Grenada - Overview of economy

Grenada's economy has shifted significantly since the 1970s, from one almost entirely based on producing agricultural commodities for export to a much more modernized and diversified one. For many years Grenada depended on exporting 3 main crops—bananas, cocoa, and nutmeg—but fluctuating world prices, natural disasters, and the threatened removal of preferential trading agreements have forced Grenada's government to seek to broaden the island's economic base. Successive governments since the 1980s have been acutely aware that small-island states such as Grenada are extremely vulnerable to economic factors beyond their control and have hence tried to reduce over-reliance on agricultural exports. Grenada now has a small but growing manufacturing sector, a nascent financial services sector, and an important tourism sector, which is the island's main foreign exchange earner.

Grenada's movement toward economic diversification began during the short-lived People's Revolutionary Government (PRG) of 1979-83, which tried to increase manufacturing for the domestic market and look for new markets for the island's commodities. The U.S. intervention of

October 1983, in which American troops invaded the island after Prime Minister Maurice Bishop was murdered by rivals within the PRG, brought a brief influx of economic aid. This assistance enabled the island to establish the infrastructure for small-scale manufacturing, mainly aimed at the U.S. market. In the late 1980s and early 1990s, aid and investment slowed, causing the island's economy to stagnate. Tourism grew strongly from the mid-1990s, leading to a boom in construction and other services. Economic growth, consequently, has been strong and sustained in recent years, with GDP growing by 6.8 percent in 1998 and 8.1 percent in 1999. Attracted by tax breaks and other incentives, several U.S. and European multinational companies operate in Grenada, mostly in the light manufacturing and tourism sectors. Local companies are extremely small and limited to import-export activities and retail . There are still several government-controlled statutory boards which represent the interests of small farmers and agricultural exporters.

Since the 1970s, Grenada's economy has passed through 3 distinct phases. Until 1979, it was dominated by the agricultural sector, made up of small farmers, and a small import-export sector, based in St. George's. During the PRG regime, the PRG began experiments in diversification and a mixture of private-sector initiatives and state intervention with an emphasis on cooperatives and central planning. Since 1983, the economy has been strongly oriented toward free-market development, with the privatization of several state-owned concerns and a program of structural adjustment aimed at reducing government spending.

Despite such liberalizing measures, Grenada's economy still faces significant problems. Its imports in 1999 were 5 times the value of its exports, creating a large trade deficit that is only partly offset by tourism receipts and other service income. The reduction in agricultural activity means that increasing amounts of food have to be imported, especially for the growing tourism industry. Government spending also remains high in relation to revenues. A 2000 International Monetary Fund (IMF) report expressed concerns at the high wages paid to civil servants and the large sums spent on modernizing infrastructure. There remains considerable poverty and unemployment in Grenada, with the IMF estimating that 32 percent of the population, mostly rural laborers and the unemployed, live in poverty. The country is highly indebted, with external debt of US$159.3 million in 2000. Debt servicing (money paid above the actual debt, such as interest) cost US$16.9 million in 1998, equal to one-fifth of government's annual revenue.

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