069_G17_InFocus_Grenada

Global_17

In Focus Grenada Balancing the books: Grenada tackles its national debt National debt is running at more than 100 per cent of GDP and unemployment is high. But recovery is on the horizon, with the tourism sector ripe for development Neil Ford In common with most other countries in the region, the economy of Grenada is shaped by its geography. On the positive side of the equation, its topography and climate allow the cultivation of high-value crops and provide the perfect setting for a holiday destination. Yet the island nation’s small size poses a series of problems that are typical of micro-states: a narrow economic base, high per capita running costs for all institutions and a lack of diplomatic muscle in international affairs. The climate also has a negative impact on the country’s two main sectors: agriculture and tourism. Hurricane damage is a fact of life in the region but hurricanes Ivan in 2004 and Emily one year later both had a substantial impact on the economy. Both events deterred visitors and destroyed crops – indeed Ivan is estimated to have knocked seven per cent off the GDP in 2004, although the international community did provide some donor support. As ever with tourist destinations, international crises such as the 2001 9/11 terrorist attacks in the USA and the global economic crisis of 2008-09 also deterred visitors. This string of setbacks has helped to create the biggest economic challenge facing Grenada – the national debt. Successive governments had largely balanced their budgets until the turn of the new millennium, albeit with some limited donor support. However, the debt has grown over the past 12 years to reach EC$2.3 billion (US$862 million) by April this year, equivalent to 108 per cent of GDP. Most of this is either bilateral debt or owed to multilateral financial organisations, including the World Bank and Caribbean Development Bank. Debt restructuring in the wake of hurricane Ivan failed to solve the problem and repayments comprise a massive 41 per cent of this year’s state budget at EC$465 million (US$169 million) a year. Difficulties with the national debt came to a head in April, when the government defaulted on its EC$193 million 2025 bond. Ripe Trinitario cocoa bean pods, grown in Grenada’s rainforest, are known for their fine flavour New Prime Minister Keith Mitchell promised: “It is now time for Grenada to confront the fact that it cannot continue to pay its debts on current terms, and that the restoration of growth requires the debt overhang to be resolved. We need a fresh start, and it is therefore imperative that we approach our creditors promptly to discuss Although Grenada boasts many of the same attractions as other island nations in the region, less investment has been put into developing tourist infrastructure an orderly restructuring of our liabilities.” The government hopes to reach a compromise with creditors in the near future, although any debt reduction is likely to be dependent on cuts to state spending. However, the economy is already fairly open and many state-owned enterprises were sold off in the past, so there is unlikely to be any clamour for privatisation, particularly as the World Bank and the International Monetary Fund (IMF) are now less prescriptive in their solutions for economic ill health than in the past. Anaemic economic growth over several years has reined in government revenues and prevented the erosion of the debt, although the economic picture is not entirely dire. Inflation has been under control for many years, partly because monetary policy is free from direct political interference as it is managed by the Eastern Caribbean Central Bank. global f i rst quar ter 2014 www.global -br ief ing.org l 69 


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