The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Document of The World Bank FOR OFFICIAL USE ONLY Report No: PGD306 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED CREDIT IN THE AMOUNT OF US$25 MILLION TO GRENADA FOR THE Grenada First Recovery and Resilience Programmatic DPC April 27, 2022 Macroeconomics, Trade And Investment Global Practice Latin America And Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. . The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Grenada GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 20, 2021) Eastern Caribbean dollar (EC$) (EC$2.70 = US$1.00) ABBREVIATIONS AND ACRONYMS Cat DDO Catastrophe Draw-down Option NIS National Insurance Scheme Caribbean Catastrophe Risk Insurance CCRIF NPL non-performing loan Facility CDB Caribbean Development Bank NSDP National Sustainable Development Plan Caribbean Disaster Emergency National Strategy for the Development of CDEMA NSDS Management Agency Statistics CRF Canada-Caribbean Facility NSI National Statistics Institute DM Disaster Management OECS Organization of Eastern Caribbean States DPC Development Policy Credit PA Prior Action Public Expenditure and Financial DRM Disaster Risk Management PEFA Accountability Assessment DSA Debt Sustainability Analysis PFM Public Financial Management EC$ EC dollars PIM public investment management ECCB Eastern Caribbean Central Bank PIT personal income tax ECCU Eastern Caribbean Currency Union PLR Performance and Learning Review ECF Extended Credit Facility PPAs Policy and Performance Actions FDI foreign direct investment PPG public and publicly guaranteed FRA Fiscal Responsibility Act PSIA poverty and social impact analysis FROC Fiscal Responsibility Oversight Committee PSSA Payment System and Services Act GDP Gross Domestic Product PURC Public Utilities Regulatory Commission GEPAP Gender Equality Policy and Action Plan PV Photovoltaic system GHG greenhouse gas RCF Rapid Credit Facility GLCI Grenadian Living Conditions Indicator RPS Regional Partnership Strategy GoG Government of Grenada SDFP Sustainable Development Financing Policy Grenlec Grenada Electricity Services Limited SDG Sustainable Development Goal Education Empowerment and Development IDA International Development Association SEED Program IMF International Monetary Fund SIDS small island developing state LFS Labor Force Survey SOE state-owned enterprises MBIA Maurice Bishop International Airport SRD Systematic Regional Diagnostic MoF Ministry of Finance TA technical assistance MSMEs micro, small & medium enterprises UI Unemployment Insurance MTRP Medium-Term Recovery Plan US United States NAP National Adaptation Plan VAT value-added tax NDC Nationally Determined Contribution WB World Bank NEP National Energy Policy WBG World Bank Group NIA National Insurance Act Regional Vice President: Carlos Felipe Jaramillo Country Director: Lilia Burunciuc Regional Director: Robert R. Taliercio, Franz R. Drees-Gross Practice Manager (s): Doerte Doemeland, Stephanie Gil Task Team Leader (s): Ran Li, Nguyet Anh Pham . The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) GRENADA GRENADA FIRST RECOVERY AND RESILIENCE PROGRAMMATIC DPC TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3 1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5 2. MACROECONOMIC POLICY FRAMEWORK....................................................................................8 2.1. RECENT ECONOMIC DEVELOPMENTS............................................................................................ 8 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................................................ 12 2.3. IMF RELATIONS ............................................................................................................................ 19 3. GOVERNMENT PROGRAM ........................................................................................................ 20 4. PROPOSED OPERATION ............................................................................................................ 21 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 21 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 22 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY .......................................... 37 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 38 5. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 39 5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 39 5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS ................................. 40 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 41 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 43 6. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 44 ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 47 ANNEX 2: FUND RELATIONS ANNEX .................................................................................................. 50 ANNEX 3: LETTER OF DEVELOPMENT POLICY..................................................................................... 55 ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 60 ANNEX 5: POVERTY AND SOCIAL IMPACT ANALYSIS (PSIA)............................................................... 61 ANNEX 6: SUPPORTING TABLES ........................................................................................................ 67 ANNEX 7: SUMMARY OF FISCAL MEASURES IN GRENADA PRE-AND-POST PANDEMIC ...................... 70 Page 1 Preparation of the Grenada First Recovery and Resilience Programmatic DPC has been supported by an IDA team led by Ran Li (Economist, ELCMU) and Nguyet Anh Pham (Senior Energy Specialist, ILCE1). The team comprises Lilia Razlog (Senior Debt Specialist); Daniel Alvarez (Senior Public Sector Mgmt. Specialist); Oliver Masetti (Financial Sector Specialist); Arun Manuja (Senior Financial Management Specialist); Luciano Wuerzius (Senior Procurement Specialist); Vinicius Lima Moura (Senior Procurement Specialist); Urska Zrinski (Public Sector Specialist); Manjola Malo (Procurement Specialist); Deborah Grace Watson (Financial Management Specialist); Mary Elinor Boyer (Disaster Risk Management Specialist); Natalia Magradze (Operations Officer); Clemente Avila Parra (Social Protection Economist); Gustavo Javier Canavire Bacarreza (Economist); Eliana Carolina Rubiano Matulevich (Economist); Himmat Singh Sandhu (E T Consultant); Claudia Vargas Pastor (Public Sector Specialist); Natalia Mazoni Silva Martins (E T Consultant); Lyliana Gayoso (Consultant). The peer reviewers are Ruslan Piontkivsky (Senior Economist, EEAM2) and Frederic Verdol (Senior Energy Specialist, IAEE3). The team gratefully acknowledges the support and guidance provided by Lilia Burunciuc (Country Director, LCC3C), Robert R. Taliercio (Regional Director, ELCDR), Marcello Estevao (Global Director, EMFDR), Doerte Doemeland (Practice Manager, ELCMU), Stephanie Gil (Practice Manager, ILCE1), Denis Boskovski (Senior Country Officer, LCC3C), Nataliya Mylenko (Program Leader, ELCDR), Javier Suarez (Program Leader, ELCDR), Vickram Cuttaree (ILCDR) and Timothy A. Johnston (HLCDR). The team would like to express its gratitude to the Government of Grenada for its strong collaboration in the preparation of this DPC operation. The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic If programmatic, position in series P176663 Yes 1st in a series of 2 Proposed Development Objective(s) The development objective of this proposed operation is to support Grenada’s recovery, through two pillars, (i) Promoting a greener and more climate-resilient economy; and (ii) Improving sustainability, inclusiveness and accountability of fiscal management. Organizations Borrower: GRENADA Implementing Agency: Ministry of Finance PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 25.00 DETAILS International Development Association (IDA) 25.00 IDA Credit 25.00 INSTITUTIONAL DATA Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Overall Risk Rating Substantial . Page 3 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Results Indicator Name Baseline Target RI1: Percent of ministries and agencies with an Operations Continuity Plan 0 (2021) 50% (2024) in compliance with the DM Act/regulations RI2: New interim retail tariff in accordance with the regulation on Tariff N (2021) Y (2024) Setting Methodology is issued RI3: Capacity of power purchase agreements for new Renewable Energy generation capacity signed with private investors in accordance with 0 (2021) 5 MW (2024) Regulation on Generation Expansion Planning and Competitive Procurement RI4: Number of ministries and agencies with a trained and certified 0 (2021) 7 (2024) information management/data protection officer RI5: Share of companies paying VAT and PIT tax online 2% for VAT; 0.1% for PIT 8% for VAT, 4% for PIT (2021) (2024) RI6: Share of new capital projects being tagged 1 under the new climate 0 (2021) 60% (2024) change budget tagging methodology RI7: Number of programs presenting information on gender priorities, that include sex-disaggregated data and related gender-responsive budget measures in publicly available budget documentation (in 2 (2021) 10 (2024) accordance with the gender budgeting policy framework) RI8: Number of workers contributing to the UI Fund 0 (2021) 40,000 (2024) RI9: Percentage of Sustainable Development Goals Indicators produced by 25% (2021) 36% (2024) the NSI. . 1 If a project has zero climate components after evaluation, it’d be counted as “tagged” (zero) Page 4 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) IDA PROGRAM DOCUMENT FOR A PROPOSED CREDIT TO GRENADA 1. INTRODUCTION AND COUNTRY CONTEXT 1. The proposed Grenada Recovery and Resilience Development Policy Credit (DPC), for an amount of US$25 million, is the first of two programmatic operations to support the economic recovery of Grenada from the COVID-19 pandemic. Grenada is a small island developing state (SIDS) with around 107,000 people. It is heavily reliant on tourism, and highly prone to climate change induced natural disasters which constrain economy growth and threaten fiscal sustainability. The COVID-19 pandemic caused a large economic contraction of 13.8 percent in 2020, as tourism came to a halt, severely affecting the poor and most vulnerable groups. The severe socio-economic impacts and rising public debt significantly constrained the Government’s capacity to address the pre-existing structural challenges and to continue to build resilience to disasters and climate impacts, especially hurricanes. This proposed operation is to support Grenada’s recovery, through two pillars, (i) Promoting a greener and more climate- resilient economy; and (ii) Improving sustainability, inclusiveness and accountability of fiscal management. 2. Prior to the pandemic, Grenada’s position in the region was remarkable for its steadfast reform path to build economic resilience, though it remains vulnerable to climate-related extreme events. Supported by the World Bank Group (WBG), the International Monetary Fund (IMF), and the Caribbean Development Bank (CDB), the Government of Grenada (GoG) initiated a series of economic reforms. These included: the development of e-business systems; better labor skill training and improvements to the education system; tourism branding. It also promoted a national strategy to develop the energy and agricultural sectors, and the Blue Economy to pursue a sustainable and climate-resilient economy. Supported by pro-growth reforms and expanding tourism, real output growth averaged 4.5 percent annually between 2014 and 2019, significantly outpacing average growth of 2.8 percent in the Organization of Eastern Caribbean States (OECS) region. In addition, the Government adopted the Fiscal Responsible Act (FRA) in 2015 to improve fiscal sustainability and accumulate fiscal space for building climate resilience. Growth-friendly fiscal consolidation measures led to a primary surplus averaging 4.2 percent of Gross Domestic Product (GDP) between 2014 and 2019. Prudent fiscal management anchored in the FRA, together with strong economic growth and debt restructuring supported by the IMF program, led the public debt2 stock to drop from 108 percent of GDP in 2013 to an estimated 58.6 percent in 2019. Debt reporting has also improved significantly. According to the World Bank (WB) “Debt Transparency: Debt Reporting Heat Map”3 in 2021, several areas in Grenada out of a total of nine are in full compliance with good international debt reporting practice. Nevertheless, despite the solid progress, Grenada faces unique development challenges, including a less diversified economy, and vulnerabilities to climate change and natural disasters, particularly hurricanes. Fiscal conditions remain susceptible to external shocks and constrain the Government’s capacity to build climate resilience. 3. The COVID-19 pandemic caused massive socio-economic impacts in 2020, which are expected to exacerbate pre-existing challenges. The COVID-19 crisis slammed the brakes on tourism, plunging Grenada into an economic contraction of 13.8 percent in 2020. Timely government response measures 2 See World Bank-IMF joint LIC DSA from April 2022, Public debt here is defined as the sum of central government debt (including arrears on principal and interest and overdue membership fees to international organizations) and government- guaranteed debt. 3 https://www.worldbank.org/en/topic/debt/brief/debt-transparency-report. Page 5 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) successfully contained the local spreading of cases for the first 16 months. However, the Delta and Omicron variants led to large spikes of cases starting in September 2021, averaging around 3-400 cases per day (compared to 180 cases in total for the first 16 months). The new waves further delayed the recovery of the tourism sector and related economic activities. Despite this, public investment projects and the return of foreign students to the island have meant that GDP is estimated to have rebounded at 5.3 percent in 2021. GDP remains far below the pre-pandemic level. The unemployment rate surged to 28.4 percent in Q2 2020 from a historic low of 15.7 percent by end of 2019. The delayed recovery led to a worsening of the labor market in 2021, especially for women and the poorest groups. The extended impacts of the pandemic have made additional fiscal stimulus necessary (See Annex 6 Table 1A&1B) to support the vulnerable groups and maintain economic activities. To allow for temporary fiscal space to cushion the extended impacts, the GoG suspended the fiscal rule for the third consecutive year in 2022, following the protocols under the Fiscal Responsibility Act (FRA). 4. The proposed operation aims to assist GoG in tackling the structural challenges exacerbated by the pandemic and enhancing sustainable and climate resilient recovery through two pillars. The first pillar promotes a greener and more climate-resilient economy. The measures include establishing comprehensive Disaster Management (DM) legislation; adopting policies to encourage energy efficiency and renewable energy; and promoting digitalization through enhancing data protection. The second pillar supports sustainability, inclusiveness, and accountability of fiscal management; it specifically supports the Government returning to the FRA after three-year suspension, through a medium-term recovery plan that lays out the fiscal path to meet the targets under the FRA. Other prior actions under the second pillar aims to improve the efficient use of public resources, through enhancing tax management, incorporating climate resilience and gender equality in budgeting, reforming the unemployment insurance (UI) Programme, as well as enhancing statistical capacity for better policymaking. The two pillars are aligned with the Government’s priorities and are closely coordinated with support from other IFIs to close GRD’s gross financing gap. 5. In light of Grenada’s high exposure to extreme weather events, which are likely to intensify with climate change, this operation specifically aims to improve its ability to mitigate and adapt to climate change. Grenada is highly exposed to natural hazards of varying intensity and severity, and hydrometeorological events are the major drivers. These hydrometeorological events are expected to become more destructive as a result of the intensifying effects of climate change, including increases in temperature, changing precipitation patterns and more frequent and intense natural disasters like hurricanes. For a country highly dependent on the tourism sector, identified climate change impacts threaten Grenada’s most valuable resources, including ocean-dependent sectors and their workforces, as well as impact every aspect of the economy, through labor market, energy costs, and the business continuity. The overarching challenges require public policies and fiscal resources to mitigate the impacts and to cushion future shocks. 6. As such, the operation supports GoG in enhancing climate resilience in those most urgent fronts. These areas include diversifying the economy, building labor market resilience against shocks, promoting comprehensive disaster risks management and natural resources utilization, and better utilization of public resources. For example, the UI Programme is expected to strengthen the resilience of disaster- induced income losses by establishing a permanent program to provide temporary income support when a disaster hits. The reform to support data protection provides the necessary conditions for the transition to digitalization, which will enhance the adaptive capacity of the private sector as new measures will reduce physical exposure to extreme weather events and ensure business continuity by relying on virtual Page 6 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) means if normal business activity is interrupted by extreme weather events. The measures to support a comprehensive DM Act aims to reduce Grenada’s physical risks to climate change and provide a unified management system for various climate resilience efforts. The actions under the operation to improve energy efficiency and promote renewable energy will help reduce greenhouse gas (GHG) emissions and mitigate climate change. Climate change budget tagging will better identify and inform planning of the fiscal allocation to climate resilient investments. A digital tax system is critical for operational risk management against climate related-shocks, and support for the Statistics Act and the National Strategy for the Development of Statistics (NSDS) will enhance capacity in Grenada for design and implementation of DM policy and mitigation measures for post-climate crises. 7. The measures supported under the operation are also expected to narrow disparities in economic opportunities between men and women that may have been aggravated due to the crisis. Historically in Grenada, labor force participation rates have been lower and unemployment rates higher for women than men. While the official unemployment rate declined to 15.7 percent in 2019, the respective rates for men and women were 12 percent and 20 percent.4 The growth in tourism and related sectors, as a share of GDP, created significant employment opportunities for women. However, these sectors are also one of the most vulnerable to external shocks including extreme climate-related events. For example, the pandemic affected the sectors where women accounted for about 70 percent of workers (Labor Force Survey, LFS, 2019). The DPC supports the Government in establishing a UI Programme, which is expected to benefit women particularly, given their higher vulnerabilities to external shocks. In addition, the DPC will also promote the inclusion of gender considerations into the budgetary process to promote gender equality, and to identify the potential impacts on different genders, and improve the design and planning of the policy under consideration. 8. The operation focuses on Pillar 4 of the WB COVID-19 Crisis Response Approach5 and integrates the Green, Resilient and Inclusive Development (GRID)6 approach to enable the longer-term framework for the necessary economic and social transformations. A flexible and focused WBG response to the COVID-19 crisis is anchored on four pillars (emergent health response; protect the vulnerable; support jobs and private sector; and rebuilding better). Meanwhile, several overarching challenges, especially in the case of Grenada, make the GRID approach relevant, timely and necessary to achieve the responses, particularly Pillar 4 “Rebuilding Better”. The pandemic widened the gender and income gaps and highlighted the importance of building socio-economic resilience. This operation goes beyond a “business- as-usual” package for crisis response and supports an interconnected reforms that address the most urgent challenges faced by Grenada. PA 2 & PA 3 promote environmental sustainability through regulations on energy efficiency and renewable energy which also contributes to socio economic resilience through impacts on reduction of electricity tariff. Resilience building is reflected in PA 1 (DM Bill for climate resilience); PA 4 (digital solution for digital continuity); PA 6 (climate change budget tagging); and PA 8 (UI for social resilience). PA 7 (gender responsive budgeting) and PA 8 will include diverse perspectives in the design of policies to ensure that all citizens are included in the recovery. 4 Grenada LFS 2019. 5 https://documents1.worldbank.org/curated/en/136631594937150795/pdf/World-Bank-Group-COVID-19-Crisis-Response- Approach-Paper-Saving-Lives-Scaling-up-Impact-and-Getting-Back-on-Track.pdf 6 https://thedocs.worldbank.org/en/doc/9385bfef1c330ed6ed972dd9e70d0fb7-0200022021/original/DC2021-0004-Green- Resilient-final.pdf Page 7 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) 2. MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS 9. As a result of the COVID-19 pandemic, GDP contracted by 13.8 percent in 2020, the deepest recession since the 1980s. Between 2014 and 2019, Grenada grew at an average of 4.5 percent in real terms, supported by tourism and extensive reforms which helped build fiscal buffers and diversify the economy; this growth is higher than the average of 2.8 percent for the countries in OECS and the 1 percent average in Latin America and the Caribbean during the same period. Public debt fell from 101.8 percent to 58.6 percent of GDP over the same period, anchored in the country’s FRA and solid economic growth. The COVID-19 pandemic hit the economy hard socially and economically in 2020. Although the spread of coronavirus remained broadly contained up to the end of July 2021 (180 cases in total and one death until then), Grenada's economy was severely affected as international travel bans completely halted tourism, which generally contributed to around 40 percent of GDP (Figure 1). St George’s University, which typically contributes around 20 percent of GDP saw many students leave the island when classes shifted from face- to face learning to virtual classes, further lowering economic activities. Domestic lock-down measures also led to a slowdown of construction activities. 10. Real GDP growth is estimated to have recovered to 5.3 percent in 2021. Despite the relatively low vaccination rate and the omicron wave, the gradual loosening of traveling protocols in 2021Q4 has led to a significant increase in stay-over tourists, especially from the United States (US). Though the total number of stay-over tourists remains lower than in 2020, longer stays resulted in higher total spending and contributed to positive growth in 2021. Strategies to enhance the public project implementation have resulted in a significant increase in public construction in 2021 and, along with partially resumed private investment in agriculture and accommodation, contributed substantially to the growth. The partial return of international students at St. George's University to in-person learning in the second half of 2021 also supported GDP growth. The government has started implementing structural reforms in support of growth, such as strengthening the national training program especially for hospitality workers; facilitating trade through simplifying customs procedures and reducing port charges; supporting affordable energy to the private sector through promoting renewable energy and improving energy efficiency; and improving labor market institutions and enhancing job matching through the National Skills development Program. 11. The current account 7 deficit widened significantly during the crisis, reaching estimated 20.2 percent of GDP in 2021, up from 19.0 percent in 2020 (see Table 1). The estimated widening was tied to increased imports to support domestic activities and construction, which was mitigated by the increases in exports, especially tourism. Higher global commodity prices in 2021, especially gas and fuel, also contributed to increases in imports. A significant portion of the increased external deficit is financed by disbursement from pre-secured loans for both public and private construction. Citizenship-by-investment (CBI) strengthened significantly despite the pandemic, doubling the CBI-budgetary fees in 2020 from 2019. As of October 2021, 437 CBI applications had been received, already exceeding the end-year number of applications of 394 in 2020. The rest of the balance of payment deficit was financed by a combination of robust foreign direct investment (FDI), and financing from multilateral and bilateral development 7Preparation of balance of payments data has been a challenge for the OECS region. CARTAC has provided technical assistance on external sector statistics. There is room for further improvement and low staffing capacity is constraining the process. Page 8 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) partners.8 Despite, the significant increase in the current account deficit, there were no movements in the exchange rate. The real effective exchange rate (REER) depreciated by 4.1 percent, largely driven by inflation differentials. 12. During the crisis, inflation was subdued because of low economic activity, but this increased significantly in 2021, limiting poverty reduction. Consumer prices showed an average contraction of 1.2 percent (y/y) in 2020, down from an average inflation rate of 0.6 percent in 2019. The deceleration in Grenada’s inflation rate in 2020 reflected a decline in the transport sectors as tourism being halted, and the housing, utilities, gas & fuels sector, along with movements in international commodity prices, particularly oil. Moderation in US inflation in 2020 also contributed to the deflation in Grenada. Inflationary pressure remained at the manageable level of 2.2 percent in 2021, reflecting a rise in food and fuel prices and supply chain disruptions. However, core inflation was at a low 0.6 percent due to weak domestic demand. Figure 1. Official Unemployment Rate and Tourism Figure 2. Percentage of workers in tourism-related Contribution to GDP and Employment sectors, by gender and expenditure quintiles (2018) 50 80 70 62.9 40 60 30 50 Percent 37.1 40 20 30 10 20 10 0 0 All Q1 Q2 Q3 Q4 Q5 Male Female Tourism overall contribution to GDP (% share) (RHS) Unemployment rate Tourism overall contribution to employment (% share) (RHS) Sources: LFS 2014-2020, Central Statistical Office; WTTC. Source: WB staff estimated based on Household Budget Note: Unemployment rate is calculated in Q2 for 2013-2020, Survey (2018) and in Q1 for 2021. The tourism contribution to GDP uses the contribution of all activities as calculated by WTTC. 13. The financial sector remains sound, based on prudential indicators. In response to the COVID- 19 outbreak, the Monetary Council of the Eastern Caribbean Central Bank (ECCB) approved grant funding of EC$500,000 (US$185,185) for each ECCB member government, including Grenada. In April 2020, the ECCB also reduced its discount rate from 6.5 percent to 2.0 percent, which is on par with the interbank lending rate. Additionally, the ECCB offered support for the Eastern Caribbean Currency Union (ECCU) Bankers’ Association program, which entailed a loan repayment moratorium for customers and residents with an initial period of up to six months beginning in March 2020. The ECCB subsequently extended the 8The remittances data for 2021Q1 showed a 51 percent increase from 2020Q1, driven particularly by remittances from non-OECS and non- CARICOM countries. It may reflect the relatively less severe economic impacts of the remittance senders outside the OECS, as well as the possible switch of remittances transfer from unofficial to official channels, due to the inability to travel in person with cash. Page 9 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) moratorium up to 12 months commencing in October 2020, with further adjustments contingent upon assessing customers’ financial condition. The impact of the COVID-19 pandemic is not yet visible on bank balance sheets. The capital adequacy of Grenada’s banking system remains above the ECCB regulatory minimum at an estimated 15.8 percent in 2021, a further increase from up from 15.1 percent 2020 and significantly higher than 11.9 percent in 2019. The banking sector's non-performing loan (NPL) ratio has increased to 2.9 percent in 2021, an increase from 2.2 percent in both 2019 and 2020. However, the level of NPL remained relatively low, thanks to the continued improvement before the pandemic which left a sound financial cushion for the crisis. 14. In light of the unprecedented shock to fiscal revenues and the urgent need to support socio- economic recovery, the Government triggered the “escape clauses” under the FRA for 2020 and 2021 to allow temporary flexibilities. Grenada maintained an increasing primary surplus of an average of 5.3 percent of GDP between 2015 and 2019, well above the minimum requirement in the FRA of 3.5 percent. In 2020, Grenada recorded its first fiscal deficit of 4.6 percent of GDP since the implementation of FRA, but the deficit was largely due to the repurchase of Grenada Electricity Services Limited (Grenlec) shares, which was recorded under capital expenditure at around 5.8 percent of GDP (EC$162 million). In response to the social and economic fallout from the pandemic, the Government implemented timely measures to support the economy and mitigate the negative impacts on the poor and the most vulnerable groups, which contributed to increases of expenditure by around 7 percent of GDP in 2020 (excluding the Grenlec purchase). Loan moratoria and regulatory forbearance also supported credit provision and buffered the pandemic’s impact on the financial system. Additionally, lower tax collections on goods and services and taxes on international trade resulted in a decline in tax revenues by 13.5 percent year on year. In March 2020, the Government invoked the FRA’s “Escape Clause”. The country recorded a primary deficit of 2.6 percent of GDP and a fiscal deficit of 4.6 percent of GDP in 2020 (3.2 percent in surplus and 1.2 percent of GDP in surplus respectively without considering the Grenlec. repurchase), compared with average surpluses of 6.4 percent and 4.2 percent of GDP, respectively, between 2017 and 2019. Nevertheless, that despite the impacts of the pandemic, Grenada managed to achieve an overall surplus (excluding the Grenlec repurchase), thanks to the well-maintained fiscal performance pre-pandemic. 15. The fiscal balance is estimated to turn marginal surplus at 0.4 percent of GDP in 2021, as the government continues to implement fiscal policy reforms. It is a narrowing surplus from 2020, excluding the 5.8 percent of GDP repurchase of Grenlec. The lowered surplus reflected a stronger increase in public construction, partially continued supportive fiscal measures, and the 4 percent growth of the wage bill. These factors outweighed the additional tax revenue from improved economic activities from tourism, return of in-person classes of the private university, and the spillover effects from the construction sector. Positive GDP growth and fiscal surplus are estimated to reduce public debt from 71.4 percent of GDP in 2020 to 70.3 percent in 2021. The government has maintained the critical reforms completed before the pandemic and continues to implement new measures to strengthen fiscal performance. These measures include: consolidating the disaster risks financing cushion; strengthening social assistance targeting; improving public investment procurement; and advancing the implementation of the 2017-19 public sector service reform (Annex 7). Several of these reforms are supported through prior actions in this operation, including Disaster Management Bill (PA 1), tax administration measures (PA 5), and Unemployment Insurance (PA 8). 16. Consistent with the GDP trend, the labor market was severely affected in 2020, particularly for women, and remains weak in 2021, despite nascent recovery and gov ernment’s supportive measures. Prior to the pandemic, unemployment was at 15.7 percent at the end of 2019, a historic low thanks to Page 10 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) years of economic growth and structural reforms. The labor force participation rate had also been increasing and had reached 68.9 percent in 2019, owing to the rising participation of younger workers. However, the COVID-19 pandemic caused the unemployment rate to almost double to 28.4 percent in the second quarter of 2020 compared to the same period in 2019; and the labor force participation rate plummeted to 60.9 percent. This effect arose from domestic lockdown measures and the closure of international borders, an impact that was especially damaging for the tourism-related sectors, which employ a relatively high share of female workers at the low end of the expenditure distribution (Figure 1 & 2). Unemployment among women remained elevated at 19.5 percent in the second quarter of 2020, while that for men was 14.2 percent. The recovery in 2021 reflected the decrease in unemployment rates, the figure is 16.6 percent for Q2 2021. This decline is expected to continue as the economy picks up in 2022. Nevertheless, the rate of recovery is slower for women, partly due to slow improvements in the tourism industry, where a larger share of workers is female. Table 1. Grenada: Key Macroeconomic Indicators (2018-2025) 2018 2019 2020 2021 2022e 2023f 2024f 2025f Real Sector Real GDP 4.4 0.7 -13.8 5.3 3.8 3.4 3.1 3.0 CPI (average) 0.8 0.6 -1.2 2.2 4.1 2.6 1.9 1.8 Unemployment Ratec (percent) 21.7 15.7 28.4 … … … … … Fiscal Accounts (Central Government) Revenue 27.0 26.6 28.1 29.5 27.1 26.7 25.8 26.4 Expenditure 22.4 21.6 32.7 29.1 29.9 24.9 23.7 23.8 General Government Balance 4.6 5.0 -4.6 0.4 -2.7 1.8 2.1 2.6 Primary balance 6.6 6.8 -2.6 2.3 -0.7 3.6 3.8 4.3 Public Debt 60.8 58.6 71.4 70.3 69.0 66.5 64.4 58.9 Selected Monetary Accounts Broad money (M2) 5.9 2.9 9.1 8.5 3.3 3.4 3.6 3.4 Credit to private sector 2.8 1.4 3.1 3.8 3.8 3.9 4.2 3.8 External Sector Current account balance, o/w: -16.1 -13.6 -19.0 -20.2 -22.5 -16.0 -13.2 -13.7 Exports 53.3 51.6 27.6 27.5 34.8 41.4 48.0 52.7 Imports 58.7 59.0 45.2 46.3 53.9 53.2 55.5 60.1 Foreign Direct Investment 14.2 14.7 14.3 12.1 10.7 11.1 11.7 12.3 Net imputed international reserves 3.8 4.8 5.2 4.8 5.1 4.8 4.6 4.5 (months of Imports) External debt (PPG) 45.0 44.0 55.2 54.9 53.8 52.7 50.9 47.2 REER -2.4 0.7 -2.0 … … … … … Memorandum items Nominal GDP (EC$ million) 3149.6 3276.4 2817.2 3029.6 3250.6 3438.1 3609.1 3775.2 Sources and Note: GoG, IMF, World Bank. e/ estimate; f/ forecasts Table 2. Grenada: Key Fiscal Indicators for the Central Government, 2018-2025 (Percent of GDP) 2018 2019 2020 2021 2022e 2023f 2024f 2025f Total Revenue and Grants 27.0 26.6 28.1 29.5 27.1 26.7 25.8 26.4 Tax Revenue 22.3 21.9 22.1 20.3 19.8 20.3 20.2 20.8 Taxes on goods and services 8.8 8.6 8.5 8.0 7.9 8.0 7.9 8.1 Taxes on income and profits 4.9 4.6 4.8 4.3 4.1 4.3 4.2 4.4 Taxes on international trade 7.7 7.5 7.6 7.1 6.8 6.9 7.0 7.2 Other taxes 0.9 1.2 1.2 1.0 1.0 1.1 1.1 1.1 Non-Tax Revenue 1.6 1.8 2.4 2.8 2.7 2.7 2.8 2.7 Page 11 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Grants 3.0 2.9 3.7 6.4 4.7 3.7 2.8 2.9 Total Expenditures 22.4 21.6 32.7 29.1 29.9 24.9 23.7 23.8 Current expenditure 19.6 19.0 23.1 20.8 20.3 19.7 18.9 19.3 Wages and salaries 8.0 7.7 9.8 9.5 9.2 8.9 8.9 8.9 Goods and services 4.1 4.1 4.7 4.0 3.9 3.9 3.6 3.8 Interest 2.0 1.9 2.0 1.9 2.0 1.8 1.7 1.7 Transfers 5.5 5.4 6.6 5.4 5.2 5.1 4.7 4.9 Capital expenditures 2.8 2.6 9.6 8.3 9.5 5.2 4.8 4.5 Primary balance 6.6 6.8 -2.6 2.3 -0.7 3.6 3.8 4.3 Overall fiscal balance 4.6 5.0 -4.6 0.4 -2.7 1.8 2.1 2.6 Public Debt 60.8 58.6 71.4 70.3 69.0 66.5 64.4 58.9 External 45.0 44.0 55.2 54.9 53.8 52.7 50.9 47.2 Domestic 15.8 14.6 16.2 15.4 15.2 13.8 13.5 11.7 Sources and Note: GoG, IMF, World Bank. e/ estimate; f/ forecasts Table 3. Grenada: Balance of Payments Financing Requirements and Sources, 2022-2025 (US$ million) 2022e 2023f 2024f 2025f Financing requirements 306.6 239.7 210.9 225.6 Current Account Deficit 271.3 204.4 176.6 191.6 Amortization medium and long term 0.0 0.0 0.0 0.0 (MLT) debt 35.3 35.3 34.3 34.0 Financing Sources 306.6 239.7 210.9 225.6 FDI 128.3 141.1 156.1 172.0 Capital Grants 56.4 47.1 37.6 40.5 Public sector MLT debt disbursements 122.1 94.8 65.6 45.6 o.w. IMF 0.0 0.0 0.0 0.0 WBG 32.0 19.5 20.5 20.0 Other multilaterals 35.6 11.0 4.1 2.9 Other financing incl. drawdown of FX Reserves -0.2 -43.3 -48.4 -32.5 Sources and Note: GoG, IMF, World Bank. e/ estimate; f/ forecasts 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 17. Growth over the medium-term is expected to recover as tourism resumes, and drive improvement in the labor market. Stay-over tourism arrivals are expected to continue the strong recovery and recover to pre-pandemic level by around 2024, as the Omicron wave abates and international borders reopen. Cruise ship arrivals are expected to pick up and return to the 2019 level by around 2025-26, resulting from more stringent COVID-19 protocols in the cruise industry. Enrollment at St. Georges University, which generates an average contribution of 20 percent to GDP, resumed face-to- face classes in mid-August 2021, with a virtual option. The University has continued to receive tuition and other applicable fees from students and expects a larger share of students to choose in-person classes by 2022. There are indications of increased enrollment in the university for the upcoming academic year amid heightened interest in global health since the pandemic.9 Construction activity should be bolstered by significant investments in public sector infrastructure projects such as the Maurice Bishop International Airport (MBIA) upgrade with about US$61 million (5.5 percent of GDP) in construction costs projected. In 9 See Grenada’s 2021 Budget speech for more information. Page 12 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) addition, major private sector projects have resumed or are in the pipeline, including the Silversands Legacy (US$80 million starting 1Q2022); Riviera Project (US$60 million starting in Q32022); Port Louis project (US$250 million in preparation). In line with macroeconomic performance, slow recovery in the labor market, and the COVID-19 Stimulus Package 2.0 launched in September 2021, poverty is expected to reduce slowly and reach around 27 percent in 2022, only reaching the pre-pandemic level after 2023. 18. However, the war in Ukraine is expected to threaten the socio-economic recovery through the inflation spike, both in Grenada and globally. The war in Ukraine has significantly driven up fuel and wheat prices globally. This compounds the continued impacts on inflation from global value chain interruptions due to the pandemic. Though Grenada’s direct imports from Ukraine or Russian is minimal, Grenada is a net importer of both fuel and wheat (14.4 percent and 0.6 percent of total good imports) and is expected to bear the impacts directly. Thus, food and fuel prices are expected to be the main driver of inflation increases in 2022. The domestic inflation in Grenada, as well as the high inflation in major tourism source economies, could delay the nascent tourism recovery by eroding household income and increasing traveling costs. The poor and vulnerable groups will suffer the most impacts from high inflation, given that a higher portion of their income goes to food and fuel consumption, and their lack of financing cushion. According to the 2018 Household and Budget Survey, food takes up around a third of the income for the poorest two quintiles, increasing extreme poverty. 19. In line with higher inflation levels, food security for the poorest is likely to worsen, especially among the poorest rural households. The disproportionate impacts on poverty may result in the need for an increase in social transfers program, increasing the fiscal pressures the Government faces. In 2021, the Government implemented temporary relief of Value-Added Tax (VAT) and environmental levy charges on electricity for small consumers, a reduction of 25 percent on the electrical non-fuel charge, a cap of EC$15 per gallon on gasoline and diesel, and an exemption of VAT on five food items to curb rising living costs of the most vulnerable groups. The two COVID-19 Stimulus Packages (See, Annex 6) aim to support the most vulnerable households and the private sector. In particular, the Stimulus Package 2.0 includes support for those in the informal sectors and additional financing for the newly emerged industries, like online shopping and delivery services, to promote economic diversification and basic livelihood supplies. The measures are expected to partially mitigate the inflation impacts until they expire in May 2022. In addition, the severity and length of the war and the COVID-19 variants are highly uncertain, which makes simulating the exact impacts associated with increasing inflation difficult. Nevertheless, given the Grenadian economy’s closer linkages to the US economy than Europe, the impacts could be relatively muted, if US resorts to anti-inflationary measures and finds alternative imports in a timely manner. 20. External balances are likely to improve to pre-pandemic levels after 2022, consistent with a continued pickup in exports of goods and services, particularly from tourism, as well as the gradual slowdown of large construction and an expected decline in global commodity prices. The current account deficit is expected to widen in 2022, given strong import demand from construction and the hospitality sector. Rising global commodity prices, especially oil, will compound the worsening deficit, as a result of continued impacts from the pandemic and the war in Ukraine. The negative impacts of rising inflation on tourism will also contribute to the widening deficit, through narrowing tourism-related exports. Depending on the severity and the length of the war, the impacts are uncertain. After 2022, the current account balance is projected to revert to the pre-pandemic level, as construction slows down and tourism picks up over the medium term. Inflationary pressure is expected to be gradually relieved, if supply chain disruption ease and geo-political tensions abate over the medium term. FDI flows, and Page 13 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) bilateral and multilateral financing will finance the current deficit. Monetary tightening in the US may pose risks to the FDI flows, though the risks are relatively moderate, given that FDI flows are largely associated with tourism-related projects and the pegged exchange rate of EC$ to US$. The relatively abundant foreign reserves (estimated at around five months of imports in 2022) may help cushion the risks. 21. Capital expenditure is expected to increase significantly in 2022, to an estimated 9.5 percent of GDP (Annex 7). Capital expenditure is largely financed by grant (EC$175.4 million; 52.5 percent of total), with the rest being financed by concessional loans from WB (EC$24 million; 11 percent of total) and CDB (EC$29.1 million; 14.6 percent of total), and domestic revenue (EC$105.3 million; 31.5 percent of total). These projects are considered important for medium-term growth and for mitigating risks from natural disasters and climate change. For example, the Grenada Climate Resilience Water Sector Project; established grant for climate resilient investments; the “Climate Resilient Cities” project; and the WB Digital Governance for Resilience Project are expected to strengthen resilience to natural disasters and climate change. Climate Resilient Agriculture and food-exports enhancement are expected to promote agricultural productivity and facilitate agriculture exports. The WB Regional Tourism Competitiveness Project and the MBIA Expansion will increase more flights capacity and contribute to tourism recovery. These projects seek to address key structural challenges like low flight connectivity, low hotel room stock and a high reliance on cruise ship arrivals. In addition, the National Adaptation Planning for Improved Food Security; the WB Regional Health Project; the CDB Education Enhancement Project; and the UNDP Spotlight Initiatives will strengthen social resilience and contribute to long-term economic productivity and poverty reduction. In addition, some projects, which incur fiscal costs in the near term, are expected to generate fiscal savings over the long term. For example, replacing Traffic Lights with solar photovoltaic systems (PVs) and a Solar PV/Battery Hybrid Project to set up a Solar PV/Battery Hybrid plant, could mitigate the expected increases of fossil fuel costs and reduce utility bill. 22. As a result, the primary balance is expected to switch to a deficit in 2022, the first deficit since 2014 (if not considering the repurchase of Grenlec in 2020), before returning to the FRA in 2023 with a primary surplus of 3.6 percent of GDP. Fiscal performance over the medium term is determined by the relative strength between public construction and inflationary pressures, which drove up expenditure and wages in 2021-22; and tourism recovery, which will boost revenue, especially in 2023 and beyond. On the revenue side, the Government has maintained growth-friendly and progressive tax system in recent years and has consistently increased tax revenue to around 22 percent of GDP by 2019 (Annex 7). Over the medium term, gradually exiting of temporary fiscal exemptions and the expected resumption of tourism will boost tax revenues, along with measures to enhance tax compliance and tax administration. These measures include improving tax collection; addressing revenue leakages; and strengthening enforcement and compliance measures. Similar measures before the pandemic led to a significant increase in revenue collection of around 1-2 percent of GDP, and room of further improvement remains large given the relatively low compliance rate. Citizenship-by-Investment (CBI) revenue has strengthened despite the pandemic and will continue to contribute to non-tax revenue increases. The CBI-related non-tax revenue almost tripled in 2020 from 2019, from around EC$4 million to EC$12.7 million. 2021 experienced a further increase and the number of applications as of October 2021 exceeded the total applications for the whole year of 2020. The CBI fee under budget is estimated to have reached EC$24 million by the end of 2021. Geo-political tensions and extended impacts from the pandemic are expected to increase demand for the CBI program over the medium term. Though tax revenues in nominal terms are expected to grow at around seven percent over the medium term, the revenue-to-GDP ratio, including grants, is projected to Page 14 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) remain slightly below its pre-pandemic level. This is mainly since recovery of the formal sector is slower than the informal sector, which affects the tax revenue collections. Also, grants are expected to decline as with grant-financed public investments projects are being finalized. 23. Fiscal expenditure is projected to reach gradually to a level slightly higher than the pre- pandemic level, as a result of potential higher spending to build climate resilience. The expected exit of temporary income support programs will lower the current expenditure to the pre-pandemic level by around 2023. Capital expenditure is expected to slow over the medium term but remain elevated, reflecting the Government’s national strategy to invest in climate resilience and public services, as well as the procurement improvement plan that has boosted budget implementation rate. Medium-term inflationary pressures will drive up spending on good and services, and the wage bill. Wage bill increases are expected to be broadly contained, as its growth is anchored under the continued attrition policy, the public sector modernization policy, and the Public Sector Wage Negotiation Policy. The efficiency of social transfers has improved over the past years with the Education Empowerment and Development (SEED) program and the associated targeting tool, Grenadian Living Conditions Indicator (GLCI). They were supported under the WB programmatic DPC 2014-16 and have greatly improved targeting for social programing. The Government has recently adopted recommendations from the Public Expenditure Review, including: (i) substantially improving public expenditure management; (ii) tightening expenditure controls through quarterly reporting and monitoring; and (iii) increasing value for money in public procurement. The two regulations supported under PA 2 & PA 3 of this operation are also expected to improve fiscal performance through promoting energy efficiency and renewable energy, which could reduce utility bill by the Government. Capital projects to replace Traffic Lights with solar PVs and Solar PV/Battery Hybrid Project to install a Solar PV/Battery Hybrid plant, are complementary to the two regulations and could mitigate fiscal burdens on utility. 24. Improvements to disaster risk management, risk financing and debt transparency reduce fiscal risks (Annex 7). Natural disasters and other external shocks are among the major risks to fiscal performance in Grenada. In the past decade, Grenada has been building financial, social, physical and institutional resilience against natural disasters, specifically, (i) a layered risk financing strategy, including a Contingency fund, DPCs with a Catastrophe Draw-down Option (Cat DDO), Caribbean Catastrophe Risk Insurance Fund (CCRIF), and the hurricane clauses of some Grenada bonds, whereby debt service on the restructured debt would be automatically re-profiled following a hurricane and some other natural disaster; (ii) in addition to SEED, a new UI Programme to support provision of unemployment benefits during crises; (iii) modified building codes and environmental sustainability requirements for public procurement contracts; and (iv) institutional capacity building as a means to strengthen resilience. This proposed DPC will support a comprehensive DM Act to consolidate cross-ministry multidimensional disaster risk management (DRM) efforts into one unified system. Meanwhile, fiscal transparency has been significantly enhanced in recent years, supported under WB DPC (Grenada Fiscal Resilience and Blue Growth programmatic DPC (P167748); Programmatic Resilience Building DPC (P156761)), IMF, and Sustainable Development Financing Policy (SDFP) Performance and Policy Actions (PPAs) (Annex 6 Table 2). Even before the pandemic, Grenada was publishing monthly fiscal reports; quarterly debt bulletins; annual debt reports; fiscal risks statements; medium-term fiscal framework; and medium-term debt strategy. During the pandemic, the Government increased timeliness of debt reporting; it expanded coverage of debt reporting to include the financing terms of all newly disbursed loans; and ensured that government financial statements were audited in line with the newly adopted cash basis international public sector accounting standards (IPSAS). State-owned enterprises (SOE) oversight improved notably by Page 15 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) using a report card system to track key performance indicators of commercial SOEs. Publishing SOE aggregate annual financial information has also enhanced fiscal transparency and accountability, by including quantitative SOE debt in annual debt reports and fiscal risk statements. 25. The expected economic recovery and fiscal consolidation will gradually lower the debt-to-GDP ratio gradually to about 64.4 percent by 2024. As indicated in the Government Medium-term Debt Strategy and the annual debt report, the Government’s financing strategy is to rely primarily on external multilateral creditors, and all external instruments are concessional or semi-concessional. The domestic strategy is to maintain activity in the Regional Government Security Market while gradually moving to longer-dated securities. with this strategy, multilateral creditors were the principal source of external debt by the end of Q2 2021, comprising 64.7 percent of the external portfolio. More than 90 percent of the portfolio is either at a fixed interest rate or is interest-free. Domestic debt stood at 15.6 percent of GDP at the end of Q2 2021, with fixed interest rates. The weighted average interest rate of the total public debt decreased from 3.2 percent in 2019 to 3.0 percent in 2020 primarily due to the terms on new external borrowing as all new loans were concessional at fixed interest rates. The exchange rate risk remained subdued as a large share of the external portfolio (65.9 percent) is denominated in USD to which the XCD is pegged. Some bilateral arrears of approximately 1.8 percent of GDP are yet to be regularized to non- Paris Club official bilateral creditors, including Algeria, Libya, and Trinidad and Tobago10. 26. The joint WB-IMF Debt Sustainability Analysis (DSA) conducted in April 202211 concluded that the external public debt is In Distress, but that the overall debt situation is sustainable. The In Distress rating is solely due to longstanding unresolved arrears of about US$24.5 million (2.2 percent of GDP) as of end-2021 to official bilateral creditors. However, both external and overall public debt are assessed as sustainable reflecting a downward trend under the baseline scenarios. Since FRA adoption in 2014 and up to the onset of the pandemic, Grenada’s primary surplus had been increasing consistently, and averaged 5.3 percent of GDP, well above the FRA target of 3.5 percent of GDP. Under baseline assumptions, the public debt-to-GDP ratio is projected to resume the pre-pandemic downward trend in 2021 and fall to the FRA debt target of 55 percent of GDP by 2030, well advance to reach the ECCB 2035 target of 60 percent. 27. Risks to the debt sustainability outlook are high. The possibility of particularly large natural disasters is an ever-present risk, with adverse spillovers on the tourism sector. Export shocks, in particular, a decline in tourism receipts poses the biggest risk to Grenada’s external and public debt sustainability outlook. However, another growth shock of the size of the 2020 contraction due to the COVID-19 pandemic, which is more than twice as large as any shock recorded during the last forty years, would put Grenada’s debt on an unsustainable path. The DSA also includes a “combined contingent liabilities” shock scenario, where a one-off 15 percent of GDP contingent liability shock is assumed. Under such a shock, debt would temporarily increase but trend downward over time (Figure 5). A recent court ruling in favor of public officers’ claims can potentially give rise to additional pension liabilities for the government. The ruling is not final yet (as of April 14, 2022), but it could result in an increase in government liabilities, with the costs spreading across the next 30 years. The final fiscal costs remain uncertain and will depend on 10 The Government indicated that they were actively working to regularize arrears with the three remaining bilateral creditors, but were encountering difficulties, including being unable to establish sustained communication with one of the creditor countries due to political circumstances. 11 This updates the latest publicly available Low-Income Country DSA published jointly by the IMF and WB in April 2020 to accompany Grenada’s Request for Disbursement under the IMF’s Rapid Credit Facility. Page 16 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) the specific parameters of how the liabilities are calculated and paid back. 12 The Government has requested technical assistance from IMF to estimate the potential risks. Continued strong commitment to the FRA is needed to manage these risks. Debt dynamics are highly susceptible to growth underperformance, which could intensify with climate change. The risks, including those associated with Petrocaribe contingent debt 13 , are mitigated by continued improvement of debt reporting and monitoring. Climate related risks are mitigated by the implementation of the DRS, as supported by the IMF, WB and other development partners. 28. Grenada’s macroeconomic policy framework is deemed adequate for the proposed operation. Grenada established a solid track record of sound fiscal policy, anchored in the FRA prior to the pandemic, at the same time it implemented structural reforms to boost growth, strengthen fiscal management and diversify the economy. The fiscal response to the pandemic has been broadly adequate. The government also published a medium-term recovery plan and an Escape Clauses memorandum, committing to return to the core parameters of the FRA14, when the pandemic abates, and providing a credible fiscal strategy. The GDP growth rate had been well above other OECS countries prior to the pandemic, indicating a strong demand for Grenada as a tourist destination. Additionally, the long-standing fixed exchange rate regime keeps inflation in check. Energy sector reforms, supported under PAs 2 and 3 and triggers 2 and 3 are expected to mitigate inflationary pressures by promoting an affordable energy supply and thus mitigate the inflationary pressures. Under the IDA SDFP, the Government has committed to further reducing debt vulnerability. The 2020-35 National Sustainable Development Plan serves as a strategic document laying the basis for sustained, climate-resilient, and inclusive growth, including a comprehensive disaster resilience strategy. International development partners, including the IMF and the European Central Bank, are expected to provide financing and technical support to support economic recovery and build resilience. 29. Despite signs of recovery, the macroeconomic outlook is subject to high risks, arising from natural disasters and climate change; the ongoing pandemic; the war in Ukraine; and their indirect impacts on fiscal sustainability. • As a SIDS, the macroeconomy remains highly susceptible to external shocks and natural disasters. The climate change effects will increase the risks from flooding, sea-level rise and other climate- related extreme events. 12 On March 29, 2022, Grenada’s High Court granted the claim brought by three trade unions that collectively represent most public officers within the public services. Among other decisions, the High Court ruling declares the unconstitutionality of the following pieces of legislation: (i) the Pensions (Disqualification) Act, Cap 230A (The People’s Law No. 24 of 1983), which established that any person appointed to a public service post on or after April 4, 1983 (the “appointed day”) shall not be e ntitled to any pension, gratuity or other allowances; and (ii) the Amendments to the Pensions Acts (Act No. 5 of 2018), which changed the appointed day to February 22, 1985. The ruling also clarifies the laws to be applied to determine the pension benefits for public officers appointed on or after April 4, 1983. If sustained, the court ruling could result in an increase in government liabilities, with the costs spreading across the next 30 years. However, the estimates are highly uncertain depending on various factors including specific pension rules, retirement ages, resignment, gratuity assumptions, salary increases etc. 13 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 the 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. In the DSA shock scenario, it assumed a contingent liability shock that all Petrocaribe debt needs to be paid back by Grenada. This approach is conservative in that according to the arrangement, Grenada is only responsible for 45% of Petrocaribe debt, not all; and it didn’t consider the loans from Petrocaribe to the Government, which should further reduce the size of the hypothetical shock. 14 https://www.finance.gd/docs/BudgetStatement2021.pdf Page 17 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) • There are still significant uncertainties around the recovery from the pandemic, primarily associated with post-pandemic traveling protocols and patterns, competition among similar tourism destinations and outlook of the cruise sector. The pandemic evolution may also continue driving up global commodity prices by interrupting global value chains. Figure 5. Debt Sustainability Analysis under Alternative Scenarios - present value of debt-to-GDP (2022-2042) Public and public-guaranteed external debt Chart A.1: present value of external debt-to-GDP ratio Chart A.2: Debt service-to-export ratio Public and public-guaranteed debt (PPG) Chart B.1: present value of debt-to-GDP ratio Chart B.2: PPG debt service to revenue ratio Sources: joint IMF-World Bank LIC DSA, April 2022. *Notes: 1/ The most extreme stress test is the test that yields the highest ratio in or before 2031. The significant impacts from the real GDP growth shock are due to the large size of the growth shock, after including the unprecedented contraction in 2020. Specifically, the size of growth shock is measured by the 10-year historical standard deviation of real GDP growth rate. Without considering 2020 contraction, the size is around 2.8 percent, while including 2020 contraction leads the shock size to more than double to 6.1 percent. As such, the interpretation of growth shock warrants caution. 2/ The combined contingent liabilities assumes a one-off 15 percent of GDP contingent liability shock. Page 18 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) • The war in Ukraine has compounded the macroeconomic risks, mainly through its impacts on commodity prices, inflation, and tourism recovery. The interruption to oil and wheat supply will further increase global commodity prices. The resulting high inflation in major tourism source countries has reduced the real income of potential travelers and increased costs for tourism, both of which will mute tourism recovery. Meanwhile, Grenada, as a net importer, will experience rising inflation domestically, hurting the poorest the most. • Natural disasters, slow-down of tourism recovery and high inflation can be amplified through their impacts on the fiscal account and constraint of Government’s ability to mitigate the impacts. The risks will be translated into reduced revenues due to slower tourism recovery, or potential tax relief to mitigate the impacts. If the impacts persist, the pressures will rise to increase public spending in social transfer programs and purchases of goods and services. The potential realization of contingent liabilities could delay the reduction of debt indicators. 30. The macroeconomic risks are expected to be mitigated by the ongoing structural reforms by the Government, part of which are supported by this proposed DPC. The Government has established a layered disaster risks financing mechanism to cushion the impacts from natural disasters and other shocks. Other resilience building programs include strengthening building codes, incorporating disaster risk considerations into investment and procurement, and shifting to renewable energy. The Government has been promoting private sector development, including the tourism sector, through market branding, infrastructure enhancement, electricity sector reforms, facilitating trades, and economic diversification through the “Blue Economy” and digitalization. Fiscal risks are mitigated by the continued efforts to enhance fiscal transparency, improve tax administration, adherence to expenditure control measures, and increase efficiency in public investment projects. This operation contributes to risk mitigation through building social resilience to external shocks (PA8: UI) and enhancing climate resilience building (PAs1-3: DM legislation and regulations to promote energy efficiency and renewable energy), as well as strengthening the accountability and sustainability of public policies (PA5, PA6, PA7 & PA9). 2.3. IMF RELATIONS 31. On April 28, 2020, the IMF Board approved disbursements of SDR 16.4 million (US$22.4 million) to Grenada under the Rapid Credit Facility (RCF) mechanism, to help cover their balance of payment needs following the outbreak of the COVID-19 pandemic. The IMF Board noted that Grenada meets the eligibility requirements for support under the RCF and is assessed as having sustainable debt and capacity to repay the Fund. It was noted that the country had an urgent balance of payments need, which could lead to severe economic disruption. Grenada also received a 36-month Extended Credit Facility (ECF)arrangement between 2014-2017, and the final review of the program concluded that Grenada had achieved the core objectives of the economic adjustment program of restoring fiscal sustainability, strengthening the financial sector and creating conditions for sustainable growth. In addition to meeting all performance criteria and structural benchmarks satisfactorily, the GoG also accomplished necessary legislative reforms to strengthen the fiscal policy framework. Following the conclusion of the ECF arrangement, the GoG moved to a surveillance-only engagement with the IMF on a standard 12-month cycle. The July 2019 Article IV concluded that Grenada exhibits strong economic and fiscal performance and sustained debt reduction, underpinned by sound policies. The IMF supported the Government in implementing the FRA in 2015 and conducted a technical assistance (TA) mission on potential improvement to the FRA in 2018. A virtual staff visit was completed in January 2021 to discuss the general fiscal and financial issues. The Article IV mission in February 2022 concluded that the debt remains Page 19 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) sustainable with significant risks. The WB and the IMF continue to collaborate closely on Grenada’s macroeconomic and fiscal issues. 3. GOVERNMENT PROGRAM 32. The GoG implemented various mitigation measures to contain the COVID-19 pandemic and stimulate Grenada’s economic recovery. In March 2020, Grenada declared a State of Emergency, which facilitated school closures, curfews, the shutdown of nonessential services, and the closure of all ports of entry to non-citizens. The government mandated increased laboratory testing and treatment and isolation of infected patients. The GoG implemented two rounds of fiscal stimulus packages, one in April 2020 and the other in August 2021. The first round included increased health spending, liquidity support for small businesses, tax payment deferrals coupled with income and payroll support programs for workers, especially in the tourism sector, and electricity bill subsidies for three months (see Annex 6 Table 1-A). The public sector investment program was expanded to stimulate job creation and the agricultural sector received financial support to help ensure food security. In August 2021, the Government launched the Economic Stimulus Package 2.0 (Annex 6 Table 1-B), continuing its effort to bring relief to those most impacted by the pandemic. The stimulus package includes various cash transfer programs: income support to informal workers; payroll support to formal workers, temporary cash transfers to vulnerable individuals and households; grants to micro, small & medium enterprises (MSMEs) to mitigate impacts of the pandemic and encourage new industries. Moreover, the GoG intends to establish a permanent unemployment assistance program as a means of income protection for the unemployed to safeguard against future natural disasters like hurricanes or other climate-related events. 33. The Government’s broad-based economic reform program, underpinned by its National Sustainable Development Plan (NSDP) 2020-2035, seeks to achieve sustainable, social and climate resilient, inclusive growth. The NSDP hinges on the three development pillars of society, economy, and environment, and replaces the three-year Homegrown Structural Adjustment Program, from January 2014 whereby the GoG committed to an ambitious fiscal and structural reform program to boost inclusive growth and create jobs, in addition to restoring fiscal and debt sustainability. Three national development goals frame the NSDP: i) high-quality human and social development (society); ii) an institutional framework to create adynamic, competitive economy supported by climate-and-disaster-resilient infrastructure (economy); and iii) environmental sustainability and security (environment). 34. The GoG initiated a national strategy for implementing its vision of blue growth to foster inclusive growth and climate resilience and adaptation. The National Adaptation Plan (NAP) 2017-2021 provides a strategic, coordinating framework for building climate resilience in Grenada, recognizing the need to develop the enabling environment for climate change adaptation as well as programmatic priorities. It is an umbrella document based on prioritized climate change adaptation activities taken from existing sectoral and local area plans that have already undergone more extensive consultation. The prioritized activities include water availability, integrated coastal zone management, climate financing, climate resilience infrastructure, sustainable land management, ecosystem resilience, among the twelve Programs of Actions. Page 20 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) 4. PROPOSED OPERATION 4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 35. The development objective of this proposed operation is to support Grenada’s recovery, through two pillars: (i) Promoting a greener and more climate resilient economy; (ii) Improving sustainability, inclusiveness and accountability of fiscal management. The reforms under the operation not only address the pre-existing structural challenges, but also target the gaps that have been exposed by the pandemic. Given the aggravated challenges from climate change and vulnerability to external shocks, Pillar 1 of the operation helps Grenada promote resilience-building toward external shocks and climate change, through supporting a comprehensive disaster risk management legislation, accountable and efficient use of energy, and building the basis for a digital economy. Reforms under Pillar 2 will help the country resume fiscal conditions that are expected to reduce the accumulated risks due to the pandemic and strengthen responsible and sustainable fiscal policies, in targeting gender and climate change, establishing UI and strengthening statistical capacity. 36. The proposed programmatic approach extends the needed assistance in line with the WBG’s COVID-19 Crisis Response Approach Paper and the Government’s strategies to support post-crisis recovery. The proposed operation complements the previous DPC operations, including the COVID-19 Emergency DPC (2020), Fiscal Resilience and Blue Growth DPC series (2018-19), the DRM DPC with a Catastrophe Deferred Drawdown Option (2019), and the Programmatic Resilience Building DPC (2015- 17). It builds on the WB’s technical engagement with Grenada on digital economy, climate resilience, energy sector reform, disaster risk management, debt management and public financial management. The structural reforms in the operation also contribute to the Grenada National Sustainable Development Plan 2020-2035, which aims to promote human dignity and realize the full potential through sustainable economic, social and environmental progress for all. 37. Given the high threats and aggravated climate change vulnerabilities in Grenada, this operation continues to support climate adaptation and mitigation considerations, diversifying the economy growth model, and sustainable development. Specifically, the operation supports climate resilience through three aspects. The first is to support building environmental resilience to climate change, through a comprehensive DRM framework for extreme climate events. Reforms to promote energy efficiency and renewable energies are expected to reduce GHG emission and reduce Grenada’s exposure to physical and transition risks to climate change. In a longer run, this would also alleviate Grenada exposure to external economic shock with its heavy reliance on imported fuel by stimulating investment in domestic and cheaper renewable energy generation and energy efficient technologies leading to reduction in energy consumption and prices in all economic sectors especially in household bills. Secondly, the operation promotes a resilient private sector to climate change, through UI to mitigate the impacts on employees; and a Data Protection legislation to lay the foundation for a digital economy and enhance virtual business continuity. The third area is through accountable and sustainable fiscal management. The public sector plays a critical role in building climate resilience and consequently, the rising financing needs require sustainable management of public resources. The operation thus supports the Government to return to the sustainable debt path and resumes the accumulation of fiscal resources. It then assists targeted and efficient use of public resources toward future shocks, including incorporating gender and climate resilience considerations in the budgeting process. Statistical capacity is key to designing climate-related policies, which the operation supports by enhancing the national statistical legislation and institutional Page 21 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) framework. In addition, this operation will benefit populations that are most impacted by the pandemic, who are also particularly vulnerable to climate change impacts from hurricanes, floods, droughts, and sea level rise, including those engaged in the tourism industry. 38. The design of the programmatic series, including the proposed operation, incorporates lessons learned from previous WB operations. The 2011 Implementation Completion and Results Report (ICR) for the Economic and Social Development Policy Loan and Credit (P117000) that was approved by the Executive Directors on June 8, 2010, determined that a programmatic approach supporting a multi-year program could have stronger development impact than a one-year stand-alone program. This operation incorporates this lesson as Grenada has already built a strong track record. The 2011 ICR also found that limited implementation capacity in small states requires that program design be simple and selective, and that programs should be augmented by intensive technical assistance and support during the implementation phase. Based on these lessons, the current programmatic DPC series focuses on a range of precisely defined reforms in critical policy areas and is being complemented by technical assistance supported by related IDA investment projects. The reforms under the operation were extensively consulted with a wide range of stakeholder groups to achieve broad support, while ensuring the incorporation of good practices on citizen engagement through various channels. For example, the design of the UI Programme incorporated the results from an anonymous household survey conducted in July 202. Citizen engagement is also supported under various complementary WB engagement, including those in the energy sector, DRM, data protection and statistical system reforms. 4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS Pillar 1 --- Promoting a greener and more climate-resilient economy 39. Pillar 1 aims to support Grenada by building resilience to climate change and related extreme weather events through adaptation and mitigation. Grenada is highly vulnerable to extreme weather events especially hurricanes, which are expected to have more severe impacts as the effects of climate change increase. These impacts are higher for women and other vulnerable groups, given that women tend to work in climate-vulnerable sectors like tourism, and they have less of a financial cushion. Global climate change commitments to reduce fossil fuel usage, and the introduction of green taxation should result in less supply and higher prices of fossil fuel, and more use of renewable of energy. Energy consumption is crucial for the tourism-dependent small economy and private sector development. Adapting to this shift in energy usage and mitigating the rising risks are critical to Grenada’s sustainable and inclusive development. PA 1 and Trigger 1 will strengthen adaptation efforts through a comprehensive disaster risks management legislation to cushion the severe impacts of extreme weather events. PA 2 & PA 3 will support Grenada in reducing the reliance on traditional energy (adaptation) and decreasing GHG emissions (mitigation) by encouraging investment in renewable energy. PA 4 supports data protection and will create the basic environment for a digital economy, an important strategy to diversify and to shift the economy away from sectors which are most vulnerable to climate change. Page 22 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Prior Action 1: The Recipient has approved the “Disaster Management Bill, 2022” for tabling in Parliament to steer national policy and to enhance disaster and climate resilience. Trigger 1: to implement the DM Act and to enhance disaster and climate resilience, the Recipient, through its Cabinet, has approved the Disaster Management Regulations. 40. Rationale: A lack of a comprehensive DRM framework compromises the effectiveness of Grenada’s efforts in building resilience against disasters and climate impacts. Grenada is a SIDS with high exposure to hydrometeorological and geophysical hazards, such as hurricanes, floods, droughts, earthquakes, tsunamis, etc. The historical economic impact of disasters in Grenada has been substantial, with Hurricane Ivan (2004) and Hurricane Emily (2005) causing total economic losses of approximately 148 percent and 30 percent of nominal GDP, respectively. Such disruptions from disasters and climate impacts are expected to become more severe due to climate change effects. The Government has made significant progress in building climate resilience, including establishing a contingency fund, leveraging various insurance products, and strengthening building codes. However, Grenada has no comprehensive and institutionalized approach to proactively address the risks holistically, and to indicate specifically how to use the various resources in different situations. This void has resulted in a lack of communication and coordination across ministries to prepare for and respond strategically and cost-effectively to climate and natural disasters. For example, in August 2018, heavy rainfall caused severe damage in St. George’s and St. David’s parishes, and the advance CCRIF SPC parameter selections made by the Government for its excess rainfall policy did not trigger a payout. Meanwhile, the government had no other ex-ante instrument to provide immediate liquidity, and its only option was to access limited reserve funds and reallocate funds from ongoing development programs. 15 Moreover, the current DRM framework in Grenada is relatively outdated, and needs to be restructured before it can absorb the growingly complex DRM environment and regional good practices adopted by Caribbean Disaster Emergency Management Agency (CDEMA). It also lacks DRM-related fiscal sustainability aspects, which are embedded in other legislations. 41. Substance: PA 1 and Trigger 1 support enactment and implementation of a comprehensive and modern DM legislation to anchor climate resilience in Grenada and to consolidate the existing DRM- related efforts. DM legislation under PA 1 follows the regionally endorsed Comprehensive Disaster Management approach from the CDEMA, which uses hazard risk information for decision-making on physical and financial planning for disasters. It also legalizes and authorizes the National Disaster Management Agency to organize DRM activities. The new DRM legislation includes features from the recently updated Public Financial Management (PFM) legislative framework to contain fiscal disruptions associated with disasters. Relevant features of the updated DRM legislation include (i) creation of a freestanding National Disaster Management Agency, (ii) mandates to incorporate gender considerations in legislation implementation, and (iii) annual updates to then Disaster Management Plan to address the evolving climate risk profile. This DRM legislation is also the first in the Caribbean to specifically address disaster risk financing. It facilitates the implementation of Grenada’s 2019 National Strategy for Disaster Risk Financing through identifying a risk layering approach for planning for and accessing financing post disaster to necessary post disaster response, in line with existing PFM and Financial Administration legislation, including accessing contingent financing through the budget, the National Transformation Fund, contingent lines of credit (Cat DDO) and risk transfer products like parametric and indemnity 15 The government has since adopted a Cat DDO instrument to address and losses that result in a declaration of Emergency. Page 23 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) insurance. DRM regulation under trigger 1 will help modernize Grenada’s legal and institutional framework and align it with a more complex risk management environment, including the key risks such as, vulnerability to climate-induced hydrometeorological and seismic hazards, increased exposure to the impact of climate change broadly (e.g., sea-level rise, etc.) and more recently, the disruptive potential of global pandemics. 42. Expected Impacts: The Government is expected to strengthen protocols and government-wide cooperation in climate change resilience and DRM as mandated in the updated DRM legislation. These strengthened protocols are expected to lead to (a) improved functionality of the National Disaster Management Agency with a better defined mandate and responsibilities; (b) better government-wide consideration of hazard and climate risk in planning and budgeting for risk reduction and hazard response activities; (c) more cost-effective and timely funding of hazard response; and (d) improved gender- responsiveness in planning for and responding to disasters. This specific improvement in management will be reflected in the increased percentage of ministries and agencies that has an Operations Continuity Plan in accordance with the new DM Act and regulations. Currently, the ministries and agencies either do not have operations continuity plans or have a plan that is inconsistent with the new DRM legislations. Prior Action 2: The Recipient has approved regulations establishing an electricity tariff setting methodology to promote (i) efficient operations and energy usage, (ii) long term viability and sustainability of electricity service, and (iii) investment in renewable generation and network. Prior Action 3: The Recipient has approved regulations on electricity generation expansion planning and competitive procurement to support a greener and low-carbon development by (i) scaling up renewable energy investment by the private sector, (ii) reducing greenhouse gas emissions, and (iii) increasing the sustainability and affordability of electricity supply. Trigger 2: The Recipient has submitted the Energy Efficiency Bill to the Parliament, to establish a comprehensive framework for promoting energy efficiency and mitigating climate change. Trigger 3: The Recipient, through its Cabinet, has approved the updated National Energy Policy to include increase in renewable energy and energy efficiency with targets, an action plan, and monitoring framework, to reduce GHG emission and mitigate climate change. 43. Rationale: Improving energy efficiency and increasing the use of renewable energy is essential for Grenada’s commitments to reduce GHG emission and achieve its target under the Nationally Determined Contribution (NDC) of 202016. Grenada’s energy demand is expected to almost double by 2030. Electricity production accounted for 48 percent of GHG emissions during 2010-2014, transport (land and marine) for 39 percent and waste accounted for 10 percent. Without appropriate measures, continued reliance on imported fuels will increase Grenada’s GHG emission, expose the country more to volatile global commodity prices, increase physical risks to climate change (e.g., hurricanes, floods, and sea-level rise), and be subject to potential higher transition risks when the international policies impose constraints on GHG emissions and use of fossil fuel. Recognizing the challenges, the GoG approved the National Energy Policy (NEP) in 2011 with a ten-year Sustainable Energy Action Plan 2010-2020 aimed at achieving 20 percent of all energy usage (electricity and transport) from renewable energy, to reduce GHG 16https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Grenada%20Second/GrenadaSecondNDC2020%20-%2001- 12-20.pdf Page 24 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) emissions from fossil fuels by 20 percent. As a step forward, Grenada’s second NDC in 2020 proposed a 30 percent emission reduction in in electricity production by 2025: 20 percent from energy efficiency measures and 10 percent from renewable generation. These targets also replace the current reliance on expensive traditional energy to cheaper, and low-carbon renewable energy, which will lead to lower energy costs and electricity tariffs. Currently, average electricity tariffs stand at US$c23.5 /kWh, including a fuel charge component at US$c12/kWh adjusted monthly to reflect fuel costs in power generation. This exposes the government and consumers to oil price volatility. A comprehensive legal and regulatory framework is needed to scale up renewable energy supply and increase demand. 44. Substance: PA 2 and PA 3, through tariff methodology and generation procurement regulations, promote a competitive and transparent environment for new renewable energy, and investment and procurement in energy efficiency. The tariff methodology regulation, based on energy efficiency, performance incentives and transparency 17 will replace existing tariff practices for the electricity generation and network activities. It will ensure the costs under the power purchase agreements will pass through via tariffs. This will reassure private investors of the utility’s ability to pay for power purchases with renewable generation, and as such, the tariff methodology is key for attracting renewable investors in tenders, which will maximize interest through increased competition for power purchase agreements. The process will facilitate the scale-up of new renewable energy generation. Additionally, the regulation balances the interests of the consumer with those of the utility through transparent and predictable assessment and approval of prudent and efficient costs of the utility. The generation procurement regulation establishes the documents, criteria and processes for competitive procurement of new generation. The procurement process will be supervised by the Public Utilities Regulatory Commission (PURC), ensuring the capability and adequacy of the electricity network, through combined least cost planning of generation and transmission/distribution investments. The two regulations jointly will provide a predictable and transparent business environment for investors in renewable energy, affordable and efficient energy supply for Grenada, and will help the country achieve GHG emission targets, reduce reliance on oil imports and mitigate the potential impacts of climate change-related policies that would increase fossil energy costs. 45. The two Triggers for the second operation will support the update of the NEP and the adoption of the Energy Efficiency Act. In addition to the scale-up of renewables as supported by PA 2 & PA 3, sustainable electricity supply requires measures to improve energy efficiency and promote demand side efficiency (conservation and demand response). To guide this critical change, the Energy Efficiency Act will be approved and is proposed as a trigger for the second operation. Technical assistance will be provided to prepare the draft bill, based on international practices standards for cooling appliances, and efficient lighting. The NEP will need to be updated to support implementation of the new legal framework for the power sector adopted in 2016-2017 to help achieve the ambitious NDC targets. The 2011 NEP specified actions for the 2011-2020 period to update and enhance the legal framework for the power sector to scale up of renewable generation, improve efficiency and reliability, while using a least-cost approach18 to protect affordability and competitiveness of electricity tariffs. An update to the 2011 NEP is needed to reflect the Electricity Supply Act (2016 and amendment 2017), and the legal framework for 17 The methodology requires several studies by the utility to achieve these objectives. Therefore, to avoid a gap until the studies are completed. the methodology allows an initial transition with an interim tariff which shall reflect reasonable rates and ensure a reasonable return to the network licensee. 18 The approach will use a centralized system expansion planning and sustainable medium-term plans, and competitive procurement of new generation Page 25 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) the PURC and updated climate change commitments. This update will address decarbonization objectives up to 2030. It will include a monitoring framework with lessons learned from the 2011 NEP implementation and similar regional experiences. The WB is providing technical assistance to translate the updated policies into a set of implementation measures, as included in the newly updated NEP under Trigger 3. 46. Expected impacts: The PAs and triggers are expected to support the expansion of renewable energy and improved energy efficiency in Grenada leading to improved affordability and competitiveness of electricity tariffs. They will also contribute to climate change mitigation and adaptation by lowering the GHG emissions and reducing reliance on traditional energy. Success of renewable energy expansion will be measured by the amount of power purchase agreements signed with private investors for new renewable energy generation capacity, consistent with the new regulations and PURC responsibilities; a new interim retail tariff, in accordance with the new regulation on Tariff Setting Methodology will indicate the success of energy efficiency policies. The design of the result indicators considers a lack of accurate indicators to measure energy efficiency; the ongoing Caribbean Regional Energy Initiative (P159107) and the implementation of the PA/Trigger are expected to improve data capacity parallelly to the progress of this DPC. Prior Action 4: The Recipient has approved the “Data Protection Bill, 2022” for tabling in Parliament to increase trust in digital transactions with private and public sector stakeholders by safeguarding personal data of individuals. Trigger 4: The Recipient, through its Cabinet, has approved the establishment of the independent (technical, financial, and political) Agency that enforces the Data Protection Act. 47. Rationale: The absence of legal and regulatory frameworks for data protection and privacy limits the development potential of Grenada’s digital economy, which is key to achieving economic diversification, climate resilience, and public sector modernization objectives. Grenada’s traditional development model heavily relies on tourism, which is highly vulnerable to climate change and natural disasters. In addition, economic activities and information systems have been interrupted by climate change impacts such as flooding and hurricanes as was the case of Hurricane Ivan. Digitalization has been recognized as a key tool to diversify the economy beyond tourism, and to enable continuity of operations in a paperless environment, public service delivery, and contactless transactions during adverse climate events, further enhancing Grenada’s climate resilience and adaptation. Digitalization, by reducing travel or material use, also reduces GHG emissions contributing to climate change mitigation efforts. As with the effects of climate change intensifying and expected more severe impacts for Grenada, there is an increasing need for digitalization. The GoG aims to diversify the economy and enhance private sector sustainability by enabling greater digital adoption across the economy. The efforts include the plans to develop innovative digital financial services and establish the regulatory framework through a Payment System and Services Act (PSSA)19. However, lack of legislation for data protection inhibits digital economy development. The DRM experiences and the recent pandemic have shown the importance of using data to mitigate risks and damages; however, a lack of data protection legislation has posed concerns over mis- use personal data. A well-functioning digital economy requires safe generation, exchange, use, and re-use of data; it needs an enabling environment that drives data-based innovation while safeguarding 19 The Government expects to adopt the PSSA after the passage of the legislation at the ECCB level. Page 26 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) individuals’ private information; it also allows new data-driven business models to emerge and brings productivity gains to the private sector by using data in their core business and for decision-making.2021 A well-developed data ecosystem enables the use of data and digital solutions to provide unique real-time information for policy-making and prioritizing, and for designing climate responsive programs and the mitigation policies for climate change. 48. Substance: Prior Action 4 and Trigger 4 are an important regulatory basis for digitalization, ensuring business continuity by relying on virtual means in the event of extreme weather. The actions support GoG to improve trust in the online ecosystem and support greater digital adoption across the economy in Grenada. The adoption of the Data Protection Bill is the critical first step in implementing the legal and regulatory framework for data protection and privacy. The Bill lays out the principles governing the use of personal and sensitive data and provides the regulatory framework to access, use, and re-use data by stakeholder groups to ensure the full social and economic value of data can be captured while safeguarding individuals. The Bill requires the establishment of a Data Protection Agency (or equivalent), headed by an Information Commissioner, to oversee the implementation of the Act. The Agency is required to be technically, financially, and politically independent with a separate budget and technical staff; it would be responsible for developing the implementation framework (guidance notes and regulations) for issues like investigation of claims and dispute resolutions, which are critical to enforce and implement the Act. As a regulatory authority and recourse mechanism, the Agency’s establishment and continued operation will be vital to ensuring trust in the data ecosystem. The Caribbean Digital Transformation Project (P171528) provides support in developing a model implementation framework for the Act, and in initiating awareness-raising activities and training of relevant staff. Approval and publication of the implementation framework by the Data Protection Agency (or equivalent) is supported under Trigger 4. 49. Expected Impacts: It is expected that an innovative, first-of-its-kind digital economy will be fostered directly by the results of the PA and trigger. This should increase trust in digital transactions and improve the regulatory regime for digital financing services. The actions will establish the basis for a digital economy, and are an important step toward climate resilience building. The emerging digital economy is expected to reduce travel and material used and enhance business continuity during extreme climate events such as flooding and hurricanes. the improvement in data management will be measured by the number of ministries and agencies that have a trained and certified data protection officer, in accordance with the Data Protection Act. The implementation of the prior action and the trigger are supported by the TA under the Caribbean Digital Transformation Project (P171528). Pillar 2 --- Improving sustainability, inclusiveness and accountability of fiscal management 50. Pillar 2 supports the Government in strengthening sustainable, inclusive and accountable fiscal management. With passive monetary policy under the currency board arrangement, fiscal policy and resources are the most important tools that the Government can use to promote economic development, support the most vulnerable groups, and cushion external shocks. The sustainability and quality of the fiscal management is directly linked to sustainability and efficiency of government policies. Before the pandemic, Grenada had consistently accumulated fiscal cushion with significantly higher primary surplus than the FRA targets, possibly indicating the need to make better use of the fiscal space to address 20 Brynjolfsson, Erik, Lorin M. Hitt, and Heekyung Hellen Kim. 2011. “Strength in Numbers: How Does Data-Driven Decision- making Affect Firm Performance?” SSRN Scholarly Paper ID 1819486, Social Science Research Network, Rochester, NY. 21 ‘World Development Report 2021: Data for Better Lives’, World Bank, 2021 Page 27 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) structural challenges. This is particularly important after the pandemic, with the debt level surging by more than 10 percent of GDP and the vulnerable groups experiencing disproportionate impacts. Given the suspension of the FRA amid the pandemic and increasing threats from climate change, PA 5 & Trigger 5 focus on helping the Government return to the sustainable debt path, as anchored by the FRA, through a Medium-term Recovery Plan with credible fiscal measures. PA 6 to PA 9 promote the accountable and efficient use of fiscal resources; PA 6 & PA 7 help the GoG incorporate climate resilience and gender considerations into the budgeting process, as well as strengthen the identification, allocation and monitoring of fiscal spending in the respective areas. PA 8 promotes UI to address the labor market vulnerabilities, which also partially relieves the Government of fiscal burdens as it tries to mitigate unemployment aftershocks. PA 9 and its trigger will support a more integrated statistical system and thus facilitate effective and accurate policymaking. Prior Action 5: The Recipient has approved the online issuance of property tax notices by March 2023, as part of a medium-term strategy to improve tax administration. Trigger 5: The Recipient has approved (i) the mandatory online tax filing of VAT and PIT for large businesses; and (ii) the operation of a unified online tax payment system that allows online payment of all tax categories. 51. Rationale: The FRA has been the core anchor of fiscal sustainability in Grenada; however, the current crisis arising from the pandemic is threatening debt sustainability. Grenada’s FRA was enacted in 2016 and was the centerpiece of Grenada’s solid macro-fiscal framework until the pandemic. Its goal includes legislated targets of a minimum of 3.5 percent of GDP primary balance, and a maximum 2 percent annual growth rate for real primary expenditure. Other components under the FRA include a 9 percent of GDP wage ceiling; a Fiscal Responsibility Oversight Committee (FROC); and Escape clauses. Implementation had been very successful; primary balances consistently exceeded FRA requirements and continued growing to 6.8 percent of GDP until 2019. As a result, central government debt fell from 108 percent of GDP in 2013 to around 59 percent in 2019. The accumulated fiscal space and the FRA’s good track-record helped sustain investor confidence and strengthen investment in sustainable development. Escape Clauses have been triggered 3 years in a row between 2020 and 2022, to temporarily depart from FRA core parameters to mitigate the negative impacts of the pandemic. Though much necessary, the 3- year escape clauses have led to a void of fiscal anchor during the crisis and may compromise the hard- won credibility of the FRA. According to the FRA, the suspension for the fiscal rules should be accompanied: by (i) a memorandum that sets out the pros and cons of the suspension and the expected fiscal outturn; and (ii) a recovery plan that lays out Government’s committed measures to return to the fiscal rule, target or corrective measure at the expiration of the suspension period. Though the memorandum and the recovery plan were prepared for the 2020 and 2021 suspension, they are not published on the Ministry of Finance website. The Medium-term Fiscal Framework (MTFF), which is expected to lay out the specific measures committed by the Government to return to the FRA, had been only qualitative and less detailed. The lack of transparent information could compromise the hard-won credibility of the FRA. 52. Substance: PA 5 and Trigger 5 jointly support the Government in utilizing digital technology to improve tax administration and increase tax collection, which is the key commitment under the newly published recovery plan and the updated MTFF 2022-24. The Medium-Term Recovery Plan (MTRP) following the 2022 suspension of the fiscal rule has been published in November 2021. Consistent with Page 28 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) FRA requirements, the MTRP sets out the measures that will improve tax collection and thus improve fiscal performance and sustainability. The specific quantitative details of these measures are included in the Medium-term Fiscal Framework 2022-24 (MTFF), which was first published in November 2021 and updated in February 2022 with extensive details. The MTFF 2022-24 describes the quantitative assumptions underlying the medium-term fiscal projections, including the expected achievement of 3.5 percent of GDP primary surplus and the 9.0 percent of GDP wage bill, as is the FRA target. It explains that the medium-term fiscal projections will be mainly underpinned by economic recovery, and details the quantitative contribution to fiscal components from economic recovery (revenue improvement and exiting of stimulus measures). On the expenditure side, the Government will continue with the wage negotiation framework and the existing attrition policy, which anchor wage bill increases to projected inflation, and streamline the public service function to contain new hiring. Expenditure controls will be enhanced through technology-based expenses review and monitoring. Quarterly budget implementation plans and quarterly procurement plan will be prepared by all ministries and departments; donor-funded projects will be integrated into the SmartStream system; quarterly reports on detailed contracts execution will be prepared by the procurement unit. On the revenue side, the Government reviewed the positive lesson that in the past years, improved tax collection through tax administration and taxpayer education contributed to a significant share of the 3.5 percent increase in total tax collection (MTFF 2019-2021; IMF Article IV, 2019). 53. The Government is committed to utilize technology to further improve tax administration and expects to improve tax revenue collection through the measure. The Government will focus on enforcing E-registration of large taxpayers and online businesses; a Write-Off committee will be established to enforce compliance through collaboration with Banker’s Association and Corporate League, as well as text reminders and timely monitoring. PA 5 and follow-up Trigger 5 support part of the MTRP and MTFF to improve tax administration and tax collection. PA 5 supports the online issuance of property tax notices. In developing small economies, low compliance is one of the key challenges for the collection of property tax revenues. The property tax notices were issued by mail in the past, which resulted in loss and delayed delivery of the notices, and difficulties to reach the tax-payers when they are out of the island. During the pandemic, lockdowns have led to a decrease of property tax payment. Under this PA, online issuance of property tax notice is expected to improve compliance through a more user-friendly and digitalized system, to avoid administrative costs and losses from physical issuance. Meanwhile, the action is also expected to reduce the use of paper and transportation to deliver the physical notices. Trigger 5 support a unified online payment system for all tax categories which will be stablished to update the current two systems, and large taxpayers will be mandated to pay major tax categories (VAT and Personal Income Tax - PIT) online. 54. Expected impacts: PA 5 and Trigger 5 are expected to support enhanced fiscal performance through improved tax administration and tax compliance. Direct measure of fiscal aggregates, such as tax revenue collection (growth, nominal level, or share of GDP), are sensitive to high external uncertainties outside the Government’s control. Result indicators will therefore measure the tax administration improvement, which is expected to contribute to fiscal improvement (Article IV, 2019). Specifically, it is expected that at least 8 percent of companies will pay their VAT taxes online by 2024, an increase from 1 percent in 2021. This takes into consideration of the gradual implementation process and acceptance of a new technology. Page 29 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Prior Action 6: The Recipient has approved the development of a climate change budget tagging methodology by the Ministry of Finance to identify and manage climate spending. Trigger 6: The Recipient has approved the application of the climate change budget tagging approach to annual budget bills, to better identify and mobilize fiscal resources toward climate resilience building. 55. Rationale: Climate-related extreme events are one of the major threats to fiscal sustainability and managing related fiscal implications should be considered in the next round of FRA amendment. As a SIDS, the impacts of natural disasters are severe nationwide and socio-economically. In particular, the private sector and households are concentrated in sectors highly susceptible to natural disasters like tourism and agriculture; nevertheless, they are not equipped with sufficient financial cushion and resources to build ex ante adaptation and recover from damages. As a result, the Government takes an important role in building climate adaptation and supporting recovery, which has significant fiscal implications. According to the Climate Change Policy Assessment (2019), Grenada’s annual average loss from of wind-related events and floods averages around 1.7 percent of GDP; the ambitious climate change policy costs an estimated US$500 million (42.2 percent of GDP). The current FRA, on the other hand, imposes a real growth ceiling on primary expenditure at 2 percent (the expenditure rule), which may constrain the policy space for climate-related investment. In this context, amendments to the FRA have been considered to exempt climate-related investment from the expenditure rule. If appropriately implemented, this would be an important step to better utilize available fiscal space and address the increasing urgency of climate adaptation. However, pre-requirements to the considered amendments include complete information on the nature and quantity of public expenditures related to climate change mitigation and adaptation, as well as the institutional ability to record such expenditure. Relaxing the expenditure rule without such pre-requirements may compromise fiscal sustainability and efficient climate-related investment. 56. Substance: The PA entails the development and adoption of the GoG’s climate change budget tagging methodology, a critical preceding step to future amendments of the fiscal rule. Climate change budget tagging will enable the country to better identify and manage expenditures and activities to boost its resilience to climate change. This methodology will introduce a climate adaptation and mitigation tagging system in Grenada and allow a central-level budgeting and expenditure analysis. The methodology integrates the priorities of Grenada’s Climate Change Policy and NAP which provides detailed and costed plans for adaptation and resilience building. It is also closely linked to Grenada’s Second NDC of November 2020. The focus is on climate expenditure classifications, coverage and weighting mechanisms, institutional arrangements, and integrating tagging into budgeting, reporting, validation, and evaluation mechanisms. The Ministry of Finance (MoF), which is leading this reform, will work closely with the Ministry of Climate Resilience. The reform will complement the previous Government action of developing a budget classifier to classify and report on post-disaster expenditure in relief, recovery, and reconstruction.22 The GoG already has the capacity to track and report disaster-related spending, and this additional reform will help integrate climate resilience into the PFM system. 57. Given the overarching implication of the reform and the small state’s limited capacity, the full application of the methodology is supported in a phased approach under PA 6 and Trigger 6. A timeline 22 This was supported under the Disaster Risk Management Development Policy Credit with a Catastrophe Deferred Drawdown Option (P171465). Page 30 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) and general framework have been agreed upon under PA 6 to grant the MoF power to lead the reform. The full application will be finalized under Trigger 6. This reform is being implemented with technical assistance support through the Canada-Caribbean Resilience Facility (CRF, P171256), managed by the WB Governance Team.23 Once the reform is completed, the results will enable the Government to understand the size of climate-related investment and evaluate the options to amend the FRA. The Government plans to implement climate change budget tagging, resulting in the preparation of the first report on the Government’s climate spending in October 2023, for inclusion in the 2024 Budget. 58. Expected Impacts: The PA on climate change budget tagging will contribute to mainstreaming the monitoring, planning, and budgeting of climate-related public expenditure and is expected to improve its ability to prioritize climate-smart and disaster-resilient investments. Grenada already has an approach to mainstreaming climate in the public investment management (PIM) framework and this PA strengthens the prioritization and selection of climate resilience projects under the PIM framework. Following this initial reform, the tagging system is expected to be institutionalized across ministries, including identifying recommendations for any potential changes required in the budget process and the financial management system. The Government will be able to improve its access to and mobilization of climate finance while enhancing transparency and demonstrating its commitment to climate action and disaster risk reduction. Prior Action 7: As part of its policy to promote gender inclusivity, the Recipient has decided to mainstream gender considerations in the national budget on a pilot-basis for the 2022 budget. Trigger 7: The Recipient has approved the publication of the budget documentation that includes information on the impact of budget policy proposals on men, women, and gender equality for all Ministries, Departments, and Agencies. 59. Rationale: Grenada has started developing a comprehensive strategy for addressing gender equity gaps and integrate equity considerations in the design, implementation, and monitoring of budget policies; however, recognition and monitoring of such policies are limited and not systematically applied across ministries. related-. Gender equity is a priority area of the Grenada National Sustainable Development Plan (2020—2035). The related Gender Equality Policy and Action Plan (GEPAP) details gender equity priorities, identifies key gender gaps, and outlines actions to close the gaps.24 GEPAP calls for the integration of a gender perspective in the design and implementation of the budget. In the new DM Bill supported under PA 1, gender considerations are explicitly included, requiring that “disaster risk reduction and climate change measures are gender-responsive and gender-inclusive”, and “…, the Agency shall institutionalize gender analysis as part of any assessment following the impact of a hazard.” However, the methodology to identify and track gender-related policies varies across ministries and policy areas. Also, Grenada’s PFM system has significant gaps in gender responsiveness: there is no systematic planning for gender-responsiveness or sex-disaggregated data, ex ante gender impact assessments, 23Climate-Resilient and Gender-Responsive Public Financial Management in the Caribbean (P172267). 24 The Government of Grenada 2014—2024 Gender Equality Policy and Action Plan (GEPAP): https://oig.cepal.org/sites/default/files/2014_gender-equality-policy-action-plan_grd.pdf. GEPAP identified ten key policy areas that require improving gender equity: 1) Culture and Socialization, 2) Education and Training, 3) Labor and Employment, 4) Agriculture and Tourism, 5) Economic Growth and Poverty Reduction, 6) Climate Change, Natural Disasters, and Natural Resource Management, 7) Health and Well-being, 8) Violence and Security, 9) Leadership and Decision-making, 10) Legislative Framework for Gender Equality and Institutional Capacity to implement GEPAP and for Gender Mainstreaming. Page 31 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) tracking of allocations, evaluations, and revenue impact assessments. Sex-disaggregated information is absent from planned outputs for key service delivery ministries and key results. 25 These gaps are significantly impeding the progress in designing and implementing gender-related policies, and eventually improving gender equity. 60. Substance: PA 7 and Trigger 7 support the MoF in introducing a gender budgeting framework in the Budget Circular and Budget Statement with a programmatic approach. During the critical annual budget process, the Government design new policies, review the past policy performance, and compile cross-ministry information in a single document. It is when the Government highlights and implements its policy priorities through commitments and related financing. Thus, the Government is keen on strengthening the current performance information presented in the budget documentation with sex- disaggregated data on program targets from the extensive list of Gender Equality Indicators in GEPAP. The gender budgeting framework has a new budget submission template; it requires the use of sex- disaggregated data for gender analysis of programs and budget allocations; it supports capacity development for improved data collection and analysis across line ministries; and it presents gender equity priorities and related budget measures in the publicly available budget documentation. The MoF has taken the leading role. PA 7 supports the GoG in issuing the first gender-responsive budget circular26 in fiscal year 2022, to instruct line ministries to: provide justification or expected results for the effects on men and women of proposed new spending initiatives and proposed reductions in expenditure; and to include sex-disaggregated data for actual or expected results. The Budget Statement 2022 outlined the Government’s medium-term budget priorities and announced the introduction of gender budgeting.27 61. The Medium-term Action Plan also lists “Promote Gender Inclusivity” as one of the strategic objectives, which will be implemented through national Budgets. The MoF will work closely with the Division of Gender and Family Affairs, which manages the collection of Gender Equality Indicators, to optimize use of sex-disaggregated data. The Division of Gender and Family Affairs will ensure that policies align with GEPAP. Sex-disaggregated data and gender impact analysis will be used for internal planning processes in the first year of gender budgeting on a pilot basis. Lessons learned from piloting gender budgeting in the fiscal year 2022 will be used to improve the process supported under Trigger 6. In subsequent years, the use of sex-disaggregated data and results of impact analyses will be expanded and presented in the publicly available budget documentation.28 The inclusion of sex-disaggregated data will be linked to each ministry's presentation of performance information. Grenada has the enabling environment to implement gender-responsive or equality budgeting and to strengthen the collaboration between the Budget Office and the Division of Gender and Family Affairs (the coordinating agency for mainstreaming gender across all government agencies, policies, and programs) at the Ministry of Social Development, Housing, and Community Development. It has well-informed stakeholders, including the 25 World Bank. 2019. Post-Disaster Public Financial Management Review of Grenada. 26 The budget circular is one of the key tools of PFM and the primary guidance from the Ministry of Finance for budgetary units on how to prepare budget submissions. The proposed action is in line with Grenada’s Public Finance Management Act of 2015, Section 17(2)(b) that stipulates, “A budget circular shall give detailed policy instructions to be complied with by economic entities in the course of the preparation of their budget.” 27 “Government reiterates its commitment to achieving gender equality and empowering all women and girls, with several initiatives in the 2022 Budget. The government is moving … to adopt a gender responsive budgeting approach starting with a pi lot in the 2022 Budget, to ensure gender-equitable distribution of resources, thereby contributing to equal opportunities for all. Accordingly, reporting on gender impact will be required for various initiatives next year. Going forward, gender considerations will be fully mainstreamed into our annual budgets.” See: https://www.finance.gd/docs/2022BudgetStatement.pdf 28 The Government of Grenada typically makes the annual budget publicly available as soon as the Legislature approves the budget, which is in line with good international practice (World Bank, 2022, Country Fiduciary Review of Grenada). Page 32 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) MoF, Division of Gender and Family Affairs, and the National Statistical Office, to help guide ministries in presenting budget policy proposals from a gender perspective and to build on current limited sex- disaggregated data. 62. Expected Impacts: A gender-responsive approach to budgeting will ensure that line ministries’ budget policies take into account the different needs of men and women, youth and elderly, people with disabilities, and others. Following the piloting of gender budgeting in the first year, the Government will continue to improve the use of sex-disaggregated data for budget policy planning, expand its use across the ministries, and present gender equity priorities and related budget measures in publicly available budget documentation. The MoF expects the strengthened collection and use of sex- disaggregated data to improve the performance-based budgeting framework through more rigorous data analyses. In the longer term, more gender equity-aware budget policies are expected to contribute to closing key gender gaps, as identified in GEPAP. In the budget documentation for FY 2021, two programs clearly articulated gender gaps and how they plan to close them. This corresponded to around seven percent by value of all the programs of service delivery ministries. It is expected that this new policy of integrating gender in the design and implementation of budget policies will lead to an increase in the number of programs that address gender inequality to ten. This would correspond to around 33 percent by value of all the programs of key service delivery ministries.29 Prior Action 8: The Recipient has approved a proposal to support the implementation of a permanent funded unemployment insurance programme and appointed the National Insurance Scheme (NIS) as the implementing agency to drive the process of developing the final framework and drafting legislation for the introduction of said permanent programme. Trigger 8: The recipient has approved, through its parliament, the amendment to the National Insurance Act to include a permanent funded unemployment insurance programme to enhance workers' income protection mechanisms against shocks, including natural disasters. 63. Rationale: The COVID-19 crisis underscored that the structural challenges of the Grenada’s social protection and labor system pose risks to fiscal sustainability; particularly a lack of a permanent UI Programme. Grenada’s National Insurance Scheme (NIS) provides protection against loss of income caused by sickness, employment injury, maternity, and old age. However, it does not provide insurance against the risk of job loss, including when that is a result of climate change impacts. Severance payment is mandated by law but often fails to protect workers, mainly because it is an unfunded liability (WB, 2012). This is especially worrisome when the shock is widespread, and firms are experiencing liquidity constraints. Grenada is highly exposed and vulnerable to climate change events, which have had demonstrated impacts on employment through disruptions to economic activities in key sectors that rely heavily on natural resources, such as tourism, agriculture, and fisheries (International Labour Organization, 2018). These negative effects are expected to increase with the growth in frequency and intensity of climate change impacts, including those related to hurricanes, droughts, and floods. Given the lack of adequate income protection measures for workers and extensive impacts of shocks on employment outcomes (IMF 2005), the NIS has used its funds to provide unemployment benefits to workers in emergency situations. This was the case with Hurricane Ivan in 2004 and the COVID-19 29Service delivery ministries are those that deliver ‘frontline” services directly to citizens and businesses. They typically include ministries that manage portfolios such as education and training, healthcare, social and community support, policing, agricultural support, and other services. Page 33 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) pandemic in 2020. Using the National Insurance Fund (NIF) to provide emergency benefits, oftentimes supplemented with fiscal resources,30 has prevented further negative social impacts, but has affected the NIF’s long-term financial sustainability. 64. Substance: Prior Action 8 and Trigger 8 aim to enhance workers’ income protection mechanisms and improve climate and economic resilience by introducing a permanent funded UI Programme. The UI protects (NIS-contributor) workers and families against the risk of job loss caused by idiosyncratic and covariate shocks (e.g., climate and natural disasters like hurricanes, droughts, floods) and increases economic and climate resilience. Prior Action 8 supports GoG’s approval of the policy framework for a permanent UI and the appointment of the NIS as the implementing agency to draft legislation for the introduction of the Permanent Funded UI Programme. This is a critical step toward full implementation of the UI and outlines the principles and implementation agency for the reform, and is the foundation to amend the legal framework, such as the National Insurance Act (NIA). Under Trigger 8 of the second operation in this series, the policy reform is the amendment of the NIA, establishing the permanent funded UI Programme. The UI policy framework endorses the following main characteristics : (i) Coverage: the UI covers private and public sector workers, and workers of statutory bodies; (ii) Benefits: 50 percent wage replacement for up to 13 weeks, up to a ceiling; (iii) Cost: the UI is expected to be funded through an additional NIS contribution of 1.5 percent, equally shared between employer and employee;31 and (iv) Eligibility requirements: to have been employed in insurable employment for a specific period of time and under pensionable age, to be involuntarily unemployed, demonstrated through termination certificate, and to be available, willing, and capable of working, actively seeking employment, and not having refused suitable employment.32 Based on the actuarial assessment and other international experiences, the UI is expected to disproportionately benefit eligible low earners with more vulnerable and unstable jobs. 65. Expected impacts: The action is expected to reduce the vulnerability of Grenada’s population to climate change and related job and income losses. The introduction of a permanent funded UI Programme can enhance income protection to workers, improve NIF’s financial sustainability and contribute to reduce government fiscal pressures during shocks, such as natural disasters. At least 40,000 workers are expected to contribute to the Permanent Funded UI Programme by December 2024. Such broad coverage should enhance worker protection against job loss in the event of adverse climate-related events and strengthen their resilience. The program is expected to benefit low-wage earners more than higher earners among those contributing to the NIS. A gender analysis was carried out, but no clear gender differences were found. Prior Action 9: The Recipient has approved a proposal for the establishment of the semi- autonomous National Statistical Institute of Grenada to strengthen the country’s statistical system. Trigger 9: To strengthen the country’s statistical system, The Recipient: (i) has submitted to Parliament for approval the Statistics Bill which modernizes the National Statistics System; and (ii) through its Cabinet, adopted the National Strategy for the Development of Statistics. 30 Unemployment benefit program in 2021 was funded through fiscal resources. 31 With the proposed additional contributions, total contributions would be 6.5 percent for employers and 5.5 percent for workers. Grenada is one of the countries in the region with the lowest social security contribution rates. As such, the relatively small increase in the contribution rate is not expected to significantly affect formal employment. 32 This information is going to be verified through the employment intermediation service (e.g., job matching service). Page 34 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) 66. Rationale: The outdated regulatory framework and the lack of coordination for official statistics are key constraints for policy making, including DRM policies and measures needed to build Grenada’s climate resilience. Designing and implementing these policies are highly dependent on data quality and data sharing. The current Statistics Act for Grenada, which was last updated in 1960, lacks critical principles like "statistical confidentiality" or "impartiality for the dissemination” that could ensure quality, transparency, and accountability. Without a well-articulated set of guidelines and mechanisms, the country lacks the ability to produce timely and impartial statistics to inform policymaking and DRM. For example, enhanced statistical connected by a centralized agency could track data across ministries to better identify multi-dimensional climate-related vulnerabilities, including factors such as income, housing conditions, health conditions and enrolment in social programs. After a disaster, better data coordination will facilitate more timely and targeted post-disaster assistance. Improved statistical capacity can promote transparency and accountability in the public sector, and monitor adherence to international commitments. The Central Statistical Office lacks a proper strategy to guide and prioritize the necessary statistical operations for decision-making and policy making. It does not have the institutional hierarchy and autonomy or the financial autarchy to act effectively as the normative authority within the statistical system, which involves most institutions within the public sector. This impedes cross- ministry efficiency and coordination when designing and implementing of social protection policies and disaster risk management, and is particularly relevant for climate and natural disasters like hurricanes, floods, and droughts. Having the statistical infrastructure to facilitate integration of data from household and firm surveys, social protection spending plans, and tax policies could promote timely and accurate policy responses and stimulus packages for economic recovery and poverty reduction. 67. Substance: The prior action and the follow-up trigger support the amendment to the Statistical Act and adoption of the NSDS, including establishment of the semi-autonomous National Institute of Statistics. The Act and the NSDS are expected to create a well-articulated national statistics system, with a semi- autonomous National Statistics Institute (NSI) as a normative authority enjoying enhanced independence. It is a significant step towards improving the capacity to inform policymaking and DRM, as well as to safeguard trust in official statistics. The prior actions will address the needs for a regulatory framework to create the NSI according to international standards. The semi-autonomy would provide the Statistical Institute with the legal mandate to develop an integrated national statistical system that establishes standards for statistical purposes, and also collects, compiles, analyzes and publishes official statistics. Integrated statistical systems and cross-ministry integration with consistent methodology for standard damage and loss assessment and data compilation would provide significant support to DRM. The regulatory framework also defines the organizational structure under which the NSI and the NSS will function (members and functions); it establishes a National Statistics Council (chaired by NSI, with representatives from the main producers of statistics), and; the NSI with normative and regulatory authority over the planning, production, and dissemination of official statistics, including its right to demand information from other institutions when necessary. It also mandates the production of a National Statistics Plan. 68. Expected impacts: The establishment of a well-articulated NSI as a normative and independent authority is a significant step toward improving the country's capacity to inform policymaking and DRM, as well as safeguard trust in official statistics. The creation of the NSI is expected to positively impact the ability of the government to collect, analyze, and present national statistics, especially important for coordination and utilization across ministries for disaster risks assessment and responses under DRM. The Institute will be empowered to mobilize data from different ministries and feed this into the DRM Page 35 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) framework; this will be particularly useful to help target the most vulnerable groups with health and/or poor conditions, and to provide assistance before and after any climate-induced disaster. Grenada is lagging behind the estimation of Sustainable Development Goals (SDG) and the use of administrative records will enable the NSI to increase the number of reported indicators as some of these are heavily dependent on administrative records. At the same time, the semi- autonomous NSI will further enhance gender monitoring to help formulate and design public policies that help to move toward real and effective equity. With the support of PARIS21, a revised Statistics Act was drafted and approved by the Cabinet, and is awaiting parliamentary approval. The OECS Data for Decision Making project (P174986), currently under preparation, aims to support the consultative process and help draft the NSDS document. The Prior Action and the Trigger are expected to grant the NSI the legal authority to coordinate and prioritize the statistical system within the public sector. Table 5: DPF Prior Actions and Analytical Underpinnings Prior Actions Analytical Underpinnings Pillar 1 --- Promoting a greener and more climate-resilient economy • Caribbean Disaster Emergency Management Agency, “Regional Comprehensive Disaster Management Strategy and Results Framework” https://cdema.org/CDM_Strategy_2014- 2024.pdf • IMF-WB “Grenada: Climate Change Policy Assessment” Prior action #1 & Trigger #1 https://www.imf.org/en/Publications/CR/Issues/2019/07/01/Grenada-Climate-Change- Policy-Assessment-47062 • WB Technical Report. 2018.: “Advancing Disaster Risk Finance in Grenada”. https://reliefweb.int/sites/reliefweb.int/files/resources/125551-WP-DRFTA-Report-Grenada- Final2018-LowRes-PUBLIC.pdf. • WB Technical Report. 2021: Technical Assistance on Electricity Tariff Methodologies and Prior action #2, #3 & Procedures to Grenada Public Utilities Regulatory Commission Trigger #2, #3 • WB Technical Report. 2021: Technical Assistance on Competitive Procurement and Self- Generation Program to Grenada Public Utilities Regulatory Commission. • Brynjolfsson, Erik, Lorin M. Hitt, and Heekyung Hellen Kim. 2011. “Strength in Numbers: How Prior action #4 & Does Data-Driven Decision-making Affect Firm Performance?” SSRN Scholarly Paper ID Trigger#4 1819486, Social Science Research Network, Rochester, NY. • World Development Report 2021: Data for Better Lives, World Bank, 2021 Pillar 2 --- Improving sustainability, inclusiveness and accountability of fiscal management • IMF Technical Report. 2019. Grenada: Strengthening the Fiscal Responsibility Law Prior action #5 & • Grenada: Fiscal Responsibility Act No. 29 of 2015. Trigger #5 • IMF: Grenada: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Grenada • IMF-WB “Grenada: Climate Change Policy Assessment” Prior action #6 & Trigger #6 https://www.imf.org/en/Publications/CR/Issues/2019/07/01/Grenada-Climate-Change- Policy-Assessment-47062 Page 36 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) • World Bank. 2019. Grenada: Post-Disaster Public Financial Management Review. World Bank: Washington DC. • World Bank. 2021. Climate Change Budget Tagging: A Review of International Experience. Equitable Growth, Finance and Institutions Insight. World Bank, Washington, DC. • IMF Technical Report. 2019. Grenada: Strengthening the Fiscal Responsibility Law • Kuddo, Robalino, and Weber (2015). Balancing regulations to promote jobs: from employment contracts to unemployment benefits. World Bank, Washington, D.C. Prior action #7 & • Asenjo and Pignatti (2019). UI schemes around the world: Evidence and policy options. Working Trigger #7 Paper No. 49. International Labour Office. • IMF (2015). Transcript of an IMF Economic Forum -- Tracking Grenada's Recovery: Six Months after Hurricane Ivan. • CDB. 2014. Country Gender Assessment. Grenada. CDB, Bridgetown, Barbados. • Government of Grenada. 2014. Gender Equality Policy and Action Plan. Government of Grenada, Saint George’s, Grenada. • OECD (Organisation for Economic Co-operation and Development). 2017. “Gender Budgeting in OCED Countries.” OECD Journal on Budgeting 2016/3: 1–37. • IMF. 2017. Gender Budgeting in G-7 Countries. IMF Policy Paper. Washington, DC: International Monetary Fund. Prior action #8 & Trigger #8 • World Bank. 2018. Gender Equality and Women’s Empowerment in Disaster Recovery. Disaster Recovery Guidance Series. Washington, DC: World Bank. • World Bank. 2020. Gender Dimensions of the COVID-19 Pandemic. Policy Note, April 16, 2020. Washington, DC: World Bank. • World Bank. 2021. Gender-Responsive Disaster Preparedness and Recovery in the Caribbean: Desk Review. World Bank, Washington, DC. • Zrinski, U., Bowen, M., Bosnic, M. 2020. Supplementary Framework for Assessing Gender Responsive Public Financial Management. PEFA Secretariat, Washington, DC. • Grenada Ministry of Finance (1960) Grenada Statistics Act. Chapter 311. • Paris 21 (2019) Grenada National Statistical System Assessment. Prior action #9 & Trigger #9 • Bleeker and Abdulkadri (2019) A review of Caribbean national statistical legislation in relation to the United Nations Fundamental Principles of Official Statistics. ECLAC Studies and Perspectives, Santiago, Chile. 4.3. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY 69. Bank programming in Grenada is guided by the WBG Regional Partnership Strategy (RPS) for the OECS for FY15-19 as discussed by the Executive Directors on November 13, 2014 (Report No. 85156- LAC), as well as the OECS RPS for FY22-25 to be considered by the Executive Directors on May 17, 2022 (Report No. 160349-LAC). A Performance and Learning Review (PLR) of the RPS FY15-19, which was considered by the Executive Directors on May 23, 2018 (Report No. 118511-LAC), extended the RPS to FY20 and validated its strategic objectives: to lay the foundations for sustainable inclusive growth through (i) Fostering Conditions for Growth and Competitiveness; and (ii) Enhancing Resilience with a broader resilience agenda. The Systematic Regional Diagnostic (SRD) for the OECS completed in FY19 identified the following priorities for inclusive and sustainable growth: (i) build cross-cutting resilience to external shocks; (ii) embed growth in the blue economy; (iii) strengthen and harness human capital; (iv) embrace new technologies; and (iv) strengthen regional integration. This proposed budget support operation thus Page 37 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) directly addresses the constraints noted in the RPS, PLR, and SRD, taking into account the extraordinary situation with COVID-19. It is also aligned with FY22-25 Eastern Caribbean Regional Partnership Framework (Report No. 160349-LAC, to be discussed by the Board of Executive Directors on May 17), supporting an improvement of the fiscal, debt and public financial management. This operation aims to improve access to finance and market liquidity over the medium term and builds resilience by strengthening the social protection system and public finance management. This operation specifically links to “Sustainable and Inclusive Growth” and “Resilience and Sustainability” under the Tier-1 of the IDA19 Results Measurement System. This operation also supports the remaining IDA19 Policy Commitments, including “Jobs and Economic Transformation (JET)”, “Climate Change”, “Gender and Development”, and “Governance and Institutions” (except for FCV commitment). 70. The WB has quickly adapted its program in Grenada to respond to the COVID-19 crisis. Activation of the Contingent Emergency Response Component under the OECS Regional Health Project (P174096) helped finance the country’s health response to the pandemic, including the procurement of medical supplies and equipment and minor civil works to refurbish the isolation ward and oxygen plant. This DPC continues the support under the COVID-19 Emergency DPC and addresses the second, equally important pillar of the WB COVID-19 crisis response approach framework as it focuses on the socioeconomic consequences of the crisis. It also fosters growth and competitiveness and enhance resilience. Support under IDA19 will accelerate the GoG’s plans for economic diversification using the Blue Economy growth model. 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 71. The DPC supports the Government’s reform agenda, which was developed in consultation with a wide range of stakeholders. As with all legislative measures and reforms in Grenada, the Government’s COVID-19 response program and the reforms on public governance was subject to a thorough consultative process involving the private sector, civil society, and groups likely to be impacted by policy changes. The consultative process is an important institutional feature of Grenada’s Government. The Prime Minister chairs a monthly meeting of the Committee of Social Partners, which includes the private sector, labor unions, entrepreneurs, government officials, churches, and nongovernmental organizations. The Committee discusses issues affecting the economy and assesses possible solutions. When viable, these suggestions are incorporated in policies, laws, and strategies. Other consultative methods include public hearings, ad-hoc meetings on specific topics, citizen panels, surveys, internet forums, and media outlets. Design and implementation of the DM legislation, and the UI involved consultations with key stakeholders. The prior actions on new energy regulations were the result of stakeholder consultations and working groups Collaboration with Other Development Partners 72. The content of this DPC is aligned with the programs of the country’s development partners. Grenada collaborates with several bilateral and multilateral agencies, including the European Union, Global Affairs Canada, the United Kingdom’s Department for International Development, the US Agency for International Development, the German International Development Agency, and the CDB. These agencies and the WB are active participants in the Eastern Caribbean Donors and Partners Group. The WB and the Government work to promote donor coordination and to exploit programmatic synergies. The WB and the IMF collaborated when preparing this operation, and the proposed prior actions associated with the third pillar represent the continued commitment of the GoG to strengthen debt transparency and public governance, also areas of focus of past WB and IMF programs. Page 38 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) 73. TA in various areas has been (and will continue to be) provided to sustain the reforms supported by this operation. PA 1 (the DRM legislation), PA 6 (gender responsive budget tagging) and PA 7 (climate change budget tagging) will be supported under the respective TAs under the CRF. The design and implementation of PA 2 and PA 3 on the energy sector reforms have been supported under the TA Accelerating NDC Implementation in the Caribbean (P174193) and Caribbean Regional Energy Initiative (P159107). The Caribbean Digital Transformation Project- (P171528) has been provided TA to the Data Protection Bill (PA 4), which will be implemented under the same project. The discussion of the UI first started under the Grenada COVID-19 Emergency Response DPC (P174527) in 2020 and the WB team has provided team on calculation benefits, sustainability and other aspects of the mechanism. PA 9 (statistics reforms) is complementary to and has received TA under the OECS Data for Decision Making (DDM) Regional Project (P174986). PA 5 and related fiscal issues will be strengthened through country dialogue, including the SDFP engagement. The IMF has provided additional TA in public financial management, tax reform, and SOE reform. Technical assistance will continue to be provided under this facility to support the implementation of the DPC. 5. OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT 74. The poverty and social impacts of the policies supported by this operation are expected to be positive, with most of the benefits expected to be realized in the medium- and long terms. The operation's poverty and social impact analysis (PSIA) focuses on the potential impact of the prior actions on poverty, expenditure distribution, employment, informality, government's delivery of services, gender, resiliency, and disaster risk management. The quantitative analysis relies on the official household budget survey, the LFS, and an academic literature review. Overall, the set of policies included in this DPC aims to continue to support economic reactivation in the short term and lay the foundations to achieve sustainable economic development with broad social benefits in the medium and long term. In Grenada, poor and vulnerable households depend almost entirely on labor income and rely heavily on employment in informal sectors and occupations that are more vulnerable to negative shocks, like the tourism and tourism-related sectors. The programs considered under Pillar 1 aims to contribute to environmentally sustainable economic growth by protecting the poor and vulnerable, who are typically more affected by natural hazards like tropical storms and hurricanes, less prepared to face shocks, and with fewer means to cope with the effects once they strike. Pillar 2 of this operation is expected to benefit and protect the poor and vulnerable in the short- and medium-term, specifically by (i) limiting income losses and cushioning the impact on employment from shocks including climate-related events; (ii) improving data quality; and (iii) enhancing budget policy targeting to address gender inequalities and climate change for a better standard of living, particularly for the poor and vulnerable. 75. The policies supported under Prior Actions considered in Pillar 1 are expected to positively impact poverty and inequality in the short, medium, and long term. The policy framework for the Comprehensive DRM legislation under PA 1 is expected to improve cautionary planning to enhance preparedness and capability to face natural disasters. This measure could particularly benefit the vulnerable and poor populations, as they are more likely to be less prepared to face natural disasters and have fewer means to cope with the consequences of adverse weather and other extreme natural events. The approval of the Regulation Tariff Setting Methodology and the regulation on generation expansion, planning, and competitive procurement for renewable energy under PA 2 & PA 3, respectively, are Page 39 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) expected to improve livelihoods by ensuring affordable energy, improving energy efficiency, and contributing to the transition to renewable energy. Given the larger share of fuel consumption in poorer households’ spending, these measures could benefit the poor and vulnerable populations in the medium- and long- term. The tariff regulation also has a social tariff mechanism to support vulnerable consumer groups while the government can activate a Social Fund which is allowed under the existing legal framework for the support during the period with high fuel prices. The tariff setting regulation will help encourage private sector investment, potentially generating more jobs in the green sector. Policies under PA 4 are expected to have positive indirect effects on poverty and inequality in the medium- and long- terms, supporting the improvement of social services, the transition to a digital economy, and economic diversification. 76. Prior Actions supported under Pillar 2 are also expected to directly affect poverty and inequality in the medium and long run. PA 5 is expected to increase government's accountability, tax collection efficiency, and capacity to use accumulated fiscal space to increase climate resilience. Additional gains in poverty and inequality are possible if fiscal savings are realized and reallocated to social investments, such as education, health, and infrastructure. Identifying investments targeted to climate change under PA 6 will have a long-term effect on social outcomes by improving the country's resilience to climate change if investments in climate resilience are realized. Gender-responsive budgeting under PA 7 encourages government institutions to tailor their policies to the different needs of men and women and other subgroups of the populations. It is expected to contribute to reducing the wide gender gaps. Provision of unemployment benefits to those previously working in the formal sector in PA 8 is expected to provide a well-needed cushion as the pandemic effects on the economy continue. It should also provide support in the face of other shocks like natural disasters, improving workers' resiliency in the medium- and long- terms. PA 9 can contribute to adopting evidence-based policies by improving the country's capacity to produce high-quality and reliable data. This measure could translate into efficiency gains in implementing social programs by accurately identifying targeted populations. 5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS 77. The proposed DPC is not expected to have significant negative impacts on Grenada’s environment, forests, and natural resources. Pillar 1: Promoting a greener and more climate-resilient economy 78. PA 1 supports adaptation measures including a comprehensive DRM legislation to steer national policy and to systematically enhance disaster and climate resilience. This PA is expected to have a positive environmental impact. PA 2 and PA 3 are also expected to have environmentally positive impacts as they support GHG reduction by improving energy efficiency and promoting renewable energy. The regulations on Generation Expansion Planning and Competitive Procurement will increase sustainability and affordability of electricity supply and support greener development, decreasing dependence on fossil fuels for electricity generation, mitigating the effects of climate change, as well as providing public health benefits. PA 4 supports enhanced data protection to increase trust in digital transactions and is likely to have a neutral impact on Grenada’s environment and natural resources. Pillar 2: Improving sustainability, inclusiveness and accountability of fiscal management 79. PA 5 supports adherence to the FRA after having triggered the Escape Clauses and promote the issuance of property taxes online. Their impact is expected to be environmentally neutral or even positive. PA 6 is improving the Public Investment Management system by developing a climate budget tagging approach, which likely will lead to additional investments in climate change mitigation and adaptation. Page 40 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) The impact is expected to be environmentally positive. PA 8 aims to develop an UI Programme, which is expected to protect formal workers over the longer term from employment loss risks arising from public health or climate-related disasters - and therefore increase resilience of the labor supply. PA 7 and PA 9 support gender responsive budgeting and strengthening statistical capacity, both of which are expected to have neutral environmental impacts. 80. Overall, this operation is not expected to have a negative effect on Grenada’s environment, forests, or other natural resources and is instead expected to positively contribute to a green, resilient, and inclusive development in Grenada through a sub-set of the Prior Actions that underpin this operation. 5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS 81. Grenada’s PFM systems have strengthened substantially in the last decade and the GoG is continuously addressing the remaining challenges. The recently completed Country Fiduciary Review (CFR) reflected the successful implementation of several PFM reforms in the recent years. The Public Finance Management Act 2015, the Public Debt Management Act 2015 and the FRA 2015 were all passed as part of Grenada’s self-directed program. The PFM legislation and regulations are well established and cover all aspects of PFM. The PFM Act outlines sections on budget execution, cash and asset management, public debt and liabilities, and provisions for the establishment of an internal audit function within the GoG. The GoG has a sound Medium-Term Economic Framework and the forecast spans three years and provides scenarios on various components of fiscal indicators. The country has recently adopted the internal audit standards promulgated by the Institute of Internal Auditors; and adopted IPSAS Cash for preparation of public accounts. 82. The Constitution, Legislation and Regulations are well established and cover all aspects of PFM, including public procurement. The PFM Act outlines sections on budget execution, cash and asset management, public debt and liabilities, and provisions for the establishment of an internal audit function within the Government. The legal definitions for procurement methods, advertising rules and procurement documentation, evaluation and award criteria, and submission, receipt and opening are extensive. The Government does have clear and comprehensive implementing Regulations which supplement and develop the PPDPP Act, although additional drafting to develop these Regulations around contract management and administration would prove to be significantly beneficial. Similar to financial management, more work needs to be done on developing the internal audit function of procurement. 83. The legal framework allows e-Procurement solutions and states that all public procurement may be undertaken using an electronic processing system. The development of an e-Procurement strategy and adoption of e-Procurement in all the phases of procurement would benefit the Government in its management and organization of procurement data, whilst yielding further benefits in improving areas around annual and multi-year planning, competition and market engagement. 84. A comprehensive Home-Grown Reform Program was developed in 2014, which is progressively being implemented. Many PFM reform actions have been completed to address some of the weaknesses identified in the 2015 Public Expenditure and Financial Accountability Assessment (PEFA) report. The GoG is committed to continually focus its attention on the PFM Reform Action Plan and representatives from Department of Economic Management and Planning (Budget, Debt and Policy units), Accountant General’s Department, Internal Audit Unit and Audit Department periodically meet regularly with the Page 41 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) focal points of the PFM Reform program to discuss the reform progress and the timeline for completion of their respective areas. 85. Further emphasis on improving the PFM processes and procedures is in progress. Important PFM reforms, including, agreeing on a framework for Public Investment and Assets Management, adopting International Public Sector Accounting Standards Cash for preparation of public accounts; and adopting international internal audit standards promulgated by the Institute of Internal Auditors were agreed as prior actions in 2021 for the COVID-19 Emergency Response DPO operation (P174527) with the GoG. Critical actions for achieving the targets of the prior actions to strengthen the PFM reforms are expected by June 2022. 86. The PFM reforms are supported by four key legislations33 and other regulations and manuals, which strengthen the authorities’ ability to establish, and manage within, multi-year fiscal targets. Fiscal discipline has been improved as the GoG has an effective monitoring regime for contingent liabilities through the Public Debt Management Unit and the legislative requirements. The Minister has the sole responsibility for borrowing as well as loan guarantees {PDMA Section 19 (2)}. The Debt Management Unit must prepare an evaluation of all borrowing by government entities including SOEs. The government maintains a record of all government guarantees that are signed by the Minister on behalf of the government (PDMA Section 20). Strategic allocation of resources has been strengthened with expenditure reclassification and a Medium-term Fiscal Framework document. The newly implemented Chart of Accounts in 2016 has facilitated improved budget formulation and reporting. However, the Country Fiduciary Review indicated that the financial management information system (Smart Stream) of the government should be reviewed to provide appropriate considerations to the WB projects in the Chart of Accounts as well as incorporate climate and gender considerations. The Country Fiduciary Review also suggested enhancing SAI’s independence by amending the constitution so that SAI can table the audit reports directly to the Parliament and not through the Minister of Finance. 87. Grenada publishes an annual budget. MoF publishes the annual Estimates of Revenue and Expenditure on its website and makes them available in print form. A smaller user-friendly version is also available for the public. MoF provides in-year budget execution reports to Parliament. Monthly bulletin board publications and budget speech with annexes are posted on the GoG website. In addition, FROC reports are published with a press conference. Year-end financial statements and audit reports are also accessible, but only after they have been submitted to Parliament. However, as reported above, there is considerable delay in their finalization. 88. The ECCCB manages the foreign exchange reserves of the ECCU, including Grenada. An updated safeguards assessment of the ECCB34, finalized in August 2021 found strong external audit and financial reporting practices that continue to be aligned with international standards, and further improvements in the capacity of the internal audit function. Legal reforms were recommended to further strengthen operational autonomy of the ECCB and align its Agreement Act with leading practices. The ECCB has well- established procedures to ensure the integrity of its operations. It also has a well-functioning internal audit department, and its accounts are audited by an independent external auditor. The ECCB Board of Directors has an audit sub-committee, which provides additional oversight. 33 Including (i) PFM Act 17/2015; (ii) Fiscal Responsibility Act 29/2015; (iii) Public Procurement and Disposal of Property Act 39/2014; and (iv) Public Debt Management Act 28/2015. 34 Extract for ECCB taken from IMF’s 2021 Article IV Consultation Press Release for Dominica in Februar y 2022 Page 42 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) 89. Disbursement and reporting arrangements, ineligible expenses and audit. • Disbursement and reporting arrangements. The proposed loan will follow the WB’s disbursement procedures for development policy financing. Once the loan becomes effective, satisfactory implementation of the program (specified prior actions achieved) and maintenance of an adequate macroeconomic policy framework, and upon submission of a signed withdrawal application, the WB will disburse the loan proceeds, denominated in US$, into GoG’s foreign- exchange account at the ECCB. The ECCB will then immediately credit an equivalent amount in Eastern Caribbean Dollars (EC$) to GoG’s budget management system account, which will become available to finance budgeted expenditures. Within 30 days of the funds transfer, the GoG, through its MOF, will provide the WB with written confirmation of the amount deposited into GoG’s foreign-currency account at the ECCB and that the equivalent EC$ amount, which has been accounted for in the country’s budget management system in the account used to finance budgeted expenditures; along with the exchange rate applied and date of transfer. • Ineligible expenses. The financial support provided under this operation is not intended to finance goods or services on the list of Excluded Expenditures35. If the proceeds of the loan or any part thereof are used for ineligible purposes, as defined in the General Conditions applicable to the Financing Agreement, the WB will require GoG to promptly refund an equal amount to the WB. Amounts refunded to the WB upon such request shall be cancelled from the loan. • Audit. No specific audit of the deposit of the loan proceeds will be required. However, the WB reserves the right to request such an audit at its discretion. 90. Based on the above analysis fiduciary risk is considered moderate. 5.4. MONITORING, EVALUATION AND ACCOUNTABILITY 91. The monitoring, evaluation, and results framework is supported by the MoF, which is responsible for coordinating actions by other relevant ministries and agencies. A number of other agencies are involved in implementing the reform program supported by this DPC, including the Ministry of Agriculture, the Ministry of Social Development, and the Ministry of Infrastructure Development, Public Utilities, Energy, Transport & Implementation. The WB has discussed the importance of developing a monitoring and evaluation process and stock takes with the relevant institutions and stakeholders to ensure adequate feedback to policy makers. Monitoring and evaluation capacity have been traditionally weak in Grenada, and the Government recognizes the need to strengthen these mechanisms. The Government and the WB agreed to a results framework presented in Annex 1. It includes indicators to be assessed at the end of the DPC in 2024. These indicators represent agreed-upon benchmarks for evaluating the program supported by this DPC. The WB will maintain an ongoing dialogue with counterparts in the MoF regarding monitoring and evaluation of reforms supported by the operation. 92. Grievance Redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a WB Development Policy Operation may submit complaints to the responsible country authorities, appropriate local/national grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed to address pertinent concerns. Affected 35See the General Conditions for DPF: “Excluded Expenditure” for DPF covers items such as alcoholic beverages; tobacco; radioactive and associated materials; nuclear reactors and parts thereof; jewelry of gold, silver, or platinum; goods intended for a military or paramilitary purpose of for luxury consumption; or expenditures for environmentally hazardous goods. Page 43 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the WB's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the WB’s corporate Grievance Redress Service (GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the WB Inspection Panel, please visit www.inspectionpanel.org.” 6. SUMMARY OF RISKS AND MITIGATION 93. Risks to achieving the program objectives are considered Substantial. The Government has good track record in implementing structural reforms and improving public management, with timely and comprehensive support from international development partners, including the WB. Nevertheless, and despite the Government’s rapid and comprehensive responses to the COVID-19 outbreak, risks arise from the new pension ruling and high debt risks; inherent nature of a SIDS, with a less developed health system; high poverty rate; high dependence on external sector, in particular tourism; high uncertainties of global economy, including geo-political tensions in the near term; and limited capacity of the Government (Table 6). The Government remains committed to mitigating the extended impacts of the pandemic, continuing building socio-economic resilience, and promoting private sector development. These commitments, partially supported under this DPC, will help mitigate the operation risks. 94. Despite the government mitigation measures supported by this operation, residual downside risks have led to a macroeconomic risk rating of High for this operation. Several factors have resulted in elevated uncertainties to macro-economic outlooks (see details in the “macroeconomic risks” section). These factors include: the ongoing pandemic; changes to post-pandemic travel patterns; global economic uncertainties, including increasing commodity prices, monetary policy tightening and the war in Ukraine; domestic inflationary pressures; as well as natural disasters and climate change. The resulting macroeconomic risks can affect the operation’s success in a number of ways. Primarily, the realization of the macroeconomic risks would lead to a slower recovery and less revenue collection, requiring additional fiscal resources to sustain economic activities and support vulnerable groups. The food and fuel price increases, following the war in Ukraine, will affect the poorest the most and could lead to pressures to increase subsidies or social transfer program, affecting fiscal performance. The recent court ruling on public pension issues can potentially lead to additional liabilities for the government. The final of the fiscal costs and the timing of the payment remain uncertain, but it could result in an increase in government liabilities, with the costs spreading across the next 30 years. Moreover, and despite the low NPL rate in Grenada, financial risks may arise with businesses going into bankruptcy and defaulting on loans if the crisis were prolonged. Narrowed fiscal space will limit Government’s financial and institutional capacity to implement the reforms directly supported under this operation, or other complimentary reforms that contribute to the development objectives. For example, limited fiscal and staff capacity may interrupt the creation of a disaster risk financing cushion and reduce climate resilience. Risks are mitigated by the GoG’s continuing commitment to the rules-based policy framework enshrined in law and monitored by an independent fiscal council. IMF TA has been supporting improvement to the legal framework and technical design of the fiscal rule. Ex ante disaster risk financing, including a Contingency Fund and arrangements for the Bank’s contingent credit line, including an active CAT-DDO DPC, will provide a fiscal buffer and the inclusion of natural disaster clauses in debt restructuring agreements should help mitigate Page 44 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) risks to fiscal stability in the event of natural disasters. Measures supported by this DPC will also help mitigate the macroeconomic risks, particularly Pillar 2 and the DRM legislation. Nevertheless, despite the mitigating measures, given the small size of the economy and externality of the shocks, the residual macroeconomic risks remain high. 95. Implementation capacity risks are rated Substantial, given the country’s small pool of technical experts. While Grenada’s institutional and technical capacity is relatively robust by regional standards, a limited number of technical experts in core ministries, and scarce fiscal resources may pose risks to implementing the reforms supported by the DPC. In this context, the Government, in agreement with the WB, has carefully prioritized a limited number of reform measures critical to the recovery process and practical capacity support through parallel technical engagements with key development partners, such as the CRF (P171256). In 2020-2021, the Government has started reforms to enhance project procurement, including strengthened monitoring framework and better aligned coordination mechanism and the implementation rate of the capital expenditure has increased significantly. 96. “Environmental and Social” risks from Grenada’s inherent vulnerability to natural disasters are rated as Substantial. Grenada remains vulnerable to environmental factors exogenous to the operation itself, including the natural disasters and short- and long-term climate change, which could deepen the current crisis and derail the aspects of the program to support sustainability and resilience. In addition, the event of a natural disaster could directly cause significant damages to physical infrastructure on the island and threaten food security, especially for the poor and vulnerable groups. The materialization of the pandemic risk and natural disaster risk could incur high costs of mitigation and response and further strain the public resource envelope, forcing another round of emergency response spending and diverting scarce financing away from long-term development objectives, or increasing indebtedness. To mitigate against these risks, the Government is strengthening its capacity in the disaster risk management, as well as evaluating environmental risks in collaboration with its development partners. Measures in this operation such as supporting the most affected groups by the pandemic, adopting a comprehensive DM legislation and actions to improve public sector efficiency will help build institutional capacity to strengthen disaster risk management. In addition, the WB-financed Regional Disaster Vulnerability Reduction Project and ongoing United Nations programs also enhance the Government’s capacity to manage disasters and mitigate environmental risks. Implementation of the Disaster Risk Financing Strategy and approval of the WB contingent credit line provide policy flexibility to address extreme events to help mitigate natural disasters and climate change risk, as do the inclusion of natural disaster clauses for restructured debt. Page 45 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Table 6: Summary Risk Ratings Risk Categories Rating 1. Political and Governance ⚫ Moderate 2. Macroeconomic ⚫ High 3. Sector Strategies and Policies ⚫ Moderate 4. Technical Design of Project or Program ⚫ Moderate 5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial 6. Fiduciary ⚫ Moderate 7. Environment and Social ⚫ Substantial 8. Stakeholders ⚫ Moderate 9. Other Overall ⚫ Substantial . Page 46 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 1: POLICY AND RESULTS MATRIX Prior actions and Triggers Results Prior Actions under DPF 1 Triggers for DPF 2 Indicator Name Baseline Target Pillar 1 --- Promoting a greener and more climate-resilient economy Percent of ministries and PA 1: The Recipient has approved the Trigger 1: to implement the DM Act and to enhance agencies with an Operations “Disaster Management Bill, 2022” for tabling disaster and climate resilience, the Recipient, Continuity Plan in in Parliament to steer national policy and to 2021(0) 2024(50%) through its Cabinet, has approved the Disaster compliance with the DM enhance disaster and climate resilience. Management Regulations. Act/regulations PA 2: The Recipient has approved regulations establishing an electricity tariff setting methodology to promote (i) efficient operations and energy usage, (ii) long term Trigger 2: The Recipient has submitted the Energy New interim retail tariff in viability and sustainability of electricity Efficiency Bill to the Parliament, to establish a accordance with the service, and (iii) investment in renewable comprehensive framework for promoting energy regulation on Tariff Setting generation and network. efficiency and mitigating climate change. methodology is issued N (2021) Y (2024) PA 3: The Recipient has approved regulations Trigger 3: The Recipient, through its Cabinet, has on electricity generation expansion planning Capacity of power purchase approved the updated National Energy Policy to and competitive procurement to support a agreements for new 0 (2021) 7 (2024) include increase in renewable energy and energy greener and low-carbon development by (i) Renewable Energy efficiency with targets, an action plan, and scaling up renewable energy investment by generation capacity signed monitoring framework, to reduce GHG emission the private sector, (ii) reducing greenhouse with private investors in and mitigate climate change. gas emissions, and (iii) increasing the accordance with Regulation sustainability and affordability of electricity on Generation Expansion supply. Planning and Competitive Procurement Page 47 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Prior actions and Triggers Results PA 4: The Recipient has approved the “Data Number of ministries and Trigger 4: The Recipient, through its Cabinet, has Protection Bill, 2022” for tabling in Parliament agencies with a trained and approved the establishment of the independent to increase trust in digital transactions with certified information 0 (2021) 7 (2024) (technical, financial, and political) Agency that private and public sector stakeholders by management/data protection enforces the Data Protection Act. safeguarding personal data of individuals. officer Pillar 2 --- Improving sustainability, inclusiveness and accountability of fiscal management 2% for VAT; 8% for VAT, 4% Trigger 5: The Recipient has approved (i) the 0.1% for PIT for PIT (2024) PA 5: The Recipient has approved the online mandatory online tax filing of VAT and PIT for large (2021) issuance of property tax notices by March Share of companies paying businesses; and (ii) the operation of a unified online 2023, as part of a medium-term strategy to VAT and PIT tax online tax payment system that allows online payment of improve tax administration. all tax categories. PA 6: The Recipient has approved the Trigger 6: The Recipient has approved the Share of new capital projects development of a climate change budget application of the climate change budget tagging being tagged 36 under the new tagging methodology by the Ministry of approach to annual budget bills, to better identify climate change budget tagging 0 (2021) 60% (2024) Finance to identify and manage climate and mobilize fiscal resources toward climate methodology spending. resilience building. Number of programs presenting information on PA 7 As part of its policy to promote gender Trigger 7: The Recipient has approved the gender priorities, that inclusivity, the Recipient has decided to publication of the budget documentation that include sex-disaggregated mainstream gender considerations in the includes information on the impact of budget policy data and related gender- 2 (2021) 10 (2024) national budget on a pilot-basis for the 2022 proposals on men, women, and gender equality for responsive budget measures budget. all Ministries, Departments, and Agencies. in publicly available budget documentation (in accordance with the gender 36 If a project has zero climate components after evaluation, it’d be counted as “tagged” (zero) Page 48 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Prior actions and Triggers Results budgeting framework) PA 8: The Recipient has approved a proposal to support the implementation of a Trigger 8: The recipient has approved, through its permanent funded unemployment insurance parliament, the amendment to the National programme and appointed the National Number of workers Insurance Act to include a permanent funded UI Insurance Scheme (NIS) as the implementing contributing to the UI Fund 0 (2021) 40,000 (2024) Programme to enhance workers' income protection agency to drive the process of developing the (or percentage) mechanisms against shocks, including natural final framework and drafting legislation for disasters. the introduction of said permanent programme. Trigger 9: to strengthen the country’s statistical Percentage of Sustainable PA 9: The Recipient has approved a proposal system, The Recipient: (i) has submitted to Development Goals for the establishment of the semi- Parliament for approval the Statistics Bill which Indicators produced by the autonomous National Statistical Institute of 25% (2021) 36% (2024) modernizes the National Statistics System; and (ii) NSI. Grenada to strengthen the country’s statistical through its Cabinet, adopted the National Strategy system. for the Development of Statistics. Page 49 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 2: FUND RELATIONS ANNEX Page 50 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 51 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 52 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 53 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 54 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 3: LETTER OF DEVELOPMENT POLICY Page 55 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 56 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 57 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 58 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Page 59 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE Significant poverty, social or distributional Prior Actions Significant positive or negative environment effects effects positive or negative Pillar 1: Promoting a greener and more climate-resilient economy Positive environmental effects are expected to result from this PA. A comprehensive DRM legislation to steer national policy Positive poverty or social effects in the Prior action #1 and to enhance disaster and climate resilience in a systematic long run. approach. Positive environmental effects are expected to result from this No significant direct poverty or social Prior action #2 PA, as it supports greenhouse gas mitigation through the tariff effects. setting methodology to promote renewable energy. Positive environmental effects are expected to result from this No significant direct poverty or social Prior action #3 PA, as it supports greenhouse gas mitigation through energy effects. generation expansion planning to promote renewable energy. No significant positive or negative environmental effects are expected to result from this PA. It supports enhanced data Positive effects, in the long run, no effects Prior action #4 protection to increase trust in digital transactions and is likely in the short run. to have a neutral impact on Grenada’s environment and natural resources. Pillar 2 --- Improving sustainability, inclusiveness and accountability of fiscal management Positive environmental effects are expected to result from this No significant direct poverty or social Prior Action #5 PA, through the reduced use of paper sending out tax notices. effects. Positive environmental effects are expected to result from this Prior action #6 PA, as climate budget tagging usually leads to increased public No significant direct poverty or social investments for climate change mitigation and adaptation. effects. No significant positive or negative environmental effects are Prior action #7 Positive effects on the vulnerable groups expected to result from this PA. No significant positive or negative environmental effects are expected to result from this PA. It aims to develop an UI Programme, is expected to protect formal workers over the Positive direct impact on the poor and Prior action #8 longer term from the risk of employment loss arising from vulnerable public health or climate-related disasters - and therefore increase resilience of the labor supply. No significant positive or negative environmental effects are Positive effects, in the long run, no effects Prior action #9 expected to result from this PA. in the short run. Page 60 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 5: POVERTY AND SOCIAL IMPACT ANALYSIS (PSIA) Pillar 1: Promoting a greener and more climate-resilient economy PA 1: The Recipient has approved the “Disaster Management Bill, 2022” for tabling in Parliament to steer national policy and to enhance disaster and climate resilience. 1. Natural disasters can deteriorate growth prospects and the country's ability to reduce poverty and inequality. Grenada is highly exposed to a wide range of natural disasters due to its geographical location. They can have devastating consequences including loss of life, destruction of physical and human capital, and loss of income and wealth. Hurricane Janet in 1953 and Hurricanes Ivan and Emily in 2004 and 2005, respectively, had devastating impacts on the economy and livelihoods of Grenadians (Figure A6-11, a). In addition to hurricanes, several tropical storms have affected the islands in recent years, which, coupled with abnormal weather patterns in the first half of 2018, severely affected the ecosystems and infrastructure, resulting in an economic contraction.37 The large financing needs for post-recovery are typically a challenge for countries like Grenada, thus requiring the collaboration and efforts of different stakeholders, and a comprehensive Disaster Risk Financing plan to meet financing effectively is needed during the reconstruction period (Figure A6-1, b). Figure A6-1 - Macroeconomic consequences of Hurricanes Ivan and Emily in Grenada and financing needs (a) Macroeconomic Trends and Hurricanes (b) Hurricanes Ivan and Emily: Relief, Recovery, Ivan and Emily effects and Reconstruction 150 Hurricane Ivan, 09/2004 100% USD 890 M Hurricane Emily, 07/2005 100 USD 100 M USD 433 million in losses from and Emily combined remain unaddressed 4 years 50% after the event. 50 0 0% 2004 2005 2006 2007 2008 Emergency relief/response funds and International Assistance Multilateral Financing Reconstruction Spending by GoG Private Insurance Source: IMF Staff Country Report 2019 Source: The World Bank (2018) 2. A comprehensive DRM legislation is expected to enhance precautionary planning to ensure the poor and vulnerable are adequately protected. When disasters strike, the poor and vulnerable are typically more affected, as they are more likely to live in areas that are at a high risk of experiencing a hazard, more likely to live in housing and communities that are vulnerable to disasters, and less likely to have access to coping strategies to rapidly recover (Figure A6-, a). Furthermore, households with female 37 OCHA. (2020). Grenada Country Profile. United Nations Office for the Coordination of Humanitarian Affairs. Page 61 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) heads face the highest incidence of poverty in Grenada (18.1 percent versus 13.1 of households with a male head) and live-in dwellings that are less prepared to withstand hurricanes (Figure A6-, b). In this context, gender inequities continue to render women and those who depend on them –children and older adults— highly vulnerable. 38 Natural disasters will likely increase poverty and exacerbate inequalities without an established and effective DRM framework. DRM entails all the activities aiming to cope with a disaster through its life cycle and ensure a rapid and effective recovery. Grenada's DRM framework has advanced significantly since creating the First National Disaster Plan, mainly after Hurricane Ivan in 2005; however, disaster risk finance (DRF) remained unaddressed until 2015. Implementing DRM legislation is expected to address, in a more comprehensive way, all the activities needed to implement policies tailored to those most at risk of natural disasters, enhancing DRM in the country. Figure A6-2 - Indicators of household preparedness for natural disasters (a) Access to insurance, generator, and (b) Households' actions related to preparing emergency kit by poverty incidence dwelling for hurricanes 16% 14.7% 80% 71.4% 73.5% 69.8% 14% 70% 12% 60% 50% 10% 9.1% 8.5% 40% 8% 30% 6% 20% 3.9% 4% 10% 1.5% 2% 0% 0.0% Grenada Female Male 0% Dwelling Owns a Emergency Dwelling Owns a Emergency By gender of household head insurance generator kit insurance generator kit Hurricanes shutters Roof straps Branches Drains Retaining walls Nothing Poor Non-poor Other Source: World Bank staff estimations based on HBS 2018 PA 2: The Recipient has approved regulations establishing an electricity tariff setting methodology to promote (i) efficient operations and energy usage, (ii) long term viability and sustainability of electricity service, and (iii) investment in renewable generation and network. PA 3: The Recipient has approved regulations on electricity generation expansion planning and competitive procurement to support a greener and low-carbon development by (i) scaling up renewable energy investment by the private sector, (ii) reducing greenhouse gas emissions, and (iii) increasing the sustainability and affordability of electricity supply. 3. Improved energy efficiency and affordability of indigenous renewable energy are expected to reduce energy poverty and support the transition to renewable energy. The policies under these PAs 38Kambon et al. (2005), in assessment of Hurricane Ivan from the perspective of gender in Grenada, had found that women and children were uniquely vulnerable to natural hazards due to the existing gender inequities in the country. Page 62 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) entail the scaling up investment in domestic clean and renewable electricity, which may have significant positive effects. Ensuring affordable clean energy is particularly important to guarantee vulnerable populations' access to electricity services at reduced rates. Electricity prices have been identified as one of the main drivers of energy poverty,39 reducing prices is expected to alleviate this and protect vulnerable populations.40Expanded access to electricity is expected to drive vulnerable and energy-poor households to reduce their use of non-sustainable energy sources like coal and fuel, and to increase their use of electricity for cooling, lighting and household appliances, which will ultimately improve their welfare. Shifting from using non-renewable energy sources to renewal sources could help reduce the dependence on imported fuel commodities and reduce the vulnerability inherent to their use, given the high volatility of international petroleum prices. PA 4: The Recipient has approved the “Data Protection Bill, 2022” for tabling in Parliament to increase trust in digital transactions with private and public sector stakeholders by safeguarding personal data of individuals. 4. Better data management and data protection are expected to benefit the poor and vulnerable in the medium- and long term. Improved data management can contribute to enhancing governance and public administration in Grenada, which could translate into tremendous positive effects in different areas that affect the livelihoods of Grenadians. A large body of literature has identified a positive relationship between better governance and public administration, e.g., through the transformation to e-governments and its positive effects on economic growth and poverty reduction. 41 , 42 For instance, better data management can increase the effectiveness of implementing social programs. 43 The experience of different countries in implementing multiagency integrated data systems (IDSs) suggests that these systems are vital for implementing long-lasting and impactful public policies. 44 When data in these systems can be accessed through a single platform, the cost of collecting data from various areas and institutions in reduced; such systems have allowed governments to improve their targeting tools by more accurately identifying the potential beneficiaries of social programs, ultimately translating into better use of fiscal resources. 5. Data management and data protection will help the country transition to a digital economy, leading to profound positive changes through economic diversification and improved resiliency. Better data management is at the core of digital economies, allowing policymakers to implement evidence-based policies and increase citizens' empowerment to hold the government accountable.45 The transition to a digital economy can: i) improve the delivery of public services, ii) increase economic diversification, and iii) improve the country's resiliency to numerous shocks. The delivery of public and private services can benefit the population in general, but the poor and vulnerable in particular, through different channels. 39 Halkos, G. E., & Gkampoura, E. C. (2021). Evaluating the effect of economic crisis on energy poverty in Europe. Renewable and Sustainable Energy Reviews, 144, 110981. 40 Gabiola et al. (2016), indicate that social tariffs are instruments available to governments to alleviate energy poverty. See study here. 41 Nguyen, C. V., Giang, L. T., Tran, A. N., & Do, H. T. (2021). Do good governance and public administration improve economic growth and poverty reduction? The case of Vietnam. International public management journal, 24(1), 131-161. 42 Tapscatt, Don and David Agnew (2000). Governance in the Digital Economy, IMF, FD&R series 43 Fruchterman, Jim (2016). Using Data for Action and for Impact. Retrieved from: https://rb.gy/9yb5en. 44 Coulton, C. J., Goerge, R., Putnam-Hornstein, E., & de Haan, B. (2015). Harnessing big data for social good: A grand challenge for social work. Cleveland: American Academy of Social Work and Social Welfare, 1-20. 45 ‘World Development Report 2021: Data for Better Lives’, World Bank, 2021 Page 63 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) As mentioned above, better data management can improve the implementation of social programs and reduce the government's operative cost, ultimately resulting in fiscal savings that can be reallocated to other priority programs, such as health and education. In addition to this, better management and government digitalization can help reduce the Grenadian economy's dependency on a single sector, such as tourism, and, thus, contribute to economic diversification. Finally, better data management and digitalization can help improve the country's resiliency to different shocks through the continuity of activities such as business, education, health, etc., helping prevent job and income losses if services are disrupted. This is particularly important in the context of natural disasters and climate change, as Grenada's macroeconomic risk is primarily driven by its exposure to natural hazards. Pillar 2: Improving sustainability, inclusiveness and accountability of fiscal management PA 5: The Recipient has approved the online issuance of property tax notices by March 2023, as part of a medium-term strategy to improve tax administration. 6. An effective and efficient tax administration is crucial to achieving macroeconomic stability and growth, reducing poverty, and achieving equal income distribution.46 The vast literature that examines the impact of tax policies on poverty reduction indicates that a more efficient and effective tax administration can translate into considerable fiscal savings, which can be mobilized toward targeted policies for the poor and vulnerable.47,48 The adoption of a digital tax platform, which unifies the several tax payment systems currently in use, is also expected to help in this aspect. These gains can guarantee continuation of tax system procedures in case of disruption, by reducing potential losses on tax revenue with the current, paper-based system; the gains are also likely to increase transparency and accountability of the tax system. Furthermore, the digital tax platform can strengthen the taxpayer-government relationship, and with this, it could encourage and empower current and potential taxpayers to pay their tax liabilities, reducing unnecessary transaction costs, and resulting in additional revenues. The system will need to have clear instructions and employ straightforward procedures. PA 6: The Recipient has approved the development of a climate change budget tagging methodology by the Ministry of Finance to identify and manage climate spending. The proposed PA is not expected to directly impact poverty and inequality in the short term. By identifying investments related to climate change, in the long run, this measure may indirectly affect social outcomes by improving resilience to climate change if investments in climate resilience come to fruition. PA 7: As part of its policy to promote gender inclusivity, the Recipient has decided to mainstream gender 46 Tanzi, V., & Pellechio, A. J. (1995). The reform of tax administration. IMF Working Papers, 1995(022). 47 Gemmell, N., & Morrissey, O. (2005). Distribution and poverty impact of tax structure reform in developing countries: How little we know. Development Policy Review, 23(2), 131-144. 48 Fan, S., Saurkar, A., & Shields, G. (2007). How to mobilize public resources to support poverty reduction. Twenty Sarkar (2020) focus brief on the world's poor and hungry people/International Food Policy Research Institute (IFPRI) . Page 64 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) considerations in the national budget on a pilot-basis for the 2022 budget. 7. It has been well documented that gender equality boosts economic growth and contributes to poverty reduction; therefore, it is essential for long-term development. 49,50 The economic literature indicates that ensuring equitable access of women and youth to opportunities and empowerment – i.e., access to education and markets, and having voice - contributes to inclusive growth and is instrumental in achieving more effective development outcomes. Policies like those considered under this prior action that seek to reduce gender gaps by improving the impact of women and gender subgroups, can have an important impact in the medium- and long term for gender equality, and as a consequence for poverty and inequality. Clear identification of expenditures targeted to women would help create awareness and modify policies to increase society's welfare through gender inclusion. PA 8: The Recipient has approved a proposal to support the implementation of a permanent funded UI Programme and appointed the National Insurance Scheme (NIS) as the implementing agency to drive the process of developing the final framework and drafting legislation for the introduction of said permanent Programme. 8. Social protection programs, such as a permanent unemployment benefits program, are key to achieving the twin goals of poverty reduction and shared prosperity. There is ample evidence that social protection systems reduce poverty and increase economic mobility, protecting human capital and strengthening a country's economic development.51,52 While these systems entail a wide variety of social programs, UI or benefits are key for protecting workers, especially during periods of high unemployment, helping to smooth consumption and prevent increases in poverty.53 In Grenada, the approval of a formal Unemployment Benefits Program (UBP) will be important to protect formal workers from income losses during a crisis or natural disaster and increase the working population's resilience in general. Workers must be registered at the NIS in order to participate in the unemployment benefits program. As of 2018, the registration rate at the NIS of employers and the self-employed was just about 32%, with those at the bottom of the distribution being the least likely to register (Figure A6-, a). In the case of employees, the percentage of employees registered at the NIS is slightly above 74%, indicating that approximately 26% of workers are not covered by the NIS unemployment programs. In this context, the approval of a formal unemployment program will help protect workers at risk, especially if the process is straightforward and is able to encourage unregistered/informal workers to also register at the NIS and receive the benefit. This will achieve gains at the individual level, and have the additional benefit of increasing the 49 Kabeer, N., & Natali, L. (2013). Gender equality and economic growth: Is there a win‐win? IDS Working Papers, 2013(417), 1- 58. 50 World Development Report 2006: Equity and Development (English). Washington, D.C.: World Bank Group. 51 Nolan, B., Hauser, R., & Zoyem, J. P. (1999). The changing effects of social protection on poverty . Johann Wolfgang Goethe- Univ., Fachbereich Wirtschaftswiss. 52 Cecchini, S. (2014). Social protection, poverty and inequality: a comparative perspective. Journal of Southeast Asian Economies, 18-39. 53 O'Campo, P., Molnar, A., Ng, E., Renahy, E., Mitchell, C., Shankardass, K., & Muntaner, C. (2015). Social welfare matters: a realist review of when, how, and why unemployment insurance impacts poverty and health. Social Science & Medicine, 132, 88- 94. Page 65 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) formalization of the labor market. Figure A6-3 - NIS registration and access to the financial sector by job category and expenditure distribution, 2018 (a) Employers and self-employed' NIS (b) Employees' NIS registration and access to registration and access to the financial sector the financial sector 90 100 80 90 80.95 78.32 70 80 74.12 73.75 69.97 67.24 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 all employers Q1 Q3 Q5 all Q1 Q2 Q3 Q4 Q5 Registered NIS Bank or CU NIS NIS or other bank or CU Source: World Bank staff estimations based on HBS 2018 Notes: Quintiles are estimated based on expenditure per capita. PA 9: The Recipient has approved a proposal for the establishment of the semi-autonomous National Statistical Institute of Grenada to strengthen the country’s statistical system. 9. The establishment of a semi-autonomous and well-articulated NSI is expected to strengthen the government's capacity to deploy data and use them to provide solutions to benefit society. This PA is an important step toward enhancing the country's capacity to produce high-quality and reliable data to better inform policy-making about the conditions of the different target populations for the various social programs. The creation of the NSI is expected to facilitate the government to collect and monitor the main statistics and transition to the implementation of evidence-based policies. Additionally, creating a semi- autonomous institute will enhance the monitoring of gender gaps in areas like education, labor markets, etc., and facilitate the design and implementation of policies to reduce gender gaps in the country. It will also improve the construction and reporting of the SDG indicators, which will allow assessing the progress towards the achievement of the SDGs and the 2030 agenda. Page 66 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 6: SUPPORTING TABLES Annex Table 1-A. Fiscal Costs of First COVID-19 Mitigation Measures (2020) Millions of EC$ % of GDP Measure 72.8 2.4 Income and payroll support program (CESS) 20.0 0.7 Temporary unemployment benefits (NIS)* 10.0 0.3 Expansion in Small Hoteliers' Facility (Grenada Development Bank) 7.0 0.2 Expansion in Small Business Development Fund (Grenada Development Bank) 5.0 0.2 Electricity subsidy (3 months) 7.3 0.2 COVID-related Health Spending 10.0 0.3 Agriculture Emergency Response Plan 3.5 0.1 Farm Labor Support 1.4 0.0 Marketing and National Importing Board support 1.0 0.0 Backyard Garden program 0.1 0.0 Grenada Cooperative Nutmeg Association (GCNA) 2.0 0.1 Grenada Cocoa Association (GCA) 2.0 0.1 Community Economic Infrastructure program 6.0 0.2 *Temporary unemployment benefits funded through NIS and so are not a direct fiscal cost to the Central Government budget. Source: World Bank, GoG, IMF. Note: The mitigation measures are financed by the Supplementary Budget (EC$50m), funds freed through the DSSI (EC$10.8m) and reprioritization of expenditures. Annex Table 1-B. COVID-19 Economic Stimulus Package 2.0 (2021) Millions of EC$ % of GDP Component Measures 36 1.2 Part A MSMEs Covid-19 Support Fund Facility for MSMEs 5 0.2 Small Hoteliers Facility 2 0.1 Restructured Small Business Development Fund 5 0.2 Part B Protection for the vulnerable population currently on the rosters of Component 1 5.3 0.2 existing cash transfer program Component 2.1 Income Support to Informal Sector Workers 6.7 0.2 Component 2.2 Support to Expand Youth Entrepreneurship Program 1.35 0.0 Component 3.1 Unemployment Benefit Program 2.6 0.1 Component 3.2 Support to Formal Employment Programs 8 0.3 Component 4 Internet Connectivity Program (ICP) . . Page 67 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Annex Table 2. Standardized Table for FY22 PPAs (Approved) Country PPA Areas Proposed FY21 Progr Brief rationale for the PPAs Analytical underpinning Supporting Verified Evidence of Timing of Characteristics (2) PPAs amm (5) (6) Operations through Implementation implementat (1) (3) atic (7) (8) (9) ion of PPAs (Y/N) (10) (4) Country: Grenada Debt PPA1: The Y Continuing publication of the DeMPA (2018) PEFA (2010). DPO Verification • Government’s By June 30, FCV(Y/N): N Transparen Government has debt reports and bulletins with a Areas of needed (Grenada - through DPC letter 2022 Small State (Y/N): cy and improved the consolidated coverage is critical, improvements in debt COVID-19 and TA confirming the Y timely timeliness and given the surge in borrowing transparency include the Crisis policy publication Debt Risk: In reporting completeness of and increase in debt levels in timely publication of debt Response dialogue, time of the distress (technical debt reporting by 2020. Improved transparency reports and the expansion of and fiscal with check- report; arrears) publishing the will also provide reliable debt coverage to public Managemen ins by • Online link to DSSI (Y/N): Y annual Debt information to make informed guaranteed and SOE debt. t DPC, country the published IMF Program: RCF Management borrowing decisions; for P174527) team. report; Report for calendar creditors to assess • Review by the year 2021 by June creditworthiness, and price debt global debt unit 30, 2022, including instruments appropriately. The of the content. government debt, quarterly debt bulletins are not government only important for more timely guarantees and information, but also a critical SOEs’ debt, as well step toward the preparation of as detailed annual reports, that focus more information on all on reviewing debt strategies loans that have and outline the borrowing plan been signed and for the following years. disbursed in 2021. Debt PPA2: The Y The inclusion of SOE contingent Technical Assistance: DPO Verification • Government’s By December Transparen Government has liabilities will aid the MoF in Presentation of the Toolkit (Grenada through DPC letter 31, 2021 cy and published online identifying and quantifying and Guidelines for Second and TA confirming the timely the Fiscal Risk estimates of the fiscal risks Contingent Liabilities (World Fiscal policy publication reporting Statement for 2022 associated with contingent Bank, March 2019) Resilience dialogue, time of the by December 2021, liabilities for the SOE sector. SOE Sector Assessment and Blue with check- Fiscal Risk which includes the Through improved monitoring Policy Note, WB, 2018 Growth ins by Statement; quantification of and analysis, over the medium- CARTAC Annual Report 2018 Developmen country • Online link to contingent liabilities term, the Government will be Review of the Financial t Policy team. the published of State-owned better prepared to manage Performance of SOEs and Credit Enterprises (SOEs). fiscal challenges if contingent Analysis of Restructuring (P167748) Page 68 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) risks materialize. Options, CARTAC, 2014. TA. Fiscal Risk Statement; • Review by the global debt unit of the content. Page 69 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) ANNEX 7: SUMMARY OF FISCAL MEASURES IN GRENADA PRE-AND-POST PANDEMIC Area Established Measures by 2019 Post-pandemic status and new measures Fiscal outturns Tax revenue • Tax revenue has been maintained above 22% of GDP • Measures will be maintained. before the pandemic, higher than the end of IMF program • Some temporary tax policy changes as part of COVID-19 stimulus plan to mitigate in 2016 (at 20.9% of GDP); the negative impacts. • financial activities tax (2015; 0.3% of GDP) • increase of the Petrol Tax by EC$1 per gallon (2015; 0.4% of GDP) • increasing property tax rates (2015; 0.1% of GDP) • VAT on fee-based banking services (2015) • 10% VAT on SGU on-campus housing (2016; 0.1% of GDP) • reducing the personal income tax threshold (one of the highest in the region) (2016); • reduced exemptions under the VAT and customs duties (2016) CBI revenue • 40% of net money inflows into National Transformation • CBI performance was strengthened in 2020 and further in 2021. Fund/CBI goes into the Contingency Fund for debt • 2020 received a total of 394 CBI applications, compared to 373 in 2019. CBI- reduction/contingency. budgetary fees doubled over the same period. • As of October 2021, 437 applications have been received, far exceeding 2020. • The geo-political tensions and the durable pandemic impacts may further boost the CBI demand. Tax administration • adoption and expansion of ASYCUDA system, which • A unified online tax payment system is expected to be launched to improve tax enhanced tax revenue collection (2014) compliance and reduce tax administration costs. • adoption of electronic declarations and other automatic • Large taxpayers are expected to obligatorily pay VAT/PIT taxes online processes (2017) • E-registration of large taxpayers and online businesses. • Corporate Strategic Business Plan • Enforcing the Tax Administration Act by charging penalties for failure to register • Taxpayer Compliance Strategy will also be implemented. • establish the Write-Off Committee to implement due date text reminders through mobile networks. • Collaboration with the Grenada Bankers’ Association and the Cooperative League to ensure improved tax compliance by non-compliant taxpayers will be pursued. Wage Bill • Wage bill had been consistently declining from 10.7% of • Continued adherence to the attrition policy. GDP in 2013 to 7.7% in 2019. • 2022 Budget announced the return to 9 percent of GDP in 2023, consistent with the FRA. Page 70 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) • Combination of wage freeze and an attrition policy, under which no more than three of every ten employees departing the public service are being replaced (2014-16; 0.3% of GDP) • Public sector modernization policy, establishing procedures for: (i) strategically realigning public employment; (ii) strengthening management of selected agencies; and (iii) developing a results focus in planning and budgeting. • FRA, which dictates that spending on the wage bill cannot exceed 9 percent of GDP (2015) • Compensation Management Policy Framework, which sets parameters for Public Service compensation within a sustainable and affordable wage bill and strengthens the alignment of pay to performance (2018). • Public Sector Wage Negotiation Policy, which requires that compensation be determined and managed to ensure wage bill adhering to the fiscal responsibility parameters. (2019) Interest payment • Has been decreasing consistently until 2019 • Projected to drop below 2% of GDP by 2023. • Debt restructuring under IMF program 2014-16 and implementation of Public Debt Management Act (2015) • Enhanced fiscal performance and transparency increased access to concessional financing and lowered costs. Capital expenditure • A comprehensive Project Information Management Software will be developed for rollout in 2023 • 52.5% (EC$175.4 million) of the capital expenditure in 2022 is financed by grants; 15.9% (EC$53.1 million) by concessional loans from WB and CDB; the rest is from domestic revenue. • Projects focus mainly on resilience strengthening (e.g., Solar PV/Battery Hybrid Project; Grenada Climate Resilience Water Sector Project; established grant for climate change resilient investments; “Climate Resilient Cities”, WB Digital Governance for Resilience Project), climate change mitigation (e.g., projects funded under Global Environment Facility; Climate Resilient Agriculture), promoting growth (e.g, WB Regional Tourism Competitiveness Project; MBIA Expansion to allow more flights capacity; agri-business enhancement; food- exports enhancement) and supporting social development (e.g., National Page 71 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) Adaptation Planning for Improved Food Security; WB Regional Health Project; BNTF IX to build village toilets, water treatment, school improvement; CDB Education Enhancement Project; UNDP gender project – Spotlight Initiatives) • Some projects, which incur fiscal costs in the near term, are expected to generate fiscal savings over the long term. E.g., replacing Traffic Lights with solar PV to enhance energy efficiency; Solar PV/Battery Hybrid Project to install a Solar PV/Battery Hybrid plant, which could mitigate the expected increases of using fossil resources and reduce utility bill. Spending efficiency Social safety network • Consolidated major transfer programs into one Support • The targeting tool and the SEED program facilitated more accurate fiscal for SEED; supportive measures during the pandemic. • Applied to SEED a new targeting tool, the GLCI, to recertify existing beneficiary households and identify potential new beneficiary households budget tagging Adopted gender-responsive budget tagging and climate resilience budget tagging to identify gaps, monitor and track spending in prioritized areas Procurement • Established Priority and Planning Consultative Committee, An Action Plan has been developed to strengthen expenditure controls, including: headed by Permanent Secretary at the Ministry of Finance, • All Ministries and Departments to prepare quarterly budget implementation has been tasked to select prioritized projects, monitor plans for both recurrent and capital expenditure. project implementation, and report to the Cabinet on a • All Ministries and Departments to: (i) submit their quarterly procurement plan quarterly basis. (2019) (for both capital and recurrent items) when submitting their quarterly cash • Approved a policy framework with clear guiding principles flows; and (ii) enter their requisition when they begin the procurement process and processes for identifying PPPs, and established a PPP so that budget is set aside. Unit to conduct the function • Donor-funded projects to be integrated with SmartStream (budget control, commitments, accounting, bank reconciliation, and reporting) and Government’s Treasury manual controls to be implemented for donor projects as well. • The Procurement Unit to prepare quarterly reports on the execution of all contracts for works, goods and services (exceeding EC$15,000) detailing: (i) information on payments occurring during the quarter and pending payments; and (ii) comparing actual payments with estimates in Procurement Plans. The quarterly reports to be submitted to the Minister of Finance and Cabinet. Debt Risks SOE • Established a report card system to track key performance • Quantitative SOE contingent liability is included in the FRS for the first time in indicators of the commercial SOEs (2017) November 2020. • approved the publication of SOE’s aggregate annual financial information to enhance the fiscal transparency and accountability of SOEs (2019) Page 72 The World Bank Grenada First Recovery and Resilience Programmatic DPC (P176663) • Annual debt reports have been reporting SOE debt. Climate resilient risks • modified its building codes to improve resilience of • adopted a policy framework on investment and asset management providing an housing infrastructure (2017) overarching governance framework for public assets in Grenada, involving a • some Grenada bonds included hurricane clauses, whereby comprehensive (physical) assets registry, and with links to climate change and debt service on the restructured debt would be disaster risk management (2020) automatically re-profiled following a hurricane and in • Approved the Disaster Risk Financing Strategy (2021) some cases other types of natural disaster (EC$45 million) • Expected enactment of the DM Act to establish a holistic mechanism to • layered financing cushions: Contingency fund; Cat DDO; coordinate cross-ministry DRM efforts CCRIF; Other mechanism to • Approved the policy framework of a UI Programme to alleviate the fiscal burdens shocks to provide unemployment allowance during crises. Public finance Transparency Medium-term fiscal • prepared and published annually • MTFF 2022-24 has been updated to have included quantitative analysis of fiscal framework projections Fiscal rule • Established independent monitoring committee – Fiscal • Memorandum and Medium-term recovery plan are published in November implementation Responsibility Oversight Committee (2017) 2021, as required under the FRA following the Escape Clauses. • Annual reports published by FROC (2019) Medium-term debt • prepared and published annually, including annual strategy borrowing plan Debt reporting • Annual debt report; • Improved timeliness in 2020/21, by publishing annual report within 6-month • Quarterly debt bulletin; after the end of a fiscal year; quarterly bulletin within 3-month after the end of a quarter. • Disclosed the financing information of all newly disbursed loans in the fiscal year in the corresponding annual report (2021) Fiscal Risk Statement • Fiscal risk statement is being prepared and published • Quantitative SOE contingent liability is included in the FRS for the first time in annually. November 2020. COVID-19 financial • Report of COVID-19 related expenditure is being prepared and expected to be report completed by June 2022. Audited government • adopted the cash basis IPSAS for the preparation of its public accounts (2020) financial statements • Ongoing preparation of the audited financial statements the first publication expected by June 2022. Other improvement • Fiscal data is published on a monthly basis • adopted the code of ethics and audit standards promulgated by the Institute of • CBI statistics is published online quarterly Internal Auditors (IIA) (2020) Page 73