Approaching the Finish Line: Jamaica’s Third EFF Year Begins With Accelerating Growth and a New Record on Debt

Jamaica entered 2015 with two years of consecutive economic growth, an IMF programme that had passed every review, and a debt-to-GDP ratio that was declining for the first time in a generation. The third year of the Extended Fund Facility was the most consequential: it was the year the programme had to demonstrate that the adjustment was producing not merely fiscal discipline but genuine structural change in the Jamaican economy.

• GDP for 2015 tracking toward 0.9%, the fastest growth in Jamaica in nearly a decade
• Debt-to-GDP ratio falls below 130% for the first time since the pre-crisis period
• Budget 2015-16 maintains 7.5% primary surplus while increasing capital investment
• IMF EFF reviews continue unbroken as structural benchmarks are addressed
• Inflation falls below 5% on lower global oil prices and tighter monetary policy
• Formal unemployment drops to below 13% as tourism and construction hire

By any reasonable standard, Jamaica in the first quarter of 2015 was performing better than it had at any point since the onset of the global financial crisis. GDP was growing at nearly one per cent — not spectacular by regional standards, but remarkable given the depths from which the economy had been climbing. Inflation was below five per cent for the first time in years. The debt-to-GDP ratio, which had touched one hundred and forty-four per cent in 2012, had fallen below one hundred and thirty per cent — a decline of fourteen percentage points in three years that reflected the combined effect of primary surpluses, nominal growth, and the interest rate reductions that the NDX and the improved fiscal credibility had made possible.

Finance Minister Peter Phillips presented the 2015-16 budget in the spring, and it was a document that could, for the first time, speak of something approaching investment rather than pure austerity. The primary surplus target of seven and a half per cent remained unchanged — the EFF required it, and the government had no intention of testing the IMF’s patience with a deviation in year three — but the revenue improvement that the tax reform had delivered meant that there was, for the first time in several budget cycles, some additional room for capital expenditure. Road projects, water infrastructure, and school rehabilitation programmes received allocations that their predecessors had not.

The structural reform agenda was advancing on multiple fronts. The Bank of Jamaica’s new inflation targeting framework, agreed under the EFF, was being implemented. The financial sector regulatory framework was being updated to meet international standards. The business regulatory environment — licensing, company registration, property transactions — was being simplified in ways that would, over time, make it easier and cheaper to operate a business in Jamaica. None of these changes were individually dramatic, and their collective impact would take years to fully materialise in the data. But they represented the kind of institutional improvement that distinguished a completed structural adjustment from a mere fiscal exercise.

The labour market was reflecting the sustained improvement in economic activity. Statistical Institute of Jamaica data showed formal unemployment falling below thirteen per cent — a figure that would have been considered optimistic two years earlier — and participation rates beginning to recover as workers who had dropped out of the formal labour market in the crisis years returned. Youth unemployment remained the most persistent structural challenge, but the trend was improving even in this hardest-hit cohort.

What This Means

The fall of the debt-to-GDP ratio below one hundred and thirty per cent was more than a statistical milestone. It was a signal to international markets that Jamaica’s debt trajectory was genuinely downward — that the adjustment was not simply stabilising a crisis but systematically reducing the liability that had constrained the country’s development for decades. Credit rating agencies were beginning to acknowledge the improvement. International bond spreads on Jamaican sovereign debt were narrowing, reflecting the market’s reassessment of the country’s creditworthiness. The cost of borrowing, while still high by developed-country standards, was declining.

The Road Ahead

With one year remaining in the EFF’s scheduled lifespan, Jamaica faced the transition question. What would replace the programme when it concluded in 2017? The government had already signalled that it intended to rely on the Fiscal Responsibility Framework Act — the domestic legislation that had been enacted as a structural benchmark — to maintain fiscal discipline after the programme ended. Whether that legislation would prove sufficient without the external accountability of a quarterly review process was a question that Jamaica had never had occasion to answer. The election that would come before the programme ended added another layer of uncertainty. The programme had survived one government; it would need to survive one more.

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