THE International Monetary Fund (IMF) is reporting that Grenada’s economy is recovering. But Grenadians are not out of the woods yet. Although Grenada’s real gross domestic product (GDP) is projected to expand by 4.3 per cent in this year, the spice isle — like the rest of the world — is expected to feel the full brunt of inflation, rate hikes and increased volatility in the global oil and commodities market. Grenada’s inflation rate for 2019 was 0.60 per cent, a 0.21 per cent decline from 2018 but going forward, inflation in Grenada is projected to average 2.4 per cent. The country’s fiscal balance excluding interest payments is estimated to have maintained a surplus of around two per cent of GDP and public debt declined to 70 per cent of GDP in 2021.

In its concluding statement of the 2022 Article IV Consultations, the IMF mission noted that the tourism-dependent economy recorded higher stay-over tourist arrivals in the last months of 2021 but remained at only 25 per cent of pre-crisis levels for the year as a whole. Official data from Grenada’s tourism ministry show that tourist arrivals totalled 367,989 in 2019, 210,858 in 2020 and 26,331 in 2021. Despite the decline, the country has been working on improving its tourism product to lure more visitors to its shores. In the 2021 budget EC$19.3 million was set aside to support the renewal of Grenada’s tourism product offerings.

Even though Grenada’s economy was hit hard by the novel coronavirus pandemic, the IMF said decisive policy response — supported by the policy space that was created from past fiscal prudence — has helped contain the spread of the virus, protect lives and livelihood and pave the way for a gradual recovery. Grenada’s fiscal responsibility law (FRL) was introduced in 2016 and holds the Government accountable for how public funds are spent. Grenada is the second of only three countries in the Eastern Caribbean to introduce this self-imposed rule and one of the first countries in the Caribbean to appoint an independent body, the Fiscal Responsibility Oversight Committee (FROC), to oversee its spending activities.

To counter the social and economic effects of the pandemic, the Government suspended its fiscal rules in 2020-2021 in order to increase health, social, and capital expenditure. At the same time, loan moratoria and regulatory forbearance have supported credit provision and mitigated the impact of the pandemic on Grenada’s financial system. The authorities also triggered the escape clause for the fiscal rules for the third year allowing the 2022 budget to provide essential support to economic activity. Measures to provide fiscal relief have so far helped to mitigate the impact on households of rising living costs. But the IMF has admonished that these fiscal relief measures should be temporary.

According to the multilateral lending agency, the immediate priorities are to accelerate vaccination and provide time-bound fiscal support. The total COVID-19 vaccine doses administered in Grenada amounts to 86,011 with the total number of fully vaccinated people standing at 37,504. This means that in a population of 112,519 only 33.3 per cent are fully vaccinated. The mission further highlighted that once the recovery is firmly in place, fiscal buffers should be rebuilt — including by returning to the fiscal rules in 2023 — while reprioritising spending to make space for needed investments in building resilience to climate change.

Prospects for growth and job creation would also be strengthened by enhancing the domestic value added of tourism, including through strengthening agricultural sector linkages, investing in skills development and training, and shifting toward renewable energy. In a survey looking at the impact the novel coronavirus pandemic on Grenadians 48 per cent of respondents reported that their incomes are being impacted, with loss of jobs or reduced salaries which is in line with the regional average. In 2020, Grenada lost more than 14,000 jobs from a labour force of approximately 50,000. As of November 30, 2020, commercial banks in Grenada deferred debt service on 4,069 commercial bank loans due to job losses and a reduction in salaries caused by the novel coronavirus pandemic. This was the second highest number of deferrals in the Eastern Caribbean Currency Union (ECCU).

Notably, construction and agriculture rebounded faster than many other sectors. Construction activity slowed in 2019 but have picked up again with the introduction of a $2 billion new resort project, among other ventures. Meanwhile, agriculture in Grenada continues to contribute about 6.4 per cent of GDP and generates 7.3 per cent employment.

Still, the risks to the outlook are significant. Higher food and oil prices and prolonged supply chain disruption could lead to further increases in inflation.

Notwithstanding, Grenada is working to increase the efficiency of its public spending by improving the implementation of public investment projects while reducing costs and lessening fiscal risks. The IMF said implementing the 2017 Public Service Management Reform Strategy would increase the quality of public service delivery by retooling the public service and putting focus on strategic compensation management. The reform will help Grenada to modernise its public sector and reduce its public sector wage bill by making the public sector more efficient. It was also noted that better targeting and enhanced coordination across ministries, including through a comprehensive database of beneficiaries, would increase the impact of the existing social assistance programmes. The bulk of the social assistance provided in Grenada is operationalised through the Support for Education, Empowerment and Development programme (SEED). The efficient implementation of SEED hinges on a properly functional management information system which includes a beneficiary registry and the new assessment tool called the Proxy Means Test (PMT).