacity would strengthen assessment of potential risks stemming from the sector’s rapid expansion.”

The IMF said in the general insurance sector, enhancing monitoring of reinsurance conditions and local market premium developments remains essential.

It said addressing pending action items from the Caribbean Financial Action Task Force (CFTA) Mutual Evaluation remains key to strengthening the AML/CFT framework.