Keep spending tight…

THE International Monetary Fund (IMF) has applauded the Jamaican Government for its “strong policy frameworks and sustained reforms” which “have underpinned its resilience in the aftermath of Hurricane Melissa”. The category 5 system left severe damage in sections of the island after its rampage on October 28, 2025. But the IMF has warned that addressing supply-side constraints is essential to raising Jamaica’s potential growth and enhancing the country’s resilience and has urged the Dr Andrew Holness-led Administration to ensure it contains non-priority recurrent spending. Holness has already announced a pause on several government expenditure items, including non-essential travel, parties, and retreats at resorts, with the IMF agreeing that this should remain a priority. “Revenue mobilisation and restraint in current spending growth are critical to preserve fiscal space for priority investment and return public debt to a sustained downward path. The authorities’ efforts to broaden the tax revenue base and strengthen administration are welcomed, along with the intention to develop a mechanism to anchor medium-term public wage growth in a manner consistent with the fiscal framework,” the IMF said on Wednesday as it released its ‘Jamaica: Staff Concluding Statement of its 2026 Article IV Mission’. According to the IMF, its team, led by W Raphael Lam, held meetings in Kingston with Jamaican authorities, representatives of the private sector, civil society, and development partners during October 27-November 4 to conduct the 2026 Article IV consultation. In his mission statement, Lam said the Jamaican authorities’ effective disaster risk financing framework, together with the strength of the country’s fiscal, monetary, and financial sector frameworks, have supported an appropriate policy response to cushion the severe impact of Melissa while preserving market access on favourable terms. “The priority now is to advance reconstruction while preserving macroeconomic stability and deepening reforms, considering the more challenging external environment,” said Lam, who noted that economic activity is recovering gradually in Jamaica. “Following a contraction of 1.2 per cent in fiscal year (FY)2025/26, growth is projected to recover moderately to 1.3 per cent in FY2026/27, with output returning to its pre-hurricane level by mid-2027, supported by reconstruction efforts and a recovery in tourism. “Headline inflation, largely driven by higher energy and food prices, has risen above the Bank of Jamaica’s target band of 4-6 per cent, yet is projected to return within the target band by mid-2027 as supply pressures ease,” added Lam. He pointed out that Jamaica’s risks to the growth outlook are tilted to the downside, while inflation risks remain on the upside. “Higher energy and food prices from prolonged conflict in the Middle East and drought conditions from El Niño, and a further tightening in global financial conditions, could weigh on growth and intensify inflationary pressures. On the domestic front, delays in both reconstruction and restoration of tourism capacity would also weaken the recovery.” Lam said the Jamaican Government correctly eased the fiscal stance in response to Hurricane Melissa, although accelerating reconstruction efforts remain essential. “The multi-layered disaster risk financing provided rapid liquidity, including through IMF’s Rapid Financing Instrument. The Government appropriately activated the fiscal rule’s escape clause to support vulnerable households and hurricane-related reconstruction efforts. Revenue mobilisation efforts to broaden the tax base and strengthen administration are welcome,” said Lam. “However, efforts are needed to accelerate reconstruction and build back better by closing long-standing infrastructure gaps and strengthening resilience to future natural disasters. The establishment of a new National Reconstruction and Resilience Authority (NaRRA) provides an opportunity to do so, although work should continue in enhancing procurement, contract management, public investment management, and interagency coordination to address implementation bottlenecks. “Meanwhile, containing non-priority recurrent spending remains essential, including by ensuring that the current fuel price smoothing mechanism continues to operate symmetrically to ensure cost recovery over time,” Lam added. He pointed out that preserving debt sustainability should remain a priority for the Jamaican Government, with fiscal efforts shifted towards rebuilding buffers. The IMF official applauded the Bank of Jamaica for its September policy rate hike which, it said, was appropriate, given above-target inflation and persistent commodity-price pressures. “Monetary policy should remain focused on anchoring inflation expectations and limiting second-round effects, particularly as fiscal policy supports reconstruction efforts. Alongside an active monetary policy response to inflation risks, greater exchange rate flexibility would strengthen Jamaica’s capacity to absorb external shocks, including those coming from less favourable terms of trade. “Over time, scaling back foreign exchange interventions would allow the exchange rate to play a greater buffering role and support foreign exchange market development,” Lam added. He argued that Jamaica’s financial system remains resilient, but continued vigilance and reforms are needed. “Continued close monitoring of credit and market risks, insurers’ financial positions, and vulnerabilities stemming from financial groups’ interconnectedness remains essential,” said Lam. “In addition, cyber security risks require increased attention, building on the sector-wide cyber intelligence sharing hub.” He called for the strengthening of the country’s energy security and electricity infrastructure, including by accelerating the transition towards renewable energy sources, which would reduce Jamaica’s exposure to imported fuel prices. “Progress should continue in reducing crime, streamlining the regulatory burden for businesses, improving education outcomes and workforce skills, and addressing broader infrastructure bottlenecks. Continued implementation of reforms to strengthen climate resilience will help Jamaica better withstand future shocks,” declared the IMF official.