Jamaica : Economy

Economy

GNI: 
US$13.7bn
GNI PC: 
US$5,220
GDP Growth: 
-0.5% p.a. 2009–13
Inflation: 
9.2% p.a. 2009–13

Jamaica has a relatively large and diversified economy. It grew strongly in the early years of independence, but then stagnated in the 1980s, burdened with persistent large fiscal and external deficits, due to heavy falls in the price of bauxite (bauxite and alumina make up the bulk of exports by value), fluctuations in the prices of agricultural commodities (sugar being the largest export after alumina and bauxite), and economic policies that left the country with high inflation, a fast devaluating currency, growing external debt and a large public sector containing many loss-making industries. Jamaica signed a series of agreements with the IMF, continuing into the 1990s and 2000s.

Substantial efforts have been made to attract investors through a range of tax, customs and other incentives, developing its equity markets, and encouraging joint ventures and privatisation, notably of hotels. The free-trade zones at Kingston, Montego Bay and Spanish Town allow duty-free importation, tax-free profits and free repatriation of export earnings. The USA, China (Hong Kong) and Taiwan have provided most investment in these zones. Tourism and manufacturing are important industries. Investment and remittances from Jamaicans abroad make a significant contribution to GNI.

The financial sector was troubled from late 1994, with many banks and insurance companies suffering heavy losses and liquidity problems. The government set up the Financial Sector Adjustment Company (Finsac) in January 1997 to assist these banks and companies, providing funds in return for equity, and acquired substantial holdings in banks and insurance companies and related companies, bringing government expenditure on financial-sector rescues to more than US$2.8 billion by 2001, exacerbating the economic problems and saddling the country with a large external debt. From 2001, once it had restored these banks and companies to financial health, Finsac divested them.

Despite the reforms, for successive governments it proved very difficult to break out of the cycle of deficits, currency devaluations, very high inflation and falling living standards. Even in the latter 1990s, after reductions in the public sector and when inflation was in single figures, the economy continued to shrink or stagnate.

Three years of recession were followed in the 2000s by modest but steady growth, dipping in 2004 when, in September, the island was devastated by Hurricane Ivan. Hurricane Dean in August 2007 and heavy rains caused widespread damage to agriculture and disruption in mining activities. Then, as the world moved into recession in 2008, the Jamaican economy itself moved swiftly into reverse, shrinking substantially over 2008–10. With external debt rising and the economy contracting, in 2009 Jamaica once again sought the support of the IMF, agreeing a standby loan package in February 2010. There was then a modest recovery, with growth of 1.7 per cent in 2011, and at least one per cent p.a. in 2013–15. This modest real growth in the 2010s was accompanied by inflation of more than seven per cent p.a.; it was 9.3 per cent in 2013 and an estimated 8.8 per cent in 2014.