Jamaica’s economic growth projected at nearly 2% for 2018/19 fiscal year – CDB

The Barbados-based Caribbean Development Bank (CDB) says the medium-term outlook for Jamaica “is positive” with 1.7 percent growth projected for the financial year 2018-19.

In its “Country Economic Review of Jamaica”, the CDB said that tourism, manufacturing, agriculture, and construction are the sectors most likely to drive growth in the short term.

It said the productivity-enhancing reforms and public investments that have been undertaken during the implementation of government’s reform programme are expected to contribute to increased domestic demand.

“At the same time, enhancements in agricultural productivity, especially through priority investments in infrastructure (including irrigation), will generate direct and indirect increases in incomes and a reduction in poverty. However, key downside risks, such as a slowdown in global growth, macroeconomic and/or weather-related shocks, policy reversal of the structural reforms, and high crime, could derail growth prospects,” the CDB said.

It said that Jamaica’s economy grew by 2.4 percent last year led by increased tourism and construction activity. Inflation decreased as food prices fell, while unemployment was lower than in the previous year. An accommodative monetary stance contributed to credit growth, which coincided with improvements in doing business conditions and an increase in consumer confidence.

The CDB said that fiscal performance was strong; and debt as a percentage of gross domestic product (GDP) declined.

“The external trade deficit worsened; but the level of foreign exchange reserves was still comfortably above the required threshold. The medium-term outlook remains positive, underpinned by a combination of higher investment and productivity growth supported by ongoing reforms. However, key downside risks, including macroeconomic and weather related shocks, policy reversal of the structural reforms, and high crime rates can derail growth prospects,” the region’s premier financial institution warned.

It said that public debt for the fiscal year 2018/19 is projected to drop to 97.4 percent, compared with the 104.1 percent in the previous year “thus falling below 100 percent of GDP for the first time since fiscal year 2000/01.

“Based on the current trajectory, public debt is on track to reach 60 per cent of GDP by fiscal year 2025/26.”

Noting the improvements in the macroeconomic and fiscal indicators, rating agencies upgraded the country’s credit ratings and outlooks, the CDB said.

“Fitch’s reported a B+ rating with a positive outlook – January 2019; Standard & Poor’s upgraded its rating to B with a positive outlook (September 2018); and Moody’s assigned a rating of B3 with positive outlook (July 2018).”

It said accommodative monetary conditions as well as increased competition in the market for loanable funds continued to support growth in overall financing. Private sector credit grew by 16.2 percent in the year to the end of September 2018, compared with an expansion of 11.5 percent in the previous year.

“The growth in private sector credit reflected increased loans and advances to both businesses – utilities, tourism and manufacturing – and households [mortgage loans and instalment credit]. Consistent with the relatively favorable macroeconomic environment, the commercial banks’ asset quality and profitability improved.”

The CDB said that the current account deficit widened, due in part to an increase in imports. The merchandise trade deficit grew by 7.6 percent to US$4.1 billion in the first 11 months of 2018, on account of increased imports of food, fuels, manufactured goods, machinery and transport equipment.

However, the growth in tourism receipts, associated with increased stay-over visitors and remittance inflows, partially offset the current account deficit.

“This deficit was partly financed by private investment inflows. Inward foreign direct investment (FDI) was estimated at US$578.8 million for the period January to September 2018. This was supported by a drawdown of foreign reserves, which still comfortably exceeded the international benchmark of three months of imports.

“Reserves fell to an estimated 4.9 months, compared with 5.7 months in December 2017. Nevertheless, the import cover was marginally higher than the December 2014 level of 4.6 months,” the CDB added. -(CMC)