The New Today

Commentary

Grenada’s economic performance after 50 years of Independence

An urgent need to spice up and spread economic growth?

On behalf of The UWI and the UWI Five Islands campus let me take this opportunity to wish the people of Grenada, Carriacou and Petit Martinique (Grenada) best wishes on the occasion of their 50th anniversary of independence.

Grenada is my favourite Caribbean island and some of my favourite humans live there. I am taking the opportunity of the 50th anniversary of independence to provide a brief analysis of the economic performance of Grenada since independence.

In the short space provided by a newspaper article I will focus on two economic variables, Gross Domestic Product per Capita and Growth in Real Gross Domestic Product.

I am able to access an independent, credible and continuous series of data from the World Bank for the period 1978 to 2023 for these variables and the analysis will be based on this time period which excludes the first four years of independence.

Of course, economic growth, national and social development is a complicated issue and many other indicators and variables will matter for a more comprehensive analysis.

Income & Wealth Since Independence
Gross Domestic Product (GDP) is the total market value of all the goods and services a country produces in a period of time. It is meant to reflect the market value of goods and services produced in a country during a period of time and by extension the total amount of income earned in the country during that period of time.

When GDP is divided by the population we get GDP Per Capita which is the average income per person in Grenada for a period of time. Since 1978 Grenada has seen a massive explosion in GDP Per Capita from US $912 in 1978 to $9,689 in 2023 as shown in table 1.

The figures imply that whereas in 1978 Grenadians had an average income of $204 EC per month or $2,448 EC a year, that has expanded to$2,155 per month or $25,860 EC per year by 2023, which represents a tremendous improvement in material living standards.

GDP Per capital is an average across the entire population and of course in reality many people in Grenada earn more than this and many earn less, but it gives us an average picture and we can track that average over time.

We do not have any data on income distribution in Grenada which is extremely important in tracking economic progress because while average income can grow most of that growth can be within certain groups leaving a lot of the population behind.

An analysis of income distribution in Grenada sounds like a perfect research project for some Grenadian graduate students to undertake at the UWI Five Islands campus.

An analysis of the trends in GDP Per Capita in Grenada shows a massive surge in the immediate post-independence period and GDP per capita more than doubled during the 1978 to 1987 decade. However, it is clear that after this period the growth in GDP Per capita has been quite modest and especially weak since 2008.

Even though the growth rate would have been affected by the mathematical fact that GDP would then be growing from a larger base, the 33% increase in the decade 2008 to 2017 is most anemic compared to the 113% growth in the decade 1978 to 1987 (see table 2).

In addition to the slowing growth, Grenada’s improvement in GDP Per Capita since independence lags behind a number of its Eastern Caribbean Currency Union (ECCU) counterparts as shown in table 1.

To further delve into the factors behind the trends in GDP Per capita we turn our focus to the growth in GDP itself.

A country’s GDP Per Capita as mentioned earlier is its GDP divided by its population. Grenada’s population has been relatively stable over the years since independence therefore the trends in Per Capita GDP are largely driven by the growth in GDP, therefore we now shift to focus on the growth in Real GDP. Real GDP is where GDP is adjusted to remove the effects of inflation.

As seen in table 3 economic growth in Grenada averaged 3.06% per year over the 1978 to 2023, which is the second lowest among the major economies in the ECCU.

Over the 46 year period the economy grew by a combined 140%, again the second lowest among the major economies in the ECCU.

The 1978 to 1987 and 1998 to 2007 stand out as two periods of strong and sustained growth in Grenada since independence and account for 67.2% of the growth achieved between 1978 and 2023 over the last 50 years (see table 3).

Over the 1978 to 2023 time period Grenada experienced 10 recessions (years of negative GDP growth) which was the second largest number of recessions among the major economies in the ECCU.

Economic recessions in Grenada have tended to be associated with hurricanes or external shocks such as the Gulf War (1991), September 11 terrorist attacks (2001), Sub-prime Mortgage Crisis (2008/2009) and the Covid 19 pandemic (2020) (please see table 5 for details).

However, with the exception of the recession following the 2008 global financial crisis and the Covid-19 pandemic, recessions in Grenada have tended to be short and mild.

The major challenge for Grenada appears to be the relatively modest levels of growth achieved in non-recession years and the vulnerability to external shocks which then reverse the moderate gains made in the non-recession years.

The factors behind Grenada’s relatively weak economic growth in non-recession years (compared to other major ECCU economies) and weak growth since 2008 despite its many assets, need to be researched and form the basis for future policy initiatives (again this seems like a perfect project for some bright graduate students from Grenada to undertake at the UWI Five Islands campus).

The evidence may also suggest an urgent need to find new avenues to “spice up” GDP Per Capita as the current model appears to have stalled, unable to create significant new wealth and facilitate catching up with other major ECCU economies.

Policy Challenges Next Fifty Years
Firstly, Grenada needs to invest in building up policy buffers especially in the form of a Debt to GDP Ratio of 60% to minimise the negative effects of the inevitable external shocks.

Secondly, policy makers need to focus on improving the ease of doing business, the efficiency of public services, improving physical and human capital and removing obstacles in the way of the entrepreneurs and investors who can identify and execute the new growth opportunities needed to “spice up” the rate of economic growth and to build up reserves for the inevitable bad years from hurricanes and/or external shocks.

Thirdly, in pursuing new growth opportunities policymakers should prioritise inclusive growth opportunities so that new wealth is generated that is spread across a broad cross section of the society.

Professor Justin Robinson