Jamaica

major macro economic indicators

(e): Estimate (f): Forecast *Fiscal year 2020 = from 1st April 2020 to 31st March 2021

Risk assessment

Growth moderated by inflation

After a strong post-pandemic rebound in 2021, activity slowed significantly in 2022, suffering from inflation despite the recovery of the tourism sector (35% of GDP) and mining exports (10% of world bauxite production). In 2023, the slowdown is likely to be confirmed in the wake of household consumption (76% of GDP in 2021). Inflation, notably due to high commodity prices, will erode their disposable income. In addition, incomes are also likely to be eroded by the decline in expatriate remittance flows (around 20% of GDP in 2019) as US and global growth stalls. Consumption would also suffer from rising unemployment, which could rise above 8% (6.6% in mid-2022).   On the other hand, export earnings (around 30% of GDP in 2019) will continue to drive activity. Despite pressure on the purchasing power of American, Canadian and British consumers, who accounted for around 90% of visitors in 2019, tourism (58% of exports in 2019) should continue to rebound. It will be accompanied by mining exports (20% of exports in 2019), which will gradually increase as the Alpart bauxite and alumina plant resumes its activity. The United States and China will be the main outlets for this production. In addition, business activity will also benefit from investment support, particularly through public-private partnerships that were initially planned for 2021 and 2022 in logistical, mining and tourism infrastructures: JISCO's investments in the Essex Valley and the construction of the highway from Caymanas to Ocho Rios. They would support the construction sector. Nevertheless, fiscal prudence will limit the contribution of public consumption to business activity.

Fiscal austerity continues

The public balance is expected to return to a deficit in 2022-23, predominantly on back of food and energy product subsidies to households. It would nevertheless remain relatively moderate and a new comfortable primary surplus of more than 5% of GDP should be achieved. In 2023-24, the fiscal balance is expected to be almost zero. Government revenues will increase as the economy continues to recover. The rebound in tourism and increased mining royalties, in particular, will contribute to this. On the expenditure side, with local elections approaching, the main uncertainty is the costly extension of household subsidies and the welfare support package. The police budget will increase in light of insecurity. Nevertheless, the authorities remain concerned with demonstrating a certain degree of fiscal prudence and the increase in expenditure, particularly capital investment, should therefore remain very measured. The agreement with the IMF at the end of 2022 for two new facilities worth around USD 1.7 billion will accompany the government's austerity effort. The precautionary and liquidity line will allow it to refinance USD 1 billion of debt, by reducing servicing expenses. Nevertheless, debt levels and the debt burden, which represents about 4.5% of GDP, will remain high. The comfortable current account surplus (around 5% of GDP) should keep the debt ratio on a downward trajectory. The authorities will continue to focus on multilateral sources of debt to reduce the debt burden. However, with about 60% of the debt stock denominated in foreign currency, it remains vulnerable to a possible depreciation of its own currency.

Return to a current account surplus

In 2022, the recovery of tourism has mitigated the current account deficit. It should return to a surplus level in the wake of the sector’s upturn, which should continue to recover, thereby reinforcing the comfortable positive balance of the services account. Despite the rebound in mining exports, the goods balance will remain in deficit, burdened by the energy bill. The income balance, also in deficit, will narrow slightly as payments for the burden of external debt diminish. Expatriate remittances are likely to increase in 2023, generating a new surplus in the transfers balance. Although tougher terms of trade and monetary tightening by the US Federal Reserve could keep pressure on the Jamaican dollar, the return to a current account surplus should ease it. Moreover, foreign exchange reserves, which represent more than 6 months of imports of goods and services, remain at a comfortable level.

Unpopular government and latent insecurity

Despite a record abstention rate (63%), Prime Minister Andrew Holness and his party (The Jamaica Labour Party, a centre-right party) won the September 2020 legislative elections, obtaining 49 of the 63 seats in parliament. The government's popularity has suffered due to the deterioration of public finances and the management of the Covid pandemic. The main challenge for 2023 will be fiscal consolidation, accompanied by the IMF, in a context of insecurity and inflation. The government will reinforce its action against crime through a probable extension of the state of emergency already declared in 7 of the 13 regions of the island since November 2022. The surge in gang warfare, which accounted for at least 71% of the island's murders in 2022, against a backdrop of drug trafficking and arms smuggling would justify increased cooperation with Washington.  Abstention will be one of the issues at stake in the February 2023 local elections (again POSTPONED), which have been postponed twice because of the coronavirus. They could also be a gauge of the government's popularity before the 2025 general election. An underperformance by the main opposition People's National Party (centre-left) would trigger internal debates about Mark Golding's future as party leader.

Last updated: April 2023