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The Americas

Grenada Making Comeback from Hurricane Ivan

But International Monetary Fund sees hard road ahead

By Eric Green
Washington File Staff Writer

Washington -- The people of Grenada are making an impressive effort to put their lives back together six months after a devastating hurricane struck the island nation, reports the International Monetary Fund (IMF).

Nevertheless, an IMF assessment team that visited Grenada February 15-22 said economic conditions in the country remain difficult.

The IMF said Grenada's economy contracted by nearly 3 percent in 2004, and is only expected to expand by about 1 percent in 2005 given the depressed level of activity in the country's two main sectors, tourism and agriculture.

Prior to Hurricane Ivan, which struck Grenada September 7, 2004, Grenada's economy had been projected to grow by 4.7 percent in 2004 and at an average rate of 5 percent annually between 2005 and 2007.  Hurricane damage in Grenada totaled almost $889 million.  The storm killed at least 13 people and affected 90,000 of Grenada's 100,000 residents.

Grenada's government estimates that about 8 percent of the country's labor force was displaced by the effects of Hurricane Ivan, although some people may subsequently have been absorbed into employment in other sectors such as construction, said the IMF.

The United States and the international community have helped Grenada take a number of steps to maintain a degree of fiscal stability in the country's difficult post-Ivan period, said the IMF.  For instance, donor pledges from the international community of $150 million were quickly marshaled to fill financing gaps in 2004.  Without global support on this scale, it might have been difficult to overcome the effects of the damages of 200 percent of gross domestic product (GDP) inflicted on Grenada by Hurricane Ivan, said the IMF.

For its part, the U.S. Agency for International Development (USAID) initially provided more than $2 million in emergency aid to Grenada.  As it realized the full extent of the damage, USAID then provided additional support for health services and damaged infrastructure (including the island's electric system), for livelihood restoration, and for short-term food security projects.  USAID also contributed an additional $3.7 million to rehabilitate health clinics, assist small business and provide emergency housing.

The IMF said Grenada's government announced in October 2004 that its public debt was unsustainable and, in January, appointed professional debt advisors to help seek a cooperative restructuring agreement with creditors.

But despite these efforts, and against the backdrop of a weak economy, the 2005 budget situation in Grenada remains challenging, said the IMF.  It said that "extraordinary reconstruction expenditures have to be undertaken to help the country recover from hurricane-related damages.  At the same time, revenue sources remain weak and the high public debt level -- 130 percent of GDP -- sets tight limits to further borrowing by the government."

The IMF said that as "difficult enough as the present fiscal situation is, it is unfortunately quite easy to envisage circumstances that would make it even more so."  For example, said the IMF, "shortfalls in donor financing and tax revenues, or events such as a further rise in global oil prices, pose a grave risk" to Grenada's fiscal outlook.  Therefore, the IMF said, "it would be prudent to identify expenditures to postpone in the event of financing shortfalls, and -- if needed -- temporary revenue measures to put in place to keep essential recurring and reconstruction expenditures on track."

The IMF also announced it was sponsoring with the World Bank a February 25 seminar about the lessons learned from Grenada's efforts to recover from Hurricane Ivan.  Speakers at the seminar in Washington, entitled "Tracking Grenada's Recovery: Six Months After Hurricane Ivan," will include Denis Antoine, Grenada's ambassador to the United States; Caroline Anstey, World Bank country director for the Caribbean; and Prakash Loungani, the IMF's mission chief to Grenada.

Created: 24 Feb 2005 Updated: 24 Feb 2005

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