Caribbean & Central America - May 2024

Over the last decade Jamaica has notched up a highly unusual victory in a long running regional saga. It has cut its debt-to-GDP ratio from a crippling 144% at the end of 2012, down to a more manageable 72% by the end of 2023. The government wants to go further, reducing it to 60% over the next four years. This exceptional achievement has triggered a wide-ranging discussion about the lessons to be learned and whether the country is in a better position to protect itself against looming climate change threats.

The sheer scale of Jamaica’s turn-around is captured in a paper published at the end of March by US think tank Brookings Institution and written by Serkan Arslanalp (International Monetary Fund), Barry Eichengreen (University of California at Berkeley), and Peter Henry (Stanford University). They point out that the country cut its debt ratio by half despite sluggish growth (annual average GDP growth was only 0.75% during the decade), and despite its vulnerability to hurricanes, floods, droughts, and earthquakes. The period covered included the disastrous coronavirus (Covid-19) pandemic which plunged Jamaica’s key tourism industry into deepest recession. More climate change threats could be on the way: on some measurements Jamaica is considered the third most disaster-prone country in the world.

The report says two key factors have helped reduce the debt burden. One was the adoption of “strong but flexible fiscal rules” with clear targets for achieving a primary fiscal surplus (7.5% of GDP), for the public sector wage bill (not more than 9% of GDP), and for the debt-to-GDP ratio (not more than 60%). There is an “escape clause” that can be invoked if there are large external shocks. The second and potentially decisive factor has been the construction, over a period of decades, of a broad consensus that the cost of fiscal adjustment needs to be “widely and fairly shared”. This cross-party approach was strengthened in 2013 when discussions began on what was later to become the Partnership for Jamaica Agreement. The fiscal agreement remained in force despite a change in government in 2016. While other heavily indebted Latin American and Caribbean countries may adopt the first factor of the ‘Jamaican model’ for fiscal targeting, it may be more difficult for them to emulate that second factor: creating a consensus-building culture can take years.

Writing in World Politics Review in late March, Robert Looney, a professor at the Naval Postgraduate School in Monterey, California, takes a more guarded view, suggesting that Jamaica’s economic recovery may have come “at the expense of preparedness for the effects of climate change”. He warns that extreme weather will continually threaten the core sectors of agriculture and tourism, meaning that “the country’s economic future will likely become more problematic”.  However, it can be argued that the reduction in the debt-to-GDP ratio helps create additional fiscal space to deal with future shocks and the government has this on its agenda.

Blue-Green Facility

On 17 April the Jamaican government announced the creation of a US$500m ‘Blue-Green Facility’, with the financial support of the World Bank and other multilateral financial institutions, intended to “catalyse climate finance by introducing systematic, coherent, and scalable approaches towards adaptation and mitigation needs”.