Jamaica: Risk Assessment
Country Risk Rating
Business Climate Rating
- Natural resources (bauxite, sugar, bananas, coffee) and tourism
- Financial support from multilateral institutions
- Strategic geographical location
- Substantial remittances from the diaspora
- Stable democratic framework
- Poorly diversified economy and heavy reliance on tourism
- Vulnerable to external shocks (climate, U.S. economic cycle, commodities)
- Very high public debt and debt service inhibiting growth
- High rates of corruption, crime and largely unskilled labor force could dampen investor sentiment
A moderate recovery was driven by tourism
The Jamaican economy, which suffered a severe contraction during the COVID-19 pandemic due to its heavy reliance on tourism coupled with the impact of travel restrictions, will continue the recovery that began in 2021, expanding at a more moderate pace in 2022. However, this recovery will continue to be hampered by the low percentage of the vaccinated population. In October 2021, only 11.8% of the population was vaccinated, despite the support of the COVAX initiative led by the World Health Organization.
This low vaccination rate will support only a moderate recovery in domestic demand. The country also remains exposed to climate-related hazards, creating uncertainty for agricultural and mining production (8% and 10% of GDP, respectively). In 2022, growth will be driven mainly by external demand and, more particularly, by tourism revenues (35% of GDP and 58% of total exports in 2019), which will depend on the definitive lifting of travel restrictions and a return to regular air traffic. In addition, strong global demand for agricultural products (sugar, coffee, cocoa, and vanilla) and mining products (10% of the world’s production of bauxite, the ore from which aluminum is derived, and 8% of the world’s production of aluminum) will contribute to this recovery. By October 2021, aluminum and agricultural commodity prices had increased by 70% and 10% in one year. This, together with the rise in the price of imported energy, is expected to stoke inflation, even though the central bank raised key rates from 0.5% to 1.5% in 2021 and is expected to continue hiking. This inflation could impact household consumption (76% of GDP in 2020), which is expected to increase after receiving only feeble support from public measures during the pandemic. The fall in unemployment (8.5% in July 2021) and remittance flows (20% in 2019) will also contribute to private consumption.
Jamaica will rely on its tourism sector to support its offer and the development of its logistics platform (which is a vital issue for the country due to its strategic location), its transport and telecommunications network, and the expansion of the Panama Canal in 2016. The Jamaican government wants to create an integrated infrastructure network covering air, sea, rail, road, and special economic zones to make the island the fourth hub of the global supply chain. Other public investment projects will continue with the support of the Inter-American Development Bank to reduce poverty. Private investment is also expected to increase through public-private partnership projects, including upgrading Sangster Airport in Montego Bay. Private investment should benefit from the Priority Investment Project initiative launched by the government to facilitate personal projects with significant economic impact.
A heavy public debt burden despite a positive outlook
After a limited and temporary suspension of its austerity policy to deal with the health and economic crisis caused by COVID-19, the government reverted to a more restrictive fiscal policy in 2021 to restore the budget surplus. This approach combines increased revenues linked to the recovery of production and consumption with spending cuts, particularly by phasing out the few support measures implemented to help households during the pandemic. The return to a surplus in public finances will enable Jamaica to ease its public debt burden, which remains heavy. In October 2021, the rating agency S&P revised Jamaica’s economic outlook from negative to stable.
Following receiving a USD 520 million emergency loan from the IMF in 2020, the current account deficit will stabilize, with the resumption of imports and rising prices for imported goods, particularly oil, offsetting the long-awaited recovery of the tourism sector and remittances.
A prime minister whose popularity is sagging
Despite a record abstention rate (63%) due to the health crisis, Prime Minister Andrew Holness and his party (Jamaica Labour Party, JLP) won a second term in the September 2020 legislative elections, taking 49 out of the 63 seats in parliament. However, after enjoying widespread support for its initial effective handling of the crisis, the government saw its approval ratings take a beating in late 2021 amid a resurgence in COVID-19 cases and deteriorating public finances. A September 2021 poll reported that only 42% of Jamaicans approved the prime minister’s performance, down by more than a third from 65% in July 2020. The main challenge for the government in 2022 will be to continue the fiscal consolidation process undertaken under IMF supervision since 2013, after easing up slightly in 2020 because of the crisis. In addition, the government will step up its efforts to tackle armed crime, still the country’s number-one problem, as well as corruption and the lack of transparency.
Internationally, the government is expected to concentrate on relations with the United States, the country’s leading trading partner and source of remittances from expatriate workers. It will also focus on regional cooperation, particularly in the fight against crime and drug trafficking.