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Grenada’s Fiscal Risks: A Growing Concern

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A recent review of the National Insurance Scheme (NIS) has revealed a significant actuarial deficit, projected to reach NIS 2048. This comes as a warning sign for the country’s fiscal health, amidst ongoing economic uncertainty due to the COVID-19 pandemic.

Contingent Liabilities and State-Owned Enterprises

According to the Ministry of Finance, Grenada’s contingent liabilities associated with state-owned enterprises (SOEs) remain low at $158 million, or approximately 5% of GDP. However, this figure may increase if SOEs are unable to meet their financial obligations, potentially requiring government intervention.

Natural Disasters and Fiscal Risks

The country is vulnerable to natural disasters, which could have a devastating impact on its economy. A recent World Bank-IMF report highlighted the potential fiscal response to such events, including increased expenditure to cover reconstruction costs, which could reach up to 5% of GDP.

Other Potential Sources of Risks

  • Financial sector: remains characterized by high liquidity, with risks to financial stability contained thus far.
  • Public-Private Partnerships (PPPs): pose a risk, with only one existing arrangement in place, which is a 15-year agreement with Digicel. While there are no explicit contingent liabilities associated with this partnership, ongoing monitoring and management are essential to mitigate potential risks.

Risk Assessment Summary

A table published by the Ministry of Finance provides a comprehensive risk assessment summary, outlining various sources of risk, including:

  • Macroeconomic risks
  • Budget implementation risks
  • Capacity and institutional constraints
  • Public enterprises risks
  • Climate-related factors

The report highlights measures to manage and mitigate these risks, including:

  • Targeted support for sectors affected by the pandemic
  • Prudent use of contingency funds
  • Ongoing structural reforms

Conclusion

Grenada’s fiscal health remains a significant concern, with multiple sources of risk identified in a recent review. While steps are being taken to address these issues, continued vigilance is essential to ensure the country’s financial stability and long-term growth.