Grenada Medium Term Economic Strategy

							                                                                           December 4, 2006




                                                  GRENADA

OWNERSHIP
           1. Partners have operational national development strategies
           a. Coherent long-term vision with medium-term strategy derived from vision
1.     Grenada’s long-term vision for poverty reduction, as stated in its Poverty
Eradication Strategy (PES) completed after comprehensive consultations with
stakeholders in 2004, is to return the economy to the path of sustained growth and to
advance Grenada’s social development. Following the large-scale social and economic
damage caused by Hurricane Ivan in 2004, estimated at 200 percent of GDP, and of
Hurricane Emily in 2005, estimated at 12 percent of GDP, the Government updated the
PES, “Economic Growth, Poverty Alleviation and Macroeconomic Stability,” Grenada’s
I-PRS, in 2006.1 The updated PES follows the 2003-05 Medium-Term Economic
Strategy, the Government’s traditional policy planning tool, and spells out the
Government’s medium-term reform program covering 2006-08. The Government is
committed to preparing a full-fledged Poverty Reduction Strategy and Action Plan (PRS),
which is likely to replace the Medium-Term Economic Strategy as the primary planning
tool.
2.      The Government has prepared a number of sector strategies, and several other
strategies are at varying stages of development. It prepared a Strategic Plan for
Educational Enhancement and Development for 2002-10. A National Policy for
Environmental Management and a National Environmental Management Strategy and
Action Plan is in place. A National Biodiversity Strategy and Action Plan are currently
under development. A National Physical Development Plan with a 10- to 20-year
perspective is envisaged to establish development policies guiding housing and other land
use programs. A National Strategic Plan and Program of Action for Youth and Women’s
Development are planned. The Government has completed a situational analysis and
concept paper for a forthcoming National Strategic Plan for Health.
           b. Country specific development targets with holistic, balanced, and well
              sequenced strategy
3.      The policy objectives outlined in the PES are: (i) the promotion of sustained high
economic growth by improving the investment climate, (ii) the restoration of fiscal and
debt sustainability through fiscal consolidation, (iii) safeguarding the soundness of the
financial system, and (iv) poverty reduction through more effective social development
programs and safety nets. The PES also refers to cross-cutting issues that underpin
Grenada’s development and poverty reduction efforts, including gender equality,
environmental conservation and HIV/AIDS. It contains a comprehensive description of
all on-going social programs and projects in the country, but it falls short of providing a
strategic focus for them and of prioritizing them according to their cost-effectiveness with
respect to the poverty reduction objectives. The PES outlines the parameters of a


1
    The I-PRS was completed in March 2006. The PRS is expected in 2007.


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macroeconomic program, although the links between the program’s objectives and the
existing poverty reduction projects need strengthening.
4.      The PES endorses the MDGs, pledging that the forthcoming PRS will forge closer
links between poverty reduction objectives, including the MDGs, and social development
programs, while ensuring consistency with overall macroeconomic and fiscal objectives.
       c. Capacity and resources for implementation
5.     Following the major reconstruction efforts undertaken by the Government with
external partner support, balancing the government budget remains a key challenge.
Public debt, which was roughly 110 percent of GDP in 2002 and 2003, had increased to
nearly 130 percent of GDP by the end of 2004, leading to a financing gap of 4.5 percent
of GDP in 2005. Grenada’s full recovery from the hurricane disasters will depend upon
continued assistance from the external partner community, as well as on the
Government’s capacity to address its fiscal challenges. A debt restructuring agreement in
November 2005 reduced interest payments for 2006 by half, and in May 2006, the Paris
Club announced a rescheduling of US$16 million of Grenada’s debt, reducing debt
service payments on this debt by 90 percent. The Government has indicated that the
resources released through debt restructuring will be used to finance social programs
including housing and youth development as well as business re-activation.
6.     The links between the central budget and the programs and projects in the PES
can be strengthened. The PES, which was prepared before the current reform program
was finalized, does not indicate the full costs of its programs and does not indicate
whether they are included in the central budget. The 2006 budget, entitled “Focusing on
Youth Development, Poverty Reduction and Stability” launches the first year of a reform
program for 2006-08, allocating substantial resources for measures aimed at fiscal
adjustment, structural reforms, reducing vulnerabilities and advancing the social
development agenda.
7.      The PES highlights significant capacity constraints that are limiting progress in
each of the listed projects and programs, and it intends for the PRS to address the
significant gaps between the Medium-term Public Sector Investment Program and the
desired levels of expenditure for the PES. The Government has also recognized the
importance of restructuring the public sector and has created a Public Sector Reform Unit
(PSRU) within the Prime Minister’s Office to spearhead reforms to increase its efficiency
and address the weak institutional environment.
       d. Participation of national stakeholders in strategy formulation and
          implementation
8.    A Development Council provides the mechanism for coordinating planning,
implementation and monitoring across the public sector.
9.      Periodic consultations on the budget and on specific policy issues are well
established in Grenada. For the last several years, broad national and local consultations
have preceded the preparation of the budget. Consultations on specific policy proposals
are also common, including most recently on the National Reconstruction Levy
introduced in the 2006 budget. In line with this tradition, the Government continued its
practice of continuously engaging civil society in policy planning, and the PES has


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benefited from significant consultations with stakeholders at both the national and local
levels. These consultations have involved Government representatives, external partners,
CSOs, the media, academia, trade unions and other private sector representatives. Two
rounds of consultations were held at the national level and nineteen poor communities
were selected based on a 1999 Poverty Assessment Report, for focused community-level
consultations. In addition, six consultations were held at the Parish-level and a seventh
one which included residents of the islands of Carriacou and Petit Martinique. Reports of
each consultation were prepared and incorporated in the overall poverty eradication
program. The Government has emphasized in the PES that it values continued
participation from stakeholders, both in the preparation of the PRS and beyond.
10.    The Parliament is involved in shaping development policy mostly through its role
in approving the annual budget. The Public Accounts Committee has an oversight role,
although strengthening its capacity could improve its effectiveness. The PES was
approved by the Parliament following wide consultations with various stakeholders.
ALIGNMENT
       2. Reliable country systems
11.     Action is being taken to strengthen public financial management systems. The
Government accounting system is automated, and all sector ministries have online access
to the system. The Government plans to roll out the system to all departments. The
system has the capacity to record and report on expenditures by entity, program, type of
expenditure and source of funding. Government accounts are prepared in a timely
manner, but further work is required to improve reliability. Internal audits report
discrepancies between estimates and actual figures, incomplete journal entries to capture
revenue and expenditure and incomplete budgeting for expenditure. The Ministry of
Finance and Planning and the Accountant General have the responsibility to establish and
maintain internal audit systems, although these are often perceived as ineffective in
practice. The Audit Department is Grenada’s Supreme Audit Institution. Its head is
appointed by the Head of State, and its mandate is to conduct audits of public agencies
and present them to the Minister of Finance, who is required to submit them to
Parliament within seven days. It has full independence on its work plan and is accorded
some financial independence, with Parliament and the Ministry of Finance exerting some
control over its expenditures. However, it has difficulties in fulfilling its role of fiduciary
oversight, despite legislation attempting to consolidate procedures and strengthen its
functions. The automation of critical financial management functions is conducted
without adequate input from the Audit Department, which is poorly staffed and in need of
training for computer assisted auditing tools, auditing of computer systems, and value-
for-money auditing. The 2005 World Bank Country Policy and Institutional Assessment
(CPIA) performance criterion that assesses the quality of budgetary and financial
management places Grenada at 3.5 on a scale of 1 (very weak) to 6 (very strong).
12.      Public procurement procedures and practices have not been the focus of
government policy, although there is a need for the establishment of a clear legal and
institutional framework governing procurement procedures. Local procurement expertise
is mostly limited to the procurement of civil works and goods, because the current
legislation does not address the hiring of consultants. The use of registration lists of


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possible suppliers-contractors without the use of evaluation criteria hinders open,
competitive bidding. Furthermore, the procurement regime lacks adequate guidelines for
monitoring and contract management contributing to higher costs and inefficiency.
Regional pooled procurement initiatives in selected goods and services among member
countries of the Organization of Eastern Caribbean States have proved promising since
they also address problems of diseconomies of scale and competitiveness. With the
establishment of the Agency for Reconstruction and Development (ARD) following
Hurricane Ivan in 2004, the Government took some steps to improve public procurement,
which includes a special emphasis on regional pooled procurement.
13.     Grenada has well-established principles of democratic governance and rule of
law, with limited evidence of widespread corruption. The 2006 Transparency
International Corruption Perception Index ranks Grenada 66th out of 163; on a scale of 0
(highly corrupt) to 10 (highly transparent), it received a score of 3.5. In the World Bank’s
2004 Governance Indicators that rank countries by the intensity of their efforts to control
corruption, Grenada falls in the 72nd percentile. Many of the corruption offences in the
Inter-American Convention against Corruption are enacted in the Criminal Code, and
Grenada participates in a regional initiative aimed at promoting and strengthening certain
governmental mechanisms by the passing of “Integrity in Public Life” legislation and
anti-corruption legislation. There are also plans to introduce relevant legislation dealing
with professional services, as part of ongoing initiatives of the Caribbean Single Market
and Economy toward the free movement of people and skills in the region.
       3. Aid flows are aligned on national priorities
       a. Government leadership of coordination
14.    There are some signs of emerging Government leadership of donor coordination.
The Government has invited external partners for consultation on the PES, and it is
expected that the PRS will provide a vehicle for enhanced donor coordination. On a
regional scale, the Government participates in the Caribbean Forum for Development,
which joins regional Government leaders and external partners in dialogue and action on
regional development priorities. The latest Caribbean Forum for Development was held
in Barbados in June 2005. External partners otherwise coordinate informally among
themselves through videoconference meetings.
15.     Since 2005, the Government has been increasingly taking a leadership role of
donor coordination through the Agency for Reconstruction and Development (ARD).
ARD was established in November 2004 following Hurricane Ivan in response to
Grenada’s reconstruction needs, meeting twice within twelve weeks of Hurricane Ivan,
and pledging over US$150 million in reconstruction assistance. USAID led contributions
by offering US$40.3 million in new grant funds. The EC, the Caribbean Development
Bank (CDB), CIDA, DFID and the World Bank also contributed significant amounts,
together with Venezuela, Taiwan and China which contributed to reconstruction both in
kind and with financial resources. As of September 2005, external partners had disbursed
close to US$100 million to finance the reconstruction program. While ARD was tasked
with mobilizing resources and monitoring project implementation, it also aims to support
an improved policy and institutional framework for national development with a long-




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term strategic view beyond reconstruction. However, not all external partners have
chosen to channel their support through the ARD.
           b. Partners’ assistance strategy alignment
16.      External partner assistance is broadly in line with the PES, and there have been
initial discussions among some of the major partners on the possibility of using the PRS
as a common basis for more harmonized support. The five major external partners are
Japan, the CDB, Canada, EC and the World Bank, accounting for 88 percent of gross
ODA in 2003-04. Net ODA accounted for 4 percent of GNI in 2004.2
           c. Partnership organization
17.    Given the small size of country programs, most external partners conduct their
programs in Grenada from outside the country. The World Bank’s Country Director is
based in Washington. Many development assistance agencies have country offices
located in Barbados.
           4. Strengthen capacity by coordinated support
           Coherent and coordinated capacity support
18.     The PES underscores the Government’s intention to bolster capacity in several
areas, including monitoring and statistical capacity, although it falls short of providing a
comprehensive capacity building strategy around which partners can align. It expects the
forthcoming PRS to provide a more complete strategy for capacity building. Several
external partners, including CDB, CIDA, the Commonwealth Fund for Technical
Cooperation, OAS, UNDP, USAID and the World Bank, provide coordinated technical
assistance for capacity building in the areas of financial and public expenditure
management, procurement, public sector reform, business advisory services, good
governance through civil society participation and local government.
19.     In addition, the Caribbean Regional Technical Assistance Center (CARTAC)
provides a vehicle for coordinated capacity support to several areas, including in fiscal
policy reform. CARTAC’s contributors include IDB, Ireland, IMF, DFID, UNDP,
USAID, EC and the World Bank. Its priorities are set by a Steering Committee consisting
of six rotating representatives from the 20 participating countries, four from the bilateral
and multilateral development assistance agencies and one each from the Caribbean
Community and Common Market (CARICOM) and the CDB. CARTAC, which operates
as a UNDP project with the IMF serving as the executing agency, provides a regional
mechanism for harmonized external partner support to capacity building initiatives in (i)
public financial management, (ii) tax and customs policy and administration, (iii)
financial sector regulation and supervision, including off-shore financial operations, and
(iv) economic and financial statistics.
           5. Use of country systems
           Donor financing relying on country systems
20.     There are some examples of external partners relying on country systems. A few
bilaterals are providing budget support. The World Bank is working with the EC and

2
    See OECD/DAC Aid Statistics at http://www.oecd.org/dataoecd/1/55/1880632.gif


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other partners to support the improvement of the financial management and procurement
systems to prepare for possible assistance in the form of budget support. In addition, the
World Bank is relying on country monitoring and evaluation systems to monitor the
projects that it finances.
       6. Strengthen capacity by avoiding parallel implementation structures
       PIUs progressively phased out
21.     Grenada has established a Centralized Project Coordinating Unit which is located
in the Ministry of Finance and organized into two sections. One section is responsible for
project identification, preparation and implementation and the other for fiduciary
management. The unit is adequately staffed with well-qualified financial management
and procurement staff. The Government has plans for it to become the sole implementing
unit for external assistance and to gradually absorb the remaining individual PIUs over a
period of five years.
       7. Aid is more predictable
       Disbursements aligned with annual budgetary framework
22.     By law, all Government payments for both recurrent and capital expenditure
should be channeled through the Consolidated Fund, which consists of two main
operation accounts and a number of other special purpose bank accounts. There is
currently no major effort to align budget support disbursements with the budget cycle.
       8. Aid is untied
23.    Since the share of official development assistance they provide through budget
support may increase, untied aid is likely to increase.
HARMONIZATION
       9. Use of common arrangements or procedures
24.    External partners are discussing increasing the use of common arrangements. The
Centralized Project Coordinating Unit could also provide a basis for the harmonization of
procedures and an expanded use of country monitoring systems. There have been no
discussions on supporting SWAps.
       10. Encouraging shared analysis
       a. Joint missions
25.     Joint missions led by the World Bank and the IMF often include other donors,
including the EC, CDB and DFID. However, there is no explicit mechanism to track the
number of missions and whether they are conducted jointly. The Government has
encouraged joint missions to encourage common dialogue and to reduce the transaction
costs of hosting missions.
       b. Analytical partnership
26.    There have been some efforts to conduct analytical work jointly. In 2005, the
World Bank prepared a study of progress in reconstruction efforts one year after
Hurricane Ivan with important inputs from USAID, CIDA, DFID, CDB, IMF, PAHO,
FAO, national NGOs and other stakeholders. An investment climate review was


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conducted in 2004 by the World Bank and the Government, co-financed with the
Netherlands. As of November 2006, external partners have posted 2 documents on the
Country Analytic Work website.3
MANAGING FOR RESULTS
          11. Results oriented frameworks
          a. Quality of development information
27.     While some development information has been collected following Hurricanes
Ivan and Emily, comprehensive poverty data is not available. The last comprehensive
Poverty Assessment was conducted in 1999. In 2005, a Macro-Socio-Economic
Assessment of Damage caused by the hurricanes was conducted by the OECS, and an
assessment of Recent Natural Disasters and their Impact on Grenada’s Achievement of its
Millennium Development Targets and Goals was conducted. A Core Welfare Indicator
Questionnaire survey of households was conducted in 2005. Grenada participates in the
IMF’s General Data Dissemination Standards program. The PES underscores that the
monitoring strategy will require the strengthening of existing data collection agencies,
and it announces the Government’s plans to strengthen poverty data collection and
analysis. A poverty and coordination unit in the Ministry of Finance will be responsible
for the design of a database for poverty information, data collection and analysis.
          b. Stakeholder access to development information
28.     The Government generally makes development information publicly available to
stakeholders, as Grenada has a well-established tradition of public consultation on policy
issues. The Government is conducting a public information campaign in conjunction with
the consultations during the preparation of the PRS.
          c. Coordinated country-level monitoring and evaluation
29.     The PES includes a comprehensive matrix of strategic measures, with a long list
of targets and indicators. The PES plans for the identification of a smaller set of key
indicators, agreed upon through national consultations, to monitor poverty reduction
programs to be included in the PRS. This basic data set of indicators will be regularly
monitored at the national level and updated annually in the context of the review of the
PRS. The poverty and coordination unit will be in charge of coordinating monitoring
responsibilities with stakeholders. Following consultations with civil society groups, the
Government has agreed that CSOs would be in charge of determining and managing
community level indicators that will be used to complement information at the national
level.
MUTUAL ACCOUNTABILITY
          Development effectiveness assessment frameworks
30.     Grenada has not endorsed the Paris Declaration on Aid Effectiveness. A joint
framework with indicators to assess government and external partner performance in
strengthening aid effectiveness is not in place.


3
    www.countryanalyticwork.net


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BIBLIOGRAPHY
DFID (2004), Regional Assistance Plan for the Caribbean 2004-2007. London.
EIU (2006), Organization of Eastern Caribbean States: Main Report. London.
EC (2001), Grenada – European Community Country Strategy Paper for the Period 2001-07.
       Brussels.
IMF (2005), Grenada: 2005 Article IV Consultation—Staff Report; and Public Information
      Notice on the Executive Board Discussion. Washington, DC.
__________ Grenada: Request for a Three-Year Arrangement Under the Poverty Reduction and
       Growth Facility—Staff Report; and Press Release on the Executive Board Discussion.
       Washington, DC.
IMF and World Bank (2006), Joint IDA-IMF Staff Advisory Note of the Interim Poverty
      Reduction Strategy Paper. Washington, DC.
Ministry of Finance of the Government of Grenada (2006), Poverty Eradication Strategy.
        Washington, DC.
World Bank (2001), Country Assistance Strategy for the Eastern Caribbean Sub-region FY02-06.
       Washington DC.
__________ (2004), Grenada – OECS Fiscal Issues: Policies to Achieve Fiscal Sustainability
       and Improve Efficiency and Equity of Public Expenditures. Washington DC.
__________ (2005), Grenada: A Nation Rebuilding. An Assessment of Reconstruction and
       Economic Recovery One Year After Hurricane Ivan. Washington, DC.




RELEVANT WEBSITES
CARTAC
www.cartac.com.bb
CDB website
www.caricom.org
Government of Grenada:
www.gov.gd
Intosai
www.intosai.org
Transparency International
www.transparency.org
World Bank Country Policy and Institutional Assessment (CPIA):
http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:2093360
        0~pagePK:51236175~piPK:437394~theSitePK:73154,00.html




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