As Jamaica Prime Minister Portia Simpson Miller addressed her heavily indebted nation last month, the Caribbean leader reminded Jamaicans of her steadfast determination to not just balance the books but also people’s lives.
But with one of the world’s highest relative public debt burdens, the country that some are calling the Greece of the Caribbean could soon find that taking care of its most vulnerable is an obligation it cannot afford.
“Having such a high debt level means there is no fiscal space for doing anything else. It means the government doesn’t have any money left for spending on other priority programs like social programs or infrastructure development,” said Christine Richaud, the World Bank’s lead economist for the Caribbean. “It means at some point the government may have to raise taxes or cut some spending in some areas, and it creates uncertainty.”
While the bank is projecting a one percent growth for Jamaica in the year ahead, the United Nations’ Economic Commission for Latin America and the Caribbean said economic conditions have worsened so much in the struggling tourism Mecca that Jamaica’s growth is projected to be a sluggish 0.1 percent.
No stranger to tough economic times, Jamaica’s crippling debt crisis — its interest payments as a percentage of gross domestic product is among the highest in the world — crystallizes the challenges many Caribbean countries face even as the global financial meltdown shows signs of improving.
Economists warn that high debt levels in the Caribbean are dragging down economic growth. The region is looking at a “timid recovery” with a lot of uncertainty, they say.
How well or fast the mostly tourism-dependent economies of the Caribbean recover will depend as much on the decisions individual governments take in the year ahead as what happens in Europe and the United States, whose own recovery from the global financial crisis remain fragile.
The forecast for Jamaica is only slightly better than the negative economic growth Richaud sees for Grenada, a tiny Caribbean country with big problems. Flattened in 2004 by Hurricane Ivan, the worst hurricane to hit the Caribbean in a decade, Grenada continues to wrestle with widening poverty and widespread unemployment.
“It’s going through a lot of problems; we didn’t even see positive growth in Grenada for 2012. I don’t know what’s going to happen in 2013,” said Richaud, adding, “it’s impossible to talk about the outlook for Grenada” until after the Feb. 19 elections.
Less mysterious but equally uncertain is Jamaica, where the government is still renegotiating an agreement with the International Monetary Fund and Simpson Miller recently warned that the IMF agreement alone will not solve her nation’s economic problems. Projected debt service costs will consume 54 percent of the budget, according to the U.N.’s ECLAC.
“There’s a sort of quiet in the air; a lot of anxious expectations for how we are going to work our way out of the current situation in which we find ourselves — high debt-to-GDP ratio, challenging foreign exchange reserves and a tough global economy,” said Leo Williams, former deputy chairman of the Jamaica Stock Exchange. “A lot of people are looking, waiting to see the next move.”