Jamaican Economy

Overview of Jamaica's Macroeconomic Environment

Jamaica's is currently on a solid path to greater and sustained economic growth which is characterized by a stable macroeconomic environment and buttressed by a current level of investment which has not been witnessed in over 35 years. This unprecedented level of investment has allowed the government to record its 6th consecutive year of economic expansion and positive economic growth, over the same period.

Despite external shocks such as Hurricane Ivan last December which deeply affected our agricultural sector and undermined our productivity, Jamaica has continued to aggressively adhere to its current fiscal programme which has, in turn, continued to pay dividends. Inflation is on a downward path with interest rates also trending downwards and this is all occurring within the context of a liquid and stable foreign exchange market. We are in fact already realizing our goal, which is to return to the pace of growth which occurred before last year's hurricane when the economy grew at a rate of approximately 3% and our export agriculture was at 8%, with manufacturing at 6%. The active pursuit of our fiscal programme has been positively endorsed by external agencies, resulted in an upgrade by Standard & Poors and has also led to a favourable report from the International Monetary Fund (IMF) on the Jamaican economy.

Other Key Economic Developments

Very recently, we saw the considerable oversubscription of the latest bond issue offered by the government by over 100%. Initially $200M was requested within $400M offered, following very strong demand for the paper. The terms are also the best ever received for a Jamaican bond issue - 10 year repayment period with a 9% interest rate. This development portends well for a further reduction in Jamaican interest rates and is indicative of an upswing in local investment opportunities. These welcome developments are critical to further improvements in employment generation which remains a key priority of our government.

The increased investor confidence has been, in part, due to the impressive expansion of the tourism and mining sectors. For example last year, even with the significant disruption caused by Hurricane Ivan, Jamaica recorded 1.4M stop-over visitors in 2004, which is a new record, and saw $1.5B gross foreign exchange earnings, the highest nominal figure to date. This year, projections are for a 8% growth in stop-over arrivals underscoring the continued confidence in the growth prospects of this key sector. This confidence is fuelled by the $1.1B investment in the hotel industry by Spanish hospitality chains, with over 7,500 new rooms being constructed over the next 5 years. In addition to this major commitment, there has been the Cinnamon Hill Development, a $300M investment in Rose Hall, Montego Bay, which began construction in 2003. Proposals for the multi-$B Harmony Cove Development which will entail the construction of a convention hotel, boutique hotel, luxury villas, marina, and spa are currently being considered.

In the bauxite/Alumina sector, the over $800M expansion project by JAMALCO began on May 5 and is expected to be completed in 2007. This expansion will result in the doubling of existing capacity and will see the employment of over 3000 workers during the expansion phase. This activity is expected to generate $300M per year in gross foreign exchange earnings. Along with this is a 50 megawatt co-generation component to supply electricity to the national grid which is a central part of the expansion initiative.

Our significant investment in infrastructure has also led to the opening of the second phase of a toll-road in December 2004 with another due to be completed in June 2006, with major highway improvements also taking place linking tourist centres such as Montego Bay and Ocho Rios, as well as Ocho Rios and Port Antonio.

The $84M expansion of the Kingston Container Terminal which is slated to be completed in August 2005 as well as the doubling of the capacity at the Montego Bay Cruise Port by late 2007 to accommodate 3 additional mega liners - a $20M investment - are all prime examples of this thrust to modernize and upgrade our infrastructure.

The expansion of the Montego Bay airport, to be completed by December 2005 at a cost of $200M will result in the construction of a new terminal with 11 gates, including loading jet bridges and the $60M modernization and expansion of Kingston's Norman Manley airport is slated to begin in September 2005, which will see the building of a departure terminal to be opened by March 2007. All these developments are underway notwithstanding Jamaica’s firm commitment to realizing a balanced budget by the end of this fiscal year – a goal that is being actively pursued and is indeed central to our overall fiscal programme.

With a reduction in borrowing being on target to date this year, our aim will be to continue this trend while also seeking to record budget surpluses to facilitate debt reduction over the medium term and, at the same time, further lowering interest rates and reducing borrowing to decrease debt cost.

It is important to reiterate Jamaica's absolute commitment to honouring its debt obligations and debt service, backed by law, and to also point to our well-established legal and political system rooted in a strong democratic tradition. There remains political consensus on major economic policies and we are proud to have a sound financial system supported by a strong regulatory framework.

A Memorandum of Understanding (MOU) between the Government and our trade unions remains in place and is aimed at curtailing wage-related expenditure. The maintenance of this protocol has served to ensure that the government's fiscal programme remains on track and has also served to further enhance the country's increasingly positive macroeconomic outlook.