Three Consecutive Years: Jamaica’s Tourism Sector Breaks Another Record as the Economy Finds Its Stride

By the second quarter of 2015, Jamaica’s tourism sector had done something it had never managed through the decade of adjustment: it had broken its own arrival record for three consecutive years. The industry that was remaking the island’s economic identity was no longer merely recovering from the crisis — it was setting the pace for everything else.

• Tourism arrivals exceed 2.1 million stop-overs for 2015, a third consecutive record
• Hotel room capacity expands as new properties open across the north coast
• GDP growth for 2015 approaching 0.9%, the strongest performance since 2007
• BOJ cuts policy rate as inflation remains benign and reserves strengthen
• Election season approaches as both parties begin positioning for 2016 contest
• Debt-to-GDP continues declining toward 125% as primary surpluses accumulate

The numbers that the Jamaica Tourist Board compiled in the second quarter of 2015 represented something qualitatively new in the island’s economic story. Tourism had long been central to Jamaica’s identity and its foreign exchange earnings, but it had never before delivered the kind of sustained, record-breaking growth that was now underway. Three consecutive years of arrivals records, driven by the expansion of airlift, the opening of new hotel capacity, and the competitive pricing advantage that the Jamaican dollar’s depreciation had delivered to the island’s resort operators, were producing a sectoral performance that was beginning to redefine Jamaica’s economic character. The country was becoming, structurally and visibly, a tourism-led economy.

The political backdrop was beginning to shift. The ruling People’s National Party, which had inherited a broken IMF programme in 2012 and delivered four consecutive quarters of unbroken EFF compliance, was approaching the end of its constitutional term. Elections had to be called by early 2016, and both the PNP and the opposition Jamaica Labour Party were beginning their positioning. The EFF’s track record gave the government a claim that its predecessors had never been able to make: it had managed the island’s most ambitious fiscal programme without a waiver, and growth had accelerated in each of the three years of the arrangement. The question before the electorate was whether that record justified another term, or whether the social costs of the adjustment — still present in constrained public services and a labour market only now recovering — outweighed the macroeconomic achievement.

The Bank of Jamaica was cutting its policy rate as the conditions the EFF had created allowed. Inflation was low, the exchange rate was stable, reserves were adequate, and the primary surplus was being maintained. The rate reductions were modest and graduated — the Bank retained its conservative instincts — but they were nonetheless flowing through to lending rates in the banking system, beginning to make credit more accessible for the businesses and households that the recovery was leaving behind.

What This Means

The combination of tourism growth, fiscal consolidation, and declining inflation was producing something that Jamaica’s planners had not seen for more than a decade: a broadly improving economic picture. The debt was declining. Employment was growing. Prices were stable. The exchange rate, after years of depreciation, had found a more settled range. These were the conditions under which private investment was supposed to accelerate, and there were early signs that it was beginning to do so, particularly in the real estate and commercial property sectors that followed the hospitality industry’s expansion. The property market on the north coast was showing life that would have been remarkable a few years earlier.

The Road Ahead

As 2015 progressed, the most significant uncertainty was political rather than economic. The EFF was performing. The question was whether the electoral cycle would disrupt the programme before its scheduled completion in 2017. Jamaica’s history offered cause for concern: changes of government had previously led to renegotiations, delays, and occasional abandonments of IMF arrangements. But the institutional architecture that had been constructed around this programme — the Partnership for Jamaica Agreement, EPOC, the Fiscal Responsibility Framework Act — had been designed precisely to survive such transitions. Whether it would, in practice, remained to be seen.

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