Beating expectations with focus on growth and stability
Campaigning on a promise of moving “from poverty to prosperity” propelled Jamaica’s Labour Party to a victory in the February 2016 general election. Nearly two years later, finance minister Audley Shaw remains just as committed to the vow. “We have to send that message to every Jamaican,” he says. “We don’t need to be poor. We are rich in natural resources. We have one of the most beautiful countries in the world. We’re a country that has produced world icons from Bob Marley to Usain Bolt.”
For Shaw, though, it is a tough mandate. He inherited the thankless task of pushing through an extensive roster of economic reforms launched by the previous administration and necessitated by the country’s overwhelming debt to GDP ratio.
He is focused on cutting that debt load with an aggressive programme of fiscal consolidation including overhauling the tax system and jettisoning some 40% of state owned companies. To top it off, he’s eying a 5% annual GDP growth rate within four years.
“It’s a very ambitious target,” says Shaw. “We’ve come out of a period of very marginal 1% growth for far too long. We realise that we’re going to have to do some big things to achieve those higher levels of growth. Those big things have to be a combination of issues, including systematic investment promotion.”
The results are impressive so far. The country’s fiscal performance stands out, says Charles Seville, an analyst at Fitch Ratings. “The new administration has run a large primary surplus. The country still has a very high debt burden but it’s falling as a result of the tight budget.” The sovereign has “outdone expectations” in this regard, he adds.
In a progress review in June, the IMF commended the Caribbean country for posting a primary surplus of over 7%. And Moody’s rewarded the sovereign with an upgrade of its foreign currency rating one notch, to B3 in November, extending a positive trend for the country’s credit rating that started in 2014. The agency cited the government’s “strong commitment” to cutting debt in its decision.
Capital markets investors are also applauding the country’s direction. The sovereign attracted $3bn of demand for a dual tranche bond sale in August, printing a 5% 2028 and a 6.45% 2045. It used the fresh cash to buy back more expensive debt in a liability management exercise.
Now Shaw is focused on attracting investment. Already, China’s Jisco has committed to investing over $2bn in an aluminium plant, while a further $2.1bn is set to come in for hotels, housing and an industrial park around a new highway running from the north to south coasts of the country.
Shaw hopes to attract $2bn-$3bn more private investment for a logistics hub in the centre of the country, which will have air and sea links. Investors from China and Europe are interested, he says.
“Within another six months to a year we’re going to have that investment rolling,” says Shaw.