Grenada

Grenada has undergone two severe debt crises in the last two decades. The first debt default was triggered by the impact of Hurricane Ivan in 2004. The storm destroyed 90 per cent of available housing and caused damage estimated at 148 per cent of GDP, which triggered a sovereign debt default and debt restructuring between 2004 and 2006. A second default took place in 2013, after years of subdued growth, but also given the insufficient debt relief following the previous crisis.

In parallel to the debt restructuring in 2015, following the default two years before, the country agreed to implement a long-term IMF adjustment programme, which managed to reduce debt to GDP ratios thanks to an ambitious fiscal consolidation. While reducing the debt to GDP ratio from 105 per cent in 2013 to 58.5 per cent in 2019, the country also reduced its public expenditure from 27.62 per cent of GDP in 2013 to 21.64 per cent in 2019.

The Covid-19 pandemic hit the country, particularly due to its dependency on tourism, and debt increased in 2020 to 71.4 per cent of GDP. In absolute terms, external public debt has increased 15 per cent between 2019 and 2022. Grenada applied for debt payments temporary suspension under the Debt Service Suspension Initiative (DSSI) but, as only bilateral creditors participated and most of Grenada’s debt is owed to multilateral institutions, the debt payments temporarily deferred amounted to only US$1.4 million, 0.1 per cent of Grenada’s GDP. As Grenada has reopened to international tourism, debt to GDP is decreasing again, not because debt is being reduced but because of economic growth (so an increase in GDP). The IMF assesses external public debt in Grenada as sustainable. However, as Grenada has “outstanding arrears of about US$37.6 million to official bilateral creditors, including Trinidad and Tobago and Algeria”, the country is classified as being in debt distress.

Debt payments increased substantially in 2023, probably due to the repayment of the deferred debt service within DSSI. Although the debt service to revenue ratio decreased between 2021 and 2023, it remains at over 30 per cent, which is way above the ratios that the IMF and World Bank consider as sustainable.

In the fiscal year 2021, the tax revenue of Grenada amounted to 21 per cent of GDP, which was a slight decrease of 1.1 percentage points compared to 2020.

Grenada went through a turbulent time in the 1980s, which had clear impacts on the tax system. In what the UN Economic Commission for Latin America and the Caribbean has described as a ‘radical fiscal experiment’, Grenada introduced a value added tax of 20 per cent in 1986 as part of a larger fiscal reform, which included the abolition of individual income tax and company tax, with the latter instead being replaced by a business levy. In the years leading up to the reform, Grenada had first experienced a military intervention by the US in 1983, and subsequently received proposals for a fiscal reform from the IMF and the United States Agency for International Development (USAID). Grenada’s 1986 fiscal reform proved to have strong negative impacts, including on public revenues, and, following a number of ad hoc measures, the corporation taxes were subsequently reintroduced and the value added tax was gradually dismantled, and eventually completely abolished in 1995.

Since then, however, Grenada has reintroduced the value added tax. In a ‘Letter of Intent’ sent by the government of Grenada to the IMF in 2006, the government stated: “We will introduce a value-added tax (VAT) by January 1, 2008.” In the same letter, the government furthermore added that “provided the revenue situation permits, we will announce a firm timetable to lower the corporate income tax in a gradual manner to promote higher private investment”. Less than a month after the letter was sent, the IMF Executive Board approved a three-year arrangement for Grenada under the IMF Poverty Reduction and Growth Facility amounting to an equivalent of over US$15.2 million, in order to support the medium-term economic reform programme of the government of Grenada.

In the report State of Tax Justice 2023, Tax Justice Network has estimated that cross-border tax abuse is costing Grenada a total of US$3.2 million annually, corresponding to over 15 per cent of the country’s health expenditures. Of this loss, it is estimated that US$0.6 million stems from corporate tax abuse and the remaining US$2.6 million from offshore wealth.