Trade policy review

(4)Balance of Payments, Trade and Investment Flows

1.The current account of the balance of payments shows a structural deficit, caused basically by the strong imbalance between exports and imports of merchandise; exports in 2006 represented less than 12% of imports. The deficit worsened over 2001-03, but contracted in 2004, as Hurricane Ivan disrupted economic activity (Table I.2). The deficit in merchandise trade reflects partly the strong import content of the Government's investment programme and of private consumption; in 2006 the merchandise trade deficit represented some 42% of GDP, while the current account deficit was 30% of GDP. The current account is expected to remain under pressure as imports continue to expand in the effort to rebuild the economy. As merchandise exports are only expected to recover in the medium term, the trade balance is expected to remain at recent levels.

2.The value of exports contracted during the period under review, affected in particular by hurricane damage (Table AI.1); the value of imports declined between 2000 and 2002, but growth resumed thereafter (Table AI.2). Food and beverages accounted for some 23% of total imports, followed by chemicals, fuels, office machines and telecom equipment crude materials, and oils and fats. Exports of food products accounted, until 2005, for over half of total exports; until 2005, exports of nutmeg were the main generator of foreign exchange in the agricultural sector. Other export products include bananas, flour, animal feedstuff, and manufactures.

3.Grenada's main trading partners are the European Communities, the United States, and, increasingly, other CARICOM members (Tables AI.3 and AI.4). The main single export destination is the United States, followed by OECS countries and the Netherlands. On the import side, the United States is the main provider, followed by the CARICOM area and the United Kingdom.

4.Grenada is a net exporter of services, mainly on account of its surplus on travel services, linked to tourism activities; in most other areas, it is a net importer. Exports of non-factor services increased on average over 2001-04, but declined in 2005 affected by the damage caused by the hurricanes. Exports of the main activity, travel, fell from some US$83 million in 2000 to US$71 million in 2005. Total exports of services reached US$116.7 million in 2005, while imports were US$92.5 million.

Table I.2

Balance of payments, 2001-06

(US$ million)

	2001	2002	2003			2004	2005	2006^a
Current account	-105.1	-124.9		-143.7		-55.8	-126.7	-154.5
Goods and services	-84.8	-100.7		-129.9		-138.4	-217.4	-172.5
Goods	-133.2	-139.4		-180.9		-201.4	-241.2	-210.9
Merchandise	-137.3	-141.8		-184.6		-206.9	-247.5	-215.4
Exports	59.5	39.6		41.8		31.4	32.8	27.8
Imports	-196.8	-181.4		-226.4		-238.4	-280.3	-243.2
Goods procured in ports by carriers	4.1	2.4		3.7		5.5	6.3	4.5
Services	48.4	38.7		51.0		63.0	23.7	38.4
Transportation	-24.7	-22.6		-30.2		-31.8	-38.4	-29.9
Travel	75.9	83.7		95.3		74.1	61.1	82.8
Insurance services	-4.6	-3.1		-5.5		35.5	14.4	-7.1
Other business services	1.3	-17.8		-4.5		-3.6	-1.8	-2.8
Government services	0.5	-1.5		-4.1		-11.1	-11.6	-4.5
Table I.2 (cont'd)
Income	-41.4	-47.5		-50.3		-38.9	-23.6	-28.9
Compensation of employees	0.0	0.0		0.0		0.0	0.0	0
Investment income	-41.5	-47.5		-50.3		-38.9	-23.6	-28.9
Current transfers	21.1	23.3		36.5		121.5	114.3	46.9
General government	2.1	2.4		17.8		40.2	31.3	18.9
Other sectors	19.0	21.0		18.7		81.3	83.0	28.0
Capital and financial account	111.0	156.1		130.9		102.1	99.3	160.1
Capital account	42.5	31.9		43.2		39.9	47.1	65.2
Capital transfers	42.3	31.9		43.2		39.9	47.1	65.2
Financial account	68.4	124.3		87.7		62.3	52.3	94.9
Direct investment	58.7	58.9		89.2		54.0	26.3	115.8
Portfolio investment	-0.3	107.7		29.1		30.0	10.4	0.1
Other investments	10.0	-42.3		-30.6		-21.8	15.5	-21.0
Public sector long term	17.3	4.2		11.5		2.9	21.3	10.2
Commercial banks	-20.3	-20.3		-29.6		-55.4	25.0	-46.3
Other assets	-5.3	-14.2		-20.1		-4.0	-3.1	-4.9
Other liabilities^b	18.3	-12.0		7.6		34.7	-27.7	20.0
Overall balance	5.9	31.2		-12.8		46.3	-27.4	5.6
Financing	-5.9	-31.2		12.8		-46.3	27.4	-5.6
Change in government foreign assets	0.4	-7.3		8.2		-7.9	-0.1	-0.1
Change in imputed reserves	-6.3	-23.9		4.6		-38.5	27.5	-5.6
Memorandum
Current account balance (% GDP)	-26.6	-30.6		-32.4		-13.0	-25.1	-30.0
Merchandise trade balance (% of GDP)	-34.7	-34.8		-41.6		-48.5	-49.4	-41.9
Real effective exchange rate
Estimated visitor expenditure (EC$ million)	225.3	247.0		279.9	25.4		192.9	252.4
Net imputed international reserves (US$ million)
Outstanding external public debt (% of GDP)	45.0	77.6		77.7	97.3		88.1	91.3
Total public debt (% of GDP)	79.3	113.4		114.0	136.7		120.5	121.0
Debt service ratio (% of exports of goods and services)	5.5	8.4		8.4	8.9		5.3	..

.. Not available.

a Preliminary.

b Includes errors and omissions.

Source: Eastern Caribbean Central Bank (2006), Annual Economic and Financial Review 2005.

5.Between 2001 and 2005, investment projects estimated at a total of EC$628 million (US$232 million) were implemented. In 2005, 20 foreign investments were being implemented: 15 in tourism, 4 in manufacturing, and 1 in other services. Potential investment flows from these projects were estimated at EC$513.3 million (US$190 million) (Table I.3), of which EC$183.6 million had been disbursed.

Table I.3

Investment projects, 2001-05

(EC$ million)

Area of activity	2001	2002	2003	2004	2005
Manufacturing	8.3	0.5	0.8	0.9	1.3
Tourism	92.2	2.5	226.0	102.3	497.7
Other services	0.0	30.0	50.9	13.9	15.7
Total	100.5	32.9	277.7	117.1	513.3

Source: Information provided by the authorities.