Recent Economic Developments

Jamaica has been strongly impacted by the global economic slowdown. Real GDP declined by 1.6 percent in Fiscal Year (FY) 2008/09 (April 1-March 31), with economic conditions deteriorating sharply in the second half of the year. During the current fiscal year, real GDP contracted further, registering a decline of 3 percent during the first half of the year.

Bauxite and alumina production and exports fell by about 60 percent, while remittances—a traditional source of balance of payments support—suffered a sharp decline. Tourism has also been negatively affected, although it has proven to be far more resilient than in the rest of the Caribbean.

In FY2009/10, the external current account deficit is expected to narrow from 18 percent of GDP to 9.5 percent, as the contraction in imports exceeds by far that of exports. Inflation fell steadily from 26.5 percent in August 2008 to 9 percent in November 2009, reflecting weak domestic demand and a decline in global commodity prices from their mid-2008 peaks.

Government finances have deteriorated, constraining the authorities’ ability to respond to the global shock with countercyclical policies. The public sector deficit is projected to reach almost 13 percent of GDP in FY 2009/10. The interest bill rose by 38 percent, reflecting the effects of the depreciation and a steep rise in interest rates. The deficit of public entities remained large, at close to 3 percent of GDP. As a result of these combined shocks, concerns about economic prospects and the sustainability of Jamaica’s debt have placed significant pressure on the currency over the past year and a half.

Main Program Goals

Growth: Economic growth is projected to shift from a contraction of 3.5 percent in FY2009/10 to an expansion of 0.5 percent in FY2010/11 and a further increase of 2 percent thereafter.

Inflation: While one-off tax measures are expected to result in a temporary spike in inflation to just over 12 percent by end FY2009/10, in the absence of strong demand or foreign exchange market pressures, inflation is projected to fall to an average of 11 percent in FY2010/11 and further to 6 percent over the medium term.

Balance of payments: The external current account deficit is projected to continue to narrow gradually from 9.5 percent of GDP in FY2009/10 to 5 percent over the medium term, based on the recent depreciation of the currency in real effective terms and the expected increase in national saving as a result of fiscal consolidation.

Tax Reform: The organization of the tax administration and improving tax compliance is expected to be modernized. The authorities are committed to implementing rapidly the recommendations of a 2008 Fund Technical Assistance mission, including by unifying domestic tax administration and enhancing compliance through streamlined administrative procedures

Public Sector Reforms: The organization of the public sector will be streamlined, with a view to reducing the wage bill as a share of GDP. A committee has been appointed to review the existing structure of the public sector which is characterized by many entities with unclear or overlapping functions. The committee will present recommendations on a new structure by December 2010.

Financial sector reforms: Vulnerabilities in the financial system will be addressed, particularly the high exposure of securities dealers to government risk. The Jamaican government is committed to improving financial sector companies’ ability to withstand shocks, by enhancing capital adequacy and margin requirements. The Bank of Jamaica will take explicit responsibility for overall financial system stability.

Jamaica has been a member of the IMF since February 1963 and has a total quota of SDR 273.5 million. For additional information on IMF and Jamaica see: http://www.imf.org/external/country/JAM/index.htm