Country Economic Review 2019 - Jamaica

COUNTRY ECONOMIC REVIEW 2019 JAMAICA

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Jamaican Dollar (J$); United States Dollar (US$) US$1 = J$134.2 JAMAICA ECONOMIC BRIEF 2019

OVERVIEW

Chart 1: Real GDP Growth Real GDP Growth (%)

1.6

After six years of ambitious reform, Jamaica successfully graduated from International Monetary Fund (IMF) support in November 2019. The reform programme contributed to improved macroeconomic conditions, evidenced by consistently strong fiscal outturns, falling debt ratios, low and stable inflation and strengthened international reserves.

However, economic activity remained tepid, and there is scope for the economy to grow at a faster pace without inflation exceeding the Bank of Jamaica’s (BOJ) target (4%˗6%).

1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 2015

2016

2017

2018

2019

Sources: Statistical Institute of Jamaica (STATIN), Caribbean Development Bank (CDB).

Headline inflation increased slightly to 3.9% in the year to December, compared with 3.7% in 2018. This outturn largely reflected higher food prices that were partly offset by lower energy and transport costs.

KEY DEVELOPMENTS IN 2019 Real gross domestic product (GDP) grew by 1.2% in the year to September 2019 (see Chart 1). This expansion reflected growth in tourism, manufacturing and finance services. The increase in tourism was evident from a rise in the number of stopover visitor arrivals, associated with additional airlift to the island and an expansion in the hotel room stock. There was growth in manufacturing activities, such as food, beverages, tobacco, and petroleum production. However, weaknesses in mining and quarrying, and in agriculture, severely constrained economic activity. The suspension of production at the Alumina Partners of Jamaica (Alpart) refinery in September contributed to a 17.6% decline in output in the mining sector in the third quarter.

Agriculture production was adversely affected by dry weather conditions.

The unemployment rate fell to 7.2% in October (see Chart 2). This is the lowest recorded level of unemployment – even as the labour force expanded. The moderation in the unemployment rate was attributed in part to a rise in the number of persons employed in the manufacturing and finance sectors.

Unemployment Rate (%)

Chart 2: Unemployment Total

Female

20.0 15.0 10.0 5.0 2015

Source: STATIN.

2

Male

2016

2017

2018

2019

JAMAICA ECONOMIC BRIEF 2019

The Government of Jamaica remains committed to fiscal consolidation and debt reduction, and is on track to achieve its 60% of GDP debt target. Central Government operations recorded a primary surplus of J$94.1 billion (4.3% of GDP) for the eight months (April to November) of the fiscal year (FY). This outturn was above the 4.0% primary surplus for the same period in 2018, and continued the trend of primary fiscal surpluses recorded over the last two successive IMF-supported programmes, since 2013 (see Chart 3). The improved primary surplus reflected increased receipts from international trade taxes and production and consumption taxes. Stronger revenue collections more than offset additional spending on the road improvement programme, disaster mitigation, and payments of arrears, as well as to cover losses for at-risk public bodies.

unsecured ratings to B2 from B3, with a stable outlook. This followed upgrades from Fitch and from Standard and Poor’s in January and September, respectively. The main drivers of the improved ratings were the country’s debt reduction and track record of fiscal and monetary prudence; increased exchange rate flexibility; improvement in external buffers; and legislative reforms.

Accommodative monetary conditions contributed to private credit expansion.

BOJ reduced the policy rate from 3.50% per annum (p.a.) in June 2017 to the current level of 0.5% p.a. The relaxtion of monetary policy supported an expansion in private sector credit. Specifically, credit extended by deposit-taking institutions1 to businesses and households grew by 15.5% between September 2018 and September 2019, broadly consistent with growth observed since the start of the year. In addition, firms obtained financing through the issue of corporate bonds and equity.

Public debt fell to 98.7% in March, and is projected to decline further to 96.1% at the end of March 2020, compared with 101.1% in FY 2018/19. Based on the current trajectory, public debt is on track to reach 60% of GDP

by FY 2025/26.

The current account deficit increased in the first half of 2019, partly because imports rose. The current account deficit was US$163.3 million (mn) in the period January to June, compared with a deficit of US$5.7 mn in the same period in 2018. The increase in merchandise imports was partly offset by improvements in the services and income sub-accounts.

Chart 3: Fiscal and Debt Performance 8.0 7.5 100.0

7.0 6.5

50.0

6.0

% of GDP

% of GDP

150.0

Foreign reserves remain above the international benchmark of three months of imports (See Chart 4). Net international reserves were US$3,106 mn (23.3 weeks of import cover) as at November, an estimated 3.3% higher than the same period in 2018.

5.5

2015 2016 2017 2018 2019

Debt

Primary balance (Right Axis)

Sources: Ministry of Finance, BOJ, and IMF.

In December, Moody’s Ratings agency upgraded the long-term issuer and senior

Deposit taking institutions include commercial banks, merchant banks, and building societies.

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JAMAICA ECONOMIC BRIEF 2019

OUTLOOK

Chart 4: Net International Reserves

Months of Imports

8.0

The outlook for Jamaica has become clouded by the outbreak of COVID-19, which has significantly affected developed and developing economies, including Jamaica’s main trading partners. In early 2020 the tourism sector has seen mass cancellations. Construction and manufacturing activity has slowed, and government finances have come under increasing pressure. The agricultural sector also remains exposed to weather-related shocks.

7.0 6.0 5.0 4.0 3.0 2.0 1.0 2015

Reserves

2016

2017

2018

2019

Three Months Benchmark

Sources: BOJ and IMF.

Given the uncertainty as to how long the COVID-19 situation will persist, it is very difficult to forecast how the economy will perform in 2020 and beyond. This will be addressed in an updated Economic Brief later this year.

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JAMAICA ECONOMIC BRIEF 2019

DATA The table below summarises the key economic and social indicators underpinning this country brief. These data are taken from a number of sources, and are the latest available at time of publication. Some are subject to revision.

Selected Indicators

Real GDP Growth (%) Average Inflation (%) Unemployment (%) Primary Balance (% of GDP) Public Sector Debt (% of GDP)

2015 0.9 3.7 13.5 7.2 122.5

2016 1.5 2.3 13.2 7.6 120.7

Sources: STATIN, Planning Institute of Jamaica, and IMF. Notes: e ‒ estimate (as at January 31, 2020). *As at October 2019. **CDB estimate for the period January to December 2019.

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2017 0.7 4.4 11.7 7.4 101.0

2018 1.9 3.7 9.1 7.0 98.7

2019e 1.0** 3.9 7.2* 6.5 96.1

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