Jun. 20, 2019
According to the World Bank, over the last 30 years, real GDP per capita has been increasing by an average of just 1% per year, making Jamaica one of the slowest growing amongst the world's developing countries. Located in the most strategic geographic position in the Caribbean, the country is working not only on stabilizing the economy by implementing an ambitious reform program, but strictly planning a long-term vision 2030 to become one of the most prominent countries in the Caribbean and Americas.
One of the pillars of this vision is ensuring fiscal sustainability through increasing and attracting investment to projects in energy, logistics, ICT, creative industries, agriculture and financial services. This is why debt and growth have been of concern not only for the country, but also for international multilateral funds. Since 2013, the World Bank, IMF, and Inter-American Development Bank (IDB) have been supporting Jamaica with development plans with the aim of improving the private sector, modernizing the public sector, and strengthening resilience to incentivize job creation.
As a result, according to the World Bank, Jamaica's commitments by fiscal year changed from USD227 million in 2014 to USD20 million in 2018, despite the sixth Quarterly Economic Growth Council (EGC) report outlining the need to continue reducing devaluation, emigration, corruption, bureaucracy, poverty, unemployment, social exclusion, and crime and violence rates. As a result of on-track debt reduction policies, the Economic Program Oversight Committee (EPOC) and the Minister of Finance calculated a 10-year unemployment low in January 2018 at 9.6% and low inflation of 2.8%. Despite inflation growing to 3.2% in July, this is still south of the Bank of Jamaica's target range of 4-6%. The debt-to-GDP ratio is expected to fall from its peak of 147% to below 100% in FY2018-19.
Reducing the debt-to-GDP ratio to 60% by 2025 to 2026 remains paramount. As of August 2018, the government has significantly contributed to reducing the country's debt—repaying USD58 billion as reported to the Minister of Finance and the Public Service. Prime Minister Hon. Andrew Holness also announced that borrowing is decreasing and Jamaica's “debt diet is changing."
This debt diet has significantly trimmed Jamaica's debt servicing as a proportion of the national budget. Once above 60%, the debt-servicing-to-budget ratio is now below 40%; as of March 2018, it was 37.4%.
IDB, in its 2018 Latin American and Caribbean Macroeconomic Report, mentions potential barriers to growth, though by considerable efforts, Jamaica is already running significant fiscal surpluses to reduce the high debt levels not requiring additional fiscal adjustments to maintain the ongoing trends. Perhaps most notable are Jamaica's tax collection efforts. Tax collection has exceeded the target for the first quarter of the 2018-19 fiscal year, collecting JMD79.9 billion—JMD6.7 billion above the JMD73.2-billion target. The tax administration is on track to exceed the annual target of JMD320 billion and GDP growth of 1.8%.
However, debt reduction remains a significant obstacle for the country. Consequently, an IMF team visited Kingston in June 2018 to take stock of progress on Jamaica's economic reform program supported by the IMF's precautionary Stand-By-Arrangement (SBA). Though on the right path, there is still a great deal to do in terms of fiscal discipline, not only to reduce the debt but to achieve resilient policy frameworks, infrastructure, security, agricultural development, health and education, and social safety nets, while sustaining macroeconomic stability.
Once notorious for its massive debt, Jamaica is building a new reputation for itself, and with the support of the international community, it is spurring economic growth step by step.