by Linda Straker
- Fiscal rules were suspended in 2020 because of Covid-19 pandemic
- Grenada and IMF have had preliminary meetings
- Stronger Framework will support fiscal robustness and improve resilience
A senior public officer has confirmed that Government has approached the International Monetary Fund (IMF) to assist the Dickon Mitchell Administration with amendments to the fiscal responsibility legislation. Senator Adrian Thomas, Leader of Government Business in the Upper House, disclosed the decision to make the amendments.
Mike Sylvester, Permanent Secretary in the Ministry of Finance, said that Government reached out to the IMF, and preliminary meetings have already been conducted between Grenada and the IMF. “We had reached out to the International Monetary Fund sometime last year with regards to supporting the amendment to the fiscal rules, so that is going to happen. We already had the kickoff meeting, hence in April, they are going to do both virtual and, on the ground, meetings,” Sylvester disclosed in the latest edition of “Inside Finance,” an educational video production of the Finance Ministry.
Speaking about the upcoming sessions with representatives from the IMF, he said, “They will engage stakeholders and so on about trying to improve and strengthen the fiscal rules. One of the main issues is trying to have adequate spending, an adequate window for investment on projects and programmes to be resilient, that is one of the key pillars under the fiscal rules.” He reminded his audience that Grenada has returned to applying the fiscal rules suspended in 2020 because of the Covid-19 pandemic.
A news release from the Government Information Service (GIS) on 17 January 2023, said that the IMF has kicked off its technical assistance programme, which will support Grenada in amending and improving its Fiscal Rules Framework, with a planning meeting held on Wednesday, 11 January 2023.
“A stronger Framework will support fiscal robustness and improve resilience to climate change and other economic shocks. The strengthening of the Fiscal Rules Framework also underscores the Government’s commitment to economic and social transformation in a fiscally responsible way.” The release explained that the technical assistance would address several salient areas needing improvement, which were identified by various stakeholders, including the Fiscal Responsibility Oversight Committee in its reports over the years. The latest report published in April 2022 focuses on Government performance for 2021.
Some of the recommendations for amendments are reviewing and amending the Excessive fiscal rules in the Fiscal Responsibility Act, resulting in overlap and inferior fiscal outcomes (such as large primary surpluses but below-budgeted capital expenditure) and Rigidity of the Primary Expenditure Rule, which does not support adequate spending and investment in resilience-building infrastructure and other capital expenditure.
Others include Ambiguity with the medium-term debt anchor and the transition period towards the medium-term debt target, as well as inconsistency in the definition of public debt vis-à-vis the definition in the Public Debt Management Act; Ambiguity with the frequency of activation of the Escape Clause and the contents and timing of the Recovery Plan as well as Definitional issues and inconsistencies with other Legislations.
In 2015 the then New National Party (NNP) Government enacted “fiscal responsibility” legislation, which enshrined, among other things, the fiscal rules and targets to be pursued. The 3 main enactments were the Fiscal Responsibility Act No. 29 of 2015; the Public Finance Management Act No. 17 of 2015, and the Public Debt Management Act No. 28 of 2015. All these legislation were essential to the then Government’s 3-year homegrown Structural Adjustment Programme.
Among the rules and targets under the FRA are that the rate of growth of the primary expenditure of the Central Government, and of every covered public entity, shall not exceed 2% in real terms in any fiscal year when adjusted by the preceding year’s inflation rate. The Minister of Finance shall take appropriate measures to ensure that the ratio of expenditure on the wage bill shall not exceed 9% of GDP, and the Minister shall ensure that contingent liabilities arising from, as a result of, or in connection with public-private partnerships shall not exceed 5% of GDP.
