As the Caribbean nation of St Vincent and the Grenadines battles the economic fallout from the eruption of La Soufriere volcano, the island will now have to double down on its economic resources to weather the fallout from Hurricane Elsa.
St Vincent was placed under a hurricane warning on Friday as Storm Elsa morphed in the first hurricane of 2021. Its birth took place just off Barbados on Friday morning according to the National Hurricane Center.
Following explosive eruptions, the Islands Finance Minister Camillo Gonsalves said the volcanic eruption could cost the Eastern Caribbean nation 50% of its gross domestic product and force the government back to the debt market.
In an interview he told Bloomberg that the damage on the north of the island is bordering on apocalyptic.
St Vincent lost nearly 100% of their vegetable crops, 90% of their tree crops — like breadfruit and mangoes — and 80% of their root crops.
The IMF Executive Board approved the request by St. Vincent and the Grenadines for emergency financing assistance of about US$11.6 million under the Large Natural Disaster Window (LNDW) of the Rapid Credit Facility (RCF). The RCF will help address the urgent balance of payment needs associated with the explosive eruption of the La Soufrière volcano.
In a statement on July 1, the IMF said the ongoing eruption is hitting St. Vincent and the Grenadines hard, compounding the economic and social/humanitarian impact of the pandemic and by IMF staff’s estimates, may result in economic losses amounting to around 30 percent of GDP as infrastructure, housing and crops are damaged.
This will be the first request under the LNDW of the RCF. A member may qualify for the LNDW when urgent balance of payments needs stem from a natural disaster that results in damages of at least 20 percent of the member’s GDP.
St Vincent’s economy is estimated to have contracted in 2020 by 3.8 percent as tourism activity fell 70 percent. While considerable uncertainty remains about the evolution of the eruption, IMF staff estimate the infrastructure damage to exceed 20 percent of GDP and for the economy to contract by 6.1 percent in 2021, with agriculture and related sectors severely affected.
A drop in fiscal revenues, combined with additional social, cleanup and reconstruction expenditures, will increase the fiscal deficit and financing needs.
The bank noted that “The authorities responded swiftly to the emergency with a fiscal package which includes humanitarian support, income support for affected sectors and displaced workers, and cleanup and reconstruction spending. Large rebuilding expenses will be required given the magnitude of the damages.
“The authorities remain committed to meeting the debt target set by the Eastern Caribbean Central Bank (ECCB). Once the eruption subsides, the authorities intend to undertake measures to ensure debt sustainability and rebuild fiscal buffers, including replenishing the Contingencies Fund and adhering to the Fiscal Sustainability Framework.
The ECCB and the Financial Services Authority (FSA) are collaborating to safeguard financial stability. Efforts to strengthen crisis management plans and enhance the AML/CFT framework will help contain financial risks,” the IMF stated.
In 2010 Hurricane Thomas took a heavy toll on the country’s socio-economic development, with significant damage to schools and community centers that are part of the national network of emergency shelters. Critical roads were cut by landslides or by the flooding of major rivers.
During and after the hurricane, community residents in certain areas were isolated and shelter facilities were damaged or inaccessible for several days. As a consequence, the impact of the hurricane was even more severe on the most vulnerable groups.
Historical data indicates that in the Eastern Caribbean, the regional probability of a hurricane in any given year is about 18%, underscoring the need for disaster risk reduction and emergency preparedness.
SVG’s vulnerability to natural hazards has been exacerbated by its deeply dissected topography, making the country prone to landslides and flash flooding. Furthermore, increased disaster events have resulted in significant expenditures, generally not accounted for in the national budget, thus constraining economic growth.
Prime Minister Ralph Gonsalves speaking on NBC radio Friday morning, said Hurricane Elsa is on course to hit the nation before midday Friday 2nd July.
Gonsalves said despite his warnings, vendors turned up in the capital on Friday morning.
With the help of security forces, the National Emergency Management Organisation will assist in getting persons back to their homes.
Gonsalves urged those living in the Red Zone and in the path of mudflows and lahars to move immediately. According to the scientist at the Belmont observatory several lahars are expected due to heavy rainfall accompanying Elsa.
