INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND GRENADA Joint World Bank-IMF Debt Sustainability Analysis April 2020 Prepared Jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA), Krishna Srinivasan and Craig Beaumont (IMF) Grenada: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress: In debt distress1 Overall risk of debt distress In debt distress Granularity in the risk rating Sustainable Application of judgment No. Compared to the previous DSA, there is a temporary jump in 2020 public debt ratios (to 68.7 vs. 53.7 percent of GDP) driven by lower Macroeconomic projections growth (-9.2 vs. 2.7 percent), larger fiscal deficit (2.9 vs. a surplus of 4.6 percent of GDP) and a larger current account deficit (27.4 vs. 10.2 percent of GDP). The government’s medium-term debt strategy prioritizes concessional external financing. The new near-term needs of Financing strategy COVID-19 are being met through a combination of budget reallocations, deposits and financing from development partners. Realism tools flagged None Mechanical risk rating under High the external DSA Mechanical risk rating under High the public DSA 1 Grenada’sdebt definition in the current DSA is unchanged from the previous DSA of 2019. Grenada’s Composite Indicator score is 3.03 and its debt-carrying capacity is moderate. Grenada’s external public debt is classified as “in debt distress” due to remaining unresolved arrears to official bilateral creditors of some 1.8 percent of GDP, but its debt remains sustainable, a conclusion that is unchanged from the previous DSA of 2019. The risk rating for external debt was “moderate” in the May 2019 DSA and is now “high” due to threshold breaches of the debt-services-to-exports ratio for 2020-2023, essentially due to the COVID- 19 shock. The large COVID-19 related contraction in output, decline in tax revenues, and increase in health and social expenditures would cause an uptick in the debt ratio to 68¾ percent of GDP in 2020, but the subsequent economic recovery should help reverse this rise. The underlying medium-term dynamics, being anchored by the Fiscal Responsibility Law (FRL), follow a downward path. The primary fiscal surplus is projected to increase above the FRL’s 3.5 percent of GDP floor after 2020 as the economy normalizes, anchoring debt sustainability. Medium-term financing needs are moderate and are expected to be covered by external borrowing with a substantial concessional component. Risks to these debt dynamics include the possibility of a more prolonged impact of COVID-19, possible delays in the return to the FRL’s core parameters, natural disasters, and a one-off increase in debt if Grenlec-related payment obligations are met by debt issuance. Fully regularizing external arrears would help tangibly improve the country’s DSA rating. Arrears of 1.8 percent of GDP remain with three official bilateral creditors: Algeria, Libya, and Trinidad and Tobago. In mid-2019, Grenada signed the protocols on the consolidation of its debt to Algeria and reported submitting those documents to Algeria’s UN mission. Grenada continued making payments on outstanding fees owed to international organizations as per schedule agreed in 2017, with some EC$13.3 million in such payments made during 2019. Ongoing improvements in monitoring SOE debt, which is estimated at around 5 percent of GDP at end-2019 (excluding Petrocaribe-related obligations), should permit a broadening of the coverage of public debt, which is under consideration by the authorities. With Grenada’s Petrocaribe arrangement essentially having ceased operations since the turn of 2017-18, we are in discussions with the authorities on the status of their obligations (which in the current DSA are included in external non-public debt). 2 Table 1. Grenada: External Debt Sustainability Framework, Baseline Scenario 2017 – 2038 (in percent of GDP, unless otherwise indicated) Actual Projections Average 9/ Historical Projections 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2038 External debt (nominal) 1/ 88.6 86.0 82.8 101.9 102.2 98.2 91.9 84.5 80.2 70.2 58.7 112.5 84.4 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 47.5 45.1 41.6 51.1 51.8 50.6 46.6 41.1 38.4 34.8 31.0 59.6 41.8 Is there a material difference between the Yes two criteria? Change in external debt -10.1 -2.5 -3.2 19.1 0.3 -4.0 -6.3 -7.3 -4.3 -1.8 -1.7 Identified net debt-creating flows -4.7 -1.5 1.7 28.6 0.6 -2.3 -3.5 -5.1 -5.3 -3.8 -2.7 1.9 -0.6 Non-interest current account deficit 12.4 14.4 14.4 26.2 15.8 12.9 11.4 10.4 9.9 9.2 10.2 15.5 12.4 Deficit in balance of goods and services 3.3 5.4 5.7 17.1 6.8 3.8 2.2 1.0 0.3 0.2 0.0 10.4 3.0 Exports 51.4 53.2 51.9 29.0 43.2 47.2 49.0 50.2 50.9 51.2 51.8 Debt Accumulation Imports 54.7 58.6 57.6 46.1 50.0 51.0 51.2 51.1 51.2 51.4 51.8 6.0 30 Net current transfers (negative = inflow) 0.3 0.8 0.4 0.5 0.6 0.8 0.9 0.9 1.0 1.2 1.2 -0.8 0.9 of which: official 0.4 0.5 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 5.0 Other current account flows (negative = net inflow) 8.8 8.2 8.3 8.6 8.4 8.3 8.3 8.5 8.7 7.8 9.0 5.9 8.5 25 4.0 Net FDI (negative = inflow) -13.5 -14.2 -10.6 -7.1 -10.6 -11.6 -12.6 -14.1 -14.1 -13.1 -12.2 -10.2 -12.3 Endogenous debt dynamics 2/ -3.6 -1.8 -2.0 9.5 -4.6 -3.6 -2.3 -1.3 -1.1 0.1 -0.7 3.0 20 Contribution from nominal interest rate 2.0 1.5 1.4 1.2 1.4 1.4 1.4 1.2 1.1 2.0 0.9 2.0 Contribution from real GDP growth -4.1 -3.5 -2.5 8.3 -5.9 -5.0 -3.6 -2.6 -2.2 -1.9 -1.6 1.0 15 Contribution from price and exchange rate changes -1.5 0.3 -1.0 … … … … … … … … Residual 3/ -5.4 -1.0 -4.9 -9.5 -0.3 -1.7 -2.9 -2.2 1.0 2.1 0.9 -4.9 -0.5 0.0 of which: exceptional financing 4/ -5.5 0.0 0.0 -9.5 -2.4 -1.5 0.0 0.0 0.0 0.0 0.0 10 -1.0 -2.0 Sustainability indicators 5 PV of PPG external debt-to-GDP ratio ... ... 29.1 36.2 37.2 36.7 33.4 28.8 26.6 23.6 21.8 -3.0 PV of PPG external debt-to-exports ratio ... ... 56.1 124.7 86.2 77.8 68.3 57.4 52.3 46.1 42.2 -4.0 0 PPG debt service-to-exports ratio 11.1 11.0 8.1 14.4 10.4 9.5 9.0 7.8 6.4 5.2 2.8 2020 2022 2024 2026 2028 2030 PPG debt service-to-revenue ratio 24.8 24.4 17.8 19.0 19.8 19.3 18.6 16.6 13.8 11.3 6.1 Gross external financing need (Million of U.S. dollars) 52.7 71.9 98.1 259.2 117.1 75.5 44.5 3.3 -13.1 -22.6 -13.6 Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 4.4 4.1 3.0 -9.2 6.3 5.3 3.9 3.0 2.7 2.7 2.7 3.1 2.3 GDP deflator in US dollar terms (change in percent) 1.5 -0.3 1.2 0.4 1.4 1.9 2.1 2.1 2.1 2.1 2.1 1.6 1.8 Effective interest rate (percent) 5/ 2.2 1.8 1.7 1.3 1.4 1.5 1.5 1.4 1.3 2.9 1.5 1.7 1.5 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 10.2 7.5 1.7 -49.0 60.7 17.0 10.1 7.7 6.4 5.0 4.8 14.8 7.1 of which: Private Growth of imports of G&S (US dollar terms, in percent) 16.3 11.2 2.5 -27.0 17.0 9.3 6.5 5.0 5.0 5.0 5.0 7.0 3.7 120 Grant element of new public sector borrowing (in percent) ... ... ... 13.9 14.5 15.3 21.3 15.0 28.4 20.2 20.7 ... 18.0 Government revenues (excluding grants, in percent of GDP) 23.0 23.9 23.7 21.9 22.6 23.2 23.6 23.6 23.6 23.6 23.7 21.5 23.3 100 Aid flows (in Million of US dollars) 6/ 28.9 34.9 34.6 43.8 37.8 38.7 39.5 37.0 37.9 42.4 50.7 Grant-equivalent financing (in percent of GDP) 7/ ... ... ... 5.6 4.3 3.9 3.3 2.5 2.9 2.6 2.2 ... 3.3 80 Grant-equivalent financing (in percent of external financing) 7/ ... ... ... 35.8 39.6 45.0 68.8 121.1 73.6 64.1 62.2 ... 60.2 Nominal GDP (Million of US dollars) 1,126 1,169 1,218 1,111 1,197 1,284 1,363 1,432 1,502 1,904 2,785 Nominal dollar GDP growth 6.0 3.8 4.2 -8.8 7.8 7.3 6.1 5.1 4.9 4.9 4.9 4.7 4.2 60 Memorandum items: 40 PV of external debt 8/ ... ... 70.4 87.0 87.7 84.2 78.7 72.2 68.4 59.0 49.5 In percent of exports ... ... 135.6 300.0 202.9 178.5 160.8 144.0 134.5 115.3 95.7 20 Total external debt service-to-exports ratio 11.3 11.1 8.2 14.6 10.5 9.7 9.1 7.9 6.5 5.3 2.8 PV of PPG external debt (in Million of US dollars) 354.5 401.6 445.9 471.1 455.3 412.0 399.7 449.7 608.4 0 (PVt-PVt-1)/GDPt-1 (in percent) 3.9 4.0 2.1 -1.2 -3.2 -0.9 0.0 1.0 2020 2022 2024 2026 2028 2030 Non-interest current account deficit that stabilizes debt ratio 22.5 16.9 17.6 7.1 15.5 17.0 17.7 17.7 14.3 11.0 11.9 Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ For 2020 it includes all sources of exceptional financing under the RCF. For 2021 and beyond it includes Eximbank China lending to an SOE. 5/ Current-year interest payments divided by previous period debt stock. 6/ Defined as grants, concessional loans, and debt relief. 7/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 8/ Assumes that PV of private sector debt is equivalent to its face value. 9/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 3 Table 2. Grenada: Public Sector Debt Sustainability Framework, Baseline Scenario 2017 – 2038 (in percent of GDP, unless otherwise indicated) Actual Projections Average 8/ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2030 2038 Historical Projections Public sector debt 1/ 70.1 64.4 59.1 68.7 67.2 63.7 57.3 49.5 45.8 45.2 45.3 87.6 52.6 Definition of external/domestic Residency- of which: external debt 47.5 45.1 41.6 51.1 51.8 50.6 46.6 41.1 38.4 34.8 31.0 59.6 41.8 debt based of which: local-currency denominated Change in public sector debt -11.5 -5.8 -5.3 9.6 -1.4 -3.5 -6.4 -7.8 -3.7 0.0 0.0 Is there a material difference Identified debt-creating flows -7.7 -7.2 -7.5 9.8 -6.6 -7.7 -8.7 -8.2 -4.2 0.8 0.0 -3.0 -2.5 Yes between the two criteria? Primary deficit -5.7 -6.6 -6.8 0.7 -4.6 -6.0 -6.7 -6.9 -3.0 0.6 0.7 -1.5 -2.2 Revenue and grants 25.6 26.9 26.5 25.9 25.7 26.2 26.5 26.1 26.1 25.8 25.5 24.4 26.0 of which: grants 2.6 3.0 2.8 3.9 3.2 3.0 2.9 2.6 2.5 2.2 1.8 Public sector debt 1/ Primary (noninterest) expenditure 19.9 20.3 19.7 26.6 21.1 20.3 19.8 19.3 23.1 26.5 26.1 22.9 23.8 Automatic debt dynamics -2.0 -0.6 -0.7 6.8 -3.6 -3.0 -2.0 -1.4 -1.2 0.2 -0.6 of which: local-currency denominated Contribution from interest rate/growth differential -2.3 -1.8 -1.0 6.8 -3.6 -3.0 -2.0 -1.4 -1.2 0.2 -0.6 of which: foreign-currency denominated of which: contribution from average real interest rate 1.2 0.9 0.8 0.8 0.4 0.4 0.4 0.3 0.2 1.4 0.6 of which: contribution from real GDP growth -3.5 -2.8 -1.9 6.0 -4.1 -3.4 -2.4 -1.6 -1.3 -1.2 -1.2 80 Contribution from real exchange rate depreciation 0.3 1.3 0.3 ... ... ... ... ... ... ... ... 70 Other identified debt-creating flows 0.0 0.0 0.0 2.3 1.7 1.2 0.0 0.0 0.0 0.0 0.0 -0.2 0.5 60 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50 Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 40 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 30 Other debt creating or reducing flow 2/ 0.0 0.0 0.0 2.3 1.7 1.2 0.0 0.0 0.0 0.0 0.0 20 Residual 3/ -3.8 1.4 2.3 -0.2 5.2 4.2 2.3 0.5 0.5 -0.8 0.0 -0.2 1.2 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 4/ ... ... 46.6 53.8 52.7 49.8 44.1 37.2 34.0 34.0 36.2 2020 2022 2024 2026 2028 2030 PV of public debt-to-revenue and grants ratio … … 175.9 208.0 205.0 189.6 166.8 142.3 130.5 131.7 141.9 Debt service-to-revenue and grants ratio 5/ 59.3 56.4 34.5 19.2 30.4 24.3 20.9 15.9 10.6 15.3 20.7 Gross financing need 6/ 9.5 8.6 2.3 7.9 4.9 1.6 -1.1 -2.7 -0.2 4.6 5.9 of which: held by residents Key macroeconomic and fiscal assumptions of which: held by non-residents Real GDP growth (in percent) 4.4 4.1 3.0 -9.2 6.3 5.3 3.9 3.0 2.7 2.7 2.7 3.1 2.3 80 Average nominal interest rate on external debt (in percent) 3.7 3.1 3.1 2.4 2.7 2.7 2.8 2.7 2.6 5.7 2.8 2.9 2.9 70 Average real interest rate on domestic debt (in percent) 1.5 2.9 1.5 2.8 1.5 1.5 1.3 0.9 0.3 1.9 3.2 2.1 1.2 60 Real exchange rate depreciation (in percent, + indicates depreciation) 0.6 2.8 0.6 … ... ... ... ... ... ... ... 0.2 ... 50 Inflation rate (GDP deflator, in percent) 1.5 -0.3 1.2 0.4 1.4 1.9 2.1 2.1 2.1 2.1 2.1 1.6 1.8 40 Growth of real primary spending (deflated by GDP deflator, in percent) -1.1 6.2 -0.1 22.3 -15.6 1.2 1.5 0.4 22.9 2.5 2.6 0.5 5.6 Primary deficit that stabilizes the debt-to-GDP ratio 7/ 5.8 -0.8 -1.5 -8.9 -3.2 -2.5 -0.2 0.9 0.7 0.6 0.6 1.1 -0.9 30 PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 10 0 Sources: Country authorities; and staff estimates and projections. 2020 2022 2024 2026 2028 2030 1/ Coverage of debt: The central government, government-guaranteed debt . Definition of external debt is Residency-based. 2/ Reflects financing to SOEs from Exim Bank China and World Bank. 3/ Includes fluctuations of government bank deposits. 4/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 5/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 6/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 7/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years. 4 Figure 1. Grenada: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2020-2030 PV of debt-to GDP ratio PV of debt-to-exports ratio 90 500 Most extreme shock: Exports 450 80 Most extreme shock: Exports 70 400 350 60 300 50 250 40 200 30 150 20 100 10 50 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Debt service-to-exports ratio Debt service-to-revenue ratio 40 35 Most extreme shock: Exports Most extreme shock: Exports 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 2020 2022 2024 2026 2028 2030 2020 2022 2024 2026 2028 2030 Baseline Historical scenario Most extreme shock 1/ Threshold 1 Prolonged Covid-19 2/ Customization of Default Settings Borrowing assumptions on additional financing needs resulting from the stress tests* Size Interactions Default User defined Shares of marginal debt No No External PPG MLT debt 100% Tailored Stress Terms of marginal debt Combined CL No Avg. nominal interest rate on new borrowing in USD 3.5% 3.5% Natural disaster No No USD Discount rate 5.0% 5.0% Commodity price No Yes Avg. maturity (incl. grace period) 21 21 Market financing n.a. n.a. Avg. grace period 2 2 Note: "Yes" indicates any change to the size or interactions of * Note: All the additional financing needs generated by the shocks under the stress tests are the default settings for the stress tests. "n.a." indicates that the assumed to be covered by PPG external MLT debt in the external DSA. Default terms of marginal stress test does not apply. debt are based on baseline 10-year projections. Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio in or before 2030. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented. 2/ This scenario assumes that the currently projected effects of Covid-19 for 2020 remain similarly strong throghout 2021. Especifically, it assumes 5 percentage points lower real GDP growth in 2021 compared to the baseline and a one year delay in recovery afterwards, while exports, imports and FDI as a share of GDP remain at their 2020 level. 5 Figure 2. Grenada: Indicators of Public Debt under Alternative Scenarios, 2020-2030 6 Table 3. Grenada: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2020-2030 (in percent, unless otherwise indicated) Projections 1/ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of debt-to GDP ratio Baseline 36 37 37 33 29 27 26 26 25 25 24 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 36 38 42 45 48 54 60 65 71 76 80 A2. Prolonged Covid-19 36 48 46 42 36 33 32 31 30 29 27 B. Bound Tests B1. Real GDP growth 36 41 44 40 34 32 31 30 30 29 28 B2. Primary balance 36 47 56 50 44 40 39 39 39 38 37 B3. Exports 36 57 84 80 74 69 66 63 60 58 54 B4. Other flows 3/ 36 43 48 45 40 37 36 35 34 33 31 B5. Depreciation 36 47 43 39 33 30 30 29 29 29 27 B6. Combination of B1-B5 36 62 67 63 56 52 50 49 47 45 43 C. Tailored Tests C1. Combined contingent liabilities 36 64 59 53 46 43 43 43 43 42 41 C2. Natural disaster 36 51 49 45 39 37 37 37 37 37 36 C3. Commodity price 36 37 37 33 29 27 26 26 25 25 24 Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 125 86 78 68 57 52 51 50 49 49 46 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 125 88 89 91 95 105 117 128 139 148 157 A2. Prolonged Covid-19 125 164 98 86 72 65 63 61 58 56 53 B. Bound Tests B1. Real GDP growth 125 86 78 68 57 52 51 50 49 49 46 B2. Primary balance 125 109 119 102 87 79 77 77 76 75 72 B3. Exports 125 240 436 399 360 332 317 303 289 276 258 B4. Other flows 3/ 125 99 102 91 79 73 70 68 66 64 61 B5. Depreciation 125 86 72 63 52 47 46 46 45 45 43 B6. Combination of B1-B5 125 204 120 204 177 163 156 151 146 140 132 C. Tailored Tests C1. Combined contingent liabilities 125 149 125 108 93 84 84 84 84 83 80 C2. Natural disaster 125 120 104 92 79 72 73 73 72 72 70 C3. Commodity price 125 86 78 68 57 52 51 50 49 49 46 Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 14 10 10 9 8 6 6 6 6 6 5 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 14 11 10 10 9 8 9 10 12 13 13 A2. Prolonged Covid-19 14 16 11 10 10 8 8 8 8 8 7 B. Bound Tests B1. Real GDP growth 14 10 10 9 8 6 6 6 6 6 5 B2. Primary balance 14 10 10 10 10 9 9 8 8 8 8 B3. Exports 14 20 28 32 33 35 33 33 32 32 29 B4. Other flows 3/ 14 10 10 10 9 8 8 8 8 8 7 B5. Depreciation 14 10 10 9 8 6 5 5 5 6 5 B6. Combination of B1-B5 14 17 21 20 21 18 17 17 17 17 15 C. Tailored Tests C1. Combined contingent liabilities 14 10 12 11 9 8 7 7 7 7 6 C2. Natural disaster 14 11 11 10 9 7 7 7 7 7 6 C3. Commodity price 14 10 10 9 8 6 6 6 6 6 5 Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 19 20 19 19 17 14 13 13 13 13 11 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 19 20 20 20 19 18 20 22 25 28 29 A2. Prolonged Covid-19 19 21 22 21 21 18 17 16 16 17 15 B. Bound Tests 19 21 22 21 21 18 17 16 16 17 15 B1. Real GDP growth 19 22 23 22 20 16 15 15 15 15 13 B2. Primary balance 19 20 21 22 21 20 18 18 18 18 17 B3. Exports 19 21 23 27 29 31 30 29 28 28 26 B4. Other flows 3/ 19 20 20 20 20 18 17 17 16 17 15 B5. Depreciation 19 25 24 23 20 16 15 15 15 15 13 B6. Combination of B1-B5 19 22 26 26 28 25 23 23 23 23 21 C. Tailored Tests C1. Combined contingent liabilities 19 20 24 22 20 16 15 15 15 16 14 C2. Natural disaster 19 20 21 20 18 15 14 14 14 15 13 C3. Commodity price 19 20 19 19 17 14 13 13 13 13 11 Threshold 18 18 18 18 18 18 18 18 18 18 18 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. The Prolonged Covid-19 scenario assumes that the currently projected effects of the pandemic for 2020 remain similarly strong throghout 2021. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI. 7 Table 4. Grenada: Sensitivity Analysis for Key Indicators of Public Debt, 2020-2030 (in percent, unless otherwise indicated) Projections 1/ 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PV of Debt-to-GDP Ratio Baseline 54 53 50 44 37 34 34 34 34 35 34 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 54 57 59 59 57 55 53 52 50 48 46 A2. Prolonged Covid-19 54 60 56 49 42 38 38 38 38 38 37 B. Bound Tests B1. Real GDP growth 54 60 65 62 57 57 61 65 69 72 75 B2. Primary balance 54 59 63 57 50 47 47 47 47 47 46 B3. Exports 54 70 92 86 78 72 70 68 66 64 61 B4. Other flows 3/ 54 58 61 55 48 44 44 43 43 43 41 B5. Depreciation 54 61 55 48 40 36 34 32 31 29 27 B6. Combination of B1-B5 54 58 58 43 37 35 35 36 36 36 35 C. Tailored Tests C1. Combined contingent liabilities 54 69 67 61 54 51 51 51 51 51 51 C2. Natural disaster 54 62 59 54 47 44 44 45 45 46 46 C3. Commodity price 54 54 55 52 49 49 53 58 62 66 70 TOTAL public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 208 205 190 167 142 131 130 131 133 134 132 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 208 220 224 220 215 209 204 198 192 186 176 A2. Prolonged Covid-19 19 32 24 21 16 10 10 11 13 15 15 B. Bound Tests B1. Real GDP growth 208 229 241 228 215 215 229 245 260 276 287 B2. Primary balance 208 228 239 217 193 181 180 181 181 182 180 B3. Exports 208 274 351 325 298 277 268 261 254 247 237 B4. Other flows 3/ 208 226 234 210 184 170 167 167 166 164 160 B5. Depreciation 208 238 213 184 155 137 130 124 119 114 105 B6. Combination of B1-B5 208 226 222 162 142 133 135 139 139 139 137 C. Tailored Tests C1. Combined contingent liabilities 208 269 253 231 208 197 195 196 198 199 197 C2. Natural disaster 208 240 225 203 180 170 170 172 175 177 176 C3. Commodity price 208 212 209 198 186 188 203 221 238 255 269 Debt Service-to-Revenue Ratio Baseline 19 30 24 21 16 11 9 11 13 15 15 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 19 31 24 19 13 11 12 16 20 22 21 A2. Prolonged Covid-19 19 32 24 21 16 10 10 11 13 15 15 B. Bound Tests B1. Real GDP growth 19 33 27 22 16 10 9 12 16 19 20 B2. Primary balance 19 30 20 15 15 11 12 16 17 18 19 B3. Exports 19 30 27 27 25 25 23 24 26 28 27 B4. Other flows 3/ 19 30 25 22 19 14 13 15 17 18 19 B5. Depreciation 19 32 29 26 20 14 12 14 16 17 16 B6. Combination of B1-B5 19 30 25 17 13 8 7 11 13 15 15 C. Tailored Tests C1. Combined contingent liabilities 19 30 15 17 12 8 14 14 15 17 16 C2. Natural disaster 19 31 20 19 14 9 11 12 14 16 16 C3. Commodity price 19 30 23 19 14 8 8 10 13 16 17 Debt Service-to-GDP Ratio Baseline 5.0 7.8 6.4 5.5 4.2 2.8 2.4 2.9 3.4 3.9 3.9 A. Alternative Scenarios A1. Key variables at their historical averages in 2020-2030 2/ 5 8 6 5 4 3 3 4 5 6 6 A2. Prolonged Covid-19 B. Bound Tests B1. Real GDP growth 5 9 7 6 4 3 2 3 4 5 5 B2. Primary balance 5 8 5 4 4 3 3 4 4 5 5 B3. Exports 5 8 7 7 7 6 6 6 7 7 7 B4. Other flows 3/ 5 8 7 6 5 4 3 4 4 5 5 B5. Depreciation 5 8 8 7 5 4 3 4 4 4 4 B6. Combination of B1-B5 5 8 7 4 3 2 2 3 3 4 4 C. Tailored Tests C1. Combined contingent liabilities 5 8 4 4 3 2 4 4 4 4 4 C2. Natural disaster 5 8 5 5 4 2 3 3 4 4 4 C3. Commodity price 5 8 6 5 4 2 2 3 3 4 4 Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. The Prolonged Covid-19 scenarios assume that the currently projected effects of the pandemic for 2020 remain similarly strong throghout 2021. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 8 Figure 3. Grenada: Drivers of Debt Dynamics – Baseline Scenario External debt Gross Nominal PPG External Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Current DSA 40 80 Residual 80 Previous DSA proj. 70 DSA-2012 60 Interquartile 20 range (25-75) Price and 60 exchange rate 40 50 20 Real GDP growth 0 Change in PPG 40 0 debt 3/ 30 Nominal -20 interest rate -20 20 -40 Median Current 10 account + FDI -60 0 -40 -80 Change in 5-year 5-year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 PPG debt 3/ historical projected -100 Contribution of Distribution across LICs 2/ unexpected change change Public debt Gross Nominal Public Debt Debt-creating flows Unexpected Changes in Debt 1/ (in percent of GDP; DSA vintages) (percent of GDP) (past 5 years, percent of GDP) Residual 40 Current DSA Previous DSA proj. 20 DSA-2012 Interquartile 120 Other debt 20 range (25-75) creating flows 10 100 Real Exchange rate 0 0 80 depreciation Real GDP Change in debt 60 growth -20 -10 Real interest 40 rate -40 -20 20 Primary deficit -60 -30 Median 0 Change in debt 5-year 5-year Distribution across LICs 2/ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 historical projected Contribution of -40 unexpected change change 1/ Difference between anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for which LIC DSAs were produced. 3/ Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation. 9 Figure 4. Grenada: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) 10 6 14 Distribution 1/ 5 8 4 12 Projected 3-yr adjustment 6 3 3-year PB adjustment greater In percentage points of GDP 4 2 than 2.5 percentage points of 1 10 2 GDP in approx. top quartile 0 In percent 0 -1 8 -2 -2 -3 6 -4 -4 -6 -5 4 -6 -8 -7 -10 2 -8 -12 -9 0 2014 2015 2016 2017 2018 2019 2020 2021 Baseline Multiplier = 0.2 Multiplier = 0.4 more -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 Multiplier = 0.6 Multiplier = 0.8 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. The 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible real size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is GDP growth paths under different fiscal multipliers (left-hand side scale). found on the vertical axis. Public and Private Investment Rates Contribution to Real GDP growth (percent of GDP) (percent, 5-year average) 20 5 18 4 16 14 3 12 10 2 8 1 6 4 0 2 Historical Projected (Prev. DSA) Projected (Curr. DSA) 0 -1 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital 10