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Euromoney Country Risk

Jamaica biggest riser in the Caribbean despite external risk exposure

After a change of administration and the continuity of a four-year IMF package, which includes much-needed reforms and austerity measures, the country seems to be on the right track.

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Bearing fruit: Jamaica's assets are ripening and could soon be ready to enjoy fully

Jamaica has gained six positions in ECR’s latest quarter results and ranks 112th, back to where it was in 2015.

Its economic performance as a whole grew 1% in just one quarter – it scored 39 in the third quarter of 2016 from 38 in the second quarter of the year.

Kevin Hope, CDB

Kevin Hope, economist at the Caribbean Development Bank (CDB), says: “Commitment to the IMF project and fiscal discipline gave markets some confidence.”

The private sector, in particular, is expanding, having received support from the current administration as well as the opposition. Structural reforms and available funding have attracted more private investments to the country.

“The private sector is considered a priority because it is the most important one for growth,” says Marla Dukharan, group economist for the Royal Bank of Canada’s (RBC) Caribbean operations.

ECR data show scores for bank stability, government finances and economic GNP all grew by 0.1% in the third quarter of 2016.

“They are making better use of the revenue that is coming in by tackling monthly expenditure on fuel and running public buildings more smoothly,” says Winston Moore, senior lecturer at the University of the West Indies (UWI).

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Hurricane alert

Still, some experts hold a more cautious view on the region. An increase of extreme weather conditions due to climate change is a worrying trend to take into account.

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Marla Dukharan, RBC

“It is difficult to say whether their economic progress is sustainable,” says Stacia Howard, managing director of Antilles Economics. “Hurricanes are a big problem and whatever growth the country creates is wiped out by such a disastrous event.”

RBC’s Dukharan agrees, adding: “Every year we see a more acute impact from natural disasters that are climate-change related.”

Political risk

Jamaica’s political assessment is slightly regressing, as government stability is down to 3.6 from 3.7 in the previous quarter.

“Politics in the Caribbean do not run exactly the same way as in the western world,” suggests Howard at Antilles.

The main issue would not be political rivalry but an inefficient bureaucracy which hinders tackling the country’s internal issues.

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Winston Moore, UWI

“Youth unemployment is a traditional problem in the Caribbean,” says UWI’s Moore. 

Consequently, this affects other social concerns such as poverty, access to property, education and, most notably, crime.

“Citizen security is the higher political risk, not government stability,” argues Hope at CDB.

The challenge for Jamaica rests in addressing inequality in terms of income distribution, and alleviate poverty through job creation and better health care facilities.

“The private sector should lead the flow of jobs as this is not sustainable for the public sector,” says Dukharan.

External political shocks

Apart from weather conditions, Jamaica is also buffeted by external political changes.

Considering the US is Jamaica’s biggest trading partner, the new Trump administration could radically alter international policies between the two countries.

“Deportation is a real concern,” states Hope. “We need strategic and precautionary measurements to assist with continuous growth.”

The most direct threat from an isolationist US administration is a slowdown in trade of physical goods.

Stacia Howard,
Antilles Economics

“Jamaica will succeed in marketing its products more to Central America, away from the US if necessary, in the long term,” says Howard. “However, in the near future they will have to keep depending on the US.”

Despite the increased uncertainty, experts maintain a positive outlook on Jamaica for 2017.

“Jamaica has the most vibrant equity market in the Caribbean,” says Howard. “Other countries’ stock exchanges are focused nationally, whereas Jamaica has a more international perspective.”

Hope is also confident, adding: “We anticipate a continuity of leadership in which policies are centred on economic growth.”

This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.

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