When Portia Simpson-Miller took the oath of office on January 5, 2012, she assumed more than the prime ministership — she inherited an economy teetering at the edge of a full-blown fiscal crisis. The IMF programme was already broken, the World Bank had suspended disbursements, and the national debt was closing in on one hundred and forty-four per cent of output. What her Finance Minister did in the weeks that followed would define Jamaica’s economic trajectory for the rest of the decade.
- Portia Simpson-Miller sworn in as prime minister on January 5, 2012
- IMF standby arrangement stalled; no disbursements in over twelve months
- Jamaica’s public debt approaching one hundred and forty-four per cent of GDP
- World Bank, IDB, and EU suspend disbursements awaiting IMF re-engagement
- Interest payments consuming nearly ten per cent of total national output
- Jamaica Emergency Employment Programme launched to ease acute social strain
On the morning of January 5, 2012, Portia Simpson-Miller placed her hand on a Bible on the lawns of King’s House and swore to serve as Prime Minister of Jamaica. The ceremony was brief and dignified, attended by officials who privately knew the scale of what she was inheriting. In sixty-seven days, the outgoing Andrew Holness government had been unable to conclude a new agreement with the International Monetary Fund. The programme that had anchored Jamaica’s fiscal credibility since 2010 had not received a disbursement in over a year. The morning she took office, Jamaica’s economy was, in the careful language of official documents, off-track.
For Finance Minister Peter Phillips, appointed to what many economists described as the most difficult fiscal brief in Jamaica’s modern history, the first weeks of 2012 offered no grace period. The IMF’s twenty-seven-month Stand-By Arrangement, signed in February 2010 for an amount equivalent to approximately US$1.27 billion, had disbursed only around US$840 million of its intended total. The programme had broken down in early 2011 after the government was ordered by the courts to pay civil servants back wages that had been withheld — wage bill increases that directly violated the conditionality the IMF had required. From that January forward, no fresh tranches had been released. Research published by the Centre for Economic and Policy Research in May 2012 noted that the World Bank, the Inter-American Development Bank, and the European Union had also suspended their own disbursements in consequence — their frameworks required IMF engagement to be in place before they would release budgetary support.
The fiscal arithmetic confronting the incoming government was unforgiving. Jamaica’s public debt had risen to levels approaching one hundred and forty-four per cent of gross domestic product — placing the country among the most indebted nations in the world relative to the size of its economy. The primary surplus, the excess of government revenues over non-interest spending that is the key measure of fiscal discipline, had slipped from five point four per cent of GDP in 2010 to three point eight per cent in 2011. Interest payments were consuming roughly nine point seven per cent of national output — a burden that, according to analysts at the time, was among the highest of any sovereign in the world and left virtually nothing for investment in infrastructure, health, or education without further borrowing.
Outside the treasury, the real economy was offering little comfort. The current account deficit had widened to eleven point two per cent of GDP — a structural vulnerability that reflected the island’s deep dependence on imported oil and manufactured goods at a time when export earnings from bauxite and alumina remained suppressed by weak global demand. Remittances from the Jamaican diaspora, which had surpassed tourism earnings for the first time in 2010, continued to provide a critical buffer, but they could not offset a deficit of this magnitude indefinitely. Against this backdrop, the government moved quickly to establish the Jamaica Emergency Employment Programme — known by its acronym, JEEP — a public works initiative designed to create temporary employment in construction, agriculture, and community services. JEEP was, in part, a recognition that the austerity inherited from the previous programme had inflicted a social cost that could not be ignored.
Inside the Ministry of Finance, the priority was re-engagement with the IMF. The incoming government signalled, in terms that international creditors found reassuring, that it was prepared to negotiate a more ambitious programme than its predecessor — one that would require significantly higher primary fiscal surpluses than the SBA had achieved. That framing pointed toward an Extended Fund Facility rather than a shorter-term stand-by arrangement. An EFF would provide longer-dated support — typically three to four years — and would allow Jamaica to address not just its immediate cash-flow pressures but the deeper structural reforms the economy required: the tax base, the public-sector wage bill, and the legal and regulatory framework governing debt management.
What This Means
For Jamaicans watching the transition of power in January 2012, the political story was about hope — the return of a familiar face, a landslide mandate, a sense of democratic renewal. The economic story was harder to tell, and harder to hear. The country had spent two years under an IMF programme, accepted wage freezes and fiscal cuts, and the programme had still broken down. The institutions that had pledged to support Jamaica — the World Bank, the IDB, the EU — had all stepped back. The debt burden, far from stabilising, had continued to climb toward its historical peak.
Peter Phillips inherited a finance ministry that needed, simultaneously, to stabilise its relationship with international creditors, pass a credible budget for 2012-13, and launch an employment programme to address the social consequences of austerity. That these three imperatives were in some tension with one another was not lost on analysts. The JEEP programme required spending; the IMF required fiscal tightening. The political mandate was broad; the fiscal space was essentially nil. The quarter that began with a new prime minister’s oath of office ended with the hardest work still ahead.
The Road Ahead
By the close of the first quarter of 2012, negotiations toward a new IMF arrangement were underway but far from concluded. The government had months of technical work ahead — structural benchmarks to agree, revenue measures to design, a wage policy to negotiate with a public sector that had already endured years of restraint. The IMF’s assessment, when it came, would shape not only Jamaica’s access to international finance but the willingness of the World Bank and IDB to resume their own disbursements. Jamaica had been here before — standing at the edge of an agreement it desperately needed — but rarely with a debt burden this high, a fiscal primary surplus this far below what was required, and a population this weary of waiting for growth to arrive.
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