Grenada’s economy is experiencing sustained and strong growth, driven primarily by a robust tourism sector.
The International Monetary Fund (IMF) predicts economic growth of nearly 4 percent this year, highlighting the big role of tourism in the country’s economic recovery.
Citizenship by Investment: Benefits and Challenges
The rapid growth in Citizenship by Investment (CBI) income has contributed significantly to the health of Grenada’s economy, resulting in a large budget surplus, increased government deposits and reduced public debt.
The CBI program allows foreign investors to obtain Grenadian citizenship in exchange for making significant investments in Grenada’s socio-economic development.
Despite these gains, the IMF stresses the need to better manage potentially volatile revenues, curb current expenditure growth, and strengthen public financial management.
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Financial Stability and Emerging Risks
The IMF has noted growing risks in Grenada’s non-bank financial system and called for improved data collection, strengthened supervisory oversight, and regional cooperation.
Moreover, the IMF stresses the importance of reducing reliance on imported fossil fuels, boosting competitiveness, and investing in climate resilience to deliver long-term growth.
Economic expansion and inflation trends
Grenada’s economy expanded by an estimated 4.4 percent last year, buoyed by the Caribbean’s highest overnight stay growth rate and rising tourist spending.
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However, construction activity has slowed as major capital projects have been completed, and new projects related to the recent surge in CBI have been delayed.
Inflation fell to 2.2 percent by the end of the year as pressures on food and fuel prices eased. The current account deficit also narrowed due to rising tourism revenues.
Predicting the future
Growth is forecast at 3.9 percent this year, but the IMF sees it slowing gradually over the next few years as capacity constraints weigh on tourism growth and investment.
Economic growth is expected to slow to 2.7% in the medium term due to the impact of peak season hotel capacity restrictions and the completion of current hotel projects.
Managing fluctuating CBI revenues
The IMF stressed the importance of managing the large inflow of CBI revenues, projecting a large budget surplus in 2024 as the backlog of applications is cleared.
However, these revenues are expected to subsequently normalize to pre-surge levels.
To prepare for a potential CBI shortfall, the IMF has recommended slowing spending growth, improving tax administration and raising tax revenues.
Strengthening social and financial systems
The formulation of social security policies, establishment of a central beneficiary register and introduction of cashless payments are recommended to improve targeting and monitoring of social security benefits.
The IMF also stressed the need for a consistent framework for managing the CBI’s revenues and has proposed a rules-based mechanism for annual transfers from the National Reform Fund to the budget to reduce revenue uncertainty.
Public Investment and Financial Sector Reform
It is believed that improvements in public investment management are needed, including strengthening procurement processes and enhancing the framework for public-private partnerships.
Enhanced project planning and selection, and improved project management, monitoring and post-action review capabilities will ease execution constraints.
Addressing financial sector vulnerabilities
The IMF noted the need to address vulnerabilities within the financial sector, particularly in credit unions’ lending practices and asset quality.
Enhanced reporting requirements and improved supervisory measures are recommended to monitor asset quality and forbearance practices.
Climate Risk and Insurance
Property insurance premiums are under pressure due to ongoing reassessment of climate risks by global reinsurers, which could exacerbate insurance shortfalls and increase credit risk for lenders.
Quantifying contingent government obligations and addressing these risks requires improved collection and analysis of supervisory data.
Supporting small businesses and financial wellness
Government assistance to SMEs in developing business strategies and maintaining records will make it easier for them to access credit.
Strengthening anti-money laundering and combating terrorist financing frameworks will enhance financial integrity and protect correspondent banking relationships.
