In Grenada, a picturesque island known as the spice isle, a pressing issue has emerged, capturing the attention of its 100,000 inhabitants: debt restructuring. The government of Grenada faced a default on its dollar bonds in March, leading the religious community to advocate for a two-thirds debt write-off, drawing inspiration from the concept of “jubilee” in Christianity, which represents the forgiveness of sins as a one-time event. Church leaders from various denominations, serving on a debt committee alongside government officials, recently engaged with the International Monetary Fund (IMF). Prime Minister Keith Mitchell expressed gratitude for their support and cited a passage from the Book of Matthew to justify the implementation of austerity measures.
So, why has debt relief become such a prominent concern? Like many Caribbean islands, Grenada’s financial situation is in disarray, with poverty reaching alarming levels. The region as a whole experienced a significant blow to its economy due to the tourism decline following the global financial crisis in 2008-09. Governments attempted to spend their way out of stagnation, resulting in unprecedented levels of deficits.
According to the IMF, public debt in the Caribbean region averaged 70% of GDP in 2012, accompanied by remarkably high current-account deficits of 23%. Economic growth has been virtually nonexistent or negative in recent years. In Grenada, for instance, the economy contracted by an average of 1.2% annually between 2008 and 2012. Carl Ross from Oppenheimer, a securities firm, describes many Caribbean countries as trapped in a classic debt cycle. They face the need to curtail government spending, which further suppresses already low levels of GDP growth. Additionally, several Caribbean states, akin to heavily indebted nations in the eurozone, are part of a currency union, limiting their ability to devalue their currencies to bolster exports and tourism.
Consequently, the region has witnessed a series of sovereign defaults since 2010, involving countries such as Antigua and Barbuda, Belize, Jamaica, St Kitts and Nevis, and Grenada. Despite undergoing debt restructurings, Jamaica and St Kitts and Nevis still carry government debt exceeding 1.4 times their respective GDPs. The willingness of investors to engage in further Caribbean debt remains uncertain, as evidenced by Barbados recently aborting its attempt to raise $500 million in international markets. Indeed, there is much at stake, giving rise to prayers and hopes for a better financial future.
