Standard & Poors says that Grenadians have become disillusioned with the policies being pursued by the ruling New National Party (NNP) government of Prime Minister, Dr. Keith Mitchell.
The New York-based group which had given the Mitchell government some good credit rating in the past made the comment in a report that was issued in March.
According to the report, obtained by the GRENADA TODAY newspaper, “the widespread perception of corruption in the higher echelons of power” in the Spice Isle was also affecting the forward movement of the country.
The Mitchell government was also hammered for its inability to forge working relationships with the private sector and trade unions on the island.
Following is an edited version of the Standard & Poors report:
Grenada’s political environment is characterized by increasing political fragmentation, the general population’s disillusionment with the policy implemented by the ruling party, and the widespread perception of corruption in the higher echelons of power.
In this regard, Grenada’s situation is similar (albeit not to the same degree) to that of Belize (‘CCC-; all ratings herein are long-term foreign currency sovereign credit ratings), where a lack of transparency and corruption issues hinder effective policymaking.
However, despite dissatisfaction with governance and the challenging economic situation that both countries face, the social climate in Grenada remains stable, unlike that in Belize or in other politically polarized countries such as the Republics of Bolivia (B-) or Ecuador (‘CC+’).
The inability of Grenada’s governing party to establish public/private sector partnerships to address macroeconomic and social challenges post Hurricane Ivan compares poorly with the situation in Jamaica (‘B’), where tripartite unions between the public/private sectors and the government help to address the fiscal and economic challenges facing the country.
Grenada’s inherent small and open economy was severely impaired by 2004’s Hurricane Ivan. With reconstruction activity expected to be in full swing in 2006, Grenada’s estimated real GDP growth rate of 6% (5.5) on a per capita basis, compares well with the 5% (3.4% on a per capita basis) for the ‘B’ median and with all of its peers.
While such levels are not sustainable going forward, Grenada can achieve medium-term growth of 4% depending upon the expected recovery in tourism and a gradual rebound in agriculture.
The government’s fiscal accounts have been severely stressed by the impact of Hurricane Ivan.
The loss of revenue due to the sharp contraction of economic activity and high demands for capital spending resulted in high fiscal gaps, currently covered by donor grants.
In this reliance upon grants (28% of revenues in 2005), Grenada can be compared with some African countries where grants make up as much as 25% of revenue (Burkina Faso).
The difference, however, is that donor aid for Grenada will be declining going forward and, hence, internal sources of revenue increases must be found to keep revenue levels adequate.
With limited deficit financing options, general government deficits in Grenada are small and compare favorable to those of other ‘B’ rated sovereigns.
In particular, Grenada’s estimated 0.5% general government deficit in 2006 is lower then the ‘B’ median’s 1.7%..
Grenada’s debt burden, estimated at 98% of GDP on a net basis for 2006, is nearly double that of the ‘B’ median and also worse than that of most non-investment-grade sovereigns.
Despite high debt levels, debt servicing is far more favorable for Grenada, compared to its peers as the recently finalised debt restructuring significantly reduced the government’s interest payments.
For instance, interest expense should account for just 6% of revenue in Grenada in 2006, compared with 39% in Jamaica, 21% in Belize, 43% in Lebanon (‘B’), and 10% for the ‘B’ median.
