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Economic Situation and Prospects in Grenada

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Grenada’s economic situation is expected to remain favorable in the medium term, but there are risks that need to be managed in the short term.

Key Points

Financial Soundness Indicators

  • The credit unions in Grenada have been setting provisioning according to IFRS 9 since 2018.

Real Economy

  • The real economy is projected to expand at a slower pace of 3.9 percent in 2023, due to moderation in activity of both tourism and construction.

Inflation

  • Inflation is projected to reach 3.2 percent by end-2023, driven by slow pass-through of global prices to domestic prices as temporary relief measures are scaled back.

Current Account Balance

  • The current account balance is expected to improve modestly to -14.8 percent of GDP, reflecting rising tourism receipts.

Fiscal Position

  • The primary fiscal balance will rise to 3.6 percent of GDP, putting public debt on a firm downward path to 55 percent of GDP by 2025.

Medium-term Outlook

  • Tourism and public investment will remain key drivers for growth, allowing output to gradually converge to potential by 2028 and remain around that level thereafter.

Risks

While the medium-term outlook is favorable, there are important near-term downside risks, including:

  • An economic slowdown of key tourist source markets (the U.S. and U.K.)
  • High import costs for construction materials
  • A renewed upswing in commodity prices
  • A larger-than-expected decline in CBI inflows

Recommendations

In case any of these risks materialize, policy responses should include:

Policy Response

  • Targeted transfers to the vulnerable
  • Reductions of lower priority spending
  • More intense financial sector oversight

Managing Risks to Debt Sustainability

  • A strong commitment to the fiscal responsibility framework
  • Further improvements in debt management
  • Implementing pension and national insurance scheme reforms

Upside Risks

There are also upside risks that could positively impact growth, including:

  • A stronger-than-expected tourism recovery
  • Larger domestic spillovers from capital expenditures
  • Rapid implementation of reforms to improve competitiveness
  • Accelerating the move to renewable energy