Grenada First Fiscal Resilience and Blue Growth Development Policy Credit

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This program document presents the first operation in a programmatic series of two Development Policy Credits (DPC) for Grenada. The First Fiscal Resilience and Blue Growth Development Policy Credit, in the amount of US$30 million, supports the implementation of policy and institutional reforms set out in the Government’s long-term development strategy, the New Economy Plan (NEP), the Growth and Poverty Reduction Strategy (GPRS) for 2014-18, and Grenada’s Blue Growth and Coastal Master Plan. The Government’s programs prioritize fiscal sustainability, strengthening resilience against natural disasters, and harnessing the ‘blue economy’ as a way to fuel sustainable growth. This DPC series supports key aspects of that broad program. This DPC series supports a more comprehensive approach to strengthen sustainability and resilience in the context of a small island state. Grenada is a small country (with around 107,000 people) facing structural challenges, high volatility stemming from external factors, and significant exposure to natural disasters. Striking examples include the devastation of Hurricane Ivan in 2004 and Hurricane Emily in 2005 that caused damages estimated at 148 percent and 30 percent of Gross Domestic Product (GDP), respectively. Grenada also suffered a protracted recession during 2009-12, during which real GDP contracted by 8 percent from peak to trough. Combined with a sustained pro-cyclical fiscal policy stance, this led to a steep rise in public debt. This operation takes a comprehensive approach to strengthen macroeconomic, fiscal and environmental sustainability, and resilience to shocks. It does so by supporting the implementation of fiscal reforms that keep public debt on a downward trajectory and support fiscal consolidation. Additionally, it takes a more balanced and sustainable growth approach that safeguards natural resources and measures to better deal with climate change and natural disaster shocks. This DPC series also supports measures geared to implement the ‘blue growth’ approach envisaged by the authorities, which aims at fostering sustainable growth while protecting livelihoods and reducing vulnerability to disasters and climate change. For Grenada, an effective transition to a blue economy is synonymous with balancing the environmental health and resilience of coastal and marine ecosystems with the high economic returns these natural assets provide. Grenada is witnessing a rise in the total contribution of coastal tourism to GDP (to 25 percent of GDP in 2015 from less than 15 percent in 2005). The share of tourism-related jobs has also increased from 14 percent to 23.3 percent (equivalent to 11,500 jobs) over the same period. At the same time, high vulnerability to natural disasters calls for a strengthened institutional approach to disaster risk management and prevention. The second pillar in this DPC series supports Grenada’s transition to a ‘Blue Economy’ by supporting selected measures geared to strengthen ocean governance, marine ecosystem health, and climate resilience.