CDB Economic Brief 2018 - Grenada

COUNTRY
ECONOMIC
REVIEW 2018
GRENADA
1
GRENADA ECONOMIC BRIEF 2018
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2
$ refers to Eastern Caribbean Dollars throughout. US$1 = EC$2.70
Chart 1: Real GDP Growth

OVERVIEW 8.0
Real GDP Growth (%)

7.0
Gross domestic product (GDP) grew by 5.2% 6.0
5.0
in 2018, driven by increased economic
4.0
activity in the construction, tourism, private
3.0
education and manufacturing sectors. As a 2.0
result, the unemployment rate fell. Consumer 1.0
prices rose by 2.8%. 0.0
2014 2015 2016 2017 2018
Fiscal performance was strong in 2018, Source: GOGR, CDB estimates.
underpinned by the Fiscal Responsibility
Act (FRA). The primary surplus increased to The tourism sector expanded once more.
6.2% of GDP. Public debt as a percentage of Based on data for the first nine months of
GDP declined to 62.7%. The external current 2018, stay-over arrivals rose 10.3% over the
account deficit widened, largely as a result of same period in 2017, with all major source
rising aggregate demand and international markets supplying more customers. Cruise
commodity prices. The financial sector ship passenger arrivals were an estimated
remained sound, stable, and well capitalised. 27.2% higher than the same period in 2017.
Loan quality improved as non˗performing These developments enabled further growth
loans (NPLs) fell; but there was also a drop in in the hotel and restaurant sector, which also
domestic credit, despite ample liquidity in benefited from Grenada hosting several
credit markets. regional and international events, including
the Grenada Invitational Athletics Meet, Dive
KEY DEVELOPMENTS IN 2018 Fest, Pure Grenada Music Festival and
SpiceMas.
In 2018 Grenada continued to be the fastest
growing economy in the Region (see Chart 1). The private education and agriculture sectors
Growth was estimated at 5.2% for the year, produced mixed results. Private education,
which translates to a five-year average which constituted the largest share of
of 5.0%. This strong outcome was driven by GDP (19.8%) in 2018, expanded by 4.3%.
rising economic activity in the construction; Manufacturing sector activity was up 2.0%.
private education and manufacturing sectors, However, data for the first six months of 2018
and was above the Government of Grenada’s indicate a fall in agricultural production
(GOGR) forecast in the 2017 Budget. compared with the same period in 2017,
which was attributed to adverse weather
The construction sector expanded once more. patterns affecting major crops such as
Economic activity in the construction sector in nutmeg and cocoa.
2018 was 14.9% higher than the previous
year. Growth was driven by the ongoing In 2018, inflation rose while unemployment
implementation of some key projects fell. The Consumer Price Index increased by
including the St. George’s University 2.8%, driven by higher international oil and
Expansion Project, Silver Sands Resort (Phase food prices, as well as by rising U.S. inflation.
One) and the Parliament Building (Phase In addition, the 2018 Labour Force Survey
One). indicates that the unemployment rate fell from
3
23.6% in 2017, to 20.9% in 2018 (see 100 8.0

Chart 2). 6.0
80
% of GDP
% of GDP
60 4.0
Chart 2: Unemployment
40 2.0
35.0
30.0 20 0.0
Unemployment Rate (%)
25.0 0 -2.0
2014 2015 2016 2017 2018
20.0
15.0 Debt Primary Balance (Right Axis)
10.0
Source: GOGR.
5.0
0.0 Debt stayed on the downward trajectory.
2014 2015 2016 2017 2018 Total public sector debt fell by 6.2 percentage
Source: GOGR. points to 62.7% of GDP in 2018.
Fiscal performance continued to improve in The financial system was stable, sound, and
2018. At the end of the year, the primary well capitalised in 2018. Notwithstanding,
balance (after grants) was estimated at the sector is still challenged by poor credit
$199.9 million (mn) or 6.2% of GDP, which supply. Based on data up to June 2018,
exceeds the 3.5% of GDP required by the domestic credit declined. The capital
fiscal rule (see Chart 3). This outcome is adequacy ratio also fell, from 13.8% in 2017,
higher than the $172.6 mn recorded in 2017. to 13.1% in September 2018; however, this
In addition, the overall surplus (after grants) remains comfortably above the regulatory
rose to $136.3 mn (or 4.2% of GDP) in 2018, requirement. Credit quality has improved
which is higher than the $91.6 mn outcome markedly in recent years. As at September
for 2017. Both the primary and overall 2018, the NPLs ratio was 2.6%, which was
positions were better than projected, thanks below the 5.0% prudential limit for the
to reductions in GOGR’s discretionary second successive year and represents the
spending and enhanced tax compliance and lowest figure recorded since June 2009.
enforcement. Total Revenue and Grants Liquid assets, as a percentage of total assets,
increased in 2018 to $849.8 mn, while total increased by four percentage points to 44.9%
expenditure rose to $713.5 mn. Expenditure in the nine months to September 2018.
on goods and services shrank by 9.6%
relative to 2017. Personal emoluments were The current account deficit worsened in 2018,
4.0% higher, due largely to a 3% salary uplift although international reserves remain
at the start of the year. There was also a 5.7% adequate (see Chart 4). The deficit widened
expansion in transfers, reflecting a larger to 7.4% of GDP, relative to 6.7% in 2017.
Government contribution to the National Based on data up to June 2018, this
Insurance Scheme and pension payments. deterioration reflected a growing trade deficit
However, as a result of debt restructuring and as a result of a faster growth in imports
reprofiling, interest payments were 21.9% less relative to exports. The expansion in imports
than the 2017 outturn. was attributed to the increase in oil prices, as
well as higher import demand. Exports were
Chart 3: Fiscal and Debt Performance adversely impacted by poor performance in
the agricultural sector. International reserves
remained adequate, at 3.4 months as at end
2018.
4
Chart 4: Gross Foreign Reserves further fiscal consolidation. Public debt is

4.5 projected to be 59.6% in 2019.
4
3.5
Months of Imports
3
2.5
2
1.5
1
0.5
0
2014 2015 2016 2017 2018
Reserves Three Months Benchmark
Source:The International Monetary Fund (IMF), GOGR.
OUTLOOK
The medium-term outlook for Grenada is

positive. For 2019, the Caribbean
Development Bank (CDB) projects economic
growth of 4.5%, with similar outcomes
expected over the medium term. The
construction, tourism, agriculture and private
education sectors will also drive performance.
In terms of construction, there should be
further momentum from major road network
upgrades and ongoing private sector
projects. The tourism sector should continue
to expand as a result of increased room
capacity and higher demand. The agriculture
sector should recover, reflecting the start of
projects aimed at mitigating the effects of
weather conditions. Notwithstanding,
economic growth is still expected to be
tempered by the decline in private sector
credit in 2018.
Fiscal performances in 2019 should continue

to benefit from GOGR’s adherence to the
Fiscal Responsibility Act (FRA). The primary
and overall surpluses are projected to be
5.5% and 3.5% of GDP, respectively. This
would represent continued adherence to
GOGR’s policy of fiscal sustainability. In
addition, debt sustainability is expected to be
restored over the medium term by means of
5
DATA
The table below summarises the key economic and social indicators underpinning this Country
Brief. These data are taken from a number of sources, and are the latest available at time of
publication. Some are subject to revision. The 2018 data are CDB estimates.
Selected Indicators
2013 2014 2015 2016 2017 2018 e
Real GDP Growth (%) 2.4 7.3 6.4 3.7 5.2 5.2
Average Inflation (%) -1.2 -0.6 1.1 1.7 1.7 2.8
Unemployment (%) 32.2 28.9 30.4 28.2 23.6 20.9
Primary Balance (% of GDP) -3.4 -1.2 2.1 5.4 4.7 6.2
Public Sector Debt (% of GDP) 101.7 86.2 82.4 76.3 68.9 62.7
Sources: IMF, GOGR, CDB.
Notes: e – estimate

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COUNTRY

GRENADA ECONOMIC BRIEF 2018

Chart 1: Real GDP Growth

Real GDP Growth (%)

23.6% in 2017, to 20.9% in 2018 (see 100 8.0

Chart 4: Gross Foreign Reserves further fiscal consolidation. Public debt is

Source:The International Monetary Fund (IMF), GOGR.

The medium-term outlook for Grenada is

Fiscal performances in 2019 should continue

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