Looking Back From the Wreckage: Jamaica’s Spring 2019 Was Everything the Reform Decade Promised — and COVID Has Taken It All

We are writing this account of Jamaica’s second quarter of 2019 in April 2020, sitting in the ruins of everything that quarter represented. The hotels that were full in April 2019 are shuttered today. The BPO workers whose wages were rising are now working from homes that were not built for call-centre work, or not working at all. The tourism record that Jamaica was tracking toward in the spring of 2019 will not be broken this year, or next year, or perhaps the year after. What follows is a record of what was — and an acknowledgement that the world has changed in ways that make that record simultaneously more remarkable and more bittersweet to recount.

• Q2 2019 GDP growth confirmed at approximately 1.9%, among the strongest in a decade.
• Budget 2019-20 passed with primary surplus intact and social spending increased.
• Tourism spring arrivals ran well above prior year on strengthening year-round demand.
• Unemployment fell to approximately 7.7%, the lowest quarterly reading in Jamaica’s history.
• Debt-to-GDP continued declining toward 90%, the fastest reduction pace in the reform era.
• COVID-19 has since ended this era; Jamaica received its first confirmed case in March 2020.

The second quarter of 2019 was, by any reasonable measure, the peak of Jamaica’s modern economic development story. The decade of reform that had begun with the 2013 Extended Fund Facility — that gruelling, unpopular, necessary commitment to primary surpluses and structural adjustment — had produced, by mid-2019, outcomes that exceeded even the most optimistic projections its architects had published. GDP growth running at approximately 1.9 per cent. Unemployment at 7.7 per cent — a number so low that a Jamaican economist reading it in 2013 would have questioned the methodology. Debt at approximately 90 per cent of GDP, down from a peak above 145 per cent. And a tourism industry whose tenth consecutive record year was, in April to June of 2019, a matter of arithmetic certainty rather than hopeful projection.

The Budget 2019–20 that Finance Minister Audley Shaw had presented in April moved through parliament with the quiet confidence of a government that had earned the trust of the markets, the IMF, and a growing share of the Jamaican electorate. The primary surplus target was maintained. Social spending — for health facilities, for PATH beneficiaries, for school construction in parishes that had been underserved for generations — was increased within the discipline of the fiscal framework. The IMF’s sixth review of the precautionary SBA, conducted in mid-2019, found Jamaica in full compliance with every target and benchmark. The Fund’s staff, who had spent years watching Jamaica narrowly pass review after review, were now in the more comfortable position of writing reports about an economy that was genuinely on track.

The labour market reading for April to June 2019 was the quarter’s most striking number. STATIN’s quarterly labour force survey placed the unemployment rate at 7.7 per cent — the lowest single-quarter reading in Jamaica’s recorded statistical history, lower than any figure produced during the tourism boom of the mid-2000s, lower than any figure that researchers had been able to reconstruct from historical data. The improvement was broadly distributed: youth unemployment, while still elevated relative to the adult rate, had fallen to levels that were beginning to make a structural difference to the life chances of a generation that had grown up watching their parents navigate the adjustment years. For economists who had spent years arguing that fiscal discipline would eventually produce employment, the 7.7 per cent figure was the number that ended the argument.

Tourism in Q2 2019 was operating with the easy confidence of a sector that had run out of records to break. The Jamaica Tourist Board reported spring arrivals comfortably above the equivalent period in 2018, which had itself been a record. The Sandals and Royalton room expansions that had come online in late 2018 and early 2019 were running at occupancies that justified every dollar of the capital investment. New boutique hotel properties in Portland and the Blue Mountains were attracting a higher-spending, longer-staying visitor who spent less at the all-inclusive resort pools and more in local restaurants, on nature tours, and in the craft markets and rum bars that employ the Jamaicans who have historically seen the least of tourism’s economic upside. The sector was, in the vocabulary of development economics, deepening its linkages — pulling in more of the domestic economy with each visitor it received.

On the monetary side, the Bank of Jamaica’s Monetary Policy Committee continued to manage the inflation-targeting framework with increasing confidence. Inflation had been within the 4 to 6 per cent target corridor for seven consecutive quarters. The policy rate was being held at a level that supported credit growth without stoking inflationary pressure. The Jamaican dollar’s depreciation against the United States dollar was modest and orderly, managed through a combination of transparent BOJ communication and a foreign exchange auction system that was functioning more efficiently than the managed systems of the pre-reform years. Jamaica’s gross international reserves, which had been a source of chronic anxiety during the EFF years, stood at a comfortable multiple of the minimum adequacy benchmark.

We know now what we did not know then. In December 2019, a novel coronavirus was identified in Wuhan, China. By January 2020, the World Health Organisation had declared a Public Health Emergency of International Concern. By March 2020, COVID-19 had arrived in Jamaica — the first confirmed case was recorded on 10 March — and the tourism arrivals that had been the lifeblood of the reform decade’s growth story were collapsing toward zero. Hotels were closing. Flights were being cancelled. The BPO workforce was scrambling to work from home over infrastructure that was not designed for it. The government that had spent four years proving fiscal discipline survived elections was now facing the hardest fiscal test since the 2008 crisis — a test it would face with far less room to manoeuvre than it had in 2013, because a pandemic is not a structural adjustment programme and there is no primary surplus target that can protect an economy against a global shutdown.

What This Means

The Q2 2019 record matters, in April 2020, for two reasons that are almost contradictory. It matters as evidence that the reform model worked: the discipline of 2013 to 2019 produced real gains, in real employment, at real wages, for real Jamaican families. That evidence does not disappear because a pandemic arrived. But it also matters as a baseline: the distance between the 7.7 per cent unemployment of June 2019 and whatever number emerges from the COVID crisis will be the measure of the shock’s human cost. Jamaica climbed for six years to reach that peak. The question now is how far it will fall, and how much of the institutional infrastructure of the reform era will survive the descent.

The Road Ahead

Writing in April 2020, the road ahead is obscured by uncertainty of a kind that makes medium-term forecasting almost meaningless. Jamaica’s borders are closed, its hotels are empty, and its budget is being reconfigured around an emergency fiscal response that will almost certainly breach the primary surplus targets that six years of painful sacrifice produced. The IMF, which spent those six years monitoring Jamaica’s compliance with conditions, is now deploying emergency financing to help the island survive a shock that no policy could have prevented. The precautionary SBA — the backstop that Jamaica had hoped never to activate — is now being drawn on. The question is not whether the economy will contract in 2020: it will, sharply. The question is whether the institutional framework that Jamaica built during the reform decade — the fiscal rules, the independent BOJ, the EPOC monitoring, the culture of discipline — is strong enough to survive a shock that arrives from the outside rather than the inside, and whether the government that built it will still be in office when the recovery arrives.

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