Above: Downtown St George’s (CJ Photo)

By the Caribbean Journal staff

Grenada’s economy is showing signs that a “fragile recovery” may underway, although “significant” downside risks remain, according to the International Monetary Fund.

An IMF mission visited Grenada form May 7 to 17 for its 2012 Article IV consultation.

“Following two years of consecutive decline, there are signs that a fragile recovery may be underway,” said Nita Thacker, the mission’s leader, in a statement.

According to the fund, real GDP in the country grew by 1.1 percent in 2011 and is expected to reach 1.5 percent in 2012, led by “continued growth in agriculture and a gradual recovery in tourism stay-over arrivals.”

Inflation is expected to remain “broadly stable” at about 3 percent this year.

The country’s fiscal situation deteriorated last year, in part due to the extension of various tax exemptions, the fund said, and the “significant downside risks” remain.

Those risks include the country’s high public sector debt level and budget financing constraints, high current accounts deficits (the current deficit is around 25 percent of GDP) and net external liabilities, and financial sector vulnerabilities, including spillovers from the region.

The IMF talks, which were confuted with Finance Minster Nazim Burke and members of his team, focused on three policy areas: restoring sustained growth and employment, resuming fiscal consolidation to put the country’s debt on a downward trajectory and strengthening Grenada’s financial sector.

Grenada continues to face a sizable competitiveness gap, according to the fund, with increases in production costs, due in part to higher energy costs and wages and reduced productivity, putting downward pressure on profit margins and stifling investment.

The IMF will release an official report in July.