Editorial | Surviving the crisis

Before October 28 when powerful Hurricane Melissa wrecked the west of the island, Jamaica was on a path of modest, but encouraging, recovery from the impact of hurricane Beryl of 2024.

Inflation had cooled to 2.1 percent point-to-point in September; unemployment was reported at 3.3 per cent, and the primary surplus was outperforming projection.

Indeed Between April and September, revenue and grants outperformed projections by $3.8 billion; tax collections exceeded expectations by $6.8 billion; unemployment stood at record lows; inflation was comfortably within the Bank of Jamaica’s target range. Growth in the first half of the fiscal year was estimated at 2.8 percent, a sign that the economy was recovering from Hurricane Beryl the year before..

This early-year performance provided credibility, liquidity, and reassurance to markets. The credit rating agencies had a more positive view of Jamaica.

The interim fiscal policy paper, tabled in Parliament in December reveals the scale of the economic and fiscal disruption caused by the hurricane. Real GDP for FY 2025/26 is now projected to contract by 4.3 per cent, reversing the earlier forecast growth of 2.2 per cent. Nominal GDP, usually buoyed by inflation alone, is expected to fall by 0.2 per cent. Agriculture, tourism, electricity, and communication services have all been bludgeoned by the storm.

Additionally, while the government had crafted its February budget around the promise of a balanced fiscal outcome for 2025/26 and a primary surplus of 5.1 per cent, that ambition is now impossible. The new projection is for a fiscal deficit of 3.5 per cent of GDP, the first such deficit Jamaica has seen since the era of fiscal reform began more than a decade ago. And the public debt, which had been on track to reach the legislated target of 60 percent of GDP by FY 2027/28, must now be re-anchored. The government is formally pushing the timeline back by two years, to FY 2029/30.

FISCAL LOOSENING

Jamaica has entered an unavoidable period of fiscal loosening; not because of indiscipline, but because of obvious necessity.

The upshot: the second half of FY 2025/26 will be defined by shrinking revenues, escalating expenditures, falling employment, particularly in the western parishes, and a supply shock in food, transportation, and energy distribution that will stoke inflation. The government will be forced to allow greater levels of food imports to cushion the inflation environment.

The economy is expected to contract sharply, and the state must step forward to fill the void.

The FPP outlines the immediate budgetary pressure points: higher recurrent spending for relief, shelter, and social protection; increased compensation expenditures; and a reduction in capital spending due to paralysis in project implementation.

The Third Supplementary Estimates reflect this reality clearly: programme spending rises by $94.4 billion, compensation by $11.3 billion, while the capital budget is cut by $2.2 billion.

This shift toward consumption-oriented spending is understandable. People must eat, sleep, and live before long-term infrastructure can be rebuilt.

But it is also a warning. Unless capital spending execution improves, Jamaica risks underinvesting in the very reconstruction that will power its medium-term recovery.

The FPP also underscores a longstanding truth: Jamaica’s public financial machinery is still too slow at delivering large, complex capital projects. Procurement bottlenecks, staffing shortages, and coordination gaps remain obstacles. The Central government, and local authorities have weak capacities to deliver.

If ever there were a moment to overhaul the government’s project execution systems, Melissa has forced the issue.

CAUTIOUS HOPE

The good news is that Jamaica’s medium-term outlook remains positive, if subdued. Real GDP growth is projected to return to the 1–2 per cent range over FY 2026/27 to FY 2028/29. Inflation is expected to normalise. The current account is surprisingly projected to remain in surplus. International reserves remain robust.

But make no mistake: this recovery depends entirely on two factors.

First, the speed and scale of reconstruction financing, especially from external partners; with over US$6.7 billion pledged over the next three years.

The second is the country’s ability to strengthen climate resilience, not just rebuild what was destroyed.

The FPP signals a need to pivot toward climate-oriented fiscal policy. The establishment of a Climate Finance Unit in the Ministry of Finance, the reliance on multilayered risk-financing instruments, and the acknowledgement that Jamaica must now normalize climate shocks in its macro-fiscal planning – all signal a new era of realism.

The Interim Fiscal Policy Paper is not merely a fiscal update – it is a sobering diagnosis of a country forced into a new macroeconomic reality. But it is also a reminder of how far Jamaica has come. A country that once lurched from crisis to crisis now demonstrates resilience, sobriety, and discipline even under catastrophic strain.

The challenge that the FPP points to is how to rebuild – not only structures, but confidence – while holding firmly to the principles that placed Jamaica on the path of recovery in the first place.