The International Monetary Fund (IMF) completed its review of the performance of the Grenadian economy in May 2017 as part of an arrangement under the Extended Credit Facility (ECF) programme. It was found that Grenada has made significant progress over the last three years in restoring fiscal and debt sustainability and raising growth, and that the economy grew by about 3.9 per cent in 2016. It was also noted that Grenada’s debt-to-GDP ratio declined to 83.4 per cent at end-2016 from 108 per cent in 2013, and by end-2017, it is expected to decrease further to around 72 per cent. Jamaica’s Prime Minister, Andrew Holness has praised Grenada’s fiscal discipline and complemented the Grenadian government for turning the economy around.
So why are these achievements by Grenada important? Are there lessons that can be learnt from their successes that we in Trinidad and Tobago can also consider? The Grenadian government has succeeded in restoring fiscal sustainability, strengthening the financial sector, and setting the stage for sustainable growth. The government also passed a substantial number of legislative reforms that helped strengthen the fiscal policy framework, including the Fiscal Responsibility, Public Debt Management, and Public Finance Management Acts.
The result of these initiatives has seen Grenada achieve a primary surplus in 2016 of 5.4 per cent of GDP owing to higher than projected revenues and continued expenditure restraint. Income and consumption tax revenues were boosted by stronger economic activity and improved tax administration. Stronger-than-expected economic growth and imports caused a boost in Value Added Tax (VAT) and corporate tax revenues. Implementation of the Inland Revenue Department’s (IRD) compliance strategy in 2016, including more audits, enforcement, and taxpayer services, has resulted in increased compliance and filing of taxpayer returns, particularly among professionals. Additionally, the IRD established an installment payment plan with taxpayers that smoothed payments over the year and facilitated cash flow regularisation for the government.
To tackle the skills mismatch problem, the Grenadian government has undertaken an independent review of their youth employment programme and taken steps towards establishing a labour market information system including revising the education curriculum and developing new training and job search services in collaboration with the private sector. Additionally, several other initiatives, with a focus on climate-smart agriculture, are underway to increase production, particularly targeted at promising export opportunities and the government is taking steps to boost private sector participation and capacity in agriculture, including commercialising remaining estates, addressing air cargo logistics to boost exports, and passing amendments to liberalise slightly the monopoly marketing boards for nutmeg and cocoa.
In particular, one of the more commendable initiatives by the Grenadian government was the establishment of the Fiscal Responsibility Oversight Committee charged with the responsibility of having oversight of spending by the Ministry of Finance, and the government also made an amendment to the Fiscal Responsibility Act of 2015 to allow for more intense monitoring of the fiscal situation in Grenada. The Fiscal Responsibility Oversight Committee comprises five members and a chairperson appointed by the Governor General, and will be an independent committee that will give the report on monitoring and compliance to make sure that Grenada complies with their fiscal targets. The Committee’s responsibility is to monitor the fiscal situation of the Grenadian government in accordance with Fiscal Responsibility Legislation that was approved in 2015 and amended in 2016 as part of measures of the home-grown structural adjustment measures.
The Fiscal Responsibility Legislation establishes a transparent and accountable rule based fiscal responsibility framework in Grenada, to guide and anchor fiscal policy during the budget process to ensure that government finances are sustainable over the short, medium, and long term, consistent with a sustainable level of debt, and for related matters. According to the legislation, other responsibilities include monitoring compliance with the fiscal rules and targets; laying before the House of Representatives for consideration an annual report on the status of implementation of the Act; and upon request by the House of Representatives, lay before the House of Representatives an assessment report on the degree to which economic forecasts are set out. The annual report will include the progress made towards compliance with the fiscal rules and targets with respect to the relevant financial year.
It is noted that the Grenadian government entered into the structural adjustment programme with the IMF in 2014 in order to address a severe fiscal problem, including a huge national debt. It is possible that we as a country can address our fiscal challenges before they require external assistance and implement systems that would assist in ensuring fiscal discipline. It cannot be business as usual and we need to accept this and move forward.
Set against the backdrop of years of fiscal deficits and increasing deficits as well as increasing national debt, there are several important lessons which jump out from Grenadian experience that we in TT cannot ignore: the development of a rule-based fiscal responsibility framework with supporting legislation, fiscal oversight committee, establishment of fiscal targets and rules and finally engagement with the population. Lessons indeed worth learning.