Introduction to Fiscal Resilience in Small Island Developing States

ST. GEORGE’S, Grenada, CMC—The chairwoman of the Fiscal Resilience Oversight Committee (FROC), Laurel Bain, says small island developing states (SIDS), including Grenada, need to adopt a strategic approach to managing their economies.

She said this requires building efficient and effective governance institutions and systems and effectively utilizing human resources, the country’s most valuable assets.

Building Effective Governance Institutions

“About building effective governance institutions, an important gap has persisted over the years, that is, the absence of audited public accounts and a well-functioning Public Accounts Committee,” she said in a message ahead of the virtual news conference by the FROC on Wednesday where the FROC’s 2024 Annual Report will be released.

The briefing will focus on the FROC’s assessment of the government’s compliance with the Fiscal Resilience Act (FRA), which supports fiscal discipline, transparency, accountability, and sustainability in public financial management.

She said the FRA, with a lower legislated minimum primary balance, a higher wage bill cap, and a debt target to be achieved by 2035, provides fiscal space to manage the economy.

Bain said it also allows the authorities to implement economic and social reforms, “some of which have become more urgent with the experiences of climatic hazards and the increasingly unstable and unpredictable global environment.

Ongoing Assessment and Fiscal Sustainability

“Ongoing assessment of programs and projects should be undertaken to determine impacts, cognisant of the need to ensure fiscal and debt sustainability,” Bain said, noting that the submission to Parliament of the audited public accounts for 2016 to 2019 and the establishment of the Public Accounts Committee are steps to improving the system of governance.

“It is necessary to maintain, at all times, an efficient and effective governance system that supports the principles of fiscal transparency and accountability,” she said, adding that ongoing policies for maximizing the population’s potential should be aggressively pursued.

Utilizing Human Resources

She said information on social indicators is available, including the population’s structure and educational attainment and the working population’s status.

“Public policies should aim at harnessing the skills and energies of a youthful population. The labor-force surveys in 2023 indicated that there were relatively high levels of unemployed human resources, particularly between the ages of 15 and 19.

“The need to import labor to perform routine functions in critical sectors, under normal economic conditions, is a manifestation of the mismatch between the demands of the economy and the skills of the working population.

“The effective use of human resources is even more important as the global environment is becoming increasingly unstable and unpredictable, requiring constant review and adjustments of policies, programs, and projects.”

Social Policy and Fiscal Resilience

Bain said that the social policy in Grenada continues to be implemented in the context of legislated fiscal rules and targets.

She noted that fiscal policy was guided by the Fiscal Resilience Act (2023) in 2024, which replaced the repeal of the Fiscal Responsibility Act (2015).

“The inclusion of fiscal resilience in the FRA implies that fiscal policy should be pursued in a manner that allows for the accumulation of adequate reserves to enable the Government to respond to crises and economic shocks while maintaining fiscal stability.”

Importance of Fiscal Resilience

She said that the importance of fiscal resilience was manifested in 2024 as multiple risks impacted the economy.

“The most severe was Hurricane Beryl, which struck Grenada on July 1, 2024, and devastated Carriacou and Petite Martinique and caused substantial damage to the northern part of Grenada, requiring the activation of Section 9 of the FRA.”

She said this was followed by torrential rains from November 8 to 19, “which caused extensive flooding and landslides, destroyed agricultural output, and disrupted electricity and water supply. “The December 19 rains caused flooding in Grenville.

“The” were also the ever-present uncertainties of the possibilities of economic shocks associated with high fuel and food prices linked to the conflicts in the Middle East and the ongoing Russia/Ukraine war,” she added.

Conclusion

In conclusion, small island developing states like Grenada need to adopt a strategic approach to managing their economies, building efficient and effective governance institutions and systems, and utilizing human resources effectively. The Fiscal Resilience Act provides a framework for fiscal discipline, transparency, and accountability, and its importance was highlighted by the economic shocks experienced in 2024.

FAQs

Q: What is the Fiscal Resilience Act (FRA)?

A: The FRA is a law that supports fiscal discipline, transparency, accountability, and sustainability in public financial management.

Q: Why is fiscal resilience important for small island developing states?

A: Fiscal resilience is important for small island developing states because it allows them to respond to crises and economic shocks while maintaining fiscal stability.

Q: What are some of the challenges faced by small island developing states in managing their economies?

A: Some of the challenges faced by small island developing states include the absence of audited public accounts, a well-functioning Public Accounts Committee, and the mismatch between the demands of the economy and the skills of the working population.