Jamaica is quickly approaching its 60th anniversary of Independence, however, the last few steps of its road to its Diamond year has seen the country navigate one of the most difficult economic periods the world has ever seen.
Economic challenges have been a concern for the country for some time and the Caribbean nation had placed special emphasis in reversing its significant public debt to GDP ratio in the last decade.
Jamaica’s Minister of Finance and the Public Service underlined to the Business Guardian just how much progress the country had made prior to the pandemic in reducing its public debt.
“Jamaica is focused on economic and social recovery from the COVID-19 pandemic. We produced our detailed economic recovery blueprint in June 2020 and have been implementing this with good results thus far. After an economic contraction of 10per cent in 2020 the Jamaican economy rebounded with 8per cent growth in fiscal year 2021/22,” said Dr Clarke, he also noted the country’s unemployment numbers also were heading in the right direction.
“Unemployment worsened from a pre-COVID historic record low of 7.2per cent in November 2019 to 12.6per cent by July 2020. Today unemployment is at 6.2per cent the lowest level in Jamaica’s history,” he said.
This he noted was achieved following a devastating blow to the tourism sector, one of Jamaica’s major revenue earners.
“We were able to survive a US$2.5 billion decline in tourism earnings during COVID due to strong foreign currency reserves of 120per cent of the IMF’s Reserve Adequacy Metric prior to the onset of the COVID-19 pandemic. (An ARA metric of 100per cent is deemed sufficient). And we maintained our policy position of freely convertible floating currency throughout COVID-19,” said the Jamaican Finance Minister, attributing the successes achieved to legislative changes made such as the country’s central bank being made independent in April/May 2020—with a mandate to focus on price stability as their central monetary policy objective, which prompted the upward adjustments in the policy rate.
He said the country was hoping to attain pre-COVID levels of economic output, in real terms, within 12 -18 months.
“This would be a historic achievement for Jamaica to recover that quickly from a major economic shock,” he said, “But we can’t count our chickens before they hatch!”
According to two of the country’s economists, measures undertaken prior to the pandemic helped ensure the impact of the pandemic was not as severe as it could have been.
“Jamaica had done such a good job of improving its macroeconomic climate leading up to the pandemic that one could argue, and I actually did argue, that it was poised for meaningful economic growth. It had managed to balance its fiscal budget. It had as a result of that increased the expenditure on public goods and services and on social programmes. It had brought down its public debt by a third relative to GDP,” said Dr Damien King, Executive Director at the Caribbean Policy Research Institute (CAPRI), who called Jamaican’s recovery so far “substantial, but incomplete.”
He added, “All of this led to what one can reasonably argue is a platform for increased economic growth and as the temporary effects of the pandemic recede, that platform remains and is reason to be optimistic. But as would apply to the entire region, the headwinds from global forces are pushing as headwinds tend to in the opposite direction.”
Senior lecturer in the Department of Economics at The University of the West Indies, Dr Andre Haughton noted the COVID-19 pandemic and the various other geopolitical challenges which have since emerged definitely eroded the progress that was made.
“All of our efforts to reduce the debt from 146per cent of the GDP in 2013 brought it down to 96per cent of GDP by 2019. But this was reversed by 2021 to 110per cent. So now measures are being put in place to bring the debt down once more. Inflation, it’s a global phenomenon, but also we’ve seen domestically where inflation has skyrocketed again and it is gone out of the BOJ’s inflation-targeting band. As a matter of fact, that’s almost double the target that they have had. And this has had a negative impact on the economy,” Dr Haughton said.
The global inflation issue was a challenge recognised by the Finance Minister, but he was eager to note that the debt to GDP rates were heading in the right direction particularly with interest rates rising internationally.
“Our debt went up from 94per cent March 2020 to 110per cent of GDP March 2021 during COVID but we brought it back down to 96per cent, March 2022, and are on track for the mid to high 80s by March 2023. This is just in time as the tightening of global financial conditions through interest rate hikes by the US Fed poses risks for emerging market economies, especially those with high debt and unsustainable debt trajectories,” said Dr Clarke.
The Finance Minister admitted this left the country with a balancing act, but he felt addressing these issues was the best for Jamaica to recover from the economic shock created by COVID-19.
“So in our recovery we are thus far achieving the trifecta of economic growth, jobs growth, and debt reduction. A difficult combination to achieve. This gives us the best opportunity for a sustainable recovery, barring external shocks. In other words, our recovery is not built on unsustainable fiscal policies,” he said.
“We want to strengthen Jamaica’s resilience. We live in a volatile world. We live in a world characterised by geopolitical, health, commodity or natural disaster-induced economic shocks. We are small and thus far insufficiently diversified. As such we have no choice but to build resilience that allows us to absorb shocks and bounce back quickly. It is fiscal and monetary resilience that will allow for development to progress unimpeded through good times and bad. We aim to achieve sustainable development through resilience,” Dr Clarke told the Business Guardian.
Both economists also noted that in the aftermath of the pandemic initial impact, it was the lower or working class that had been left most displaced by the scenario.
“Like in most places, the impact was uneven with those who are informally employed and those who are vulnerable and those with the lowest incomes having suffered the most. So, in between all of the different protocols and restrictions and lockdowns, the weakest and most vulnerable suffered quite badly and were unreached, largely unreached by emergency cash handouts by the government,” said Dr King, who also noted the employment numbers also needed to be taken with a grain of salt given the quality of jobs currently available.
“Employment has recovered, but the quality of that employment has deteriorated. We have people working fewer hours and more informally, more informal employment than was the case before the pandemic. So while the headline employment numbers look good, like the unemployment rate, the quality of the employment has yet to recover,” he said.
Dr King, however, said the path trod by Jamaica was an admirable one, as often within the Caribbean or other small states, vulnerabilities are highlighted but insufficient measures are introduced to properly address the concerns that are raised.
“Our economic management tends to not do very much about it. And I say that to make the point that had Jamaica not put itself in a position in the eight years leading up to the pandemic, to give itself the fiscal room that it had. Then, this vulnerability would have exposed the Jamaican economy to serious consequences. And I think Sri Lanka provides a good contrast. What happens when you have a series of negative global shocks and you don’t have the fiscal manoeuvrability. And, so, I think it’s a lesson for the rest of the Caribbean and also for Jamaica going forward to make sure that if you talk about vulnerability, then you need to recognise the need for resilience,” said Dr King.
Dr Haughton, however, was mindful that the pandemic had also created a new dynamic within the industrial world, which he hoped would be further explored by Jamaica and by extension the rest of the Caribbean.
“The good thing is that the COVID-19 crisis has opened up a thrust towards the Fourth Industrial the fourth and fifth industrial revolution in a more rapid pace. And what this means is that a lot of new jobs and new industries are being created and established and many of these will be on our computer through the internet. And this will give Jamaicans the opportunity to be able to globalise themselves quite easier, and give them the opportunity to participate in global business and commerce. Amazon has allowed Jamaica now to sell goods on their platform,” said Dr Haughton.
He continued, “A lot of the global investment platforms have opened up their avenues for Jamaicans to invest in so if we can take advantage of these opportunities, and we can use them wisely. And also if there’s a concerted effort to educate our population, because 83per cent of our population has no tertiary level education, and this has been stifling our human capital. So if we can correct these issues, then we will be in a good position after COVID.”
Dr Haughton believes that there should be a further push to encourage intra-regional trade following the COVID-19 pandemic.
“Jamaica is in the Caribbean basin. We are not alone. We’re in a group of countries called Caricom, intra-regional trade within Caricom is less than 10per cent, the worst among all trading bloc’s across the world, because we outside of Trinidad and Guyana, the rest of us are predominantly caught up in the same export of sun, sand and sea sugarcane and Bananas,” said Dr Haughton.
“The world moving towards a fourth and fifth Industrial Revolution. The Caribbean must come together as one and figure out where we have individual comparative advantages to produce goods and services to trade amongst ourselves,” said Dr Haughton who added that the development of a single Caribbean currency as well as the honouring of inter-region labour laws would be crucial to creating that resilience.
