Vol. 151, No. 11 — May 31, 2017
SI/2017-26 May 31, 2017
FINANCIAL ADMINISTRATION ACT
Government of Grenada Remission Order
P.C. 2017-550 May 19, 2017
His Excellency the Governor General in Council, considering that it is in the public interest to do so, on the recommendation of the Minister for International Development and the Treasury Board, pursuant to subsection 23(2.1) (see footnote a) of the Financial Administration Act (see footnote b), remits to the Government of Grenada the amount of US$539,099 and interest payable on that amount, up to a maximum amount of C$980,000 in total, which represents the amount payable by that Government to the Government of Canada under a contribution arrangement made on February 3, 2005.
(This note is not part of the Order.)
The Governor in Council, on the recommendation of the Treasury Board and the Minister, makes the Remission of a Debt Order pursuant to subsection 23(2.1) of the Financial Administration Act (FAA).
The purpose of this Order is to remit the debt of US$539,099 and interest payable on that amount owed by the Government of Grenada to the Government of Canada with respect to a contribution made to Grenada following Hurricane Ivan in 2004. By way of a contribution arrangement, Canada, through the Canadian International Development Agency (CIDA), contributed C$4.8 million to assist Grenada in its post-hurricane reconstruction. Two costs audits of the project reported unreconciled adjustments, comprised primarily of fees/technical assistance, operations cost, and some retroactive spending.
Between 2008 and 2012, CIDA made several attempts to recover the funds. The Government of Grenada responded that the funds in question were spent on legitimate reconstruction and that the severe debt situation, exacerbated by the hurricane, prevented repayment, as outlined in letters from the previous and current prime ministers of Grenada to the Prime Minister of Canada requesting that the debt be expunged. Recovery of the debt (unaccounted for funds), is highly unlikely given the lack of success of efforts to recoup the debt to date. Therefore, the Minister of International Development and La Francophonie recommended that the debt owing to Canada be remitted. Therefore, the Governor in Council has determined that the remission of the debt and accrued interest, as outlined in subsection 23(2.1) of the FAA, is the most appropriate course of action, as an expression of support for Grenada’s economic recovery and growth in accordance with Canada’s priority for development assistance in the region is in the public interest.
An estimated amount of up to C$980,000 is being sought to account for anticipated accrued interest and potential currency and interest rate fluctuations.
In the aftermath of Hurricane Ivan, which struck Grenada on September 7, 2004, the Government of Canada, through CIDA, contributed C$4.8 million to the Government of Grenada to assist with the creation of the Agency for Reconstruction and Development (ARD) to coordinate the country’s post-hurricane reconstruction. ARD provided the Government of Grenada with much needed institutional capacity to oversee and coordinate incoming development assistance, as well as supervise related contracts for reconstruction. CIDA’s contribution was used to meet costs to establish and operate the ARD.
Cost audits of the project conducted in 2007 reported adjustments owing to CIDA in the amount of US$539,099. Between 2008 and 2012, CIDA made several attempts to recover the funds. The Government of Grenada replied that the funds in question were spent on legitimate reconstruction and that the severe debt situation in Grenada prevented repayment as outlined in letters from previous and current governments requesting that the debt be expunged. Despite requests from CIDA and visits from auditors to facilitate the process to reduce the adjustments, the ARD was unable to provide additional supporting documentation, such as receipts and invoices. However, CIDA commissioned a review of the project’s outcomes and in the report “Lessons Learned of the Agency for Reconstruction and Development,” it notes that ARD achieved some very key outcomes. Among others, ARD directly impacted the reconstruction effort, as reflected in the following indicators reported in 2007: 80% of the homes damaged by Hurricane Ivan had been repaired; 710 new homes were constructed by the Government of Grenada; the Government of Grenada gave assistance in the form of building materials to 7 000 persons; 6 000 acres of agricultural land were cleared; 95% of the tourism hotels were back in operation; and 90% of damaged schools were rehabilitated. Given this situation, CIDA’s Chief Financial Officer Branch created an account receivable on February 23, 2009 in the amount US$539,099 and interest payable on that amount.
Recovery of the debt is highly unlikely given the overall debt position of the Government of Grenada, which has progressively worsened during the past five years. In March 2013, Grenada defaulted on its debt to private creditors, as it was unable to make interest payments on bonds. Since then, Grenada has been seeking to write down the amount of debt it owes to key private and bilateral creditors. In 2014, Grenada reached agreement with these creditors to restructure its debt obligations; a key milestone in the restoration of Grenada’s debt sustainability.
With the debt restructuring noted above, Grenada negotiated a Paris Club rescheduling agreement on November 18, 2015. A Paris Club is a group of officials from major creditor countries whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. As debtor countries undertake reforms to stabilize and restore their macroeconomic and financial situation, Paris Club creditors provide an appropriate debt treatment. The four Paris Club creditors, which represent 2% of Grenada’s external debt, will reschedule amounts due, but will not reduce funds owed. Grenada is making some progress under a US$21.9 million International Monetary Fund Extended Credit Facility (ECF), but full recovery is hampered by an unemployment rate of around 33.5% (2013) and a debt (currently US$893 million) to GDP ratio of 108%. The International Monetary Fund notes that Grenada’s risk of external debt distress has diminished with the progress in debt restructuring. However, it will remain classified as “in distress” until all debt restructuring steps are completed. The remission of the debt of US$539,099 would reduce Grenada’s debt to Canada and free up funds to support economic development.
The decision to allow the remission of the debt reinforces Canada’s broader development objectives in the region to stimulate inclusive economic growth. In an effort to reduce poverty and create conditions to stimulate sustainable economic growth in Grenada, the Government of Canada is relieving the country of its debt obligations to Canada stemming from the 2004 hurricane.
There are no financial implications for Global Affairs Canada, as funds are available within the fiscal framework.
Consultations took place within Global Affairs Canada, the Treasury Board of Canada Secretariat and the Department of Justice. All were in agreement with the remission of the debt.
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