Budget Alert 4.3 Economic Developments in Grenada in the 1950’s

By Laurel Theresa Bain

With the focus on political and social reforms in the early 1950s, strategic policies for economic development were not at the forefront. The widespread devastation caused by Hurricane Janet in 1955 led to a shift in policies to recovery and reconstruction.

The economic structure, which was sugar-based mono-cultural, was evolving into a more pronounced diversified agricultural economy. The production of sugar was being shifted to a  limited area around the main sugar factory. A group of farmers had developed, producing food crops and experimenting with new export crops such as cocoa, coffee, coconut and nutmeg; and by the mid 1950s, banana became an important commercial crop. Consequently, bananas, cocoa and nutmeg emerged as important export crops. At the same time, the small farmer type operation became a core production unit in Grenada’s agriculture. The economic structure was therefore dominated by the production and export of primary products and the importation of a wide range of goods and services.

A more structuralist economic theory dominated economic policy during this period as the nationalist governments had to intervene to provide needed economic and social services. An indication of the economic conditions of the working class is based on the reports of the 1930s and 1940s. In particular, the Moyne Commission Report described the conditions as deplorable. Withthe labour force employed mainly in agriculture, wage development in that sector is a guide to what was the general welfare of the working population. Agricultural wages were said to be grossly inadequate as were housing, clothing and health care.

In the 1950s, the main objective of fiscal policy was to raise adequate revenue to finance government expenditures in the context of changing administrative arrangements and the need to improve the social and economic infrastructure. Fiscal policy focused on raising adequate revenue to finance government’s expenditure. Therefore, the ease of tax administration, an indicator of the efficiency of the tax system, and the adequacy of revenue were the major focus of fiscal policy.

The issues of equity of the tax system did not feature prominently. Reflecting the nature of the economy, dominated by the production and export of primary agriculture products and the importation of a wide range of goods and services, import duties were the main source of revenue. With the expansion of the categories of economic agents to include landowners, traders and professionals, the tax system was being gradually modified to broaden the base.

Despite the gradual changes, indirect taxes, and in particular import duties, were the main source of revenue. The system to facilitate ease of tax administration was influenced by the existing administrative capacity. Emerging from direct colonial rule, there was not a well-developed administrative system to facilitate economic and financial management. However, as it was an open and trade dependent economy, an administrative system for imports and exports was established and this determined the type of taxation. The port provided the most effective tax handle. Consequently, despite the growth in direct taxes, the Government depended on the collection of indirect taxes to finance its operations.

The primary focus of the government was generating adequate domestic revenue to finance current expenditure and to contribute to financing the needed economic and social infrastructure. Domestic revenue was supplemented with external grants (grant-in-aid) from the British Government.

The monetary arrangement did not allow for active monetary policy. In the 1950s, the British West Indian dollar (BWI$), introduced in 1949 by the British government in its British West Indian territories, was the currency used for payment for goods and services. However, the pound sterling circulated freely as a medium of exchange. As a member of the British Caribbean Currency Board (BCCB), which was established in 1958, Grenada participated in a common currency arrangement.

The BCCB had the sole right to issue the common BWI$, with the mandate to maintain adequate foreign currency to ensure that, at any time, the dollar could be exchanged with the pound at $4.80 per sterling. With this monetary arrangement, fiscal policy was the dominant instrument for managing the economy.

In this agriculture based and export-oriented economy; and the need to improve the economic and social infrastructure, fiscal policy focused on raising adequate revenue to finance government’s current expenditure with a portion of the capital expenditures financed by external grants from the British Government. The ease of tax administration and the adequacy of revenue were the major focus of fiscal policy.

Knowledge is power and Experience is the greatest teacher.

Disclaimer: This article is written in my personal capacity and not in my capacity as Chairwoman of the Fiscal Resilience Oversight Committee.

17 May 2024

Budget Alert 4.3 Economic Developments in Grenada in the 1950’s

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