Economic and Financial Review - June 2019

June 2019 Economic and Financial Review GRENADA

economy due to developments in the USA economy along with continued Brexit uncertainty. The imposition of import tariffs led by the USA and retaliatory actions by China and other major trading partners could interrupt global trade and further slow the global expansion. Disruptions to global trade could reduce aggregate demand worldwide and ultimately curtail foreign exchange for Grenada. These global risks can be mitigated in the short to medium term by further economic diversification. This includes intensified marketing and breakthroughs into non-traditional tourism source markets; expanding the scope for agricultural diversification through agro- processing; and the greater application of technology and other scientific enhancements to business processes and production. Vulnerability to adverse weather and natural disasters, another key source of risk, can potentially derail economic progress and disrupt the financial sector. In response, the authorities should also reinforce efforts to combat the adverse effects of climate change through the implementation of global best practices geared towards adaptation and mitigation.

Downside risks on the fiscal front can be avoided or mitigated by the central government through its continued adherence to the FRA. Alongside binding fiscal rules and the debt target, efficiency and prioritization in public spending must be maintained. While the fiscal and debt outlook for Grenada was assessed as being stable, it is still tenuous because economic growth can begin to soften in 2019. Further, uncertainties abound on the contingent liabilities government can eventually assume from the ongoing oil and natural gas exploration; debt arrangements involving the public sector; the outstanding court matter between the government and GRENLEC; the establishment of national health insurance; and restoration and reform of pensions. On the upside, financial inflows from the CBI and other foreign direct investment are expected to remain strong in 2019. Additionally, intensified policy efforts during the latter half of 2019 aimed at building resilience to climate change; developing the digital economy; modernizing public sector operations including procedures for the PSIP; and improving the business climate should ultimately bode well for the economy.

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Eastern Caribbean Central Bank