The fourth quarter of 2016 opened with Jamaica’s most significant natural hazard alert of the year, as Hurricane Matthew — a powerful Category 4 storm that devastated Haiti in early October — tracked close enough to generate heavy rainfall, coastal swells and flooding across Jamaica’s southern parishes before making its destructive landfall further north in the Caribbean. The quarter also saw meaningful progress on the Fiscal Responsibility Framework that would anchor Jamaica’s macroeconomic management after the IMF EFF’s scheduled conclusion, and the commencement of the 2016-17 winter tourism season on strong forward booking data.
Key Highlights
- Hurricane Matthew passes south of Jamaica in early October 2016; outer bands bring heavy rainfall, flooding and road damage to southern parishes before storm tracks toward Haiti and Cuba.
- Fiscal Responsibility Framework legislation drafted and in stakeholder consultation; measure intended to enshrine debt and surplus targets in domestic law ahead of IMF EFF conclusion in May 2017.
- IMF EFF final review preparation underway; Jamaica on track for programme completion in May 2017 with all performance criteria satisfied through September 2016.
- Winter tourism season opens with strong advance booking data; Montego Bay, Negril and Ocho Rios resort corridors report high occupancy commitments for December-January peak weeks.
- Renewable energy projects advance through development phase; first solar projects break ground as contractors mobilise to site.
- LNG negotiations: government in active commercial discussions; structure of preferred gas-to-power arrangement under continuing refinement.
Hurricane Matthew: Infrastructure Test from the South
Hurricane Matthew’s approach toward the Caribbean in the first days of October 2016 triggered the full activation of Jamaica’s disaster preparedness apparatus. The Office of Disaster Preparedness and Emergency Management issued warnings as the storm intensified to Category 4 strength and its projected track brought it within range of Jamaica’s southern coast. The National Works Agency pre-positioned equipment and crews in the parishes most exposed to flooding — Clarendon, St Catherine and St Elizabeth — and the highway authority cleared drainage channels along the low-lying coastal areas that had historically been most vulnerable to storm surge and overland flooding from the Pedro Plains and the Lower Black River areas.
Matthew’s centre tracked to Jamaica’s south, sparing the island the direct strike that would have caused major structural damage to the resort infrastructure and the road network. The storm’s outer rain bands, however, produced sustained heavy rainfall across the island — particularly in the southern parishes — that resulted in localised flooding, road washouts on secondary routes in St Elizabeth and Clarendon, and damage to small bridges and culverts. The NWA mobilised its response crews immediately following the storm’s passage and was able to restore critical road connections within days, though full repair of the damaged sections required works that extended over the following weeks.
The storm’s devastation of Haiti — where it made landfall on October 4 as a Category 4 hurricane, killing more than 500 people and destroying agricultural and urban infrastructure across the southern peninsula — was a stark reminder of the consequence of inadequate infrastructure resilience in the face of severe weather. For Jamaican planners, Matthew reinforced the importance of continued investment in drainage, road design standards and building codes that had been incrementally improved since Hurricane Ivan in 2004 but that still left significant portions of the island’s infrastructure stock vulnerable to major storms. The Economic Commission for Latin America and the Caribbean’s track record of post-storm damage assessments in the region consistently identified infrastructure replacement costs as the dominant fiscal impact of tropical cyclone events, a finding directly relevant to Jamaica’s own risk management calculations.
The 2016 Atlantic hurricane season, while active in its overall statistics, had concentrated its most severe impacts in Haiti and the United States East Coast rather than Jamaica or the wider anglophone Caribbean. Jamaica’s escape from direct impact for the third consecutive season — following the benign 2014 and El Niño-suppressed 2015 seasons — had benefited the tourism sector by maintaining resort infrastructure in good repair and avoiding the post-storm perception damage that affects bookings even when physical damage is modest.
Fiscal Responsibility Framework: Legislating the Anchor
The Ministry of Finance’s draft Fiscal Responsibility Framework legislation entered stakeholder consultation during the fourth quarter, representing a significant step toward institutionalising the fiscal discipline that the IMF EFF had imposed through external conditionality. The framework proposed to embed in domestic statute the primary surplus target and the debt reduction trajectory that the IMF programme had made Jamaica’s international commitment since 2013, giving these fiscal anchors a legal basis that would bind future governments regardless of their political orientation and reduce the risk of fiscal slippage after the EFF’s May 2017 conclusion.
The legislation was modelled in part on similar fiscal responsibility acts in other emerging market economies that had used post-programme legislation to sustain market confidence and credit ratings gains achieved during IMF programme periods. The Jamaican proposal included provisions for independent fiscal monitoring, enhanced parliamentary scrutiny of budget compliance, and mechanisms for public reporting against the statutory targets that would create reputational costs for non-compliance beyond the purely legal consequences. The Economic Programme Oversight Committee, which had provided domestic monitoring of EFF compliance since 2013, was expected to evolve into the institutional framework for monitoring compliance with the statutory rules.
For infrastructure investment, the fiscal framework’s most important implication was its treatment of capital expenditure within the surplus calculation. If the primary surplus rule applied to total spending including capital — as it had under the EFF — then the post-EFF period would not automatically release resources for infrastructure investment, even as the absolute debt level continued to decline. Advocates for infrastructure spending argued for a modified framework that exempted productive capital investment from the surplus constraint — a golden rule arrangement analogous to those in some European fiscal frameworks — but the Ministry of Finance was cautious about any modification that could be interpreted by markets as a weakening of fiscal discipline.
IMF EFF: Final Review Preparation
Jamaica’s performance through the September 2016 quarter remained compliant with all EFF quantitative performance criteria and structural benchmarks, positioning the government for a successful final review and programme completion in May 2017. Finance Minister Shaw’s team was in preparatory discussions with the IMF’s Western Hemisphere Department on the final review process, which would assess performance through March 2017 and confirm whether Jamaica had met the conditions for a clean programme exit. A successful exit would unlock the final EFF disbursement and position Jamaica for the potential transition to a successor arrangement — whether a precautionary standby arrangement or the domestic Fiscal Responsibility Framework — that would maintain the country’s preferred creditor relationships.
The broader macroeconomic picture entering the programme’s final year was more positive than most observers had forecast in 2013: GDP growth, while modest, had been sustained across multiple quarters; the debt ratio was declining; international reserves were at comfortable levels; and sovereign credit ratings from Moody’s, S&P and Fitch had been upgraded from their post-FINSAC lows. These gains were the product of the sustained fiscal adjustment, the structural reforms implemented as programme benchmarks, and the external environment of low oil prices that had reduced Jamaica’s import bill and constrained inflation. Whether the gains could be sustained without the IMF programme’s discipline anchor was the central question for 2017 and beyond.
Tourism: Winter Season and Year-End Review
The 2016-17 winter tourism season opened with advance bookings data that pointed to a strong peak season. The major all-inclusive properties in Montego Bay reported high occupancy commitments for the December-January peak, and the cruise segment was maintaining strong call schedules at the Falmouth Pier and the Ocho Rios cruise berths. The Jamaica Tourist Board’s full-year 2016 preliminary data — aggregating the strong summer performance with the shoulder seasons — was positioning 2016 as a record or near-record year for stopover arrivals, a significant achievement given the competing resort destinations across the Caribbean that had been investing heavily in their own tourism infrastructure.
The sector’s infrastructure challenges remained visible despite the positive performance: the road condition in resort corridors, the capacity constraints at Sangster International Airport during peak weeks, and the inadequate public transportation links between resort zones and community hinterlands all featured in the tourism sector’s advocacy with government for increased infrastructure investment. The JTB and the Jamaica Hotel and Tourist Association maintained a unified lobbying position — that tourism’s contribution to GDP and employment justified priority treatment in the capital budget — that found sympathetic ears in the Ministry of Tourism but was constrained by the fiscal mathematics that applied across all spending categories.
Energy: Renewables Under Construction, LNG Advancing
The first of the renewable energy projects awarded under the OUR’s competitive procurement were entering their development and early construction phases during the fourth quarter. Solar PV projects, which had shorter development lead times than wind projects, were the first to achieve financial close and mobilise contractors. Site preparation works commenced at the first utility-scale solar site during the quarter, marking the visible beginning of a transition in Jamaica’s generation mix that had been debated and planned since the early 2010s.
On the LNG front, the government’s restructured commercial approach was yielding more detailed discussions with parties that had indicated interest in the Jamaican gas market. The specifics of the commercial structure — the ownership and operation of the floating storage and regasification unit, the arrangements for gas supply contracting, and the terms under which new gas-fired generation capacity would be built and operated — were complex enough to require careful legal and commercial structuring. The government’s advisers were working through these arrangements with the interested parties with a view to reaching a conclusion in 2017, though the history of the project’s delays counselled against attaching firm timelines to a process that had already taken considerably longer than originally envisaged.
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