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Grenada’s Fiscal Risks: A Complex Landscape

A new report has revealed that Grenada faces a multitude of fiscal risks, including those related to its service sector, public-private partnerships, and climate change.

Service Sector Risks

The country’s service sector is expected to grow by 0.5% of GDP in 2022, but this growth comes with risks associated with interest rates and domestic prices. The report also highlights the increased remuneration for employees as a result of salary negotiations, which could pose sustainability risks.

Unfunded SOE Pension Scheme

The unfunded SOE pension scheme remains a sustainability risk. Contingent liabilities related to SOEs remain low, but the current economic environment poses moderate fiscal risks due to the COVID-19 pandemic.

Natural Disasters and Climate Change

Grenada is vulnerable to natural disasters, with climate change being a major driver of more intense and frequent natural disasters. A joint World Bank-IMF Low Income Country Debt Sustainability Analysis published in 2018 estimated that natural disasters could result in increased expenditure of around 5% of GDP to cover reconstruction costs.

Other Potential Sources of Risk

Other potential sources of risk include:

  • The financial sector, which has been characterized by high liquidity but may still face challenges due to the pandemic.
  • Public-private partnerships, which pose limited explicit contingent liabilities but require ongoing surveillance and safeguards.

Report Recommendations

The report provides a comprehensive risk assessment summary, highlighting key areas of concern and measures to manage or mitigate these risks. The government is urged to:

  • Implement targeted measures to support sectors most directly affected by the pandemic.
  • Continue to strengthen public investment management systems to improve execution of the capital budget.
  • Diversify the economy to boost resilience.
  • Continue to build fiscal buffers to mitigate climate-related shocks.

Key Takeaways

Fiscal risks in Grenada’s service sector, public-private partnerships, and climate change pose significant challenges. The report emphasizes the need for prudent fiscal management and strategic planning to address the complex risks facing Grenada’s economy.

Recommendations

  • Implement targeted measures to support sectors most directly affected by the pandemic.
  • Strengthen public investment management systems to improve execution of the capital budget.
  • Diversify the economy to boost resilience.
  • Continue to build fiscal buffers to mitigate climate-related shocks.