Jamaica Economic Intelligence | Annual Review 2011 | Full-Year Assessment
Key Findings
- December 29 general election delivers PNP landslide; Portia Simpson Miller returns as Prime Minister
- Stopover tourism reaches approximately 1.95–1.97 million, a new all-time record
- GDP growth approximately 1.3–1.5% for the full year despite Arab Spring oil shock
- IMF EFF passes all quarterly reviews; primary surplus target met at 7.5% of GDP
- Brent crude peaks at US$126 in April before retreating to close year near US$107
- Inflation moderates to approximately 6–7% by December as oil prices ease
2011 was a year that tested Jamaica’s recovery with force. An Arab Spring-driven oil shock pushed Brent crude above US$126 in April, reigniting inflation at the worst possible moment for households struggling to rebuild purchasing power after two years of recession. Global financial markets convulsed in August when Standard & Poor’s stripped the United States of its AAA sovereign rating. Europe’s debt crisis escalated from peripheral to existential. And domestically, Jamaica underwent a change of Prime Minister in October before calling and losing a general election on 29 December. That the economy grew through all of it — modestly, imperfectly, but genuinely — and that the IMF programme remained intact through the year-end, is a testament to the resilience that the 2010 reforms had constructed.
The December Election: Portia Simpson Miller and a New Administration
Prime Minister Andrew Holness, who had been in office for only two months following Bruce Golding’s October resignation, called a general election for 29 December 2011 — a date chosen to give the JLP a fighting chance before the full weight of programme fatigue and accumulated austerity could be mobilised against it. The calculation did not succeed. The People’s National Party, led by Portia Simpson Miller, won 42 of the 63 parliamentary seats to the JLP’s 21 — a landslide victory that returned the PNP to power after four years in opposition and made Simpson Miller Jamaica’s first female Prime Minister for a second time.
The election’s economic implications were significant. Simpson Miller and the PNP had campaigned on a platform that acknowledged the IMF programme’s necessity while emphasising the social costs of austerity and promising a more people-centred approach to the fiscal adjustment. The incoming administration did not signal any intention to abandon the EFF — the programme’s external credibility was understood to be too important to sacrifice — but it would bring a different political tone and potentially different priorities within the constrained fiscal space that the IMF programme permitted. Markets responded to the election result with equanimity: the Jamaican dollar barely moved in the days following the announcement, and sovereign spreads remained stable. The institutional framework that Golding’s administration had constructed was proving durable enough to survive a democratic transfer of power.
The new Finance Minister, Peter Phillips, would face the immediate task of completing the IMF EFF’s remaining quarterly reviews and managing the delicate balance between the programme’s fiscal requirements and the PNP’s social commitments. The IMF publicly welcomed the new government’s expressed commitment to programme continuity — a signal that the external anchor would remain in place regardless of the electoral outcome. For Jamaica’s economic history, the 2011 election was notable less for what changed than for what it demonstrated: a country capable of holding a competitive democratic election, changing government, and maintaining a demanding multilateral programme simultaneously.
Tourism: A New All-Time Record
Jamaica’s tourism sector closed 2011 with what the Jamaica Tourist Board confirmed as a new stopover arrivals record: approximately 1.95–1.97 million visitors, surpassing the pre-crisis 2007 high and the previous record set during the mid-2000s expansion. The achievement was made possible by the confluence of recovering North American demand, new airlift into Montego Bay and Kingston, continued expansion of all-inclusive capacity, and Jamaica’s enduring appeal as a short-haul Caribbean destination with a distinctive cultural brand.
The tourism sector’s full-year performance, absorbing the oil shock of H1 2011 and the financial market turbulence of August without losing meaningful volume, confirmed what had been evident through the year: that Jamaica’s tourism demand was driven by structural preferences and pre-committed bookings that were less sensitive to short-term macro shocks than spot market indicators might suggest. The record was achieved despite oil prices averaging well above US$100 for most of the year — a level that in 2008 had been associated with the beginning of the crisis that ultimately devastated 2009 arrivals. The difference was the all-inclusive model’s price certainty and the depth of Jamaica’s brand in key US, UK, and Canadian source markets.
Foreign exchange earnings from tourism in 2011 were consequently at their highest level in several years, providing vital balance-of-payments support against the backdrop of an elevated oil import bill. The Bank of Jamaica reported that tourism receipts were a primary contributor to keeping the current account deficit within manageable bounds and international reserves above programme minimums throughout the year. For the NHT, the tourism sector’s employment-generating performance supported the income levels that enabled mortgage servicing, underpinning the property market’s continued improvement.
The Oil Shock: Absorbed but Not Forgotten
Brent crude’s trajectory through 2011 — from US$93 at the start of January to a peak of US$126 in April, retreating to approximately US$107 by year-end — was the dominant external economic narrative. For Jamaica, the year-average of approximately US$111 per barrel was the highest since 2008 and represented a significant deterioration from the US$79 average of 2010. The fuel import bill increased by several hundred million US dollars in annualised terms, widening the current account deficit and diverting foreign exchange that might otherwise have contributed to reserve accumulation.
The oil shock’s inflation impact was managed, if not eliminated. Annual inflation, which had been falling toward 7–8% by end-2010, re-accelerated in H1 2011 before moderating as oil prices retreated. By December 2011, the Statistical Institute of Jamaica reported headline inflation at approximately 6–7% — meaningfully lower than the 11–12% of end-2010, reflecting both the oil price retreat and the BOJ’s success in anchoring inflation expectations through its stable monetary policy stance. The year-end outcome was better than the mid-year peak had suggested was possible, and provided a relatively benign inflation base from which the new Simpson Miller administration could begin its tenure.
The Bank of Jamaica held its benchmark rate at 7.25% throughout 2011 — the same level at which the year had begun — in a judgment that the oil-driven inflation was transitory and did not require a monetary policy response that would have tightened credit conditions for an economy that was still in the early stages of recovery. The exchange rate, which remained in the J$86–91 range for the year, vindicated the hold: the Jamaican dollar’s stability demonstrated that the monetary policy framework had sufficient credibility to withstand an oil shock without resorting to rate increases that would have slowed growth.
GDP: Growth Through Turbulence
Jamaica’s full-year 2011 GDP growth, estimated by the Planning Institute of Jamaica at approximately 1.3–1.5%, was the second consecutive year of positive growth after the 2009 recession. The growth was led by tourism-related services, which benefited from the record arrivals year. Finance, telecommunications, and business services contributed positively. Agriculture was broadly stable. Construction maintained its recovery trajectory from 2010, supported by NHT-financed residential projects and some private commercial development in Kingston and on the north coast.
The mining and energy sectors remained structural drags. Alumina production was at its lowest sustained level in decades: Alpart, acquired by Rusal, remained closed; Jamalco operated at reduced capacity constrained by high energy costs. The bauxite-alumina sector, which in Jamaica’s development story had been an economic pillar for forty years, continued to contract as a share of GDP. Its eventual rehabilitation would require either a structural reduction in Jamaica’s energy costs — the LNG conversion project that was still being planned — or a sustained recovery in global aluminium prices to levels that justified Jamaican production costs. Neither was imminent.
The IMF Programme: A Full Year of Clean Reviews
The IMF EFF completed its second full year with all quarterly reviews passed — a record of sustained programme compliance that was without precedent in Jamaica’s modern economic history. Every previous IMF engagement with Jamaica had at some point been suspended, modified, or interrupted by programme slippage; the EFF’s clean 2011 record reflected both the improved institutional architecture of the JDX-EFF framework and the political will of the Golding-Shaw administration to maintain discipline even when it was economically painful and politically costly.
The primary surplus target of 7.5% of GDP was met for the fiscal year 2011/12 — a remarkable achievement given the oil shock’s impact on the economy and the general election’s political incentives to loosen fiscal discipline. The government’s ability to maintain the primary surplus through an election year underscored the extent to which the IMF programme’s conditionality had become a genuine structural constraint rather than a nominal commitment. The public sector wage settlement, which provided nominal increases while staying within the programme’s wage bill limits, was the domestic political manifestation of that discipline: difficult, contested, but ultimately upheld.
Property Market: Steady Progress
Jamaica’s property market in 2011 was characterised by steady progress rather than acceleration. Transaction volumes were broadly in line with 2010’s improved level, as the oil shock’s construction cost pressure moderated the pace of new project launches in H1 before some recovery in H2. The National Housing Trust disbursed mortgages at a rate comparable with 2010, maintaining the income floor that supported residential market activity. Premium residential prices in Kingston’s established districts — Barbican, Cherry Gardens, Norbrook — edged modestly higher as the limited supply of quality stock met sustained demand from returning diaspora investors, middle-class upgraders, and institutional buyers.
The north coast property market in 2011 was particularly active, benefiting directly from the tourism sector’s record performance. Hotel expansions and refurbishments created construction employment and demand for ancillary services. Residential demand around Montego Bay and Ocho Rios was supported by tourism employment income and diaspora buyers attracted by the sector’s visible vitality. The commercial property market remained more cautious, with office vacancy in New Kingston still elevated from the recession period, but retail activity in Kingston’s major commercial centres was improving with consumer spending recovery.
What This Means
Homeowners close 2011 with the year’s oil shock behind them and inflation easing as the new year begins. Mortgage rates remain at decade lows. Property values have held the gains of 2010 and moved modestly higher in premium segments. The political transition to the Simpson Miller administration introduces some uncertainty about housing policy priorities — the PNP has historically emphasised social housing — but the IMF programme’s fiscal constraints limit the scope for any dramatic policy shift. Overall, homeowners are in a stronger position than at any point since 2008.
Renters have experienced a year of recovering employment but continued cost-of-living pressure. The below-inflation public sector wage settlement has squeezed real purchasing power for government workers, many of whom are renters. The rental market remains tight, with demand exceeding supply in most urban centres. The new PNP administration’s social housing emphasis may in time expand affordable rental supply, but the housing market pipeline’s twelve-to-twenty-four-month lag means any policy response will take time to materialise.
Developers end 2011 with a clear sense of the cycle’s direction: demand is present, financing is accessible, and the macro environment is improving. The oil shock’s construction cost pressure was a 2011 headache that is now easing. The political transition creates some uncertainty about planning policy and development fees, but the NHT’s ongoing mortgage programme provides the demand anchor that makes residential development commercially viable. Developers with projects completing in 2012 are well positioned to deliver into a recovering market.
Businesses enter 2012 with a new government that has signalled a more interventionist economic philosophy than its predecessor, though constrained by the same IMF programme framework. The tourism sector’s record year provides the economy’s strongest platform of confidence. Energy costs remain structurally challenging: with oil at US$107 at year-end and Jamaica’s electricity tariff among the Caribbean’s highest, the competitiveness problem has not been solved. The LNG conversion project and renewable energy investments remain the medium-term answer; in the near term, businesses must continue managing energy costs as a structural operating reality.
Diaspora Jamaicans remitted approximately US$1.95–2.0 billion in 2011 — approaching the pre-crisis peak and representing the strongest diaspora contribution to Jamaica’s balance of payments since 2007. The improving US and UK labour markets, where the majority of the Jamaican diaspora is employed, supported this recovery. For diaspora investors, 2011’s tourism record was a powerful signal about Jamaica’s economic resilience: an island that can grow tourism arrivals to new records while absorbing an oil shock, a global financial scare, and a general election is an island whose fundamentals are sound. Property investment on the north coast and in Kingston commanded serious attention from the diaspora community throughout the year.
Outlook: 2012 and the New Administration’s Test
Jamaica enters 2012 with its economic trajectory positive but its political economy in transition. The Portia Simpson Miller administration inherits an IMF programme that is working, a tourism sector at record levels, a property market in recovery, and an exchange rate that is stable. It also inherits a debt-to-GDP ratio that, while declining from its peak, remains above 120% — requiring sustained primary surpluses for years to come — and a structural energy cost problem that will require major capital investment to resolve.
The new government’s early signal of commitment to IMF programme continuity is the most important single piece of economic news for Jamaica as the year closes. Without that commitment, the exchange rate would have been under pressure, sovereign spreads would have widened, and the hard-won credibility of the JDX-EFF framework would have been at risk. With it, Jamaica enters 2012 as a country that has demonstrated — through recession, oil shock, political transition, and general election — that its institutional framework is durable. That durability is the most valuable economic asset Jamaica possesses as the new decade’s second year begins.
Jamaica Economic Intelligence is an independent data-driven journalism series tracking Jamaica’s economic performance across every quarter since 2000. Sources include the Bank of Jamaica, the Planning Institute of Jamaica, the Statistical Institute of Jamaica, the Ministry of Finance, the Jamaica Tourist Board, and multilateral institutions including the IMF and World Bank. All figures are contemporaneous estimates based on data available at the time of reporting.
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