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Challenge

Grenada is highly exposed to external volatility stemming from macroeconomic risks as well as weather- and climate-change related events. Its marine and coastal ecosystems provide a wide array of goods and services that contribute to the country¡¯s economy, but the impacts of climate change ¡ª such as sea level rise, floods, erosion, and storms ¡ª have magnified existing natural and human pressures on Grenada¡¯s marine and coastal ecosystems. Further, Grenada has been subject to extensive plastic pollution, one of the Caribbean¡¯s main environmental challenges, resulting in contaminated watersheds, coastal areas, and the ocean, posing a threat to ocean biodiversity and tourism development.

Approach

The Grenada Second Fiscal Resilience and Blue Growth Development Policy Credit is the second in a programmatic series of two World Bank¨Cfinanced operations aimed at deepening support for Grenada¡¯s policy and institutional measures to maintain fiscal discipline and to diversify the economy toward a blue growth model based on sustainable, well-governed use of ocean resources. The project included fiscal reform measures such as building fiscal buffers, improving public expenditure management, instituting customs and excise reforms, and improving transparency of public enterprises. The operation also supported the government¡¯s measures for better environment and natural resource management, including efforts to integrate coastal zone management and to include environmental sustainability requirements in public procurement.

Results

This operation, focused on enhancing Grenada¡¯s policy and institutional policies to maintain fiscal discipline and to diversify the economy toward a blue growth model, supported Grenada in achieving several key outcomes:

• A major policy measure resulting from this operation was a ban on Styrofoam food containers and the phase-out of single-use plastic shopping bags and disposable utensils. Imports of Styrofoam food containers, single-use plastic bags, and disposable plastic plates, forks, and spoons were reduced to zero.
• In 2020, a contingency fund was established and capitalized to EC$10 million (US$3.7 million) to build fiscal buffers and strengthen fiscal resilience to natural hazards. The contingency fund provides financial resources to cover medium-size natural disasters for which the budget reserve might be insufficient and insurance relief might be unavailable.
• The share of Marine Protected Area coverage in relation to the country¡¯s territory increased from the baseline of 3 % in 2016 to 20 % in 2020.

Bank Group Contribution

ľ¹ÏÓ°Ôº, through the International Development Association (IDA), provided a development policy credit in the amount of US$20 million, to finance this operation. IDA had previously provided a US$30 million development policy credit to finance the first operation in this programmatic series.

Partners

Grenada has strong development partnerships. Close collaboration between the World Bank, the International Monetary Fund, the Caribbean Development Bank, and the Canada-Caribbean Resilience Facility provided technical assistance to support fiscal sustainability and climate change resilience under this project.

Molinere Underwater Sculpture Park, Grenada. Photo: Government of Grenada

Beneficiaries

The reduction of imports of single-use plastic food containers, cutlery, and plastic straws has decreased contamination in coastal environments, improving the welfare of coastal communities and creating indirect positive impacts and health benefits related to marine-based economic activities such as fishing and marine tourism. Reduced pollution has also helped to improve coastal area quality and lessened the potential for vector-borne diseases like dengue fever and Zika.

In the medium term, payroll management could lower high-reservation wages and improve private sector employment. Because the unemployed are more likely to form poor households, improvement in the correspondence between public sector compensation and productivity would lead to positive distributional impacts through labor market adjustment. Distributional impacts on the affected groups of public employees must be monitored; monitoring is also needed to ensure that the public sector continues to attract and retain a highly skilled workforce.

Moving Forward

ľ¹ÏÓ°Ôº remains committed to expanding its support for the Caribbean¡¯s transition to a sustainable blue economy. Following the practice and successful example of this operation, more projects in the Caribbean have emphasized diversification to a blue economy and sustainable use of the ocean¡¯s natural resources; examples include the Bank-financed Unleashing the Blue Economy of the Eastern Caribbean Project and the Bank-financed Strengthening the Blue Economy in the Dominican Republic Development Policy Operation. In addition, this operation laid a solid basis for the recently-approved Disaster Risk Management Development Policy Credit with a Catastrophe Deferred Drawdown Option, which aims to strengthen both Grenada¡¯s disaster and climate resilience policy framework and its fiscal risk management practices for handling natural hazards.