The Bank of Jamaica (BOJ) has cautioned that slow execution of post-Hurricane Melissa relief and reconstruction spending could weaken the country’s recovery and push prices higher, even as significant sums have already been raised to support the effort.

Speaking at the central bank’s quarterly monetary policy conference on Monday, Governor Richard Byles said Jamaica’s challenge is no longer just securing money for rebuilding, but ensuring that those funds are converted quickly and efficiently into repairs, infrastructure, and services on the ground.

“If all this money sits in Jamaica and is not spent it means that the recovery will be much slower,” the governor told reporters, while acknowledging that the country’s long-standing weaknesses in capital spending and procurement could become more costly in the aftermath of a disaster of this scale.

Government data indicate that close to $1 billion in donations and relief contributions have been mobilised through official channels for Hurricane Melissa recovery, with additional funding expected from multilateral lenders and insurance payouts. However, some of these funds remain in planning stages as procurement processes are worked through.

The Government has moved to address some of these execution challenges with the creation of the National Reconstruction and Resilience Authority (NARA), a statutory body designed to lead, coordinate and fast-track the country’s rebuilding effort.

NARA — reporting directly to the prime minister — will have special powers to streamline planning approvals and procurement, and is expected to focus on safer homes, climate-resilient infrastructure and improved land-use planning.

Prime Minister Dr Andrew Holness has said the authority will draw on expertise across engineering, infrastructure and disaster management, but the latest update from Permanent Secretary Dr Rocky Meade is that the specifics are still being worked out.

The central bank warned that delays carry economic risks. As rebuilding demand rises — for construction services, materials, transport and labour — prices could increase faster than supply can respond, particularly in a small, import-dependent economy.

Governor Byles said inflationary pressures are already visible beyond food prices, which have significantly risen following agricultural losses from the storm. He pointed to early increases in the cost of home repairs, personal services, and meals sold at restaurants, warning that these price increases can spread across the economy if not carefully managed.

“We are actually seeing some of these second-round effects happening, and so that is what we’re trying to lean against, because if these second-round effects take hold then we won’t have the reversion to the [inflation] target range that we are actually forecasting in the early part of 2027,” he explained.

It is against this backdrop that the central bank says it has chosen to prioritise inflation control as the country moves into the rebuilding phase. While economic activity is expected to contract in the near term following Hurricane Melissa, the BOJ has signalled that maintaining price stability is essential to preventing higher costs from becoming the ‘new normal’ as recovery spending accelerates.

The upward revision of the damage estimate to US$8.8 billion or 40 per cent of gross domestic product (GDP), from 30 per cent of GDP, creates a greater risk that higher inflation could be prolonged. Beyond the immediate impact on agricultural produce and electricity prices, the BOJ says the later impact of this inflation shock on the prices of other goods and services is likely to be stronger and more persistent than initially anticipated.

“As a result, the upside risk of the disaster on the inflation outlook is greater, meaning that inflation could be higher than forecast,” Byles said.

The bank has therefore opted to hold its policy stance steady at 5.75 per cent at its December meeting. While higher interest rates cannot fix supply disruptions caused by a hurricane, the governor reasoned that maintaining the current stance can help contain inflation expectations and moderate the knock-on effects of higher costs as reconstruction spending accelerates.

In the bank’s view, cutting rates at this stage would undermine that effort.

“The bank remains firmly committed to managing the inflationary effects of the hurricane, recognising that if inflation is not tamed, every sector of the Jamaican society will be adversely impacted, especially the poor and most vulnerable. Accordingly, the MPC will continue to keenly monitor the potential impact of higher food prices on the level of overall inflation, and stands ready to adjust monetary policy if the risks highlighted earlier threaten the projected return of inflation to the 4 to 6 per cent target range in the shortest possible timeframe,” Byles said.

BYLES…if all this money sits in Jamaica and is not spent it means that the recovery will be much slower (Photo: Joseph Wellington)