Jamaica Moves to Curb Worse-Than-Cyprus Debt Load Win IMF Praise
Two defaults since 2010, the second-heaviest debt burden in emerging markets and “fragile” economic growth. Things haven’t looked this good for Jamaica in years, according to the International Monetary Fund.
A year after restructuring $9 billion in local bonds, Prime Minister Portia Simpson-Miller’s government has cut tax deductions, limited public sector wage growth and generated the first budget surplus since 1995. Ahead of a visit by Managing Director Christine Lagarde today, the IMF said Jamaica is undertaking the policies needed to tackle a debt burden equal to 140 percent of GDP, more than the 93 percent Cyprus had when it won a European Union-backed bailout last year.
“For decades, Jamaica has been stuck in a negative spiral of low growth, high unemployment, high debt and precarious fiscal finances,” the Washington-based lender said in a June 5 report. “There has been significant progress in implementing the needed reforms.”
The Caribbean island, known for its beach resorts and reggae music, saw its $15 billion economy expand for a third consecutive quarter in the first three months of the year following six consecutive quarters of contraction. Budding investor confidence over the past year has helped push the yield on Jamaica’s dollar bonds due in 2019 down 213 basis points, or 2.13 percentage points, to 6.24 percent.
“We are in a better place than we were two years ago,” said Gregory Samuels, the head of treasury and trading at Scotia Investments, in a phone interview from Kingston. “There’s a sense that the government is headed in the right direction.”
Jamaica’s debt problems have been echoed across the Caribbean, which has seen at least nine defaults since 2000, including two each by Belize and Grenada. Already struggling with debt and slow growth, Caribbean economies were hit by a fall in tourism following the 2009 global financial crisis and rising interest rates built in to previous restructuring agreements.
Grenada’s government is still negotiating with bond holders and the IMF over about $200 million in debt it defaulted on last year. The government in Barbados, which hasn’t defaulted, fired 3,000 public employees this year after Finance Minister Chris Sinckler said the island was at risk of “hemorrhaging” reserves if spending wasn’t reigned in.
Jamaica won promises of $2 billion in support from the IMF, World Bank and Inter-American Development Bank after last year’s restructuring. Yet there are a wide range of risks still facing the country, according to Warren Smith, president of the Barbados-based Caribbean Development Bank.
“It’s too early to pop the champagne,” Smith said in a June 25 interview, adding that he thinks the Jamaican government’s achievements to date are encouraging. “The program in place with the IMF is a very difficult one and it’s designed to address an extremely difficult problem.”
Jamaica’s private sector will need to lead growth if gross domestic product is to expand more than 1 percent to 2 percent per year, Smith said.
The World Bank ranked Jamaica 94th out of 189 economies in its annual “Doing Business” report this year, below Serbia, Albania and Zambia. While the country ranked 23rd in the category of starting a business, it was 168th in paying taxes and 132nd in getting electricity.
Moody’s Investors Service, which raised its outlook on the country’s debt to positive from stable in February, said June 6 that “the scale of the ongoing adjustment effort in Jamaica is massive, requiring sustained reform momentum over the medium-term that could be derailed by domestic policy slippages, an external economic shock, and/or a natural disaster.”
Moody’s rates Jamaica Caa3, nine levels below investment grade and in the same category as Greece and Ukraine.
A message left for Finance Minister Peter Phillips by Bloomberg News wasn’t answered.
While a cheaper currency can help exporters by making their goods less expensive, opposition lawmaker and former Finance Minister Audley Shaw said the Jamaican dollar’s 9.8 percent decline over the past year is hurting producers by making it hard to forecast what the exchange rate will be. Total exports fell to $98 million in February from about $170 million a year earlier, the central bank said. The IMF said it sees signs that agricultural producers are boosting output as the cost of imports climbs.
With the U.S. hit by a longer, colder winter than previous years, tourism arrivals to Jamaica climbed 3.4 percent in the first quarter from a year earlier to about 339,000.
As part of its bid to lure more trade and investment, the government is marketing Jamaica as a logistics hub for the region. It is selling a concession to operate the port of Kingston, which is being dredged to accommodate larger container ships expected after the opening of an expanded Panama Canal in 2016.
Lagarde, 58, is scheduled to give a speech today on the IMF’s role in helping boost growth in the region at the University of the West Indies.
Samuels said Lagarde’s visit is a vote of confidence for the government’s efforts to date.
“We’re on the right path,” he said. “The government has to be vigilant but hopefully we should see some light at the end of the tunnel.”
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