A Time to be Merry

Dr. Damien King

The evocative idea of the darkest hour being just before dawn was coined by Thomas Fuller almost 700 years ago, in his religious treatise, A Pisgah Sight of Palestine. While acceptable as a literary device, it is a literal inaccuracy since the darkest hour usually is around midnight. It nonetheless remains a powerful metaphor and an appropriate one to describe the Jamaican economy ten years ago, before it embarked on a widely praised, path of fiscal and economic reform.

In 2013, the country’s public debt stood at almost one and a half times its annual GDP, signifying a government indebtedness that would require every resident to dedicate their entire earnings for one and a half years just to settle it. In the previous year, the government had spent 20 percent more than it earned in tax revenue, a record even for a country that had a pattern of such fiscal deficits. In the five years leading up to 2013, inflation averaged double digits, which was particularly deleterious for the poor who are the least protected against and suffer the most harm from rising prices. The net international reserves (NIR), the country’s savings in foreign exchange, stood at less than US$1 billion, barely enough to cover six weeks of imports.

In that economic context, there was a palpable sense of anxiety that the country was running dangerously along the edge of a fiscal cliff. Any gust of wind, metaphorical from the global economy or literal from a hurricane, threatened to blow the country over the edge.

The journey back from the cliff’s edge began then, when the government managed to balance its budget for the first time in 17 years, allowing for a programmed reduction of the public debt. CAPRI’s 2008 report, Jamaica’s Debt: Exploring Causes and Strategies, had, for the first time, identified the primary source of the debt as the debts and losses of public enterprises that repeatedly had to be absorbed by the central government. As a result, stricter monitoring and rules governing the financial operations of public enterprises were adopted.

The government went on to introduce other measures that ushered in to the Jamaican economy previously unknown stability and resilience. Stronger fiscal rules constrained government’s legal permission to accumulate debt; and the tax regime was rationalized through the elimination of ministerial discretion along with removing some exemptions. Those policies have resulted in the government’s expenditure and revenue becoming within a percentage point of balanced every year since, as reported in CAPRI’s Budget Breakdown 2023: an Analysis of the Government’s Proposed Revenue and Expenditure. The country adopted an explicit inflation target and accorded the central bank the legal independence to pursue it. The government then accelerated infrastructural expansion, mostly with new roadways, that had been underway from the turn of the century.

Perhaps the least visible but most important area of economic improvement is in resilience. As a small, open, energy-dependent, island east of the mid-atlantic, Jamaica is vulnerable to hurricanes and a volatile global economy. Ten years ago, every hurricane would have thrown out the budgeted plans, inevitably necessitating investment cutbacks. In 2023, the government has a contingency fund for unexpected developments with fiscal impact; its recently issued bonds have catastrophe clauses that suspend servicing in the event of certain specified events; Catastrophe insurance is in place; Jamaica has issued an international bond denominated in Jamaican dollars, which provides protection for the debt obligation against sudden currency depreciation; and it has procured a soft line of credit from the IMF to be immediately drawn down in emergencies. On the basis of the above protections and the reduced risk of a government debt default, investor confidence has risen.

Ten years on from its darkest hour, the economy looks brighter. On the back of a 17 percent increase in the number of jobs, the unemployment rate, at 4.5 percent, is at an historic low. Except for the period of the pandemic when global supply bottlenecks pushed up worldwide inflation, Jamaica’s rate has remained within the target range below 6 percent. The NIR is at a record high of more than US$4 billion, equivalent to more than half a year of imports. The public debt is programmed to end the current fiscal year at around 75 percent of GDP, which will bring the country that once was the world’s third most indebted down to the rank of 50th, below the United States, Canada, and the United Kingdom.

This December really might be a time to be merry. Apart from the obvious reason, that is.

There are, however, some Grinchly concerns threatening to spoil the economic merriment. Further economic improvement is now constrained by the unavailability of labour and skills, as was exposed in CAPRI’s report, Growthless Jobs: the Paradox of Rising Employment and Stagnant Output, 2023. The level of criminal violence is a continued worry and doubtless is holding back some investment (see CAPRI’s report, Guns Out: the Splintering of Jamaica’s Violent Gangs, 2020). The global environment is becoming increasingly inauspicious with rising geo-political tensions between the United States and China, the rise of protectionism globally, and two wars with global consequences underway.

Even as those threats loom, the improvements in the economic platform and in resilience achieved over the last decade suggest, perhaps, that the country is at an incipient dawn. It just may be a happy new year.