Jamaica’s Festive Fund Graduation Jam

Jamaica was a top MSCI Frontier index performer with an over 20% gain after the IMF lauded “exemplary commitment” upon completion of a 3-year $1 billion precautionary facility. The balance of payments backup was untapped with tighter fiscal policy on track to meet the medium-term 60% of GDP public debt target, on low unemployment and inflation, and stronger reserves and central bank oversight. After two consecutive programs spanning six years financial institutions are in better shape, with strides to modernize currency and capital markets and natural disaster risk management. However growth is under 1% with drought and mining company factory renovation, with youth unemployment still at 20% despite new outsourcing, construction and tourism jobs. One-fifth of the population is in poverty, as 4% inflation within the planned range has allowed interest rate and cash reserve cuts. Foreign exchange auctions soon to operate through a dedicated electronic platform reduced local dollar pressure, within a modest 2% current account deficit. Oil import prices remain under control, but weather swings, high crime and plant capacity constraints continue to inject uncertainty. In October S&P raised the sovereign rating to “B” after a successful $1 billion bond liability management operation. Bank lending rates are under 15%, with credit growth at double that pace geared toward mortgages and consumption as the bad portion is just 2.5%. International trade and goods and services taxes support a 5% primary budget surplus, and a fiscal council is in formation. Fuel subsidies and civil service compensation require further overhaul, and state oil refinery loss and exchange rate coverage should be phased out, according to the Fund’s final report. Better household data will help assess system risk for both the central bank and financial services commission as they work on a joint resolution regime and inclusion approaches for poor and rural customers. In the post-program phase supply-side reforms including on land registration, factoring and leasing should be a priority and multi-currency practice can be extended temporarily toward eventual end. Unmet formal and informal small business credit access is estimated at 20% of GDP, and agricultural productivity lags while drug and gang violence run rampant, the review cautions on the unfinished agenda.

Barbados too earned praise under its extended Fund facility in a November visit, with foreign reserves roughly tripling the past year to $600 million. Following domestic debt restructuring in 2018, external bondholders agreed to a 25% interest and principal haircut in October under an exchange instrument with a natural disaster clause. Over the next decade, the debt-GDP ratio should fall to 80% with a raft of additional taxes and reduced state enterprise borrowing. A new law will reinforce central bank independence, and limit currency peg intervention to smoothing only. Regulatory relief is under a strict deadline for banks and non-banks to replenish capital, as credit reporting standards are revamped. With the primary surplus exceeding expectations, another $50 million installment should be available in December. Trinidad and Tobago with a 10% decline on the MSCI frontier benchmark has been an exception to the positive mood as hydrocarbon prices correct, and Venezuelan refugees continue to arrive by boat with no asylum procedures in place to provide durable education and employment solutions.