Jamaica is poised for a significant boost in private capital following an innovative new deal inked last week with multilateral and official sector agencies to support climate initiatives, a development that should invigorate the country’s currently anemic economic growth, according to its top finance official.
Nigel Clarke, Jamaica’s finance minister, told LatinFinance the island nation will now redouble its commitment to build out critical infrastructure and undertake microeconomic reforms to improve capital and labor productivity, in order to boost growth above the 1.2% rate that the International Monetary Fund forecasts for the next two years.
Clarke said the country has “resumed significant momentum” following the pandemic. “Jamaica’s efforts are self-evident. We have achieved a level of stability not seen in our history,” he said on the sidelines of the World Bank/IMF annual meetings in Marrakech, Morocco.
The Caribbean nation reached an agreement last week with a consortium of official sector bodies — including the European Investment Bank (EIB), the Inter-American Development Bank (IDB), the UN-backed Green Climate Fund and the UK government — to set up a mechanism to generate “bankable projects” and to mobilize private investment for green projects across Jamaica while reducing pressure on the public purse.
The deal includes three related initiatives: a project preparation facility, a domestic green financing facility and a concessional funding facility.
Clarke said the agreement will allow Jamaica to leverage private investment to help with the billions of dollars needed for infrastructure in the coming years. “Project preparation for public-private partnerships is expensive and takes time. The new facility will help us accelerate the pace to bring projects to market,” he said.
This latest initiative follows Jamaica’s $764 million “resilience and sustainability” arrangement agreed last year with the IMF. That arrangement supports reforms to strengthen the country’s physical and economic resilience to climate change.
S&P Global last month raised Jamaica’s rating to BB- with a stable outlook, its highest level since the credit rating agency began covering the country 24 years ago.
Joydeep Mukherji, managing director and sector lead of S&P Global’s sovereign ratings for the Americas, said Jamaica is “a success story” that was upgraded “because of fiscal policies and debt.”
However, he noted that “the next challenge is growth.”
Clarke said that while GDP is not rising as fast as desired, his focus is on sustainable, longer-term growth in order to avoid the fits and starts that the economy has experienced in recent years.
“There is a tradeoff between growth and stability. Volatility renders sustainable growth unachievable,” Clarke said, noting that between 1997 and 2015, the economy had 37 quarters of expansion and 33 quarters of contraction. “This volatility does not allow for development,” he said.
Jamaica saw 20 quarters of expansion prior to the pandemic, another unprecedented achievement. The prior record had been nine quarters.
Jamaica continues to surprise as it lowers public debt and builds a climate-resilient economy: debt is on track to hit the equivalent of 75% of GDP in the first quarter of 2024, down from a high of 145%; unemployment is at 4.5%, a historic low; and international reserves were close to $5 billion in September, up 56% since 2020.
The government has also refrained from raising tax in the past six budgets. This compares to 18 increases in the previous 22 budgets.
The numbers are even more impressive considering it reduced public debt without any kind of debt forgiveness or relief and that despite a spike in the ratio to 110% of GDP in 2020 as a result of the pandemic (and an economic contraction of 9%), the downward trend in debt quickly resumed.