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Monday, April 10, 2006 

Analyst: Grenada's economic recovery uneven
by Tony Best

Posted: Apr 10, 2006 14:30 UTC

BRIDGETOWN - After the devastation of its infrastructure and economy by hurricanes two years in a row, Grenada is on the road to economic recovery. That's the good news. Now for the bad: The economic recovery is not level across the board, meaning it's uneven.

So while the administration in St George's led by Dr Keith Mitchell, the prime minister, has earned accolades for the way it has set about the task of rebuilding infrastructure and returning life to normalcy, it must also step up the pace so the economy can fire on all cylinders.

That, in essence, is the assessment of Olga Kalinina, one of Standard & Poor's (S&P) top analysts in its sovereign ratings group. "The economy itself is definitely recovering from the impact of what happened in 2004, meaning the devastation left by Hurricane Ivan," Kalinina told BARBADOS BUSINESS AUTHORITY. "However, the recovery is uneven."

For instance, while the construction sector is booming with both commercial and residential rebuilding, tourism is moving much slower. Not all of the hotels have re-opened and those that have re-opened haven't seen the occupancy levels return to the pace hotel owners had expected.

"At the same time, the agricultural sector's prospects are even bleaker because the recovery results will not be seen for a number of years, perhaps as long as five years," she added. "The reason is that the major agricultural crop, nutmeg, will probably take several more years to be replenished and to start producing the nutmegs."

Put those factors together and they explain why the country didn't meet its economic growth targets in 2005. Still, S&P has affirmed Grenada's credit rating at B-minus for long-term debt and "C" for short-term borrowing. Grenadians shouldn't despair, she says. "The prospects that we see for 2006 are quite bright," asserted the analyst who also monitors the economic performance of Jamaica. "The government expects real GDP (gross domestic product) growth to be about six per cent.

That's much better than the 1.5 per cent expansion of 2005 and the three per cent contraction in 2004. Over the medium term, economic growth is projected at 4 per cent. Small wonder, then, that 2007 – the year when all the cricketing nations will cast their collective eyes on Grenada, Jamaica, Antigua, Barbados, Trinidad and Tobago, Guyana, St Lucia, St Kitts-Nevis and St Vincent during the Cricket World Cup competitions – should turn out to be crucial.

"Much would depend on the success of the Cricket World Cup as far as 2007 and Grenada are concerned," said Kalinina, a European economist who now lives and works in the United States. "A lot is going to depend on how successful the new projects are and what the impact is going to be across most of the economic sectors." Another challenge facing Grenada is the mountain of debt on its books.

The debt burden, estimated at 118 per cent of GDP, is one of the highest among the 108 nations rated by S&P. "The debt has been partly alleviated by the restructuring completed in November 2005, which extended the maturity of roughly US$261 million or 44 per cent of the total debt to 2025 and reduced the interest payment by more than half to about 2.5 per cent of GDP in 2006," said Kalinina. She described the substantial increase in capital spending of more than 50 per cent as a "necessary and good thing," noting that both the government and the country as a whole were in a position to find the money to undertake the rebuilding job that was needed.

Capital spending stood at 16 per cent of GDP, 50 per cent higher than the average spending rate over a five-year period.

At the same time, revenue collection was hurt by the slowdown in economic activity. "Fortunately, so far, the government was able to finance the capital programme from its own resources and with the help of international donors," she said. "It's a constraint on the fiscal situation because if the capital expenditure is much higher than the historical level, it will need to be continued going forward because the government must once again find the revenue sources to finance it. "In this sense, we are definitely interested in how the 2006 fiscal situation will evolve."

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