History will remember 2020 as the year that a cure for a global health crisis resulted in an unparallel economic crisis. The COVID-19 pandemic has impacted both lives and livelihoods, and there remains uncertainty regarding the full duration and impact of this novel coronavirus. Global economies continue to grapple with the fallout of the current pandemic, with the International Monetary Fund (IMF) expecting a global shrinkage of 4.9%, with global unemployment being last recorded at 8.9% by the Organization for Economic Co-operation and Development (OECD). This gives an oversimplification of the immense impact the virus has had globally. This week’s issue, we home in on Jamaica’s tussle with the global pandemic
One must recognize the paradigm shift in Jamaica’s economic framework to get an appreciation of why we may be in a better position today to manage this pandemic versus six years ago. Under the concluded IMF agreement, Jamaica was able to generate an average primary surplus of 7.4%, which created the fiscal space to provide the level response seen thus far. Jamaica has a Net International Reserve (NIR) of US$2.75 billion as of August 2020, materially higher than 10-year low of US$813 million in November 2013. Jamaica’s economic reform has led to Jamaica receiving rating upgrades to B+ by S&P and Fitch, and B2 by Moody’s, with all stable outlooks (pre-COVID). Jamaica’s domestic stock market, the Jamaica Stock Exchange (JSE), was recognized as the best performing stock market by Bloomberg in 2018 and 2015, beating the likes of the popular S&P 500 index. These developments showcase Jamaica’s capabilities, and the economy was just beginning to turn the corner to start realizing it’s underlying potential.
After a successful period of economic reform, the emergence of COVID-19 has put the Jamaican economy to task. The country’s stagnant growth reached an inflection point, with Q’1 GDP shrinking by 2.3%. The Planning Institute of Jamaica (PIOJ) recently estimated the economy to have shrunk by 18%, in line with the BOJ’s estimated range of 14%-17%. These estimates by PIOJ is based on a severe contraction of 20% in the Services Industry and a 7% decrease in the Goods Producing Industry. For the Services Industry, the largest estimated decline was in the Hotel and Restaurant sector of 89% with Other Services declining by 44%. In the Good Producing Industry, Mining and Quarrying saw a decline of 25% with Agriculture, Mining and Fishery declining by 9%. These estimates are in line with the economic reality of COVID-19, which has cost the local government approximately 5.1% of GDP in 2020. Tourism collectively accounts for approximately 20% of GDP, which makes the weakness in this sector amplified. The JISCO/Alpart refinery remaining offline, the level of production for the good’s producing sector will continue to remain weak.
All is not lost, and Jamaica being a small open economy means that their recovery is positively correlated with the recovery of the global economy. With that in mind, Jamaica still has its own specific hurdles to climb, which were recently outlined in the COVID-19 Economic Recovery Task Force report. Priority was placed on digitizing Jamaica’s economy, investing in diversifying the local economy, strengthen inter-linkages between industries and making capital more accessible. If implemented, Jamaica will be able to successfully return to its pre-COVID levels, which augers well for investors. Also, Jamaica’s current macroeconomic framework makes the recovery time much shorter than the previous crisis. A full recovery is estimated to be in FY21/22, but along the way, there are expected improvements in the overall economic situation. This bodes well for the future of Jamaica and makes it one of the “feel good” stories of the Caribbean.
Written by Haughton Richards, FRM, Senior Research Analyst
As the coronavirus continues to impact of country’s GDP...
As the coronavirus continues to impact of country’s GDP, the Planning Institute of Jamaica (PIOJ) in its latest assessment of economic activities reported contractions across all major sectors in the services and goods-producing industries. The agency said that the economy declines by 18% for April to June quarter, four percentage points more than it had previously projected.
In PIOJ’s latest assessment of economic activities...
In PIOJ’s latest assessment of economic activities, they expect the economy decline in output between the range of 8-10 percent for the July–September quarter. This follows contractions seen this year as a result of the novel coronavirus outbreak.
In April 2020, Fitch had assigned...
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