WASHINGTON, CMC – The International Monetary Fund (IMF) Wednesday said that the Jamaican economy is now recovering, strongly supported by sound policy frameworks and policies prioritizing macroeconomic stability.
The IMF Executive Board, which has concluded the Article IV consultation with Jamaica, said that over the past few years, the island had been buffeted by a complex global environment from the coronavirus (COVID-19) pandemic, the war in Ukraine, and the ongoing tightening of global financial conditions.
“As COVID waned, stopover flight arrivals had rebounded to pre-crisis levels, and 2022 real GDP (gross domestic product) growth is expected to be around four percent,” the Washington-based financial institution said.
It said that pushed by global factors, in particular, the impact of the war in Ukraine on commodity prices, inflation has risen above the Central Bank’s target band but is expected to decline during 2023.
“High commodity prices have increased the current account deficit. However, international reserves remain at healthy levels. The financial system is well capitalized and liquid.”
The IMF said that the outlook points to a continued recovery in activity and inflation falling back within the Bank of Jamaica’s target range by the end of end-2023. Nonetheless, global risks remain high.
The IMF warned that the war in Ukraine might push commodity prices higher, and a stronger-than-envisaged tightening of global financial conditions may curb capital flows and reduce remittances. New COVID variants could disrupt tourism and trade.
It said Jamaica’s response to recent shocks had been well-designed.
“The fiscal policy response to COVID was nimble, supporting the economy in 2020 but 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.”
It said that the Bank of Jamaica had followed a data-dependent tightening of monetary policy to counter the inflationary impulse arising from the rapid recovery in demand and increases in global prices.
The IMF said these policies had struck the right balance in responding to shocks, protecting the vulnerable, countering inflationary pressures, and securing debt sustainability.
The IMF’s executive board said it agreed with the thrust of the staff appraisal and commended the authorities’ strong track record of building institutions and prioritizing macroeconomic stability, which, together with an elegant and prudent policy response, helped Jamaica navigate the pandemic and other recent global shocks successfully.
The directors encouraged a multipronged approach to overcome constraints to growth. They stressed the need to strengthen education and training, upgrade infrastructure, digitalize government services, and reduce crime and barriers to trade. Social inclusion will benefit from the supported cash transfer program.
They said evidence-based policymaking would benefit from improved data quality and timeliness, leading to a subscription to the SDDS.
The directors also encouraged reforms alleviating climate change challenges and long-term vulnerabilities.
“These reforms should strengthen physical and fiscal resilience, incentivize renewable energy generation, reduce energy consumption, develop markets for “green” financial instruments, and ensure proper recognition and management of climate risks.”
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