Population 2.762 million
GDP 15.262 US$ billion
@rating
country
Business climate
assessment
| 2010/11* | 2011/12 | 2012/13(e) | 2013/14(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
-1.5 |
1.3 |
0.5 |
0.9 |
|
Inflation (yearly average) (%)
|
11.4 |
7.3 |
7 |
7 |
|
Budget balance (% GDP)
|
-6.3 |
-6.2 |
-6 |
-5.5 |
|
Current account balance (% GDP)
|
-8.8 |
-11.7 |
-8 |
-7 |
|
Public debt (% GDP)
|
143 |
140 |
144 |
142 |
| (e) Estimate (f) Forecast * fiscal year: from April to March |
||||
STRENGTHS
- Natural (bauxite, sugar, bananas, coffee) and tourism resources
- Financial support from multilateral bodies
- Remittances from the many Jamaicans working in the United States and the United Kingdom
- Primary budget surplus (i.e. excluding interest on debt)
- Membership of various regional organisations and adhesion to the Petro-Caribe programme
- Satisfactory business environment
WEAKNESSES
- Weak growth for a poorly diversified economy
- Vulnerability to external shocks (climate, American economy, raw materials)
- Critical state of public finances
- Considerable trade deficit
- Inadequately financed education and health systems and infrastructures
- Poverty, unemployment, insecurity and corruption
Risk assessment
Anaemic growth
Despite improving slightly, growth is expected to remain anaemic during the 2013-2014 financial year. Household consumption (80% of GDP) will remain restricted by high unemployment (14%) and the weak growth in remittances from emigrant workers and in the salaries of the large public sector. Investment will suffer from the poor economic situation, uncertainty over the country’s financial and economic evolution, as well as from public spending constraints. Exports, 85% composed of bauxite and aluminium, will again be faced with a slowdown in world demand, while tourism revenues will reflect the distinct slowdown in arrivals of tourists, who will also spend less. The slight economic slowdown in the United States, which accounts for 40% of exports and from where 65% of visitors originate, does not augur well.
Heavy public debt burden
Despite an improvement expected in 2013, the public accounts will remain greatly in deficit. The overall deficit could again exceed 5% of GDP despite a primary surplus (i.e. not including interest on debt) equivalent to 4.5% of GDP. Servicing the public debt remains extremely burdensome because of the size of this debt (144% of GDP) and the interest on it, which represents half of public spending and 10% of GDP. The restructuring of the domestic part of public debt (65% of total debt) begun in 2010 under the Jamaican Debt Exchange programme has made it possible to significantly reduce the interest rate on this part, but it has not modified either the maturity (50% of the outstanding debt will mature within 5 years), or the repayment currency (the dollar for over 50%) of the total debt. Moreover, 50% of the domestic debt was issued at a variable rate, which constitutes an additional threat for the future.
Weak external balance
The external accounts have long been very unbalanced. Despite an improvement, the current account deficit is expected again to reach 7% of GDP in 2013. The recurrence of big current account deficits has pushed external debt to 100% of GDP, divided equally between private and public debtors. This situation is due to the trade deficit, which amounts to 25% of GDP. Imports of oil products, even on favourable conditions, from Venezuela, of food products (as local agricultural yields have fallen markedly), and capital goods greatly exceed sales of bauxite, aluminium and sugar. Export competitiveness has been affected by the appreciation of the effective real exchange rate of the Jamaican dollar against the American dollar. The trade deficit is to a large extent offset by tourism income and remittances from expatriate Jamaicans. The remaining deficit is covered by private capital inflows and foreign direct investment, mainly in the mining, aluminium and tourism sectors. The business environment is satisfactory, although investor confidence is also dependent on the result of negotiations between Jamaica and the IMF.
Necessity of reaching an agreement with the IMF
Until March 2011 the country benefitted from financial support from the IMF, the World Bank and several multilateral bodies. Due to failure to respect the aim of reducing public sector wage costs contained in the 2010 agreement concluded with the IMF, funding was suspended. With reserves reduced by interventions aimed at slowing the depreciation of the currency in order to limit imported inflation and the increasing burden of foreign debt, the Central Bank’s room for manoeuvre is at present limited. Negotiations are on-going with a view to concluding a new agreement aimed at bringing public debt down to 100% of GDP and balancing the public accounts by increasing tax revenues - currently eaten into by high public spending and tax evasion - cutting wage costs, reforming pensions and increasing productivity in state enterprises (possibly through privatisation). Madame Portia Simpson Miller’s government and the centre-left People’s National Party, in power since the December 2011 elections, admittedly have a large majority in the House of Representatives and popular support confirmed in the March 2012 municipal elections. Nevertheless, adopting these measures will be difficult in a context of weak growth.
