February 13, 2019
Ladies and gentlemen, good afternoon! It is an honor for me to speak with you today on my first visit to Grenada.
Before coming here, I had often heard Grenada being referred to as an “Isle of Spice.” This simple catch-phrase distinguished it from other Caribbean destinations. I have been curious to know what this term means. Over the past day or so, I have seen the beauty and diversity of Grenada’s natural landscape, tasted exceptional – and spiced up – food, and enjoyed interactions with intelligent, dynamic, and very welcoming people. I am of course just beginning my learning process. But I am already very hungry to know more about the ingredients of Grenada’s story, including what drove its impressive economic recovery over the past few years.
Earlier this week, I traveled to Dominica. I was moved by the change in the landscape in Dominica I saw from the devastation the category 5 hurricane Maria in 2017. And that, of course, reminded me of Grenada’s own trials in 2004 during Hurricane Ivan. Your remarkable recovery since then, and Dominica’s over the past year, testify to the determination of the people of the Caribbean to build a better future in the face of extraordinary challenges.
I am pleased to meet today with Grenada’s officials, parliamentarians, business community, and development partners. This is part of an important discussion of how to work together to further strengthen your resilience against natural disasters and climate change. It also is an element of a broader strategy to attain strong and sustainable growth in Grenada and the Caribbean region.
A Collective Strategy
This idea of a collective strategy to address climate challenges is what I would like to examine in greater depth this afternoon. But let’s first set the stage with an overview of the economic prospects for the ECCU region and Grenada.
The regional outlook is improving. Several countries have seen a pickup in economic activity owing to greater tourism demand. This has been supported by robust growth in the United States. In this context, Grenada registered strong growth of about 5 percent in 2017. And we estimate it grew at a similar pace last year. Solid tourism demand is expected to continue this year. That should help the continuing recovery in the region, including in countries hit by the 2017 hurricanes.
But there are still significant risks. The risks posed by natural disasters in the region are touching all sectors and are intensifying with climate change.
Financial sector risks continue to be present. While there is some progress with reforms in this area, long-standing weaknesses need to be addressed. The legacy of bad loans continues to weigh on economic prospects. Corresponding banking relationships also need to be monitored.
As regards the external sector, current account deficits remain sizable. This highlights the region’s competitiveness and growth challenges.
Finally, for a long time, this region has been struggling with the challenge of high public debt in the context of low growth. To be sure, public debt in the ECCU has recently been declining. But this trend in some countries reflects temporary factors, including revenues from the Citizenship-by-Investment Programs. As a result, the ECCU debt target of 60 percent of GDP by 2030 remains elusive for most countries – although not for Grenada, which has made impressive progress. Stronger fiscal discipline will be essential to achieving this target across the region.
Grenada’s Important Breakthroughs
Against this background, Grenada has made important breakthroughs in coping with its economic challenges.
First, let’s take a closer look at the policy response to natural disasters, an area where Grenada is also making notable progress. Hurricane Ivan caused damage equal to more than 200 percent of GDP. Over the past decade, your country has pursued a strategy centered on rebuilding infrastructure and enhancing institutional capacity. Public investment plans increasingly include resilient infrastructure projects. The authorities’ climate change policy and national adaptation plan of 2017 are detailed and costed. Sectoral plans are progressing. A dedicated Ministry for Climate Resilience was recently created. The recent successes in obtaining grant financing from climate funds — including for the water project — are notable achievements. And innovative hurricane clauses were introduced into debt contracts to limit resource outflows in case of damaging storms.
After the deep economic crisis 5 years ago, your government decided on a policy of fiscal discipline — supported by the fiscal responsibility law — that helped break a pattern of high debt and low growth. This fiscal adjustment helped cut the deficit by almost 10 percent of GDP. It also reduced public debt from 108 percent of GDP in 2013 by more than 40 percentage points by now.
Despite fears that such a large fiscal adjustment would hurt output, growth in Grenada has averaged 5 and a half percent annually. This compares favorably with other countries in the ECCU and the Caribbean. Crucially, the government’s strong efforts received broad backing from domestic stakeholders through a negotiated Social Compact.
To sum up, Grenada’s authorities have done remarkable things in bringing down debt and leaving better public finances for future generations. These important gains are a national asset and a product of the hard work of all Grenadians. They deserve to be protected.
These are all positive developments, but it is necessary to recognize that more can be done—by Grenada and the broader Caribbean region. The focus on post-disaster recovery should be supplemented with better all-around preparedness. The experience with hurricanes in the region continues to highlight the need to build more resilient infrastructure and have resources to address problems immediately.
There are many examples of good practices around the world. New Zealand and the Philippines created effective natural disaster funds. Japan demonstrates the importance of both prioritizing resilient infrastructure and budget mechanisms for contingency planning.
Project Planning and Implementation
To make further progress in these areas, Grenada and other Caribbean countries should focus their efforts on improving project planning and implementation capacity. Grant financing of the Caribbean region, despite some of the successes, remains small compared to the needs. And the focus of donors should also shift from supporting recovery to supporting preparedness.
Preparing for a disaster can make a huge difference. It is more effective than responding after the event. Preparation not only reduces the immediate impact. Our research shows that, over time, it helps boost growth and private investment and reduce emigration and brain drain. Most Caribbean countries can do much more in terms of developing resilient public infrastructure and protecting key sectors of the economy.
That’s why a comprehensive approach—or Disaster Resilience Strategy, as we call it–to address climate-related issues is so important. This country-driven strategy would take stock of ongoing efforts to cope with natural disasters, prioritize actions, build consensus across all stakeholders, and anchor progress in upgrading capacity. A crucial goal would be to work toward long-term economic sustainability.
The strategy would start from a realistic assessment of the economic impact of climate-related risks and desirable policy responses. Policymakers also need to integrate these assessments and policies explicitly into their operational plans, including budget policies. And this strategy should be fully financed for a long multi-year period.
The comprehensive strategy also requires policy responses to be practical. In this regard, I see three pillars:
First, more investment in emergency preparedness and response, such as early warning systems, shelter and security, and distribution of essential goods and services.
Second, an emphasis on resilient physical and social infrastructure. There are several practical steps that can help reduce the risks posed by future storms. For example, investing in disaster-resilient infrastructure, enforcing land-use and zoning rules to limit deforestation and coastal exposure, and ensuring appropriate building standards.
And third, steps to ensure financial resilience will be crucial. These include insurance mechanisms and cash reserves that allow disaster preparation and post-disaster response to progress swiftly and effectively.
What is needed for such a strategy to be carried out in practice in the region?Stronger government efforts, particularly in upgrading budgeting and project execution capacity, are key to this success. It would also involve maintenance of strong fiscal discipline and acceleration of progress in reforms to rationalize and improve efficiency of all public spending. This would greatly support the countries’ credibility with the international community.
The International Dimension
There is an important international dimension to implementation of this strategy.At the recent joint IMF/World Bank/IDB high-level conference on building resilience in the Caribbean, many leaders voiced their support for “building an alliance” among key stakeholders. There is a need for regional coordination.
And there is an important role of international development partners. They could offer help in formulating and implementing such a comprehensive and integrated resilience strategy, thereby addressing the resource and implementation capacity issues that all small countries face. We see a clear case for coordinating the work of the IMF, the World Bank, multilateral development banks, bilateral partners, insurance companies, the climate funds, and business.
The IMF could contribute to the resilience strategy in a number of areas.
We could help the countries develop an appropriate macroeconomic policy-framework. One way to accomplish this is with a new analytical tool jointly developed with the World Bank. This so-called Climate Change Policy Assessment provides a big-picture assessment of a country’s policy response to climate change. It takes into account the macroeconomic, fiscal, and other policy requirements and identifies key areas for improvement. These assessments already have been undertaken by several countries in the Caribbean and other regions of the world and one is being presently conducted in Grenada.
The IMF could identify fiscal actions that create space for resilience projects in the most efficient way; incentivize climate-smart activities such as clean energy; and at the same time ensure debt sustainability. It could also help provide technical assistance in areas that target resilience.
And finally, the Fund could help develop integrated policy advice on financial resilience, including on the design and use of insurance and debt instruments. In this context, we could contribute to financing, including through engaging donor funds.
These are significant challenges. Climate change — in the Caribbean and around the world — demands a response from the international community. Grenada and the other small states are feeling the effects of this looming crisis in a way that is very different from most other countries. You are paying the price for a problem you did not create. So, the time has come for a global response. Let’s work together to achieve solutions that protect my home, your home and our way of life.
Thank you!
