Grenada: Staff Concluding Statement of the 2025 Article IV Mission

October 29, 2025

Washington, DC: Grenada's economy continues to navigate elevated global uncertainties well in the aftermath of Hurricane Beryl. Economic activity remains robust, with strong construction and other domestic sectors helping to offset moderating growth in tourism. Grenada's fiscal position remains comfortable, with the proven effectiveness of its post-disaster financing framework and prudent savings of recent citizenship-by-investment (CBI) revenues providing space for continued development priority investments. Against this backdrop, discussions focused on three key priorities: ensuring careful management of large public investments in alignment with Grenada's public debt reduction objectives, containing vulnerabilities in the non-bank financial system, and strengthening the foundations for long-term growth and resilience.

Grenada's near-term economic outlook remains robust on the back of post-Beryl reconstruction and other development priority investments. GDP growth is projected to accelerate to 4.4 percent in 2025 (from an estimated 3.3 percent in 2024), with strong 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 percent 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. Moderating inflation, reflecting trends in global fuel and food prices, is expected to gradually normalize to around 2 percent by 2028. Current account deficits are projected to gradually narrow, but would remain elevated over the medium term on account of high construction imports. The financial system remains stable amid strong recovery from historically subdued bank credit growth.

Grenada's fiscal position remains comfortable, supported by sizeable savings from recent years' CBI revenue. However, increased public investment - largely reflecting Beryl-related spending - amid more moderate non-tax revenue is projected to result in a 2025 primary deficit of 2.8 percent of GDP. The central government is committed to returning to the 1.5 percent 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.

Risks to the 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 main tourism source market incomes or global commodity or shipping prices are assessed as modest. The downside risks could be amplified by disruptions to CBI and FDI inflows, 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. Maintaining Grenada's strong fiscal position and its disaster resilience framework remain important buffers against shocks.

Strengthening Public Finances and Fiscal Institutions

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 planned large public investment projects address important 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 increasing importance of state-owned enterprises and statutory bodies in general 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.

Addressing Non-Bank Vulnerabilities

Accelerating system-wide credit growth and non-bank vulnerabilities call for careful monitoring. 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. In the general insurance sector, enhancing monitoring of reinsurance conditions and local market premium developments remains important. Addressing pending action items from the CFTAF Mutual Evaluation remains key to strengthening the AML/CFT framework.

Supporting Long-term Growth Potential, Resilience and Institutional Capacity

Facilitating domestic investment and harnessing opportunities to deepen the tourism sector's integration with the local economy can boost long-term growth. Grenada's transition to a tourism-led growth model has so far had a muted impact on its GDP growth potential, owing to high foreign inputs and parallel drag from weak local investment. While the more recent uptick in local private investment is encouraging, more coordinated efforts to strengthen small business development and access to finance would help broaden and sustain this positive momentum. These should also continue to leverage regional initiatives such as the partial credit guarantee scheme as well as measures to deepen digitalization of the economy. Ongoing initiatives to enhance locally offered tourism services, interlinkages with other sectors, and the development of niche market offerings would boost the sector's domestic growth contribution. Infrastructure investments, including the Project Polaris, could serve as an important catalyst for these efforts when well-calibrated to areas of Grenada's comparative advantage.

Broader efforts to strengthen human capital, productivity, and resilience also remain important. Expanding youth-focused technical and vocational training, ongoing modernization of education infrastructure, and enhancing job-matching services can help address persistent skills shortages and better align Grenada's workforce to its evolving economic needs. Ongoing progress in development partner-supported efforts to diversify the energy base and exploring cost-effective opportunities to diversify import source markets could increase resilience to external shocks and yield productivity dividends. Continued efforts to support investment in disaster-resilient infrastructure remain important to complement the proven effectiveness of Grenada's post-disaster financing framework in the aftermath of the 2024 Hurricane Beryl.

Finally, strengthening economic statistics and institutional capacity will be critical to support evidence-based policymaking. Data deficiencies somewhat hamper surveillance and contribute to uncertainty in economic projections. These include gaps in balance of payments coverage and monitoring of large investment projects, outdated CPI weights, and the absence of GDP expenditure data, which increase reliance on partial high-frequency indicators. Staffing shortages and high turnover in key areas supporting macroeconomic surveillance and analysis are major constraints and would benefit from prioritized attention in alignment with the objectives of the ongoing public sector functional review and regularization process. Progress in this area would help fully harness the benefits of technical capacity building support.

****

The IMF mission team thanks the Grenadian authorities and other counterparts for their warm hospitality and constructive discussions.