Grenada’s Minister for Economic Development, Planning, Trade and Cooperatives, Oliver Joseph was recently in Europe to deliver an address at a conference “Solving Sovereign Debt Crisis”, organised in Brussels by Eurodad, Friedrich Ebert Stiftung and erlassjahr.de.
Presently, the island is gripped in a debt and financial crisis that resulted in the one-year old Keith Mitchell-led New National Party (NNP) administration introducing a series of austerity measures to address the fiscal problem facing the country.
Over the past 14 months, Grenada has not been able to pay the creditors any of the estimated debt of EC$2.4 billion.
As a public service, THE NEW TODAY reproduced an interview that was given in Brussels by Minister Joseph to a media outfit known as Eurodad:
Q: Grenada has recently defaulted on external debt. How did Grenada come to such a high debt burden in the first place?
A: Several factors contributed towards Grenada’s present debt situation. In 2004 we were affected by a massive hurricane that caused damage reaching twice the GDP. Almost the whole country was destroyed. So we had to seek financing and received grants and debt financing. We had another hurricane in 2005, though not as big, and found ourselves in a situation where we could not service the debt.
Grenada is a small economy. It does not produce enough revenue on its own to do capital projects and therefore must always seek assistance. Then we had the financial crisis in 2007 which affected foreign direct investment coming in. Therefore, Grenada had to borrow to carry out the infrastructure development. And that has led us to the situation when, in 2012, the public debt to GDP stood at 110 per cent.
Obviously that is not a sustainable situation. And therefore, when we came into office in 2013 and had to make repayments, we found the government was not making enough revenue to meet its expenditure. Salary, wages and pensions accounted for 70 per cent of all expenditure. So we were left with 30 per cent for capital work, to provide social services and to pay debt and could not meet our debt obligations.
We had multilateral debt, bilateral debt and domestic debt. We had to go for restructuring. One of the great concerns for us was the debt to the bond-holders, who are mainly American companies and private individuals who had bonds that were to mature in 2025. We could not pay these bond holders. Therefore we had to renegotiate and restructure.
Q: What do you expect from Grenada’s creditors?
What we are negotiating is a reduction in the debt stock so that we are able to have leeway to make the payments thereafter. We are expecting a favourable response.
Q: What process should be implemented to deal with Grenada’s debt?
A: We have hired a group of debt advisors who have experience in negotiating debt. They did so for Belize, and other countries. They meet with the creditors, who have their own group of advisors as well. A hair cut of fifty percent or more would be of tremendous help to Grenada.
Q: What role have the Churches in Grenada played?
A: We have involved civil society, including the churches. They are very actively involved for the first time in the history of Grenada, and we want to use that as a model for the rest of the Caribbean. The Conference of Churches are helping us with the bilateral debt – nine per cent of the total debt. They have written to Canada, the UK and the USA to forgive the debt. We have a committee called the Jubilee Committee where the government representative – who is me as Minister –agrees to give them updates on what is taking place.
We are also in a structural readjustment programme with the IMF, and the churches have said to make sure the vulnerable groups are protected. The IMF has agreed with us on that, which is a change in their approach. This recommendation was strongly supported by the churches and general civil society.
Q: Many Caribbean countries are suffering from the same problem: high debt burdens. There are ideas to launch a Heavily Indebted Caribbean Countries Initiative to deal with the whole region’s debt problem in a comprehensive manner. What do you think about this idea?
A: There was the HIPC initiative but only two Caribbean countries benefitted. Now they are saying let’s look at these highly indebted Caribbean countries. But the initial reaction from creditors was: you are a middle-income country. Even in the 11th EDF programme from the European Union, they have graduated us from budgetary support. We try to use our vulnerability and also the Social Index, which they would not listen to. They are looking at per capita GDP and that is it. We think an initiative is a good idea but we have to convince the creditors and Financial Institutions.
Q: Who should assess how much debt is sustainable while meeting the Grenadan people’s human development needs?
A: At the moment it is the international financial institutions that assess it. We think civil society should be involved in the assessment, so we can have independent assessors. You might say what is a sustainable debt level? For the eastern Caribbean currency union, they recommend 60 per cent, not 110. If we get the restructuring done we must ask how we make sure we do not fall into it again. We need to maintain sustainable borrowing.
Q: How can Grenada be protected from climate change? Should finance to Grenada for climate change be grants or loans?
A: Grenada can be protected from climate change through early warning systems, disaster mitigation, flood mitigation to reinforce the infrastructure in these areas. It must be in the form of grants. There are grants available. We are a member of the small island developing states (SIDS), in fact we are the chair. There we are submitting programmes and projects for grant funding. We are clear we cannot take any loans for climate change, it must be grants. We are submitting programmes that we hope will get support as we are still vulnerable to hurricanes.