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Tuesday, January 24, 2006 

Grenada’s economic future looks promising, says Finance Minister


by Kishawn ThomasCaribbean Net News Grenada Correspondent
Email: kishawn@caribbeannetnews.com

ST GEORGE’S, Grenada:
“With reconstruction activity proceeding well, Grenada’s economy is estimated to have grown by 1.5 percent in 2005, after a contraction of 3 percent in 2004. This recovery was primarily driven by activity in the construction industry, supported by a revitalized cruise tourism sector,” said Finance Minister Anthony Boatswain as he presented the 2006 budget.

He said the average inflation rate for the year 2005 was 3.5 percent, driven mainly by the recent increase in fuel prices. Fiscal performance in 2005 was much better than in 2004, as revenue grew by 18.0 percent to EC$355.3 million, benefiting from one-off payments and increased collections from high levels of imports of reconstruction materials.

On the other hand, current expenditure fell by 10.6 percent to EC$294.7 million, largely on account of lower interest payments. Savings on interest payments amounted to EC$49.8 million in 2005. Personal emoluments (wages, salaries and allowances) amounted to just over 50 percent of total recurrent expenditure.

Outlays on wages and salaries reached EC$134.7 million in 2005, and included a 4.5 percent increase related to the government implemented union-negotiated wage package.

“Even in difficult times this Government continues to meet its obligations to its workers on a timely basis. At no time in the period following Ivan and Emily was Government unable to pay public officers on time. The Government of Grenada must be applauded for this.

Unemployment, particularly among our young people, remains unacceptably high and, as a concerned Government, we are committed to addressing this problem,” the Minister noted.
Minister Boatswain also outlined that spending on goods and services rose by 31.1 percent as vital supplies and materials, lost or destroyed during the hurricanes, were replaced.

Reconstruction and rehabilitation needs of the country drove capital expenditure upwards by 118.8 percent to approximately EC$205.2 million. This, he said, is a record; considering that the average implementation rate for the past 5 years was around EC$135.0 million.

The overall deficit before grants, stood at EC$144.2 million. With grants totaling $140.6 million, the overall deficit after grants amounted to $3.6 million. This balance was financed by loans from local and external sources.

Also in his presentation the Minister stated that, notwithstanding the slight economic recovery, and the measures taken to improve the fiscal situation in 2005, the people of the country must know that the economic base of the country is still weak and that substantial financing gaps exist for 2006 and beyond given the high development needs of the country.

“Last year I made it clear that rebuilding our economy and filling these large financing gaps will require burden sharing by the people of this country, by our creditors and the international donor community.

In particular, the Government and people have to continue to make sacrifices to address the fiscal imbalances and implement growth-enhancing policies; our creditors have supported our debt restructuring exercise, while the donor community has expressed intent in continuing their financial support”.

Medium Term Outlook

“Economic prospects for the medium term look relatively good,” the minister said. Real GDP growth of 6-6.5 percent is projected for 2006. Beyond 2006-2007, growth of 4 percent would need to be sustained through growth enhancing reforms.

This positive growth projection reflects continued activity in the construction sector, preparations for the hosting of World Cup Cricket in 2007, and a revitalization of the tourism and agriculture sectors.

Average inflation for 2006 is expected to be 4.5 percent on account of the recent fuel price increases, although the end of year inflation should decline to 2 percent. Beyond 2006 inflation of 2 percent is projected.

In the absence of any meaningful fiscal reforms, a financing gap of over 5 percent of GDP (EC$70 million) is projected for 2006, as external public sector grants are expected to decline, while expenditure needs would remain high.

The external current account deficit is projected to widen in 2006, mainly because of a decline in insurance receipts, but imports are also expected to decline somewhat as reconstruction materials imports decline. The deficit is expected to be financed in part by foreign direct investments and capital grants.

Consistent with a projected increase in economic activity in 2006 and beyond, it is anticipated that the level of unemployment will decline to about 12 percent, as more job opportunities are created.

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