Grenada is a small island state and lies towards the southern end of the Caribbean island chain, consisting of the islands of Grenada, Carriacou and Petit Martinique. Its population is 108,132. The country is still in a post-disaster situation, having been battered by Hurricane Ivan in September 2004. The storm caused the death of 39 people, about 90% of buildings were affected, roads were damaged, and the economy was virtually destroyed.

Key issues in EU-Grenada relations

Grenada 's economy has traditionally been dependent on tourism, bananas and spices. In recent years, manufacturing paper products and electronic components, offshore financial services and telephone and internet-based marketing have become increasingly important, and the country also tries to diversify agricultural production through the Special Framework of Assistance for traditional ACP banana suppliers. Before Ivan, Grenada was the world's second largest producer of nutmeg and mace, supplying one–quarter of world demand. Nowadays bananas are grown on a small scale and no longer exported to Europe. Extraordinary grant receipts as well as debt relief secured after the hurricane has improved the Government's fiscal outturn.

The current economic crisis is affecting all countries in the region through lower remittances, a decline in stay-over tourists and a reduction in foreign direct investment and is threatening to reverse hard earned gains in human development. Nevertheless, the Grenadian authorities have made significant progress with structural reforms. VAT, introduced in February 2010, is expected to improve the efficiency of the tax system. Reforms to lay the basis for broad-based economic growth by improving the investment and business environment are underway. An institutional reform of the ministry of finance aims at improving the capacity for economic management.

The Grenadian government has tried to revamp the economy through a stimulus package amounting to €5.3 million (EC$20 million), which includes a road improvement project, a farm labour support initiative and a building renovation scheme. In April 2006 the IMF approved a three-year arrangement for Grenada under the Poverty Reduction and Growth Facility (PRGF), which was later augmented and extended by one year to April 2010 because of the local effects of the economic downturn. The money was injected into key sectors of the economy and also provided counterpart funding for donor-sponsored projects.

In April 2010 the IMF approved Grenada’s request for a new three-year arrangement under the Extended Credit Facility (ECF). The new agreement is intended to help Grenada cushion the effects of the global crisis and support the country’s agenda of economic reforms aimed at boosting growth, reducing poverty, strengthening the private sector and the business climate, and reducing vulnerabilities in the financial sector.

Under the 10^th EDF, it is foreseen to use 84% of the financial envelope, corresponding to € 5 M, to support Grenada’s Human Settlement Policy 2005-2015 aiming at “building back better” and providing low-income households with secure living accommodation. The remaining amount (€ 1 M) will be equally divided between Technical Cooperation Facilityand Technical Assistance.

Grenada is a member of CARIFORUM, CARICOM and the Organisation of Eastern Caribbean States (OECS), the latter having established a single monetary area and a common currency (the Eastern Caribbean Dollar) as well as a common central bank (the Eastern Caribbean Central Bank). On 29 December 2009, the OECS Leaders met in Saint Kitts and Nevis and, 28 years after the original treaty of Basseterre creating the OECS, signed a new Treaty establishing an Economic Union. The Treaty will have to be ratified and all institutional arrangements are not expected to be in place before mid 2010. Together with all other OECS members, Grenada also committed to the Caricom Single Market and Economy (CSME), the regional pact allowing for the free movement of goods, skills, and labours, across participating countries. Grenada is also a member of Petrocaribe, a Caribbean oil alliance being promoted by Venezuela.