Country Report Jamaica

Outlook for 2008-09

• The new government ran on an anti-crime platform, and will be under pressure to produce results. However, these will be difficult to achieve and the issue is likely to dog the JLP to the same extent that it troubled its predecessor.
• Raising GDP growth rates is a major policy goal. This will require a reduction of the public debt burden from around 130% of GDP in order to redirect public expenditure from debt service to social and infrastructural investment.
• The fiscal deficit will narrow only gradually as weak growth prospects constrain revenue growth. Expenditure is, moreover, vulnerable to higher than budgeted interest payments or wages.
• GDP growth was dampened in 2007 by Hurricane Dean, but there is unlikely to be a strong rebound in 2008 as a recovery in export volumes is hampered by weakening US demand and domestic monetary tightening.
• Inflation has been driven up by the effect of Hurricane Dean and by high imported food and fuel prices. Inflation will remain in double digits throughout 2008, but a disinflationary trend should take hold towards year-end.
• The current-account deficit will remain extremely large in the forecast period as high oil prices continue to put pressure on the import bill.

Monthly review

• A series of legal challenges has the potential to erode the JLP's slim parliamentary majority, although the troubled PNP appears unlikely to win enough by-elections to overturn the JLP's majority.
• Around 600 murders have been recorded so far this year, prompting a reshuffling of personnel, including the security minister, Derrick Smith, who has been replaced by a former police commissioner and army chief.
• The new security minister, Trevor MacMillan, has declared that, while security forces need to crack down on criminals, the government also needs to focus on the social conditions that foster crime.
• The government has announced a number of tax reforms for gradual implementation this year, geared towards enhancing the simplicity and equity of the tax system, as well as facilitating improved tax compliance.
• The monetary policy stance has remained unchanged since the Bank of Jamaica (BoJ, the central bank) last raised rates on its benchmark 180-day reverse repurchase ("repo") interest rate in February.
• Recent unofficial data from the Planning Institute of Jamaica (PIOJ) suggest that activity remained flat in the first quarter of 2008, with real GDP growth estimated at 0.2%.

SOURCE: Country Report