Jamaica: Risk Assessment
Country Risk Rating
|C||A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high.|
Business Climate Rating
|B||The business environment is mediocre. The availability and the reliability of corporate financial information vary widely. Debt collection can sometimes be difficult. The institutional framework has a few troublesome weaknesses. Intercompany transactions run appreciable risks in the unstable, largely inefficient environments rated B.|
Growth remains low
In 2016, growth will remain low in Jamaica. Domestic demand is expected to be inhibited by the austerity policies implemented by the government as part of the agreement with the IMF. The high unemployment rate (13.5% in 2015) continues to limit consumer spending, despite the revival in household purchasing power thanks to lower inflation. The slowdown in the US, main trading partner and principal provider of funds, as well as the leading source of remittances from the diaspora is also contributing to the poor performance of the Jamaican economy. The opening of Cuba to US tourism would also affect the Jamaican tourism sector, whose customers are mainly North American. Exports of bauxite and aluminum should remain affected by weak metal prices, but would be partly offset by rising sugar prices on the international markets. Growth potential continues to be weighed down by infrastructure shortcomings, low productivity associated with a poorly skilled workforce, as well as high crime rates. Inflation is expected to decline due to continued weakness in energy prices and the end of the episode of drought that has gripped the country in 2015, contributing to rising food prices in the local market.
Fiscal consolidation efforts will continue
The new government in place since February 2016 has promised to continue the fiscal consolidation efforts initiated in 2013 in return for financial support from the IMF to limit the growth of public debt. The restructuring of the public accounts involves, in particular, cutting the public sector payroll to 9% of GDP by 2016-2017 (against 10.1% in 2015), better tax collection linked to measures intended to simplify the tax system and the introduction of new consumption taxes. The government's room for maneuver is however limited by weak growth and the dissatisfaction of the population, already hard hit by poverty and the lack of job security. However, to fiscal consolidation appears essential for reducing the public debt, whose levels make Jamaica among the ten most indebted countries in the world, especially as the IMF has made deleveraging one of the conditions of its aid. Moreover, the country has set itself a target of bringing the ratio of public debt down to under 100% of GDP by 2019-20. In the meantime, interest on the public debt remains significant and will continue to affect the State budget.
Improving the current account deficit driven by lower energy costs
In 2016, the current account deficit is expected to improve thanks to lower energy costs, mainly imported oil, and emigrants' remittances, especially from the United States. Although modest, the depreciation of the local currency against the dollar is likely to curb internal demand for imported products and increase the competitiveness of agricultural exports. The current account balance is, however, threatened by a potential breakdown in the Venezuelan oil delivery agreements under the PetroCaribe program. Jamaica still benefits from the program, despite the early repayment of its debt (USD 2 billion in July 2015) to the Venezuelan oil company, PDVSA, because of the financial difficulties encountered by the latter.
Opposition wins election narrowly
Favorited in polls, Prime Minister Portia Simpson-Miller of the People's National Party (PNP) and candidate for her own succession, has finally given way to his rival Andrew Holness, the Jamaica Labour Party (JLP). Andrew Holness narrowly won the general elections of February 25, 2016 with 33 seats out of 63 obtained by the members of his party. The Labor party should administrate the country for five years, country officially ruled by the Queen of the United Kingdom. Eliminating income tax for low-income households (nearly three-quarters of taxpayers) was one of the key promises of the election of the new Prime Minister and one of the reasons for his electoral success. The objective of this measure is to encourage private consumption and stimulate job creation (especially among youth people), but its effective implementation remains uncertain in a context of budgetary austerity. The next government will have to focus its efforts more sharply on combating crime, as the homicide rate started to rise again in 2015 (+20% compared to 2014). The increased crime rate contributes to the worsening business climate because of the substantial costs this generates for businesses and a main curb on investments as well as the development of tourism sector.