Grenada’s Economy Struggles Amidst Pandemic

Unemployment Rate Soars Amid COVID-19 Pandemic

The COVID-19 pandemic has had a devastating impact on Grenada’s economy, with the unemployment rate reaching unprecedented levels. According to data released by the Central Statistical Office (CSO), the standard definition of unemployment rates showed a sharp increase in 2020, reaching 12.6%. Meanwhile, the CSO’s official definition of unemployment recorded an even higher rate of 15%.

Economic Consequences

The government’s efforts to support households and businesses have also had a significant impact on the economy. Lower tax collections due to decreased economic activity resulted in a decline of 18% year-on-year. As a result, general government debt rose by 10 percentage points to 70.6% of GDP.

Current Account Deficit Widens

Grenada’s current account deficit has also widened significantly, reaching 25.2% of GDP in 2020, up from 15.9% in the previous year. This is largely due to the decline in tourism receipts and commodity exports caused by international transportation disruptions.

Remittances and Foreign Direct Investment

However, remittances are expected to rebound in the second half of the year, while foreign direct investment (FDI) remained solid despite temporary construction project interruptions. International development partners have also stepped in to finance the country’s external financing needs.

Economic Recovery Projections

Despite the challenges, Grenada’s economy is projected to recover modestly in 2021 at a growth rate of 3.5%, driven by expected improvements in international travel and tourism, as well as a rebound in construction projects.

Support Measures

Looking ahead, the government is expected to maintain its support measures in 2021, including the income and payroll support program focusing on the formal sector. However, this may have limited impact on the poorest groups, who are expected to be more severely affected by the crisis due to their higher exposure to the shock and lack of alternative income sources.

Poverty Rate Expected to Increase

The World Bank has forecast a range of macroeconomic indicators for Grenada, including real GDP growth rates, inflation, current account balances, fiscal balances, and debt levels. According to the bank’s estimates, Grenada’s poverty rate is expected to increase due to the pandemic’s impact on labor markets.

Public Debt Sustainability Concerns

The government’s decision to defer a 4% public wage increase in 2021 may lead to additional savings, which could help mitigate the impact of the crisis. However, public debt sustainability remains a concern, particularly following the one-off increase in debt levels resulting from the repurchase of electricity company Grenlec at the end of 2020.

Long-Term Detrimental Impacts

The World Bank has warned that the pandemic’s temporary shock could have long-term detrimental impacts on poor households, who may be forced to make decisions that are detrimental to their future welfare.