Jamaica: Macro-Socio-Economic and Environmental Assessment of ...

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VII.5 The evolution of the economy with the disaster
1. Main trends
As a result of the impact of the natural disaster the economy will witness a reduction in the
rate of economic growth (2.6 percent and 1.9 percent pre and post Ivan respectively) (See
Table III.1 and Figure III.1). The main economic sectors that will be affected by the natural
disaster are Agriculture Mining, Transport, Storage and Communication, and to a lesser
extent Tourism and Manufacturing.
The disaster will have a negative impact on the balance of payments as exports are
expected to decline and imports will increase. The event will also affect to a lesser extent
the behaviour of prices. However, there will not be significant changes on the financial
accounts of the balance of payments. It is expected that the increase in the current account
deficit will be more than offset by financial flows.
Fiscal policy will maintain the targets it has set for the current fiscal year. Expenditures will
rise as a result of relief and reconstruction efforts. The greater level of expenditures will be
financed in principle by grants or concessional lending. It is not expected that the disaster
will have an effect on tax revenues, which for the months prior to the disaster was above
the budgeted amounts.
As no significant changes are expected in the fiscal outturn and the estimated global
balance of payments result, monetary policy will maintain its current stance. It is expected
that the authorities will maintain their current policy, which has led to declining interest
rates while at the same time ensuring price and exchange rate stability.
2. The fiscal outlook
The authorities remained poised to maintain a primary balance of roughly 13percent in their
fiscal accounts notwithstanding the effects of the natural disaster. The fiscal deficit with
and without grants is projected to be –4.2 percent and –5percent (See Tables III.1. and
III.2) and respectively not taking into account off-budget expenditures which amount to
close to 3 percent of GDP. The fiscal outcome taking into account the effects of the natural
disaster remains thus within the original planned fiscal target range of the government. 17
The most significant impact of the natural disaster will be on the expenditure side of the
fiscal accounts. Increases will be recorded in programme related expenditures due to relief
operations ($95 million) and capital expenditures due to the reconstruction and recovery
efforts (see footnote 2).
17 It is asssumed that the government asumes roughly 30percent of the reconstructions
costs for the fiscal year 2004/2005 (estimated at 2.3 billion J$) and that capital
expenditures rise accordingly.
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