The international credit rating group, Standard & Poor¹s says that Grenada¹s growth is being affected by its government¹s failure to involve stakeholders in the development process.

In its latest report on Grenada, the U.S-based group blamed the ruling New National Party (NNP) of Prime Minister Dr. Keith Mitchell for not engaging the private sector in economic matters in the country.

"One of the reasons for below-par governance in Grenada is the inability of the governing party to establish effective public/private sector partnerships to address ongoing macroeconomic and social challenges and the reluctance to include more participants in economic planning", it added.

Following are highlights from the report:

Grenada's political environment is characterised 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.

This challenging political climate is similar to the one witnessed in Belize, all ratings herein are long-term foreign currency sovereign credit ratings) in 2005-2006, when the population was increasingly dissatisfied with the inefficient and opaque policymaking.

Nevertheless, despite growing frustration over the way politicians operate in Grenada, this is not expected to translate into social unrest on the island.

This is very different from other politically polarized countries such as the Republics of Bolivia or Ecuador ('CCC+'), where political frustration often manifests in social protests.

One of the reasons for below-par governance in Grenada is the inability of the governing party to establish effective public/private sector partnerships to address ongoing macroeconomic and social challenges and the reluctance to include more participants in economic planning.

This is a sharp contrast with Jamaica, where the tripartite unions between the public/private sectors and the government play a crucial role in tackling the fiscal and economic challenges in that country.

Real economic growth trajectory continues to reflect post-hurricane damages and ensuing reconstruction and economic sectors' recovery.

 Given the small size of the island, even a few big projects can substantially boost economic activity. Reflecting the post-hurricane downturn, the 2002-2006 real GDP growth average for Grenada (1.9%) compares poorly with other Caribbean islands (except Jamaica, where growth has been always structurally low) and the 'B1 median (3.2%).

However, growth is expected to pick up, based on ongoing investment in tourism, revival of agriculture, and further reconstruction activity. As such, the growth trend gets closer to that of the 'B1 median and Grenada's peers.

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 the economic activity and high demands for capital spending resulted in high fiscal gaps, currently covered by donor grants.

The fiscal stress is not represented well in the general government balances, as those include about 2.6% of GDP of social security surpluses (high compared with Grenada's peers).

The analysis of underlying revenue and expenditure, however, reveal many structural weaknesses, such as a currently high level of grants (24% of revenue in 2006, which is comparable with the levels of some African countries and hence not sustainable for Grenada going forward), high capital spending needs, and dependence on import duties.

Grenada's debt burden, estimated at 105% of GDP on a net basis in 2007, is triple that of the 'B1 median and is the third worst level among speculative grade sovereigns.

Given this indebtedness, Grenada's fiscal sustainability hinges on a resolute fiscal consolidation, lack of which resulted in the recent downgrade of Grenada's sovereign ratings.

Despite high debt levels, debt servicing is far more favorable for Grenada, compared with its peers, as the 2005 debt restructuring significantly reduced the government's interest payments.

For instance, interest expense should constitute just 6% of revenue in Grenada in 2007, in line with the 'B' median and significantly better than its peers; 42% in Jamaica, 14% in Belize (also brought down as a result of recent debt restructuring), and 55% in Lebanon ('B-1).

ECCU membership buffered Grenada from pressures on its fixed-exchange rate regime in times of severe external shocks. The union's monetary policy remained prudent, with international reserves covering close to 100% of ECCB's demand liabilities. The lending by the central bank to ECCU members remained minimal.