INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND GRENADA Joint World Bank-IMF Debt Sustainability Analysis July 2019 Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Marcello Estevão (IDA) and Edward Gemayel (IMF) and Grenada: Joint Bank-Fund Debt Sustainability Analysis Risk of external debt distress: In debt distress Overall risk of debt distress In debt distress Granularity in the risk rating Sustainable Application of judgment No With some US$19 million (1.6 percent of GDP) in unresolved arrears to official bilateral creditors, Grenada remains in external public debt distress. However, debt appears sustainable reflecting favorable projected debt dynamics from substantial fiscal surpluses that are supported by the Fiscal Responsibility Law (FRL). Total public debt has declined from 108 percent of GDP in 2013 to 63½ percent of GDP in 2018, with external public debt amounting to 44.5 percent of GDP. This reduction was made possible through fiscal consolidation that has been anchored by the FRL, robust economic growth, and a restructuring of Grenada’s public debt. Going forward, continued adherence to the FRL and regularization of arrears will be needed to upgrade the risk rating. Debt should be further reduced and kept at levels needed to withstand the existing vulnerabilities to external shocks and natural disasters. 1 DEBT COVERAGE 1. Public debt in this DSA is defined as the sum of central government debt (including arrears on principal and interest), overdue membership fees to international organizations, and government-guaranteed debt. It does not include non-guaranteed debt of public enterprises and limited liability companies, notably PDV Grenada’s debt on account the Petrocaribe arrangement. 2 Until recently, gaps and time lags in the public enterprises’ reporting hampered complete coverage of public sector debt. Substantial improvement in the comprehensiveness and timeliness of the non-guaranteed debt data has been made more recently, which could enable to expand the coverage. Non-guaranteed debt is estimated at around 15 percent of GDP, including 11½ percent of GDP for the Petrocaribe arrangement. Grenada does not have subnational government debt. 2. The contingent liability stress test accounts for the risks from the estimated stock of SOE debt as well as ongoing PPPs and financial markets. The stock of enterprise-related debt is substantial and is reflected in the contingent liability stress test.3 The weight of the PPP shock is based on default settings, with information taken from the World Bank’s database. (Grenada’s fiscal responsibility law puts a cap on PPP-related government liabilities at 5 percent of GDP). Contingent liabilities from financial markets are set at the minimum value of 5 percent of GDP, which represents the average cost to the government of a financial crisis in LICs since 1980. Estimates for other elements not covered are either zero (there is no central bank debt borrowed on behalf of the government) or need to be firmed up in the context of developing a comprehensive presentation of consolidated non-financial public sector debt, which is planned to be developed by the authorities. Subsectors of the public sector Sub-sectors covered 1 Central government X 1 The country's coverage of public debt The central government, government-guaranteed debt 2 State and local government Used for the 3 Other elements in the general government Default analysis Reasons for deviations from the default settings 4 o/w: Social security fund 2 Other elements of the general government not captured in 1. 0 percent of GDP 0.0 5 o/w: Extra budgetary funds (EBFs) 3 SoE's debt (guaranteed and not guaranteed by the government) 1/ 2 percent of GDP 15.0 6 Guarantees (to other entities in the public and private sector, including to SOEs) X 4 PPP 35 percent of PPP stock 3.0 7 Central 5 Financial bank market (the default (borrowed value onisbehalf of 5 percent of GDP of the minimum the government) 5 percent of GDP value) 5.0 Total Non-guaranteed 8 (2+3+4+5) (in percent of GDP) SOE debt 23.0 1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%. 2 As reported in the 2014 staff report for the approval of the ECF arrangement, PDV Grenada is a limited liability company with the government’s share of 45 percent and Venezuela’s PDVSA’s share of 55 percent. Based on determination that the government of Grenada is not responsible for the debt but only for its shares in the company, the Petrocaribe debt has not been included in the stock of central government debt. 3 If anything, the approach taken toward public enterprise debt is conservative. For example, a substantial “haircut” on Petrocaribe debt was granted to St. Vincent and the Grenadines in 2018. 2 RECENT DEVELOPMENTS 3. Debt reduction and regularization has progressed, but arrears remain with a few bilateral creditors. Debt restructuring in the context of the 2014-17 ECF-supported program contributed around 12 percentage points to the reduction of public debt, which fell from 108 percent of GDP in 2013 to 63½ percent of GDP in 2018, largely reflecting high economic growth and fiscal adjustment. However, arrears of some US$19 million owed to non-Paris Club official bilateral creditors including Trinidad and Tobago, Algeria, and Libya remain to be regularized. 4 The authorities report progress in advancing negotiations as of early 2019, particularly with Algeria (9.2 percent of the total bilateral arrears). The authorities have continued to make payments on overdue membership fees in line with the revised schedule published in mid-2017, settling the overdue fees of US$ 2½ million for the Caribbean Community Secretariat, Eastern Caribbean Supreme Court, University of West Indies, and others in 2018. Recent U.S. sanctions on Venezuela blocked payments on Grenada’s Petrocaribe debt at the turn of 2018-19. And most of government- guaranteed debt of some 2½ percent of GDP at end-2017 was converted into non-guaranteed debt through a refinancing operation. 4. Most portfolio characteristics of Grenada’s debt have continued to improve in 2018. Consistent with their debt strategy, the authorities sought to extend maturities of domestic short- term debt and refrained from borrowing in the regional securities market (RGSM) in 2018. The authorities received substantial external concessional financing, notably from the World Bank but also from other multilaterals. The combination of extension of domestic maturities and long-term concessional financing resulted in an increase in the average time to maturity from 8.2 to 9.0 years in 2018. Average time to re-fixing of the debt portfolio similarly increased from 7.8 to 8.6 years, and the average effective interest rate on public debt declined from 3.5 to 3.0 percent last year. As expected from the financing structure and because of the successful restructuring, the share of multilateral debt increased further by 4.6 percentage points during 2018 (Figure 3). The composition of domestic debt showed a further shift towards longer maturity bonds and treasury notes, and away from short-term T-bills. The shares of bonds and treasury notes climbed by 4.0 and 4.1 percentage points respectively, but that of T-bills declined by 3.7 percentage points in 2018 (Figure 2). 5. Debt management and debt data coverage need to be further enhanced. The Fiscal Responsibility Law’s (FRL) medium-term public debt target of 55 percent of GDP is a key fiscal anchor that is supported by the FRL’s operational targets on the primary balance and spending growth, as well as institutional reforms. The authorities’ debt management capacity would benefit from further reform efforts, including in data management and IT system enhancements, building on the Debt Management Performance Assessment (DeMPA) undertaken with the World Bank in 2018. The Ministry of Finance (MoF) is monitoring non-guaranteed debt of SOEs, which is important in the context of FRL’s debt targets. Such monitoring and the quality of information, 4The amount of the arrears has increased since the end of 2017 (US$ 15.7 million), due to accrual of interest arrears and the portion of debt to Trinidad and Tobago that was not yet technically in arrears previously becoming overdue. 3 especially for the debt of SOEs converted from the guaranteed debt, needs to be further enhanced, formalized, and reported publicly, particularly as debt approaches the 55 percent of GDP ‘fiscal’ threshold. In this regard, it is recommended that a broader coverage of the debt that includes non- guaranteed debt of public enterprises be used. At the same time, the exact definition of PPPs is being discussed between government and the fiscal responsibility oversight committee created in the context of the FRL. 6. The situation and status of Petrocaribe debt should be reviewed to improve analysis of risks to Grenada’s debt profile in the context of the country’s medium-term debt strategy. Given recent developments regarding Venezuela (including sanctions), the deteriorating financial situation and changes in management of PDV Grenada, and the fact that most other ECCU countries are including such arrangements in the stock of government debt, a careful assessment of Grenada’s Petrocaribe liabilities is needed. This would further help to inform the government's medium-term debt management strategy (revised in late 2018) incorporating increased availability of highly concessional external financing, including from the World Bank. Such financing and substantial receipts under the Citizenship-by-Investment (CBI) program have put into sharper relief the need to enhance efficiency of asset management, comprehensive reporting, and the capacity for asset/liability operations. Recent steps toward operationalizing a contingency fund to address the consequences of shocks including natural disasters are welcome and should be followed up with the fund’s full operationalization and adequate financing. Implementation of an integrated disaster resilience (or risk management) strategy would further support debt sustainability and resistance to shocks. MACROECONOMIC ASSUMPTIONS 7. The macroeconomic assumptions are based on a slightly improved outlook relative to the last Article IV Consultation in 2018. Real GDP growth for 2018-23 is higher that under the 2018 Article IV consultation by 0.2 percentage points reflecting construction in tourism-related projects and the expansionary effects of an eventual weakening of strong primary surpluses toward the end of the forecast horizon. Long-term potential growth is projected to remain around 2¾ percent as previously assessed. Continued compliance with the FRL is assumed. Primary fiscal surpluses are expected to continue to significantly overperform the FRL’s 3.5 percent of GDP floor through 2020 but then decline to become small primary deficits as permitted by the fiscal rule. Revisions to the services trade and primary income accounts due to improved quality of the source data have resulted in an increase in the external current account deficit by about 3-6 percent of GDP each year relative to that estimated during the 2018 Article IV consultation. The current account deficit would average around 10 percent of GDP in the medium term. Given that the estimated and projected current account deficit is higher than previously projected due to statistical revisions, it is important that Grenada continues to attract sufficient FDI, which was also adjusted 4 upward by the statistical revisions, to ensure external debt sustainability. The baseline includes estimated average costs of natural disasters.5 8. Financing assumptions have been updated based on most recent data. The latest financing projections from the World Bank’s international development association (IDA) program and existing Caribbean Development Bank (CDB) projects have been incorporated. Also, it is assumed that the pending disbursement from the China loan6 will be committed from 2019 onwards. As a result, external financing is projected to increase in the short term. In the long run, the government is assumed to mainly rely on concessional loans from the World Bank7 and CDB for external financing. As for domestic financing projections, the extension of the maturity of the domestic portfolio by gradually introducing longer-dated securities, highlighted in the government’s Medium-Term Debt Management Strategy, is assumed to be implemented. 9. Newly-added realism tools indicates that short-term growth is conservatively forecasted, given the projected fiscal adjustment (Figure 7). The potential natural disaster shock and a weak financial system could form the background for this outturn. It should be noted that Grenada does not envision policy-based fiscal adjustment during the projection period. Also, the projected fiscal adjustment lies in the lower quartile of the distribution of past adjustments of the primary fiscal deficit, indicating that the projection is modest. The improved outlook on the macroeconomic indicators, such as stronger primary surpluses lowering public gross financing needs, enhanced the projected external debt to GDP and public debt to GDP ratios relative to the previous DSA as shown in Figure 6. DSA Update: Macroeconomic Assumptions (In percent of GDP, unless otherwise specified) Projections Historical 2018-23 2024-38 Average 2018 DSA 2019 DSA 2018 DSA 2019 DSA Non-interest external current account balance 1/ -18.7 -5.2 -8.8 -9.2 -11.8 Real GDP growth (in percent) 2.7 3.0 3.2 2.7 2.8 Growth of exports of G & S (USD terms, in percent) 6.3 5.2 5.8 4.5 4.6 Current official transfer -3.1 1.2 0.9 1.5 1.2 Net FDI -8.3 -9.0 -10.2 -9.0 -9.0 Primary balance -0.9 3.9 5.5 -0.9 -0.6 Revenue and grants 23.6 25.1 25.5 23.9 24.5 of which: grants 3.0 2.7 2.4 1.7 1.5 Primary (non-interest) expenditure 24.9 21.1 20.0 24.8 25.1 Inflation rate (GDP deflator, in percent) 1.6 2.3 1.7 2.2 2.2 Memorandum item 2018 DSA 2019 DSA 2018 Nominal GDP (in million USD) 1113.3 1185.9 Source: Grenadian authorities and IMF staff projections 1/ 2018 Article IV current account figures include revisions from BPM5 to BPM6. 5 The future annual fiscal cost of natural disasters is assumed at ½ percent of GDP, which is broadly consistent with the World Bank-modeled losses that have an estimate of 0.3 percent of GDP. (The latter covers most but not all types of historical natural disasters and does not model additional potential fiscal effects from the revenue losses and intensifying climate change). 6 The loan, which is for financing infrastructure projects, such as airport and road network constructions, amounts to US$ 69 million. 7 The loan is assumed to be less concessional than the IDA loan, given that Grenada is classified as an upper middle-income country in per capita terms. 5 10. Grenada continues to be assessed at medium debt-carrying capacity. The rating is based on the CI score, which captures the impact of the different factors through a weighted sum of the 2017 World Bank’s Country Policy and Institutional Assessment (CPIA) score, the country’s real GDP growth, remittances, international reserves, and world growth.8 Under the CPIA, Grenada continues to be rated as a medium performer, with the average rating of 3.48 for 2015-17. Calculation of the CI Index Components Coefficients (A) 10-year average CI Score components Contribution of values (B) (A*B) = (C) components CPIA 0.385 3.517 1.35 45% Real growth rate (in percent) 2.719 4.214 0.11 4% Import coverage of reserves (in percent) 4.052 45.841 1.86 61% Import coverage of reserves^2 (in percent) -3.990 21.014 -0.84 -28% Remittances (in percent) 2.022 3.242 0.07 2% World economic growth (in percent) 13.520 3.559 0.48 16% CI Score 3.03 100% CI rating Medium EXTERNAL debt burden thresholds Weak Medium Strong PV of debt in % of Classification based on Classification based on Classification based on the Exports Final current 140vintage the previous 180 vintage two previous 240 vintages GDP 30 40 55 Debt service Medium in % of Medium Medium Medium Exports 3.03 10 2.99 15 3.04 21 Revenue 14 18 23 PUBLIC AND EXTERNAL DSA 11. The total (external plus domestic) PPG-to-GDP ratio is projected to gradually decline up to 2024 and broadly stabilize thereafter. The key drivers of the projected decline in PPG debt-to-GDP in the next few years are sizable primary surpluses and GDP growth as reflected in the updated macroeconomic assumptions. The PV of debt-to-GDP ratio remains well below benchmark in the baseline scenario, reflecting continued access to concessional financing, including a large disbursement from the World Bank on IDA terms in mid-2018 (Figure 5). 8 Based on the IMF World Economic Outlook, April 2019. 6 12. External PPG debt-to-GDP ratio is also projected to trace a downward path. The thresholds under the baseline scenario are not breached, in line with the DSA published under the 2018 Article IV Consultation. Nevertheless, due to the remaining unresolved arrears to official bilateral creditors, Grenada’s DSA rating stands unchanged at “in debt distress” from the last assessment of July 2018. 13. Under stress tests thresholds are breached for all key indicators of PPG external debt under an export shock. The present value of debt-to-GDP remains above its threshold under all stress tests except shocks to real GDP growth, primary balance, and other flows9 (Table 3). It reaches its highest value under the exports shock in 2021 (i.e., 73.5 percent or 33.5 percentage points above its threshold), due to the tourism (exports) driven economy. The natural disaster shock, assuming a 10 percent of GDP impact and follow-on interactions in real GDP growth and exports growth shocks10, raises the ratio to 53.7 percent in 2029. For the present value of debt-to- exports, debt service-to-exports ratio, and debt service-to-revenue ratio, the exports shock is the most extreme shock as well. 14. Though risks to debt sustainability have eased, they remain substantial. Grenada’s debt sustainability is subject to downside risks. Mainly a tourism-based economy, Grenada is susceptible to external macroeconomic shocks. Potential declines in major tourist source markets in the United States, Canada or the United Kingdom due to weaker than expected global growth, rising protectionism and retreat from multilateralism will significantly impact Grenada’s growth prospects. Shocks to oil prices are an added risk to the medium-term outlook. Domestically, higher-than-expected pension and health care-related liabilities can put additional stress on public finances and a possibility of particularly large natural disasters are an ever-present risk, which can also have adverse spill-overs on the tourism sector. Potential spillovers from the Venezuelan crisis could put a burden on the economy and the fiscal balance. Continued strong commitment to the FRL is needed to manage those risks. 15. The results of the shock scenarios indicate Grenada’s vulnerability to natural disasters, exports (tourism sector), and contingent liabilities. All external DSA shock scenarios indicate a higher vulnerability to export/tourism industry shocks. Similar to the previous DSA, there are large breaches under stress tests for the present value of debt-to-GDP and debt service- to-revenue ratio thresholds. A large natural disaster and a contingent liabilities shock have significant effects on the debt path. The effect of a natural disaster has a protracted effect on the debt path in part due to its interaction with the export shock (e.g., due to the likelihood of the tourism infrastructure being damaged by a natural disaster). The debt dynamics are also highly susceptible to growth underperformance, which could intensify with climate change (Figure 5). 16. Grenada has also negotiated a reduction in its debt service in the event of natural disasters, which will help mitigate some of these risks. As part of its 2015 debt restructuring, 9Includes official and private transfers and FDI. 10Applies a shock to output and export of magnitude similar to Hurricane Ivan in 2004. The susceptibility of tourism assests in Grenada is also considered. 7 Grenada agreed upon hurricane clauses with its creditors, whereby debt service on the restructured debt (mainly to 2025 private bondholders, but also to Taiwan Province of China and the Paris Club) would be automatically re-profiled following a hurricane and in some cases other types of natural disaster. The agreed period of a pause in debt service is up to one year, depending on the severity of the event. The key trigger was established as parametric and tied to a verification by an independent insurance body (CCRIF), whose payout for modelled losses had to exceed US$15 million.11 This clause could release up to EC$45 million in funds in the event of a major natural disaster (the amounts would be smaller for smaller events, depending on the triggers). 17. Portfolio risks, while declining, continue to be present. The interest rate is subject to a moderate risk with an average time to re-fixing of 8.6 years in which 21 percent of the portfolio is subject to a change in interest rates in one year. This risk resides predominantly in the domestic portfolio in which 31 percent of this debt is subject to re-fixing in one year. The refinancing risk profile of the portfolio has an average time to maturity of 9 years which exceeds the set target of greater than 8 years. The current portfolio is subject to only a moderate foreign exchange risk as most of foreign currency debt is denominated in U.S. dollars to which the EC dollar is pegged CONCLUSION 18. Grenada remains in external debt distress, but its debt appears sustainable. The debt to GDP ratio has decreased through fiscal consolidation that has been anchored by the Fiscal Responsibility Law (FRL), robust economic growth, and a restructuring of Grenada’s public debt. Fully regularizing external arrears would help tangibly improve the country’s DSA rating. Further progress in public debt reduction would also be essential, including through maintaining the FRL’s rules-based framework and pursuing structural fiscal reforms, including further improving debt management capacity. Authorities’ Views 19. The authorities agreed with staff’s debt sustainability assessment. As for unresloved arrears, they informed that an effort to regularize the arrears is continuing, highlighting progress in the negotiation with Algeria and the determination to regularize arrears with other two creditors with which negotiations are ongoing. They indicated that the staff's financing assumptions are broadly in line with government's Medium-Term Debt Strategy, which aims to use of longer-term domestic instruments to fill funding gap while extending maturities of existing treasury bills. They reiterated that a steadfast commitment to the Fiscal Responsibility Law would further strengthen the debt sustainability outlook. 11Grenada’s CCRIF coverage envisions a payout of up to US$29 million, or almost 3 percent of GDP, in the event of a major hurricane.” 8 Figure 1. Grenada: Composition of Central Government Debt 2017 2018 USD 241.15 USD 224.98 31.6% 29.9% USD 521.33 USD 527.10 68.4% 70.1% External Debt Domestic Debt External Debt Domestic Debt Figure 2. Grenada: Domestic Debt by Instrument Type 2017 2018 0.6% 0.0% 0.6% 0.6% 4.7% 9.4% 5.3% 26.5% 8.5% 30.2% 54.8% 58.8% Treasury Bills Bonds Treasury Bills Bonds Compensation Claims Commercial Bank Loans Compensation Claims Commercial Bank Loans Treasury Notes Central-Government Guaranteed Treasury Notes Central-Government Guaranteed Figure 3. Grenada: Foreign Debt by Creditor Category 2017 2018 0.0% 0.9% 2.5% 1.0% 3.1% 20.5% 2.8% 21.9% 55.0% 59.6% 16.1% 16.6% Multilateral Official Bilateral Multilateral Official Bilateral Commercial Debt External Arrears on Interests Commercial Debt External Arrears on Interests Overdue Membership Fees Central Government Guaranteed Overdue Membership Fees Central Government Guaranteed 9 Table 1. Grenada: External Debt Sustainability Framework Baseline Scenario 2016 –2039 (In percent of GDP, unless otherwise indicated) Actual Projections Average 8/ Historical Projections 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 External debt (nominal) 1/ 125.7 117.4 108.0 106.6 101.8 98.8 96.0 91.3 88.2 76.5 58.8 128.6 89.7 Definition of external/domestic debt Residency-based of which: public and publicly guaranteed (PPG) 56.6 47.4 44.5 42.1 39.4 38.5 37.9 35.4 34.3 31.7 27.9 61.8 35.6 Is there a material difference between the No two criteria? Change in external debt -7.5 -8.2 -9.4 -1.4 -4.8 -2.9 -2.8 -4.7 -3.1 -2.1 -1.9 Identified net debt-creating flows -6.3 -7.7 -7.4 -3.0 -2.7 -3.5 -3.0 -2.0 -1.8 0.8 4.6 2.2 -1.5 Non-interest current account deficit 8.8 9.9 9.7 9.9 8.9 7.4 8.0 9.0 9.0 11.2 13.7 15.6 9.5 Deficit in balance of goods and services 0.5 1.8 1.0 0.9 -0.1 -1.6 -1.1 -0.3 -0.4 1.3 3.9 11.3 0.1 Exports 49.3 51.3 54.2 54.0 54.1 54.1 53.9 53.6 53.4 51.9 50.1 Debt Accumulation Imports 49.8 53.1 55.2 54.9 54.1 52.5 52.8 53.3 52.9 53.3 54.0 5.0 50 Net current transfers (negative = inflow) 1.3 0.9 0.9 0.9 0.9 0.8 0.8 0.9 0.9 1.2 0.9 -1.3 1.0 of which: official 0.7 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 45 4.0 Other current account flows (negative = net inflow) 7.0 7.2 7.9 8.1 8.1 8.2 8.3 8.4 8.5 8.7 8.8 5.6 8.4 40 Net FDI (negative = inflow) -9.1 -12.4 -12.8 -10.6 -10.1 -9.6 -9.1 -9.1 -9.1 -9.1 -8.1 -10.2 -9.4 3.0 35 Endogenous debt dynamics 2/ -6.0 -5.3 -4.3 -2.3 -1.5 -1.4 -1.9 -1.9 -1.7 -1.4 -0.9 Contribution from nominal interest rate 2.1 2.0 1.5 1.3 1.3 1.2 1.1 1.0 0.9 0.7 0.6 30 2.0 Contribution from real GDP growth -4.7 -6.0 -4.7 -3.6 -2.8 -2.6 -3.0 -2.9 -2.6 -2.0 -1.6 25 Contribution from price and exchange rate changes -3.4 -1.3 -1.1 … … … … … … … … 1.0 Residual 3/ -1.3 -0.6 -2.0 1.6 -2.1 0.6 0.2 -2.7 -1.4 -2.9 -6.5 -1.8 -1.4 20 of which: exceptional financing -2.2 -5.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15 0.0 10 Sustainability indicators -1.0 PV of PPG external debt-to-GDP ratio ... ... 38.1 35.4 32.7 30.8 29.4 26.9 25.9 23.5 21.8 5 PV of PPG external debt-to-exports ratio ... ... 70.3 65.6 60.5 57.0 54.4 50.2 48.5 45.3 43.4 -2.0 0 PPG debt service-to-exports ratio 10.6 11.1 10.6 6.8 7.1 6.7 6.5 6.1 5.6 4.3 3.6 2019 2021 2023 2025 2027 2029 PPG debt service-to-revenue ratio 23.0 24.8 24.5 15.8 16.6 15.7 15.1 14.2 13.0 9.6 7.8 Gross external financing need (Million of U.S. dollars) 247.0 316.5 335.9 300.8 297.5 281.8 295.3 323.7 335.5 458.2 778.8 Debt Accumulation Grant-equivalent financing (% of GDP) Key macroeconomic assumptions Grant element of new borrowing (% right scale) Real GDP growth (in percent) 3.7 5.1 4.2 3.5 2.7 2.7 3.2 3.2 3.0 2.7 2.7 2.2 2.9 GDP deflator in US dollar terms (change in percent) 2.6 1.0 1.0 1.2 1.9 2.1 2.1 2.1 2.1 2.2 2.2 1.6 2.0 Effective interest rate (percent) 4/ 1.7 1.7 1.3 1.2 1.3 1.3 1.2 1.1 1.0 0.9 1.1 1.4 1.1 External debt (nominal) 1/ Growth of exports of G&S (US dollar terms, in percent) 2.5 10.4 11.2 4.3 4.9 4.8 4.9 4.7 4.7 4.5 4.7 14.0 4.6 of which: Private Growth of imports of G&S (US dollar terms, in percent) 4.3 13.2 9.3 4.1 3.1 1.9 5.8 6.5 4.3 5.1 5.1 4.2 4.7 120 Grant element of new public sector borrowing (in percent) ... ... ... 42.3 30.9 44.7 40.0 39.1 27.5 27.5 27.7 ... 32.9 Government revenues (excluding grants, in percent of GDP) 22.7 23.0 23.6 23.1 23.1 23.1 23.1 23.0 23.0 23.0 23.1 21.0 23.0 100 Aid flows (in Million of US dollars) 5/ 122.2 116.4 131.6 50.2 34.0 67.5 61.7 45.3 29.4 31.4 36.0 Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 3.5 3.1 3.9 3.8 2.8 2.7 2.3 1.7 ... 2.9 80 Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 70.1 66.2 65.8 61.2 71.3 55.4 54.2 51.8 ... 60.1 Nominal GDP (Million of US dollars) 1,062 1,127 1,186 1,241 1,299 1,362 1,434 1,511 1,588 2,029 3,304 Nominal dollar GDP growth 6.5 6.1 5.2 4.7 4.6 4.8 5.3 5.3 5.1 5.0 5.0 3.8 5.0 60 Memorandum items: 40 PV of external debt 7/ ... ... 101.7 99.9 95.1 91.1 87.4 82.8 79.7 68.3 52.7 In percent of exports ... ... 187.5 185.0 175.7 168.4 162.2 154.6 149.3 131.5 105.0 20 Total external debt service-to-exports ratio 10.8 11.3 10.8 6.9 7.2 6.8 6.6 6.2 5.7 4.3 3.6 PV of PPG external debt (in Million of US dollars) 452.1 439.5 425.2 419.7 421.0 406.6 410.8 477.8 719.4 0 (PVt-PVt-1)/GDPt-1 (in percent) -1.1 -1.2 -0.4 0.1 -1.0 0.3 0.9 0.9 2019 2021 2023 2025 2027 2029 Non-interest current account deficit that stabilizes debt ratio 16.4 18.2 19.1 11.3 13.7 10.4 10.8 13.7 12.1 13.4 15.5 Sources: Country authorities; and staff estimates and projections. 0 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/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ 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). 7/ Assumes that PV of private sector debt is equivalent to its face value. 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. 10 Table 2. Grenada: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016–2039 (In percent of GDP, unless otherwise indicated) Actual Projections Average 6/ 2016 2017 2018 2019 2020 2021 2022 2023 2024 2029 2039 Historical Projections Public sector debt 1/ 81.6 70.0 63.4 58.8 53.8 50.5 48.3 44.9 44.1 44.2 44.2 90.7 47.4 Definition of external/domestic Residency- of which: external debt 56.6 47.4 44.5 42.1 39.4 38.5 37.9 35.4 34.3 31.7 27.9 61.8 35.6 debt based of which: local-currency denominated Change in public sector debt -8.5 -11.5 -6.6 -4.7 -5.0 -3.2 -2.2 -3.4 -0.8 0.0 0.1 Is there a material difference Identified debt-creating flows -7.8 -7.7 -8.3 -7.8 -7.3 -7.3 -5.5 -3.5 -1.0 -0.2 0.1 -1.3 -3.0 No between the two criteria? Primary deficit -5.2 -5.7 -6.8 -6.2 -6.5 -6.6 -4.5 -2.5 0.0 0.6 0.6 -0.5 -2.1 Revenue and grants 26.2 25.6 26.5 25.6 25.5 25.3 25.3 25.1 24.8 24.6 24.2 24.0 25.0 of which: grants 3.5 2.6 2.9 2.4 2.4 2.3 2.2 2.1 1.8 1.5 1.1 Public sector debt 1/ Primary (noninterest) expenditure 21.0 19.9 19.7 19.4 19.0 18.8 20.8 22.6 24.8 25.2 24.8 23.5 22.9 Automatic debt dynamics -2.6 -2.1 -1.5 -1.6 -0.9 -0.7 -1.0 -1.0 -0.9 -0.9 -0.5 of which: local-currency denominated Contribution from interest rate/growth differential -1.7 -2.5 -2.1 -1.8 -0.9 -0.7 -1.0 -1.0 -0.9 -0.8 -0.5 of which: foreign-currency denominated of which: contribution from average real interest rate 1.5 1.4 0.8 0.3 0.6 0.7 0.6 0.5 0.4 0.4 0.7 of which: contribution from real GDP growth -3.2 -3.9 -2.8 -2.1 -1.6 -1.4 -1.6 -1.5 -1.3 -1.2 -1.2 70 Contribution from real exchange rate depreciation -0.9 0.5 0.6 ... ... ... ... ... ... ... ... 60 Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -0.3 0.0 50 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 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 (please specify) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 20 Residual -0.7 -3.8 1.7 3.4 2.4 4.0 3.3 0.2 0.2 0.2 0.0 -0.7 1.3 10 Sustainability indicators 0 PV of public debt-to-GDP ratio 2/ ... ... 57.1 52.1 47.1 42.8 39.7 36.5 35.7 36.0 38.1 2019 2021 2023 2025 2027 2029 PV of public debt-to-revenue and grants ratio … … 215.3 203.7 184.5 168.9 157.4 145.3 143.6 146.6 157.7 Debt service-to-revenue and grants ratio 3/ 51.2 59.3 56.4 31.6 39.9 30.4 24.5 20.8 19.9 24.5 33.4 Gross financing need 4/ 8.3 9.5 8.2 1.9 3.7 1.1 1.7 2.7 4.9 6.7 8.7 of which: held by residents of which: held by non-residents Key macroeconomic and fiscal assumptions 70 Real GDP growth (in percent) 3.7 5.1 4.2 3.5 2.7 2.7 3.2 3.2 3.0 2.7 2.7 2.2 2.9 60 Average nominal interest rate on external debt (in percent) 3.6 3.7 3.2 2.8 3.1 3.1 2.9 2.7 2.5 2.1 2.3 2.8 2.6 Average real interest rate on domestic debt (in percent) 0.3 2.0 1.7 -0.8 1.5 2.4 2.6 2.7 2.8 3.5 4.4 2.3 2.4 50 Real exchange rate depreciation (in percent, + indicates depreciation) -1.5 0.9 1.3 … ... ... ... ... ... ... ... 0.0 ... 40 Inflation rate (GDP deflator, in percent) 2.6 1.0 1.0 1.2 1.9 2.1 2.1 2.1 2.1 2.2 2.2 1.6 2.0 30 Growth of real primary spending (deflated by GDP deflator, in percent) -2.2 -0.7 3.4 1.5 0.8 1.3 14.1 12.3 13.0 2.5 2.6 -0.7 5.3 20 Primary deficit that stabilizes the debt-to-GDP ratio 5/ 3.4 5.9 -0.2 -1.5 -1.5 -3.3 -2.3 0.9 0.8 0.7 0.5 3.0 -0.3 10 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 0 2019 2021 2023 2025 2027 2029 Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, government-guaranteed debt . Definition of external debt is Residency-based. 2/ 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. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ 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. 5/ 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. 6/ 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. 11 Figure 4. Grenada: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2019–2029 1/ PV of debt-to GDP ratio PV of debt-to-exports ratio 80 250 70 200 60 50 150 40 30 100 20 50 10 Most extreme shock: Exports Most extreme shock: Exports 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Debt service-to-exports ratio Debt service-to-revenue ratio 18 25 16 20 14 12 15 10 8 10 6 4 5 2 Most extreme shock: Exports Most extreme shock: Exports 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Historical scenario Most extreme shock 1/ Threshold Borrowing assumptions on additional financing needs resulting from the stress Customization of Default Settings 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 Yes Avg. nominal interest rate on new borrowing in USD 2.1% 2.1% Natural disaster No Yes USD Discount rate 5.0% 5.0% Commodity price n.a. n.a. Avg. maturity (incl. grace period) 28 28 Market financing n.a. n.a. Avg. grace period 6 6 Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the stress tests interactions of the default settings for the stress tests. are assumed to be covered by PPG external MLT debt in the external DSA. Default terms "n.a." indicates that the stress test does not apply. of marginal 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 2029. 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/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department. 12 Figure 5. Grenada: Indicators of Public Sector Debt Under Alternative Scenarios 2019 –2029 PV of Debt-to-GDP Ratio 90 80 70 60 50 40 30 Most extreme shock: Natural disaster 20 10 0 2019 2021 2023 2025 2027 2029 PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio 350 60 300 50 250 40 200 30 150 20 100 50 Most extreme shock: Natural disaster 10 Most extreme shock: Combined contingent liabilities 0 0 2019 2021 2023 2025 2027 2029 2019 2021 2023 2025 2027 2029 Baseline Most extreme shock 1/ TOTAL public debt benchmark Historical scenario Borrowing assumptions on additional financing needs resulting from the Default User defined stress tests* Shares of marginal debt External PPG medium and long-term 52% 52% Domestic medium and long-term 31% 31% Domestic short-term 17% 17% Terms of marginal debt External MLT debt Avg. nominal interest rate on new borrowing in USD 2.1% 2.1% Avg. maturity (incl. grace period) 28 28 Avg. grace period 6 6 Domestic MLT debt Avg. real interest rate on new borrowing 4.5% 4.5% Avg. maturity (incl. grace period) 4 4 Avg. grace period 2 2 Domestic short-term debt Avg. real interest rate 3.0% 3.0% * Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal 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 2029. 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. 13 Table 3. Grenada: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019–2029 (In Percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of debt-to GDP ratio Baseline 35 33 31 29 27 26 25 25 24 24 24 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 35 37 41 44 46 49 52 55 57 59 61 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 35 35 36 34 31 30 29 29 28 28 27 B2. Primary balance 35 36 39 38 36 36 37 36 36 36 35 B3. Exports 35 49 73.5 71 68 66 65 64 63 60 58 B4. Other flows 3/ 35 37 39 38 35 34 33 33 32 31 30 B5. Depreciation 35 41 37 35 32 31 30 29 29 29 28 B6. Combination of B1-B5 35 44 45 44 41 39 39 38 37 36 35 C. Tailored Tests C1. Combined contingent liabilities 35 41 40 39 38 38 38 38 38 38 37 C2. Natural disaster 35 43 43 43 43 44 46 48 50 52 53.7 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 40 40 40 40 40 40 40 40 40 40 40 PV of debt-to-exports ratio Baseline 66 60 57 54 50 48 48 47 46 46 45 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 66 69 76 82 86 92 98 104 109 114 117 0 66 63 62 62 60 60 62 62 63 62 62 B. Bound Tests B1. Real GDP growth 66 60 57 54 50 48 48 47 46 46 45 B2. Primary balance 66 67 71 70 67 68 69 69 69 69 68 B3. Exports 66 114 221 215 206 202 199 198 194 188 181 B4. Other flows 3/ 66 68 72 70 65 63 62 62 61 59 58 B5. Depreciation 66 60 54 52 48 46 45 44 44 43 43 B6. Combination of B1-B5 66 88 74 98 92 90 88 87 85 83 82 C. Tailored Tests C1. Combined contingent liabilities 66 75 75 73 71 72 72 72 72 72 72 C2. Natural disaster 66 90 90 90 90 93 97 101 106 111 116 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 180 180 180 180 180 180 180 180 180 180 180 Debt service-to-exports ratio Baseline 7 7 7 6 6 6 5 5 5 4 4 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 7 7 7 7 7 7 7 7 7 7 8 0 7 7 7 6 6 6 6 5 6 6 6 B. Bound Tests B1. Real GDP growth 7 7 7 6 6 6 5 5 5 4 4 B2. Primary balance 7 7 7 7 7 6 6 6 6 6 6 B3. Exports 7 10 15 16 15 14 13 13 14 17 16 B4. Other flows 3/ 7 7 7 7 7 6 6 5 5 6 5 B5. Depreciation 7 7 7 6 6 6 5 5 5 4 4 B6. Combination of B1-B5 7 8 10 10 9 8 8 7 8 8 7 C. Tailored Tests C1. Combined contingent liabilities 7 7 7 7 7 6 6 6 5 5 5 C2. Natural disaster 7 9 9 9 9 8 8 7 7 7 7 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Threshold 15 15 15 15 15 15 15 15 15 15 15 Debt service-to-revenue ratio Baseline 16 17 16 15 14 13 12 11 11 10 10 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 16 17 17 17 17 16 16 15 16 17 18 0 16 16 15 15 15 14 13 13 13 13 13 B. Bound Tests B1. Real GDP growth 16 18 18 18 17 15 14 13 12 12 11 B2. Primary balance 16 17 16 16 15 14 13 13 13 13 13 B3. Exports 16 19 21 23 22 20 19 18 20 23 22 B4. Other flows 3/ 16 17 16 16 15 14 13 12 12 12 12 B5. Depreciation 16 21 20 19 18 16 15 14 13 12 12 B6. Combination of B1-B5 16 18 19 18 17 16 15 14 15 14 14 C. Tailored Tests C1. Combined contingent liabilities 16 17 17 16 15 14 14 13 12 12 11 C2. Natural disaster 16 17 16 16 15 14 13 13 13 12 12 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 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. 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. 14 Table 4. Grenada: Sensitivity Analysis for Key Indicators of Public Debt 2019 –2029 (In Percent) Projections 1/ 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PV of Debt-to-GDP Ratio Baseline 52 47 43 40 36 36 36 36 36 36 36 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 52 52 52 52 51 50 50 50 50 49 49 0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A B. Bound Tests B1. Real GDP growth 52 52 54 54 53 55 58 61 63 66 69 B2. Primary balance 52 55 60 56 53 52 51 51 51 51 51 B3. Exports 52 58 72 68 65 64 63 63 63 61 60 B4. Other flows 3/ 52 51 51 48 45 44 44 44 43 43 43 B5. Depreciation 52 56 50 44 40 37 36 34 33 31 30 B6. Combination of B1-B5 52 54 51 44 40 40 39 38 38 38 38 C. Tailored Tests C1. Combined contingent liabilities 52 66 61 58 54 53 52 52 52 52 52 C2. Natural disaster 52 67 65 64 63 65 68 70 73 76 79 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. TOTAL public debt benchmark 55 55 55 55 55 55 55 55 55 55 55 PV of Debt-to-Revenue Ratio Baseline 204 185 169 157 145 144 144 144 145 146 147 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 204 202 205 207 202 202 201 200 199 199 198 0 32 40 35 33 32 31 28 27 26 24 24 B. Bound Tests B1. Real GDP growth 204 204 212 211 209 219 230 242 254 266 278 B2. Primary balance 204 217 235 223 210 207 206 206 206 206 206 B3. Exports 204 227 284 271 258 257 256 256 254 248 243 B4. Other flows 3/ 204 201 202 190 177 176 176 176 176 175 174 B5. Depreciation 204 221 197 177 159 151 144 138 133 128 123 B6. Combination of B1-B5 204 213 202 176 161 159 157 155 154 155 155 C. Tailored Tests C1. Combined contingent liabilities 204 260 242 230 216 213 212 212 212 212 212 C2. Natural disaster 204 258 252 251 248 258 270 282 294 306 318 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Debt Service-to-Revenue Ratio Baseline 32 40 30 25 21 20 20 22 23 24 24 A. Alternative Scenarios A1. Key variables at their historical averages in 2019-2029 2/ 32 40 31 26 23 23 23 25 28 29 31 0 32 40 35 33 32 31 28 27 26 24 24 B. Bound Tests B1. Real GDP growth 32 43 36 32 29 31 34 37 40 42 45 B2. Primary balance 32 40 39 36 32 37 33 29 31 32 32 B3. Exports 32 40 32 28 24 23 23 25 28 32 33 B4. Other flows 3/ 32 40 31 25 22 21 21 22 25 26 27 B5. Depreciation 32 40 34 28 24 23 22 24 25 25 25 B6. Combination of B1-B5 32 39 31 31 23 26 27 25 26 27 27 C. Tailored Tests C1. Combined contingent liabilities 32 40 48 31 37 40 29 29 32 31 30 C2. Natural disaster 32 46 46 35 38 42 39 41 45 46 48 C3. Commodity price n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. C4. Market Financing n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI. 15 Figure 6. 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 150 Previous DSA proj. 70 DSA-2012 20 Interquartile Price and 100 range (25-75) 60 exchange rate 50 0 50 Real GDP growth Change in PPG 40 debt 3/ -20 0 Nominal 30 interest rate 20 -40 -5 0 Median Current 10 account + FDI -1 00 -60 0 Change in 5-year 5-year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 PPG debt 3/ Contribution of Distribution across LICs 2/ historical projected -1 50 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 20 Current DSA 20 Previous DSA proj. DSA-2012 Other debt Interquartile 120 creating flows range (25-75) 0 10 100 Real Exchange 0 rate 80 depreciation -20 Real GDP growth -10 Change in debt 60 Real interest -40 -20 40 rate Primary deficit -30 20 -60 Median 0 -40 Change in debt 5-year 5-year 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Distribution across LICs 2/ historical projected Contribution of change change -50 unexpected 1/ Difference betw een anticipated and actual contributions on debt ratios. 2/ Distribution across LICs for w hich LIC DSAs w ere 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. 16 Figure 7. Grenada: Realism Tools 3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/ (Percentage points of GDP) Distribution 1/ 8 1 14 Projected 3-yr 7 12 adjustment 3-year PB adjustment greater 6 In percentage points of GDP 10 than 2.5 percentage points of GDP in approx. top 5 quartile In percent 8 4 0 6 3 4 2 2 1 0 0 -1 more 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 -4.5 -4.0 -3.5 -3.0 -2.5 -2.0 -1.5 -1.0 -0.5 2013 2014 2015 2016 2017 2018 2019 2020 Baseline Multiplier = 0.2 Multiplier = 0.4 Multiplier = 0.6 Multiplier = 0.8 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show 1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since possible real GDP growth paths under different fiscal multipliers (left-hand side scale). 1990. The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of sample is found on the vertical axis. Public and Private Investment Rates 1/ Contribution to Real GDP growth (percent of GDP) (percent, 5-year average) 2 6 5 4 3 2 1 0 Historical Projected (Prev. DSA) Projected (Curr. DSA) -1 0 -2 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital 1/ Not applicable to Grenada because of absence of relevant data. 17