While Jamaica’s economy is recovering from what the International Monetary Fund (IMF) calls a “difficult global environment”, the institution warned that the country’s outlook could be dimmed by uncertainty and risks.

In its Article IV Consultation with Jamaica, the IMF listed the uncertainties.

“The war in Ukraine may push commodity prices higher, a stronger-than-envisaged tightening of global financial conditions may curb capital flows and reduce remittances, and new COVID variants could disrupt tourism and trade,” it said in its release. The fund however praised the Jamaican Government’s response to recent shocks, calling them “well designed”.

Since 2020, Jamaican authorities have had to implement policies to counter the effects of the economic fallout from COVID-19, the war in Ukraine, and the ongoing tightening global financial conditions. Although the IMF board of directors has deemed the policy response as “nimble and prudent”, it noted that recovery is now threatened by “uncertainty and risks” such as higher commodity prices, tighter-than-expected global financial conditions, new COVID variants and outbreaks, and natural disasters.

“The fiscal policy response to COVID was nimble, supporting the economy in 2020, but then quickly resuming a downward path for the debt as the impact of the pandemic faded. Similarly, the response to the upward surge in fuel and food prices was to allow for full pass-through while providing targeted support to the poor within the existing fiscal envelope,” the report explained.

Commenting on the Bank of Jamaica’s (BOJ’s) efforts, it said the central bank has maintained “healthy levels” of international reserves, though the war in Ukraine has pushed the price of commodities up, causing inflation to breach the central bank’s inflation target. At the same time, it said the financial system is well-capitalised and liquid.

On this note, the fund applauded the BOJ for following a “data-dependent tightening of monetary policy to counter the inflationary impulse arising from the rapid recovery in demand and increases in global prices”. Such policies have created the right balance in responding to shocks, protecting the vulnerable, countering inflationary pressures, and further securing debt sustainability, the IMF explained.

While the IMF forecasts the country’s inflation will return within the BOJ’s target range by the end of 2023, it cautioned that “global risks remain high”.

In this regard, the board recommended further data-driven monetary policies aimed at curtailing debt, counter-inflationary efforts, and strengthening the fiscal environment to respond to global shocks. It further encouraged identifying resources to invest in climate resilient infrastructure, investments in health, security, and education.

Furthermore, the IMF board said it supports ongoing reforms that will redound to the adoption of Basel III regulatory standards. In addition to enhancing crisis management and consolidated supervision, the directors also suggested strengthening anti-money laundering and counter-financing of terrorism framework consistent with an “action plan agreed with FATF (Financial Action Task Force)”.

In addition, the IMF recommended a multi-pronged approach to tackle growth constrains. In particular, it pointed to strengthening education and training, upgrading infrastructure, digitisation of government services, reducing crime and barriers to trade.

The report also highlighted climate change as an area that authorities should address to reduce vulnerabilities.

Notwithstanding the downside risks, the IMF said the Jamaican economy is now recovering strongly, “supported by sound policy frameworks and policies prioritising macroeconomic stability”.

“As COVID waned, stopover flight arrivals had rebounded to pre-crisis levels,” the IMF stated.

Given these factors, the IMF anticipates that real gross domestic growth for 2022 will be 4.0 per cent.

— Josimar Scott