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Grenada’s Fiscal Risks: A Delicate Balance
A recent report by the Ministry of Finance has highlighted several risks that could impact Grenada’s domestic prices for services provided by state-owned enterprises (SOEs). The report, which analyzed various economic indicators, identified several areas of concern.
Contingent Liabilities Remain a Concern
One of the key risks identified is the contingent liabilities associated with SOEs. These liabilities remain low, but the report warns that they could pose a significant risk to the government’s fiscal accounts if not managed prudently. The report notes that some SOEs have non-guaranteed debt of $141.1 million, which could potentially be borne by the government if these debts are not repaid.
Climate Change: A Growing Concern
Another area of concern is climate change. Grenada is highly vulnerable to natural hazards, and the report estimates that the country incurs annual losses of around $20 million due to wind-related events and floods. The government has implemented various measures to build resilience to climate change, including:
- Insurance
- Contingencies
- Lines of concessional credit
- Budgetary set-asides
Financial Sector: A Watchful Eye
The financial sector remains a concern, with some banks experiencing elevated non-performing loans. The report notes that while the banking system is strong, enhanced financial sector surveillance and continued efforts to safeguard financial stability are necessary.
Public-Private Partnerships: A Delicate Balance
Grenada’s public-private partnerships (PPPs) were also analyzed in the report. Two existing arrangements were identified, including:
- A 15-year agreement with Digicel
- The Grenville Commercial Complex
While these PPPs have no explicit related contingent liabilities, the report notes that they still pose risks that need to be managed.
Risk Assessment Summary
The report provides a risk assessment summary, which highlights several areas of concern. These include:
- Macroeconomic risks
- Budget implementation risks
- Capacity and institutional constraints affecting project implementation
- Larger-than-anticipated pension liabilities
- Fiscal risks from state-owned enterprises
The report recommends various measures to manage these risks, including:
- Targeted support for sectors affected by the economic slowdown
- Prudent use of the Contingency Fund
- Structural reforms to diversify the economy
Conclusion
Overall, the report highlights the importance of careful management of Grenada’s fiscal risks to ensure the country’s economic stability and resilience.