Caribbean & Central America - March 2019

The International Monetary Fund (IMF) has been praising the policies adopted by Grenada since it was devastated by Hurricane Ivan in 2004. However, it is asking for even more preparation for future natural disasters and for even greater regional cooperation.

The deputy managing director of the IMF, Tao Zhang, visited Grenada in mid-February, straight after a visit to Dominica, which was in turn devastated by Hurricane Maria in 2017 and is struggling to rebuild.

Grenada’s economy is doing relatively well. It grew by 5% in 2017, and similar GDP growth is estimated for 2018. Grenada has also achieved this while following a policy of fiscal discipline. Zhang was quick to acknowledge this while at the same time warning that not all countries of the Eastern Caribbean Currency Unit (ECCU) area were doing as well. Zhang said that the ECCU debt target of 60% of GDP by 2030 “remains elusive for most countries – although not for Grenada”.

Grenada, thanks in part to the implementation of a fiscal discipline law, has cut the fiscal deficit by 10% of GDP, and it has reduced public debt by more than 40 percentage points from a high of 108% of GDP in 2013 – and it has done this without hurting growth.

But Zhang also argued that this is no time for Grenada to rest on its laurels, particularly with regard to future preparedness. He said: “These are all positive developments, but it is necessary to recognise that more can be done…The focus on post-disaster recovery should be supplemented with better all-round preparedness…Preparing for a disaster can make a huge difference.”

Zhang argued that a comprehensive preparedness strategy needs “three pillars”. He categorised these as:

1. More investment in emergency preparedness and response, such as early warning systems, shelter and security, and the distribution of essential goods and services.
    
2. An emphasis on resilient “physical and social infrastructure”, including investing in disaster-resilient infrastructure, enforcing land-use and zoning rules to limit deforestation and coastal exposure, and ensuring “appropriate building standards”.
    
3. Steps to ensure financial resilience, including insurance mechanisms and building cash reserves to enable a swift response to disasters.

It is clear that Zhang is happier with Grenada than he is with some of its peers in the region. He urged “stronger government efforts, particularly in upgrading budgeting and project execution capacity”. Zhang also suggested that credibility with the international community was at stake for some countries. He said that successful preparation “would also involve maintenance of strong fiscal discipline and acceleration of reforms to rationalise and improve efficiency of all public spending. This would greatly support the countries’ credibility with the international community.”