WASHINGTON, United States (CMC) — The International Monetary Fund (IMF) Thursday said that Grenada’s economy is experiencing “sustained, strong growth” supported by a buoyant tourism sector and is projecting growth of nearly four per cent this year.

In addition, the Washington-based financial institution said that a surge in the citizenship by investment (CBI) revenue has resulted in a large budget surplus, an increase in government deposits, and lower public debt.

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

The IMF, which sent a mission to Grenada earlier this month, said that the key fiscal policy priorities are to improve the management of these potentially volatile CBI revenues, contain the growth of recurrent expenditures, and strengthen public financial management.

It said rising risks in the non-bank financial system call for better data collection, greater supervisory oversight, and regional supervisory cooperation.

“Reducing Grenada’s dependency on imported fossil fuels, boosting competitiveness, and investing in climate resilience are essential to increase long-term growth,” it added.

The IMF said that Grenada’s economy is estimated to have expanded by 4.4 per cent last year, supported by among-the-fastest growth in stay over arrivals in the Caribbean and a continued uptick in spending per tourist.

It said construction activity moderated as major capital projects were brought to completion and new projects linked to the recent surge in CBI were slow to execute.

Inflation declined to 2.2 per cent at end of last year, as food and fuel price pressures eased. The current account deficit is estimated to have narrowed, reflecting the increase in tourism receipts.

“Strong CBI revenues resulted in a large 2023 fiscal surplus of eight per cent of GDP [gross domestic product], higher government deposits of 17 per cent of GDP, and a decline in the public debt to 75 per cent of GDP. Financial system conditions remain stable, with banks registering high levels of liquidity and modest levels of non-performing loans.”

The IMF said growth is projected to decelerate in the coming years as capacity constraints weigh on tourism growth and investment.

It said the economy is projected to grow 3.9 per cent this year, bolstered by another strong year of tourism activity, and that as hotels are already close to their high-season capacity limits, growth is projected to gradually slow to 2.7 per cent over the medium term.

“The outlook is sensitive, though, to the level of CBI inflows, the degree to which those flows finance new growth-enhancing investment, and the progress in completing the current pipeline of hotel projects, including non-CBI-financed ones.

“The clearing of the large backlog of CBI applications from the recent surge is projected to result in a large 2024 budget surplus of 9.5 per cent of GDP and further accumulation of government deposits.

“The CBI revenues are thereafter expected to normalise to pre-surge levels. Nonetheless, sustained lower primary surpluses anchored in the Government’s fiscal rules framework are projected to support a gradual reduction of public debt to the 60 per cent of GDP target by the end of the decade,” the IMF said.

It noted that the recent heightened international scrutiny over CBI programmes represents a risk to this important source of income and that other important downside risks include a slowdown in key tourist source markets, global commodity price volatility and the ever-present threat of natural disasters.

The Washington-based financial institution said that the high level of government deposits and a falling debt-to-GDP ratio provide an important buffer against unanticipated shocks.

It said the potential swings in CBI revenue warrant continued careful management of public finances.

The IMF said given the authorities’ cautious treatment of CBI revenues, the expected normalisation of CBI revenue appears manageable.

“Nonetheless, the uncertainty over the size of future inflows underscores the need to contain growth in expenditures. Greater prioritisation over budget outlays and putting in place measures to improve tax administration and raise tax revenues — through adjusting the gasoline tax in context of instituting a symmetric pass-through formula for gasoline prices — would prepare the economy well for potential CBI shortfalls.”