Economy of Montserrat

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Severe volcanic activity, which began in July 1995 has affected the small economy of Montserrat. A catastrophic eruption in June 1997 closed the airports and seaports, causing further economic and social dislocation. Two-thirds of the 12,000 inhabitants fled the island. Some began to return in 1998, but lack of housing limited the number.

The agriculture sector continued to be affected by the lack of suitable land for farming and the destruction of crops. Prospects for the economy depend largely on developments in relation to the volcano and on public sector construction activity. The UK has launched a three-year $122.8 million aid program to help reconstruct the economy. Half of the island is expected to remain uninhabitable for another decade.[1]

Montserrat’s main economic activity is in construction and government services which together accounted for about 50 percent of GDP in 2000 when it was EC$76 million3 (2000–at market prices). In contrast, banking and insurance together accounted for less than 10 percent of GDP in 2000. The unemployment rate in 1998 was estimated at 6 percent. Montserrat’s domestic financial sector is very small and has seen a reduction in offshore finance in recent years with only 11 offshore banks remaining.

Real GDP continues to decline from EC$122 million in 1995 to about EC$60 million in 1999, with the rate of decline peaking at -21.5 percent for 1996. The decline in economic activity reflected in large part the completion of major projects in both the private and public sectors. However, the rate of decline has been slowing markedly since 2000 and 2001, when GDP contracted by less than 3 percent. In 2002, the GDP growth rate reverted to a positive 4.6 percent reversing the declining trend over the past six years.

Government services and construction activity are the two largest contributors to economic activity on the Island. Government services have averaged about 32 percent of GDP for the past five years while construction has averaged about 24 percent. Growth prospects largely depend on activity in the construction sector and is contingent on the severity of volcanic activity and on the receipt of grant funding. The following table shows GDP over that last five years.

References

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