This synopsis of Budget Alert Volume 5: Fiscal Policy Issues in Grenada 2025, presents highlights of the main themes in the published Budget Alert articles for 2025. It allows for a reflection on some of the major policy issues that emerged in Grenada during 2025.
Budget Alert Volume 5 focuses on the financial position of the Central Government and macro-economic issues related to savings, investment and growth.
With the enactment of the Pension Fund Act, Budget Alert examines the Public Sector Employees (Pension Fund) Act, highlighting that the pension reform primarily benefits non-established public sector employees who were previously not entitled to constitutional pensions.
However, the existing established public officers are not disadvantaged as they could choose to remain under the current pension system, resulting in a transitional period during which two pension arrangements will operate simultaneously until all new public employees are covered by the new Act.
Budget Alert then reviews Grenada’s fiscal position, emphasising that both budget surpluses and deficits are normal instruments of fiscal policy. However, fiscal deficits become problematic when they are chronic and financed mainly through unsustainable borrowing.
The fiscal deficits experienced during the COVID-19 pandemic in 2020 and those projected for 2025 and 2026 are considered temporary and manageable as they are financed primarily through accumulated government reserves rather than increased public debt.
Budget Alert also examines broader macroeconomic issues, particularly the relationship between savings, investment, and economic growth.
Grenada experienced high levels of Central Government savings in 2024, driven by inflows from the Citizenship by Investment Programme and the Caribbean Catastrophe Risk Insurance Facility (CCRIF). This followed two consecutive years of fiscal surpluses, particularly in 2023, resulting in increased government deposits in the financial system.
The growth in Central Government deposits at the commercial banks contributed to the high liquidity in the commercial banking system. However, a significant amount of the excess liquidity in the financial system was invested overseas, while funding gaps persisted for domestic economic development projects.
Budget Alert therefore highlights the need to restructure the financial intermediation process to channel a greater proportion of domestic savings into productive local investments that generate employment, strengthen productive sectors, and transform the economy.
As such, it is necessary to determine an optimal level of government reserves; and thereafter, maintain sufficient savings to protect against future economic and climate-related shocks, and to invest reserves above that level in strategic development projects.
Another major theme of Budget Alert is the measurement of economic growth and the importance of distinguishing between productive economic activity and the effects of fiscal policy.
The GDP, as measured by using the production approach, consists of Gross Value Added (the value of goods and services produced by enterprises) together with net indirect taxes, which reflect government fiscal policy.
Fiscal policy, through indirect taxes and subsidies, is a component of GDP growth. Therefore, comparisons between countries may not accurately reflect differences in productive capacity.
Budget Alert recommends the use of Gross Value Added as the primary indicator for assessing the economy’s productive performance while separately evaluating the contribution of net indirect taxes.
Budget Alert reviews the historical and constitutional evolution of Grenada’s system of governance, tracing the constitutional reforms of the 1960s that culminated in political independence in 1974 and the adoption of the Westminster parliamentary system.
The Constitution provides the legal framework for public financial management by requiring parliamentary approval of government expenditures, establishing rules for the management of public funds, and ensuring accountability through financial oversight and auditing.
Budget Alert Volume 5 concludes that sound fiscal management, effective investment of national savings, appropriate measures of economic performance, and strong constitutional governance are essential for promoting sustainable economic growth and long-term national development in Grenada.
Budget Alert Volumes 2, 3 and 4 provide details on some of the policy issues that emerged in Grenada from 2022 to 2024; while Budget Alert Volume 5, with the policy issues that emerged during 2025, is being processed for release.
Knowledge is power and experience is the greatest teacher.
Disclaimer: This article is written in my personal capacity and not in my capacity as Chairwoman of the Fiscal Resilience Oversight Committee
Laurel Bain is a Grenadian-born former economist with the St. Kitts-based Eastern Caribbean Central Bank