Jamaica On The Edge

The Jamaican economy is one of the few in the Caribbean region that could experience a major crisis in the coming year, given its substantial macroeconomic imbalances. The following three points stand out:

  • Debt dynamics: Jamaica’s debt burden, at nearly 130% of GDP, is the largest in the region. With around one third of total revenues going to interest payments, there is no way for the country to rapidly improve its debt profile.
  • Balance of payments: In recent quarters, the central bank has been forced to dip increasingly into foreign reserves to fund external account shortfalls on the back of poor goods trade dynamics and weak investment inflows.
  • Recession: High unemployment, weak investment and sluggish tourism inflows all weighed on growth and were further exacerbated by Hurricane Sandy, such that the Jamaican economy contracted in the first three quarters of 2012.

While our core view is that the economic picture will slowly improve in the coming quarters, we note that there are a number of potential catalysts – including a substantial rise in commodity prices, rapid increase in violence weighing on tourism revenue, or a spike in bond yields – that could trigger a crisis situation. In Business Monitor Online, we explain further the macroeconomic dynamics of Jamaica, and outline three different scenarios under which the country could be thrown into crisis.

Given Jamaica’s size and importance in the Caribbean, a major crisis in that country would have an impact across the region. Economies that have similarly large debt burdens could see bond yields rise as investors grow nervous, and liquidity could dry up across the Caribbean.

This blog is tagged to:
Sector: Country Risk, Financial Markets
Geography: Caribbean, Jamaica

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