Jamaica’s stock market ranks as the world’s best-performing over the past year, thanks to a dramatic economic turnround that culminated in the country exiting its IMF programme with flying colours last month.
The Caribbean nation has struggled economically for large parts of its post-independence history, and after the financial crisis became mired in debt. Government debt peaked at 147 per cent of gross domestic product in 2013, and the cost of servicing it consumed a third of the country’s fiscal budget. In May that year the country entered into a $2bn IMF financing agreement.
However, despite widespread concerns that the aid package would unravel, Jamaica has engineered a solid recovery. The country graduated from the IMF programme ahead of time in 2016, and last month exited a subsequent “stand-by” arrangement to unusually glowing praise from the fund. In a statement, it paid tribute to an “exemplary” implementation that resulted in a “stronger economy with significant reduction in vulnerabilities, and increased job creation”.
Jamaica’s adherence to the strict terms of the IMF’s programme, including running one of the world’s biggest budget surpluses, pushed debt to GDP below 100 per cent for the first time in nearly two decades this year. Rising optimism has helped push unemployment to a record low and triggered a big rally in the Jamaican stock exchange.
Despite a recent dip, Jamaica’s J$1.5tn (US$11bn) stock exchange is the best-performing of 94 bourses tracked by Bloomberg over the past 12 months, gaining 35 per cent. Total gains over the past five years come to more than 600 per cent — again, the world’s best performance.
Late last month the country successfully sold $815m of bonds at a yield of just 5.8 per cent, which was followed by a credit rating upgrade by Standard & Poor’s. “Jamaica has made material progress in achieving macroeconomic stability and strengthening of its external position, improving its ability to withstand external shocks,” the rating agency said.
Analysts say the sedate pace of economic growth remains the most disappointing aspect of the Jamaican IMF programme. While the unemployment rate is at an all-time low of 7.8 per cent, the fund predicts that the economy is expanding at about 1.9 per cent, with the near-term outlook clouded by the planned closure of a big bauxite mine for upgrades. Tropical storms are also a constant threat in the Caribbean.
Nonetheless, both the IMF and S&P forecast that growth will accelerate in coming years thanks to the improving macroeconomic foundations, such as declining government debt, healthier reserves, low inflation, a flexible exchange rate and moves to make the central bank fully independent.
John Jackson, a local investment commentator, said that declining yields on fixed-income assets had pushed investors into the equity market. “Many investors were focusing on fixed interest securities and holding funds in US dollars, rather than undervalued stocks, so many have come to the market later.”
Claudia Calich, an emerging markets debt manager at M&G Investments, notes that the government is still highly leveraged. But she has been encouraged by the “very tight” fiscal stance Kingston adopted a few years ago, prompting her to overweight Jamaica in her portfolio. “In the past they have shown an extremely high willingness to pay, but very limited ability,” she said.
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