by Kari Grenade, PhD, Caribbean Economist and Macroeconomic Advisor
Grenada’s economic story over the past 5 decades has been one of notable achievements, painful setbacks and repeated efforts to build a more resilient economy.
The early 1970s were a tumultuous period, not only economically but also socially and politically. Prolonged political repression combined with economic and social crises during 1974–1975, among other factors, culminated in the People’s Revolutionary Government (PRG) seizing power in March 1979. The PRG inherited a difficult economic environment, necessitating an International Monetary Fund (IMF) programme, which began in November 1979. They pursued an ambitious programme of state-led development aimed at achieving greater self-sufficiency and improving the quality of life for Grenadians. Following the demise of the PRG in 1983, important fiscal reforms were introduced, including the implementation of Value Added Tax in 1986 (though repealed a few years later). However, exceptionally high public spending during the revolutionary period contributed to an average overall fiscal deficit of 3.2% of GDP and public debt averaging 42.3% of GDP during the decade ending in 1989. At the time, both measures were the highest in the Eastern Caribbean Currency Union. Economic growth averaged 5% during the decade, although performance was far from consistent.
A key lesson from the 1980s remains relevant today, which is, public investment can support economic growth and development, but when expenditure significantly outpaces revenue and borrowing is poorly managed, fiscal pressures can eventually constrain economic progress.
Economic reforms and strong private-sector activity helped sustain growth and employment during the 1990s. Economic growth averaged 3.5%, but fiscal expansion generated new pressures, pushing public debt to an average of 48% of GDP for the decade as a whole. The challenge increasingly became how to maintain economic growth without allowing government debt and deficits to become unsustainable. Ultimately, that challenge was not successfully managed.
The 2000s were an exceptionally challenging decade. The country entered the decade with a recession in 2001, triggered by a downturn in tourism following the “9/11” terrorist attacks in the United States. The economy was subsequently devastated by Hurricane Ivan in 2004 and, to a lesser extent, Hurricane Emily in 2005. Just as the country was recovering, Grenada was hit by the global food and fuel price shock in 2007 and then the global financial and economic crisis in 2008, further undermining economic growth and placing considerable pressure on public finances. There were notable bright spots during the decade, including economic activity generated by post-hurricane reconstruction, the construction of the 2 national stadia and the cruise ship terminal, as well as the hosting of Cricket World Cup games. Nevertheless, these gains were insufficient to cushion the impact of successive external shocks. The result was a prolonged period of economic weakness marked by rising unemployment and an intensifying fiscal crisis.
Grenada recorded fiscal deficits every year between 2000 and 2009 (except in 2005), averaging 4.6% of GDP. Consequently, public debt surged to 93% of GDP in 2009, nearly double its level at the beginning of the decade. Economic growth averaged only 2.2% over the period 2000–2009.
The 2010s marked a turning point. Major fiscal reforms included the reintroduction of the VAT in 2010, debt restructuring in 2013, and the introduction of a legislated rules-based fiscal framework in 2015. The reforms were implemented as part of different IMF-supported Structural Adjustment programmes to place public finances on a sustainable footing and prevent a return to the chronic deficits and escalating debt of the previous decade. Together with strong economic growth, these reforms created valuable fiscal space and significantly reduced public debt. The results were substantial. In 2015, economic growth reached 6.4%, making Grenada the fastest-growing economy in Caricom at the time. For the decade as a whole, growth averaged 2.8%. Improved economic conditions contributed to a sharp decline in unemployment, which fell from 30% in 2013 to 15.1% in 2019. Fiscal consolidation also delivered major gains. Persistent deficits recorded from 2006 through 2015 were reversed, while public debt declined dramatically from its peak of 104% of GDP in 2013 to 57.9% in 2019.
As a result, Grenada entered the Covid-19 pandemic in 2020 with considerably more fiscal space than it had a decade earlier. Although the pandemic triggered an economic contraction of 13.8% in 2020 due largely to the near-collapse of tourism, recovery began in 2021 and accelerated in 2022 as tourism rebounded and construction activity strengthened.
The period from 2021 to 2025 demonstrated the value of those earlier reforms. Grenada was able to respond to the pandemic, the global food and energy shock, and Hurricane Beryl without returning to the unsustainable debt levels of the past. Economic growth remained robust, averaging 5.1% during the 5-year period, while labour market conditions improved significantly. According to the latest National Labour Force Survey, the total number of employed persons in Grenada was 49,258 in the third quarter of 2025, representing an increase of 5,323 persons compared with the same quarter in 2024. As a result, unemployment fell to a historic low of 7.5%. Employment continues to be concentrated in construction, wholesale and retail trade, motor vehicle repair, accommodation and food services, education, and health and social work.
The fiscal deficit recorded in 2025, largely driven by substantial and much-needed public investment, remained manageable and was financed primarily through a drawdown of the government’s deposits held within the domestic banking system. Publicly available data from the Eastern Caribbean Central Bank indicate that the government’s deposits moved from EC$1.0 billion in 2024 to EC$814.3 million in 2025. Given the still-significant level of the government’s deposits, it is likely that the estimated fiscal deficit in 2026 will also be financed largely from accumulated savings and, to a lesser extent, through new borrowing. From 2027, the fiscal rules are expected to be reinstated. Under the rules, the government’s total revenue and grants minus non-interest expenditure must generate a surplus of at least 1.5% of GDP each year unless the fiscal rules are legally suspended. As an upshot, the public debt target of 60% of GDP is now projected to be achieved by 2033, two years ahead of schedule.
Achieving a return to fiscal surpluses after 2 consecutive years of deficits will require stronger revenue mobilisation. In this regard, full implementation of the already enacted Digital Services Tax will be important. Strengthening revenue administration, improving tax compliance and enforcement, closing loopholes, and improving expenditure controls will also be critical.
Against an increasingly uncertain global economic backdrop, Grenada must carefully safeguard its fiscal position. Proposals that would significantly weaken the fiscal stance, such as unfunded tax cuts or increases in tax-free thresholds without compensating revenue measures, would be fiscally imprudent and strongly ill-advised.
While tax reductions are not inherently bad economic policy, the problem arises when their costs are underestimated, their benefits assumed rather than demonstrated, and no credible plan exists to address the resulting fiscal gap. Grenada’s fiscal rules are designed to ensure that expenditure is controlled, and sufficient revenue is generated to finance government operations while keeping public debt on a sustainable path. Any tax reduction must be accompanied by offsetting expenditure savings, alternative revenue measures or other credible sources of financing to ensure compliance with the legislated fiscal rules. More fundamentally, tax policy should form part of a broader economic strategy aimed at raising productivity, encouraging investment, creating employment opportunities and strengthening economic resilience.
In small open economies such as Grenada, tax cuts tend to reinforce import dependence (through more consumption of imported goods and services) and contribute to inflationary pressures and a persistently high cost of living. Moreover, tax cuts alone cannot stimulate economic activity if businesses continue to face infrastructure constraints, skills shortages, high operating costs and difficulties accessing finance.
Looking ahead, economic growth is projected to moderate to around 2.7% by 2029. However, the risks to the outlook remain significant. Grenada must therefore continue building fiscal buffers, strengthening tax administration and compliance, improving expenditure management, and expanding strategic investment in climate-resilient infrastructure, digital transformation and human capital development. Continued investment in public officers is also necessary to enhance productivity, professionalism and service delivery across the public sector. At the same time, efforts to improve the business environment must continue in order to support innovation, entrepreneurship and job creation.
These are not ordinary times, and ordinary solutions will not suffice. In a world marked by growing uncertainty and increasing vulnerabilities, Grenada cannot afford complacency. The progress achieved over the past decade has been significant; preserving and building on those gains will require continued commitment to sound economic and fiscal management. It will also require discipline, wisdom, foresight, strategic leadership, and competent management and implementation. It will also demand stronger social and environmental security, a fundamental shift in mindset from limitations to opportunities and possibilities, and a shared commitment to collective responsibility for Grenada’s development, with divine guidance above all.
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