Jamaica: Economy

Jamaica's economy is improving in the wake of the global recession, but still faces serious long-term problems: a sizable merchandise trade deficit, large-scale unemployment and underemployment, and a debt-to-GDP ratio of almost 130%. Structural weaknesses, low levels of government infrastructure investment, and high-cost energy erode confidence in the productive sector. High unemployment exacerbates the serious crime problem, including gang violence that is fueled by the drug trade. Jamaica's onerous debt burden--the fourth-highest per capita--is the result of government bailouts to ailing sectors of the economy, most notably the financial sector in the mid-to-late 1990s.

The government faces the difficult prospect of having to achieve fiscal discipline in order to maintain debt payments while simultaneously attacking serious crime challenges that are hampering economic growth. It also needs to address the high cost of energy to successfully expand the economy. The private sector complains sharply about challenges to doing business on the island, but the government appears unwilling to recognize these obstacles and resolve them. Although official statistics show decades of economic stagnation in Jamaica, economists at the World Bank (WB) and Inter-American Development Bank (IDB) have estimated substantial growth of the informal sector. Such studies suggest that inclusion of the informal sector would raise Jamaica’s GDP statistics by as much as 40%.

The country's economy is heavily dependent on services, which now account for more than 60% of GDP. Jamaica continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 20% of GDP and are equivalent to tourism revenues. Remittances dipped 15% from 2008 to 2009, but have recovered and are near where they were before the global economic downturn. Three of Jamaica’s four bauxite/alumina firms suspended operations in 2009 due to falling demand amid the global economic downturn. Only one of the three had restarted some operations as of August 2010. Inflation rose to 11.7% in 2010 as a result of high prices for imported food and oil; inflation was 10.2% in 2009 and 16.8% in 2008.

Jamaica took two significant steps toward improving its economy in January and February 2010. The first was the Jamaica Debt Exchange (JDX), in which the country retired 350 high-priced domestic bonds and replaced them with 24 new bonds at lower rates of interest of about 12.5%. This helped reduce the debt servicing costs for Jamaica by about $450 million per year and provided the country with some fiscal relief. Second, the Government of Jamaica signed a U.S. $1.27 billion, 27-month Standby Arrangement with the International Monetary Fund (IMF) to support the country's economic reforms and help it cope with the consequences of the global economic downturn. Despite these moves, the government has limited spending available for infrastructure and social programs, since debt servicing still accounts for a substantial amount of government expenditures.

The government has largely divested itself of Air Jamaica via a sale to Caribbean Airways. It also sold off former sugar estates, and is in the process of divesting its share of a major bauxite operation. These are notable successes, but there are still some former parastatals that need to be privatized.

Sources:

CIA World Factbook (January 2012)
U.S. Dept. of State Country Background Notes ( January 2012)

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