Grenada
Annual Economic and Financial Review: 2022

Overview

• The economy of Grenada strengthened further in 2022, as the tourism sector rebounded and government stepped up its capital expenditure programme.
  
• Preliminary estimates indicate that the economy expanded by 5.9 per cent, compared with growth of 4.7 per cent in 2021.
• The economy is expected to remain on the path to recovery in 2023, barring any growth inhibiting factors such as an escalation in the Russia-Ukraine war, a spike in global inflation, contraction in major source markets, and the emergence of new variants of the COVID-19 virus.
• Public sector debt to GDP is estimated to have declined relative to the previous year. As at 2022, the debt to GDP ratio stood at 64.8 per cent.

The Economy (Real Sector)

The economy of Grenada is estimated to have expanded by 5.9 per cent in 2022, surpassing the previous year’s mark of 4.7 per cent (Figure 1). The increased output was primarily driven by expansions in key sectors including tourism (51.0 per cent), construction (19.2 per cent), wholesale and retail trade (10.1 per cent), and transport, storage and communications (9.6 per cent). Growth in total output was moderated somewhat by reduced activity in agriculture and fishing, which fell by 10.9 and 11.1 per cent, respectively.

Total visitor arrivals increased five-fold to 366,304 passengers compared with 71,861 in the prior year, as the economy fully reopened and international travel rebounded. The three main categories of visitors rose appreciably, with stayover arrivals and yacht passengers increasing three-fold, while cruise passengers rose nine-fold relative to 2021 (Figure 2). Despite the rebound in tourist arrivals, only the US and UK stayover segments have fully recovered, with their level of arrivals surpassing the 2019 mark. By contrast, a lack of intra-regional airlift has negatively affected the Caribbean market, Grenada’s second largest source market after the United States. Accordingly, the number of Caribbean stay-over visitors as at December 2022 was 49.0 per cent lower than that of 2019.

Consumer Prices

Grenada’s inflation rate increased by 2.9 per cent (end of period basis), following the 1.9 per cent growth recorded in 2021 (Figure 3). Driving the consumer price index higher were increased costs for food and non-alcoholic beverages (8.7 per cent); housing, utilities, gas and fuels (4.5 per cent); and health (4.0 per cent). Moderating overall price increases was a 4.1 per cent decline in the cost of transport.

Government Operations

Despite having invoked the Escape Clause of the Fiscal Responsibility Act (FRA) for a third consecutive year, the operations of the Government of Grenada generated both primary and overall surpluses (after grants) in 2022. Accordingly, an overall surplus of $30.7m (0.9 per cent of GDP) was recorded, following the smaller surplus of $9.9m (0.3 per cent of GDP) generated in the prior year (Figure 4).

The positive fiscal outturn was largely driven by stronger growth in current revenue relative to current expenditure over the year. As such, current revenue grew by 18.8 per cent to $863.9m (26.2 per cent of GDP) compared with growth of 5.4 per cent to $727.1m (24.0 per cent of GDP) in 2021. By comparison, current expenditure rose by 4.5 per cent to $717.4m (21.8 per cent of GDP), relative to growth of 5.5 per cent to $686.8m (22.7 per cent of GDP) in the prior year.

Tax revenue was the largest contributor to the growth in current revenue, expanding by 14.2 per cent to $733.5m, with taxes on goods and services, and international trade and transactions being the primary drivers. Non-tax revenue also expanded by 54.3 per cent to $130.4m in 2022, with flows from the Citizenship by Investment Programme (CBI) amounting to $73.1m, up from $32.3 in the year prior.

In respect of current expenditure, a 49.7 per cent ($85.0m) increase in transfers and subsidies to $256.1m largely drove the expansion in outflows. This development was directly related to the retroactive payment of pensions to retired public servants, which amounted to $75.0m¹. Outflows for other key components of current expenditure declined, including personal emoluments (9.1 per cent), and goods and services (16.9 per cent), consistent with a fall in COVID-19 related expenditure. The aforementioned developments resulted in a current account surplus (after grants) of $254.5m (7.7 per cent of GDP) compared with one of $87.4m (2.9 per cent of GDP) in the prior year. On the capital side, expenditure rose by 30.6 per cent to $340.2m (10.3 per cent of GDP), up from $260.4m (8.6 per cent of GDP) in the previous year, as the government pursued its transformation agenda, especially in respect of more climate-resilient infrastructure.

Banking Developments (Monetary)

Consistent with an expanding economy, domestic claims (credit) rose by 8.6 per cent in 2022, marginally above the 8.4 per cent growth recorded in 2021 (Figure 6). The rise in claims was dominated by the private sector, which saw growth of 2.1 per cent to $1,772.4m, down from the 3.8 per cent expansion in the prior year. Within the private sector, claims to households grew by 30.9 per cent, while business claims contracted by 41.3 per cent, reversing the credit pattern of the previous year. Meanwhile, the net deposit position of the central government fell by 17.0 per cent to $371.8m.

Following the general uptick in economic activity, deposits in the banking system rose on aggregate. Broad money liabilities increased by 9.9 per cent, following the 8.5 per cent expansion in 2021. This reflected stronger growth in transferable deposits³ in national currency (46.7 per cent) and foreign currency deposits (34.4 per cent). However, the increase in broad money was moderated by a 15.2 per cent contraction in other deposits in national currency.

The asset quality of commercial banks in Grenada deteriorated marginally over the year. Accordingly, the non-performing loans as a percentage of gross loans rose by 65 basis points to 3.6 per cent, compared with 2.9 per cent in 2021 (Figure 7). Additionally, banks’ liquidity positions improved as the ratio of liquid assets to short-term liabilities rose by 4.4 percentage points to 55.2 per cent.

External Trade

As the tourism sector continued to recover and supply chain issues improved, Grenada’s merchandise trade deficit widened by 40.2 per cent, year-on-year, to $1,590.8m. Import payments rose to its highest level in over 5 years, surpassing the 2021 mark by 39.4 per cent to $1,692.4m, reflecting greater domestic demand and higher global commodity prices (Figure 8). Similarly, export receipts returned to pre-pandemic levels, amounting to $101.6m compared with $79.6m one year earlier. In respect of services, total visitor expenditure more than doubled to $426.0m as the economy fully reopened and international flights resumed.

Outlook

Grenada’s economy is projected to expand further in 2023, contingent on greater tourism activity and increased public and private sector construction projects. However, risks to global economic activity are tilted to the downside, on account of global developments including the Russia/Ukraine conflict, high inflation, and a tightening of monetary policy among major central banks. In addition, the long-term viability of the Citizenship by Investment (CBI) programme is under threat as both the European Union and the United States are considering legislation to penalize countries offering those programmes, to the detriment of the fiscal and macroeconomic health of Grenada. Furthermore, Grenada faces the perennial threat of hurricanes and other natural disasters. As a result, Grenada remains susceptible to a slowdown in its key tourism markets, with potentially negative economic spillovers to the domestic economy and all related sectors.

In the absence of the materialization of the aforementioned risks, the expansion of the Grenadian economy is expected to be driven by:

Selected Economic Indicators