The Numbers That Vindicated Four Years of Pain: Jamaica Closes 2016 with Its Best Growth Reading Since the Crisis

Jamaica closed 2016 with GDP growth of approximately 1.4 per cent — the island’s strongest annual expansion since before the global financial crisis, and a number that arrived as the IMF Extended Fund Facility entered its final quarter. After four years of primary surpluses, wage freezes, debt exchanges, and the quiet courage of fiscal discipline maintained through a change of government, the economy was finally producing growth fast enough to be felt.

• GDP grew approximately 1.4% in 2016, Jamaica’s best annual performance since before the 2008-09 global financial crisis
• Tourism delivered a sixth consecutive annual record, with full-year stop-over arrivals exceeding 2.2 million visitors
• Public debt fell to approximately 115% of GDP, down more than 28 percentage points from the 2012 peak
• Unemployment dropped to approximately 11%, the lowest reading in fifteen years, as private sector hiring expanded
• The IMF EFF entered its final quarter, with fifteen consecutive clean reviews and no waivers on record
• Hurricane Matthew struck the south coast in October but caused less macroeconomic disruption than initially feared

By the end of 2016, the numbers that Jamaica’s economists had been nursing toward viability for nearly a decade had, quietly and without fanfare, become respectable. GDP growth of 1.4 per cent was not transformational; it was not the 5 per cent that economic modellers judged necessary for Jamaica to meaningfully reduce poverty at the pace its demographic profile demanded. But it was real, sustained, and broadly based in a way that growth had not been for many years. More importantly, it arrived at the conclusion of a fiscal programme that had required extraordinary sacrifices of the Jamaican public and extraordinary political discipline of two successive governments, and it provided the most compelling possible argument for the value of that discipline.

The Jamaica Tourist Board confirmed that the full-year 2016 stop-over arrivals figure had exceeded 2.2 million — the sixth consecutive annual record and a figure that represented nearly double the arrival numbers of 2009. The growth was not simply volumetric; the average spend per visitor had increased as Jamaica’s product mix shifted toward the premium segment of the all-inclusive market. The revenue per available room — the hospitality industry’s composite measure of pricing power and occupancy — had risen markedly over the six-year run, reflecting both the improving quality of Jamaica’s hotel stock and the pricing latitude that a strong brand reputation confers. The tourism dividend, flowing through the economy as wages, supplier payments, and tax revenues, was by 2016 a structural support for fiscal targets that would have been unachievable without it.

The debt trajectory was the headline achievement of the four-year programme. Public debt, which had peaked at above 143 per cent of GDP in 2012, had by the end of 2016 fallen to approximately 115 per cent — a reduction of nearly 29 percentage points in four years, achieved through a combination of primary surpluses, economic growth, and the exchange rate dynamics that had partly inflated the debt ratio in earlier years. The Ministry of Finance projected that the debt ratio would continue falling toward the Fiscal Responsibility Framework target of below 100 per cent by the mid-2020s. That target remained distant, but its trajectory was, for the first time, credible.

Hurricane Matthew, which made landfall near the south coast of Jamaica in October 2016, provided an unwelcome test of the economy’s resilience. The storm caused significant damage to agriculture in St. Elizabeth and Westmoreland parishes, disrupted power supply in southern parishes for several days, and caused localised flooding. The Planning Institute of Jamaica assessed the total damage at approximately J$8 billion, a meaningful but not catastrophic sum. The agricultural sector — banana, breadfruit, and vegetable production in particular — absorbed the bulk of the direct losses. The tourism sector on the north coast, which lies in the island’s rain shadow relative to Atlantic systems, was largely spared. The net macroeconomic impact was estimated at a reduction in GDP growth of approximately 0.2 percentage points — enough to register, not enough to reverse the trend.

The Bank of Jamaica maintained its policy rate at a historically low level through the fourth quarter, as inflation remained subdued at approximately 3 to 4 per cent. The exchange rate continued its measured, predictable depreciation, having largely shed the volatility that had characterised it in 2013 and 2014. Foreign exchange reserves remained comfortable, supported by the sustained performance of tourism earnings and remittances from the Jamaican diaspora in the United States, the United Kingdom, and Canada. The Statistical Institute of Jamaica reported that unemployment for Q3 2016 had fallen to approximately 11 per cent — the lowest reading in fifteen years — as private sector employers in tourism, BPO, construction, and financial services continued expanding payrolls.

Against this backdrop of economic improvement, the political landscape was beginning to shift in ways that would define 2017. The IMF Extended Fund Facility, approved in May 2013 for a four-year term, would complete its final quarterly review in early 2017 and formally conclude in May. The Holness government, governing with its majority of one, was preparing both the post-EFF framework — widely expected to be a precautionary Stand-By Arrangement — and a Budget 2017-18 that would need to maintain fiscal discipline while beginning to address the social and infrastructure deficits that four years of tight budgets had accumulated. The budget’s navigation of those competing demands would reveal how much had genuinely changed in Jamaica’s political economy since the dark days of the 2013 debt exchange.

What This Means

The close of 2016 is a moment worth pausing to assess. Jamaica entered the IMF programme in May 2013 with debt above 143 per cent of GDP, an economy in its fifth consecutive year of contraction or minimal growth, and a fiscal framework so weak that international creditors had essentially withheld new funding. It exits 2016 with debt at 115 per cent, growth at 1.4 per cent, unemployment at a fifteen-year low, and a fiscal framework that has survived both the market pressures of 2013-14 and the political transition of 2016 without a single waiver. The institutional architecture — the EPOC, the Fiscal Responsibility Framework, the primary surplus regime — has proved more robust than most observers expected when it was assembled, under duress, in February 2013. The question 2017 will answer is whether that architecture is durable enough to maintain fiscal discipline in the absence of the programme’s external accountability.

The Road Ahead

With the EFF’s final quarterly review due in early 2017 and the precautionary successor arrangement under active negotiation, Jamaica stands at one of the more consequential inflection points in its modern economic history. The programme’s conclusion will be presented, correctly, as an achievement. But achievements can breed complacency, and the fiscal space that four years of discipline has created will face immediate pressures: from public sector workers whose real wages have eroded, from communities whose infrastructure has deteriorated, from a political system that has deferred gratification for four years and is not inclined to do so indefinitely. The successor arrangement — if it materialises — will provide a measure of insurance and market discipline. But the fundamental test of what Jamaica has built is not the programme’s completion; it is what the island does with the fiscal space once the quarterly review cycle ends.

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