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However, change in US administration could be troubling for Jamaica

Durrant Pate/Contributor

Local capital market analysts are predicting that Jamaica’s fiscal policy restraint will survive, whichever of the island’s two major political parties wins this year’s national elections.

Furthermore, Jamaica’s political commitment to fiscal consolidation is expected to survive any possible change in administration. This is owing to the fact that policy differences between the parties are marginal, and as such, supporting policy continuity in the long run, which will further foster macroeconomic stability. 

These analysts from NCB Capital Market, the biggest player in Jamaica’s capital market observe, “Despite the elections approaching, the incumbent government has made good on its commitment to fiscal prudence, and, going forward, the GOJ (Government of Jamaica) is generally anticipated to remain committed to fiscal consolidation.” 

In addition, Jamaica’s institutional framework is strengthening, leading to improved public finances, more economic stability, and greater resilience to shocks, which will continue to be demonstrated throughout 2025. However, with elections due this year, there are concerns about the possibility of increased fiscal spending due to political incentives, campaign promises, and the desire to respond to voter needs, which could erode the current fiscal trajectory of the country. 

Allaying lingering concerns

In spite of these lingering concerns, the analysts comment, “Given the successes of the government’s previous austerity measures, this has created greater room for government expenditure toward projects in critical areas such as Agriculture, Healthcare, Education, Housing, and Business Development (via SMEs). Considering this, we expect 2025 to provide a balance between fiscal prudence and increased spending to support growth and social infrastructure.”

They say, “The change in the US administration could have implications for the domestic economy, particularly on trade relations. The marked differences between Biden’s and the new US President, Donald Trump’s policies on international relations, immigration, the environment, and most notably trade could also impact the growth outlook, inflation, and interest rate trajectory in Jamaica.”

Policy-generated disruptions to the ongoing disinflation process in the US were cited as possibly interrupting the pivot to easing monetary policy with implications for fiscal sustainability, financial stability, and economic growth. Therefore, any new policy that could disrupt America’s economic outlook or any of Jamaica’s main source markets, would result in lower exports, remittances, tourism inflows, etc. to the island.

Likely impact of China/US relations

This, the analysts say, “would lower local economic growth and could result in a looser BOJ (Bank of Jamaica)  policy to stimulate growth. In addition to risks from economic policy shifts, geopolitical conflicts could also affect trade routes as well as food and energy prices, which would also affect the local market in 2025. A sharper-than-expected weakening of growth in China could also adversely affect exports. On the flip side, tepid economic growth in the Euro Area and increased expectations for further monetary policy easing could help to offset any possible decline coming out of the US or China.”

Monetary policy easing and the lowering of borrowing costs, they posit “Should generally support financial conditions and are also anticipated to buoy domestic demand. With interest rates expected to decline throughout 2025, we expect that both primary and secondary stock market activities will pick up pace supported by lower borrowing costs and increased investor appetite. “

Greater demand and disposable incomes could also increase business confidence, leading to greater company growth both organically and inorganically. This could also lead to greater comfort and confidence for private companies to list publicly. 

Further, the cut in interest rates will allow local issuers to refinance existing high-debt obligations at lower rates, which would propel an increase in local bond market activity. Considering the themes that are expected to play out this year, NCB Cap Market’s base case scenario anticipates some rebound in local capital market activities, notwithstanding the risks to the outlook.