Jamaica WT/TPR/S/139 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Since the last Review of Jamaica, in 1998, its  economy has had very modest growth despite 
reform efforts, a high measured rate of investme nt, a high literacy rate, and poverty levels below the 
average of comparable countries in the CARICOM a nd in Central America.  Employment growth was 
sluggish between the mid 1990s and 2002, and produc tivity growth was negative.  GDP growth has 
been affected by the financial crisis of the mid 1990s and subsequent policy effects, an appreciating 
real exchange rate, rising real wages, which reduc ed international competitiveness, but especially by 
the increasing burden of the public debt. 
2. The growing debt is a main contributor to the persistently large overa ll fiscal deficit, and 
hence forces the Central Government to post relative ly high primary surplus es;  this has increased 
pressure for tax increases.  The growing weight of pub lic debt interest payments constrains the policy 
choices of the authorities, and creates an anti-growth bias, due to the need to maintain relatively high 
real interest rates.  Unless the debt problem is  addressed, there will be strains on the internal and 
external balances which, in tu rn, will impact on trade policy. 
3. Imports have increased but Jamaica's exports of goods have declined in recent years;  
although exports of primary products have progress ed, manufactured goods contracted dramatically 
between 1998 and 2002.  This was due mainly to a shar p decline in apparel exports to the U.S. market 
despite enhanced access under the CBTPA.  A possibl e explanation may be the loss of Jamaica's 
external competitiveness vis à vis other countries in  the Caribbean and Central American region, 
affected in past years by an appreciating real exch ange rate.  Although this has been partly corrected, 
particularly since 2000, further measures are likel y to be necessary, for example, through wage 
moderation.  The recent understanding between the unions and the Government is a step in this 
direction.  Addressing Jamaica's modest economic growth would seem to require an integrated approach, of which trade policy is a component.  In this context, certain trade policies may need re-
examination, for example, tax and customs tariff  exemptions (Chapter III(3)(2)(viii), (3)(iv) and 
(4)(ii)), which are costly in terms of forgone tax re venue, an important consideration given the need to 
reduce the fiscal deficit. 
(2) M
ACROECONOMIC DEVELOPMENTS  
(i) Economic structure and reform 
4. Since Jamaica's last Review, the economy has c ontinued to shift away from primary activities, 
in particular agriculture, and from manufacturing, bo th of which have lost share of GDP.  Services 
have become, by far, the main economic activity an d the main earner of foreign exchange.  Tourism 
generates as much foreign exchange as all exports  of goods combined and due to its importance and 
linkages to other activities has a strong multiplier effect on the domestic economy. 
5. After Jamaica completed its last IMF struct ural adjustment programme in 1996, efforts 
continued to stabilize the economy;  the reduction in inflation and the correction of the fiscal 
imbalance became the main economic policy goals of the 1996 National Industrial Policy (NIP). 
6. Although inflation has fallen, growth has rema ined weak and overall productivity has actually 
declined.  Problems like high crime and relatively high wage costs may be partly behind the low 
growth rates.  Other factors that could explai n low growth include high investment and production 
costs, which have been partly fostered by a comb ination of tight monetary policy and a large fiscal 
deficit.  Poor education outcomes and governan ce problems may have also contributed to poor WT/TPR/S/139 Trade Policy Review 
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productivity and growth performance.  For example, although school enrolment for 6 to 14 year olds 
is near universal, about 30-40% of primar y school leavers are functionally illiterate.1  M o r e  
importantly, Jamaica had a negative score in four of the World Bank's six governance indicators for 2002:  political stability, government effectiveness, the rule of law, and corruption.
2 
(ii) Production and employment 
7. The Jamaican economy entered a period of stagna tion in the 1990s, which led to a recession in 
1997 and 1998.  Growth was affected during this pe riod by the large financial crisis and by the 
implementation of stricter monetary policy, reflect ed in higher interest rates, and by the loss of 
competitiveness partly attributed to the real exch ange rate appreciation.  Since 1999 growth has 
resumed, but at very low rates (Table I.1).  Between 1998 and 2002, real annual GDP growth averaged 
just 0.6%, with growth peaking in 2001 at 1.5%.  Growth is estimated to have increased to 2.3% in 
2003.  The economic slowdown in the United St ates and the 11 September 2001 attacks have 
contributed to sluggish growth in tourism and ma y have affected exports.  The economy, however, 
received a boost from lower inter est rates between 2000 and 2002. 
8. The modest rates of growth recorded in recen t years may also, in part, reflect statistical 
problems.  A recent World Bank study shows that GDP may be underestimated in Jamaica because 
output estimates in the services sector, particularly in tourism, may not be taking account of incomes booked offshore;  also, the imputed income from hous ing would appear to be too low, and imputed 
banking services, which reflect negatively in the accounts, too large.  An indicator that GDP may be underestimated is the decline in poverty.
3  However, the study conclud es that, even adjusting for a 
possible underestimate, the resulting growth rates would still be low. 
9. Domestic demand declined between 1998 and 2000,  reflecting tighter ma croeconomic policies 
to lower inflation and the fiscal deficit.  Dom estic demand has expanded since 2001, supported by 
remittances from abroad.  Consumer spending acc ounts for some 70% of GDP, a relatively large 
share, and imported goods account for a considerable part of this spendi ng.  In the late 1990s and up to 
2002, consumption of imported goods  and services grew faster than domestically produced goods 
(Table I.1).  The real effective appreciation of the Jamaican dollar (some 30% between 1990 and 
2002) contributed to this expenditure-switching ef fect, which, combined with relatively morose 
exports, led to a worsening of the traditionally ne gative contribution of net exports to GDP growth. 
10. Investment growth slowed down in the 1990s, disc ouraged by high interest rates and by low 
growth and profit prospects.  Since 2000, however, i nvestment has recovered and its share of GDP has 
increased.  The World Bank pointed out in a recent st udy that high investment combined with slow 
growth is likely to reflect capital underutilization (e.g . in export zones) and the costs of crime (e.g. by 
stopping multiple shift operations).4  Also, although investment remains high in housing, and in some 
rapidly growing sectors like communi cations, its contribution to output is difficult to measure.  In 
some cases, investment may have been attracted  by the concession of incentives (Chapter III(4)(ii)), 
which may have led to over-investment in certain areas.  The savings/GDP ratio has remained well 
below the investment/GDP ratio during the period under review.  This gap is reflected in the structural 
deficit of the current account of the balance-of-payments. 
                                                      
1 World Bank (2003). 
2 World Bank (2002). 
3 World Bank (2003). 
4 World Bank (2003). Jamaica WT/TPR/S/139 
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Table I.1 
Basic economic indicators, 1998-03 
 1998 1999 2000 2001 2002 2003 
I.  GDP       
Current GDP (J$ million) 282.2 300.9 338.7 372.2 407.7 470.5 
Current GDP (US$ billion) 7.7 7.7 7.9 8.1 8.4 8.1 
Per capita GDP (US$) 2,996 2,976 3,022 3,094 3,206 3,077 
Real GDP, growth rate (%) -1.2 0.9 0.8 1.5 1.1 2.3 
Structure of GDP (% of current GDP at factor cost, 
including imputed bank service charges)        
Agriculture, hunting, forestry and fishing 7.8 7.3 6.7 6.5 5.9 5.6 
Mining and quarrying 4.3 4.3 4.4 4.2 4.1 4.6 
Manufacturing 13.9 14.0 13.7 13.8 13.4 13.5 
Electricity and water 3.1 3.2 3.6 3.6 3.6 3.9 
Construction 9.9 9.8 9.8 10.1 10.0 10.1 
Distributive trade (incl. restaurants and hotels) 21.5 21.2 21.0 20.7 20.6 20.3 
Transport, storage and communications 11.4 11.8 11.6 12.4 13.4 13.0 
Financial and insurance services 7.1 8.2 8.2 6.7 5.8 8.1 
Real estate and business serv ices 6.1 6.3 6.1 6.2 6.4 6.2 
Government services 12.6 12.2 12.6 12.5 13.0 12.5 
Miscellaneous services 7.4 7.7 7.5 7.1 6.9 7.2 
Household and private non-profit institutions 0.5 0.6 0.6 0.6 0.6 0.5 
Breakdown of GDP by type of expenditure (% of current 
GDP)        
Total consumption 87.1 86.7 84.5 87.1 87.9 .. 
Private 69.8 71.1 68.6 71.1 69.6 .. 
Government 17.3 15.6 15.9 16.0 18.3 .. 
Gross fixed capital formation 26.7 25.1 27.6 31.0 34.3 .. 
Exports of goods and services 48.5 47.3 47.8 44.1 38.5 .. 
Imports of goods and services 58.4 58.4 63.3 64.8 57.5 .. 
Gross national savings 20.6 20.1 21.1 21.9 17.5 .. 
Net national savings 13.0 12.4 13.4 10.7 9.1 .. 
Compensation of employees 48.3 49.2 48.0 47.2 46.9 .. 
II.  Memo items       
Population (million) 2. 6 2.6 2.6 2.6 2.6  
Labour force (million) 1. 1 1.1 1.1 1. 1 1.1 1.1 
Unemployment rate 15.5 16.0 15.6 14.8 15.4 12.8 
Consumer price index (increase, period average) 8.6 6.0 8.2 7.0 7.1 10.3 
Net international reserves (US$ m illion) 582.0 450.2 969.5 1,840.7 1,597. 0 1,165.0 
 
.. Not available. 
 
Note: The fiscal year runs April-March.  
Source:  Bank of Jamaica online inform ation.  Available at:  http ://www.boj.org;  information provided by the Statistical 
 Institute of Jamaica;  and Planning Institute of Jamaica, Economic Survey of Jamaica (2002 and 2003). 
11. The unemployment rate remains high, at some 15%.  Starting in the 1990s, and despite high 
unemployment, real wages have risen, accompanie d by declining and even negative productivity 
growth.  Pushed in part by strong trade union pressure, nominal earnings rose by 107% between 1995 
and 2000, a real increase of some 35%.5  At the same time, reflecting the low GDP but high capital 
investment growth, total factor productivity has been declining.  World Bank estimates point to an average 3% annual decline in total factor productiv ity over 1991-2000, of which 1.9 percentage points 
correspond to the negative contribution of capital gr owth, and 1.4 percentage points to the negative 
                                                     
 
5 World Bank (2003). WT/TPR/S/139 Trade Policy Review 
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contribution of employment growth, only partially offset by a 0.3 percentage point contribution of 
GDP growth.6 
(iii) Fiscal policy 
12. The fiscal situation deteriorated in the second ha lf of the 1990s, fed by the crisis in the 
financial sector and strong wage and salary increases to  address the decline in r eal income due to the 
inflationary spiral of the 1990s.  From 1998 to 2001 , the Central Government deficit declined helped 
by increasing revenue and falling non- debt expenditure.  This trend was reversed after 2001, largely 
due to payments on debt assumed from the Financial Sector Adjustment Company (FINSAC) as a consequence of the financial ins titutions rescue programme, following the financial crisis of the mid 
1990s, and a rising wage bill.  The share of public sector wages in GDP climbed to 13% in 2002/03, 
reflecting a general public sector wage increase in 2002.
7 
13. The Central Government's primary balance h as shown a surplus throughout the period under 
review, but this surplus has been insufficient to cover the increasi ng debt interest payments, which 
amounted to 15.7% of GDP in 2002/03 (Table I.2).  Debt servicing has accounted for over two thirds 
of the budget in recent years. 
14. In an attempt to redress the financial sector crisis, address the heavy public sector debt burden 
and restore economic growth, the Jamaican aut horities undertook an IMF Staff-Monitored Program 
(SMP) in 2000/01 and 2001/02.  Initially, the SMP resu lted in an improved fiscal balance, with the 
central government deficit falling below 1% of GDP, but no significant progress was achieved in 
lowering the debt-to-GDP ratio (Table I.1).  The fiscal balance deteriorated again, however in 
2001/02, as current expenditure increased signifi cantly and tax revenues rose only moderately. 
15. Faced with this deteriorating situation, th e authorities undertook a new SMP for 2002/03, with 
the aim of continuing fiscal consolidation,  but this SMP did not achieve its goals.8  Fiscal targets were 
missed by a wide margin:  the Central Government posted a deficit equivalent  to 8% of GDP, while 
the target was 4.4%.  This was due mainly to higher interest costs, expenditure  overruns in wages, and 
other expenditures.  Taxes were increased, and some  of the burden fell on imports;  the share of taxes 
on imports increased from 6.5% of GDP in 2001/02, to 7.2% in 2002/03.  There was a revision of the 
general consumption tax, thr ough the General Consumption Ta x (Amendment) Act 2003 which, 
among other things, broadened its sc ope to include imports of services and reduced the range of zero-
rated or exempted items. 
16. The 2003/04 budget included an overall central govern ment deficit target of 5-6% of GDP, to 
be achieved primarily by revenue increases.  Th e overall public sector deficit was programmed to 
decline to around 8% of GDP.  The central government  deficit was in line with the target, with the 
Ministry of Finance reporting that it reached 5.6% of GDP, mainly due to a 27.7% increase in revenues with respect to 2002/03.
9  Central government expenditure, on the other hand, exceeded the 
budget by some 4.8% as a result of higher than pr ogrammed spending on interest payments and wages 
and salaries. 
                                                      
6 World Bank (2003). 
7 IMF (2004a) and (2004b). 
8 IMF (2004). 
9 Ministry of Finance and Planning (2004a). Jamaica WT/TPR/S/139 
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Table I.2 
Financial accounts of the Central Government, FY 1998-03 
(Percentage of GDP)  
 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 
Revenue 25.4 26.6 29.8 30.0 27.6 29.6 
  Tax 23.7 25.0 26.9 26.7 25.0 26.4 
   Foreign trade .. .. .. 5.8 7.2 7.9 
       Imports .. .. .. 5.2 6.5 7.2 
  Non-tax revenue 1.4 1.3 2.7 2.8 2.1 2.9 
  External transfers (including HIPC grants) 0.3 0.2 0.3 0.5 0.5 0.2 
Expenditure 33.0 33.5 34.0 31.0 33.3 37.6 
Current expenditure 28.0 30.8 30.9 28.3 30.6 35.6 
  Wages and salaries 11.1 11.5 10.5 10.5 11.5 13.0 
  Interest payments 9.4 12.4 13.8 12.8 13.7 15.7 
  Transfers and others 7.5 6.9 6.6 5.0 5.4 6.9 
Capital expenditure 5.0 2.7 3.0 2.8 2.7 2.0 
Central government prim ary balance (excluding 
interest payments) 1.8 5.5 9.6 11.8 8.0 7.7 
Central government balance -7.6 -6.9 -4.2 -0.9 -5.7 -8.0 
  FINSAC payments -2.1 -5.2 -4.4 -4.6 0.0 0.0 
  Adjusted central government balance -9.7 -12.3 -8.6 -5.5 -5.7 -8.0 
 Rest of public sector balance -1.6 -4.0 -3.0 -4.7 -1.1 -1.3 
  Public sector balance -9.2 -10.9 -7.2 -5.6 -6.8 -9.3 
External financing 1.1 -0.8 -1.2 3.6 7.0 -3.3 
Internal financing 8.2 11.7 8.4 2.0 -0.1 12.6 
Memo items       
Total external debt (as a percen tage of GDP) 44.0 42.8 42.9 47.7 51.8 56.3 
Total debt (as a percentage of GDP)) 82.0 91.3 99.3 109.8 130.9 143.9 
 
.. Not available. 
 Note: There may be slight differences in the totals due to rounding off.  Fiscal years go from 1 April to 31 March. 
 
Source: Information provided by the Ministry of Finance. 
17. In February 2004, the Government and the Jama ica Confederation of Trade Unions (JCTU) 
signed a Memorandum of U nderstanding (MOU) agreeing to a two-y ear policy of wage restraint, from 
1 April 2004 to 31 March 2006.  In the MOU the parties acknowledge that Jamaica faces an 
unsustainable situation due to the conjunction of a high debt to GDP ratio;  a large fiscal deficit;  low 
economic growth;  and low employment creation.  The MOU calls for no increases during the period 
covered, and a maximum wage bill increase of 3% for outstanding settlement prior to April 2004.10 
18. In the context of the reform of public fi nances, certain trade policies may need re-
examination, for example, tax and customs tariffs exemptions (Chapter III(2)(viii), (3)(iv) and (4)(ii)) 
which could be costly in terms of forgone tax revenue.  This is an important consideration, given the 
need to reduce the fiscal deficit.  For example, wh ile the average tariff rate in 2003 was 8.6%, customs 
duty revenue collection was about 4.6% of total import s.  The 4% gap is equivalent to some 1.6% of 
GDP. 
19. The public debt ratio increased in FY 2002/03 to over 140% of GDP.  This reflects both the 
depreciation of the Jamaican dollar, which increa sed the value of foreign external debt, and the 
assumption of loans from public entities.  The brunt of  the increase has been in domestic debt, which 
almost tripled between 1998 and 2002 as a result of the reliance on the issuance of debt instruments 
                                                      
10 Ministry of Finance and Planning (2004c). WT/TPR/S/139 Trade Policy Review 
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known as local registered stocks (LRSs) to cover financial needs and to re habilitate the financial 
sector.11  Domestic debt increased from 37% of GDP in 1997 to almost 90% in 2002. 
(iv) Monetary and exchange rate policy 
20. The Bank of Jamaica (BOJ) is in charge of monetary policy, under the authority of the 
Minister of Finance, who appoints the Governor and several members of its Board of Directors.  The 
BOJ's Governor is the ultimate authority with respect  to monetary policy.  The BOJ is also responsible 
for supervision of the banking system and of speci fied financial institutions (Chapter IV(6)(ii)). 
21. Under the Bank of Jamaica Act (1960), monetary policy is aimed at regulating the growth of 
money and credit in line with the resources expect ed to finance economic activity and generate 
employment, without undermining the conditions of price stability.12  In practice, however, the BOJ 
has shifted its policy focus since 1996 to the alignmen t of domestic inflation with that of Jamaica's 
major trading partners to help ensure relative excha nge rate stability, aimed at providing an anchor for 
long-term monetary stability.  The BOJ's monetary policy has thus made price stability its main goal, 
while facilitating sustainable growth in real ou tput and generating employment have become 
subsidiary targets.13 
22. To pursue its price stability objective, the BOJ us es as operating targets the monetary base and 
interest rates, while its intermediate targets are the exchange rate and the money supply.  The BOJ 
relies mainly on open market operations and manageme nt of reserve requirements as operational tools.  
Open market operations are the ma in monetary policy instrument.14  The BOJ influences these 
operations through determination of and changes in the reverse repurchase (repo) rate;  actions in this 
respect have focused in recent years on longer-term rates (365-day repo).15  Reserve requirements are 
also used actively as a direct instrument to control liquidity.  The BOJ also co ntrols liquidity through 
interventions in the fo reign exchange market. 
23. A target for inflation is set annually by the BOJ and approved by the Minister of Finance.  
This target is incorporated in a financial pr ogramme, which outlines and defines the main economic 
variables that are consistent with the inflation target.  Annual targets for the money supply and net 
international reserves are also determined;  from th e money supply target, base money targets are then 
derived making assumptions with respect to the behaviour of the money multiplier.  The money 
supply target is based on estimated nominal GDP gr owth for the year, with seasonal patterns imposed 
on a quarterly basis.  The base money target is fo rmulated based on the assumption of the cash reserve 
ratio and currency/deposits ratio, which also e xhibit a seasonal pattern.  The BOJ's objectives for 
2002/03 were to reduce inflation to a range of 6-7%, in the context of expected GDP growth in the 
range of 2-4% and base m oney growth of 8-10% . 
                                                      
11 LRSs accounted for over two thirds of domestic  debt in 2002, representing some 60% of GDP, 
compared with 27.5% in 1996. 
12 BOJ online information.  Available at:  http://www.boj.org.jm/objective_monetary.asp. 
13 BOJ online information.  Available at:http://w ww.boj.org.jm/pdf%20files/monetary_policy_manage. 
pdf. 
14 Apart from repurchase and reverse repurchase tran sactions of government securities, open market 
operations in Jamaica include transactions in the BOJ' s own certificates of deposits, used as an additional 
instrument to influence the level of liquidity in the financial system, the volume of credit and the level of interest rates.  BOJ online information.  Available at: http://www.boj.org.jm/instrument_monetary_pol.asp. 
15 In this respect, the IMF has recommended that the Bank of Jamaica reorient monetary policy toward 
a greater focus on inflation, operating through shorter-t erm interest rates, rather than longer-term rates 
(IMF, 2004a). Jamaica WT/TPR/S/139 
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24. After tightening the monetary stance in the mi d 1990s, the authorities relaxed monetary policy 
somewhat.  This monetary easing has been gradual,  and accompanied, until 2003, by inflation at 
single-digit levels.  Both active and passive inter est rates declined by about a third between 1998 and 
2003 (Table I.3), to about 25.6% (average lending rate) and 8.4% (average savings rate).  As a 
consequence, the spread between active and passive rates also shrunk by about a third, but remained 
high, at some 17.2% in 2003.  This high spread reflects the persistence of a relatively high risk factor, despite tighter supervision of financ ial institutions (Chapter IV(6)(ii)).  It may also indicate a relative 
lack of competition among financial institutions and an  insufficient degree of financial intermediation.  
In this respect, for example, banks have mainta ined liquidity ratios well above the legal reserve 
requirements (Table I.3). 
Table I.3 
Main monetary indicators, 1998-03 
(Annual rates of change) 
 1998 1999 2000 2001 2002 2003 
Money and credit       
M1 money supply 5.4 29.5 -2.4 18.9 13.6 7.3 
Broad money supply M2a 7.2 17.3 10.6 9.8 13.0 11.2 
Liabilities to private sector  5.7 15.5 20.1 31.0 6.7 13.1 
Domestic credit 34.1 17.2 3.8 12.1 11.3 32.4 
Interest rates       
Average savings rate (end of period) 12.13 11.38 9.86 9.08 8.96 8.43 
Average lending rate (end of period) 38.80 33.92 31.67 26.79 25.04 25.60 
Interest rate spread (end of period) 26.67 22.54 21.81 17.69 16.08 17.17 
Treasury bill rate, 6 months (end of  period) 21.31 18.68 18.32 15.70 15.68 19.86 
Reverse repurchase 30 day (repo) rate (end of 
period) 22.00 18.35 16.45 14.25 12.95 15.00 
Legal reserve requirements       
Cash reserve requirement for commercial banks 21 16 13 9 9 9 
Liquidity requirement for commercial banks 43 34 31 28 23 23 
Liquidity ratio actually maintained 55.8 48.3 45.6 43.7 37.9 33.2 
Inflation       
Consumer price index (period average % change) 8.6 6.0 8.2 7.0 7.1 10.3 
Consumer price index (end-of-period % change) 7.9 6.8 6.1 8.8 7.3 14.1 
Exchange rate       
Exchange rate (J$ per US$ period average) 36.68 39.33 43.32 46.09 48.73 58.24 
Real effective exchange rate (index;  1990=100)a 138.8 132.2 127.7 132.2 127.7 112.1 
 
a An increase in the index means real appreciation. 
 
Source:  Bank of Jamaica (2003, 2004b), online informati on.  Available at:  http://www.boj.org. 
25. The effectiveness of monetary policy could potentia lly be enhanced by legislation concerning 
BOJ independence .  In 2003, the BOJ intervened in the ma rket, through the purchase of securities, to 
smooth the potential monetary impulses from financ ing the fiscal gap.  Although the BOJ sought to 
offset the inflationary impact of this non-progra mmed monetary injection and of the effect of its 
intervention in the foreign excha nge market, base money expanded by twice its 12% annual target in 
the last quarter of 2003, thus contributi ng to two-digit inflation rates in 2003.16  The BOJ, in its 
stabilization efforts, also increased its reverse repur chase rates, especially fo r instruments with longer 
maturities.  Pressure eased in late  2003 and rates declined somewhat.17  However, repo rates remain at 
                                                      
16 Bank of Jamaica (2003). 
17 For example, 365-day repo rates jumped from 14. 5% in December 2002 to 35.95% in March 2003, a 
clear indication of inflationary expectations, before declining gradually, to 23% by end 2003. WT/TPR/S/139 Trade Policy Review 
Page 8 
 
 
relatively high levels (Table I.3), and above those of similar countries.18  Moreover, higher repo rates 
pushed up Treasury bill rates, resulting in larger fiscal  deficits and higher publ ic debt, which in turn 
put further pressure on Treasury bill rates. 
26. Foreign exchange transactions are conducted th rough authorized dealers, which may be 
commercial banks or cambios  and bureaux de change , and are required to resell 5% of their total 
foreign exchange purchases to the BOJ.  Exchange  controls were eliminated in September 1991. 
27. Jamaica's exchange rate system is a manage d float, where the BOJ intervenes to prevent 
precipitous changes in the value of  the Jamaican dollar.  The BOJ h as also sought to limit the rate of 
depreciation of the Jamaican dollar because its studies have shown that excessive  depreciation triggers 
inflationary expectations.  The BOJ does this by selling foreign exchange to the market to augment 
U.S. dollar liquidity, thereby slowing the rate of depreciation brought about by excess demand 
pressures.  In its 2004 Article IV Consultations report,  the IMF noted that the use of the exchange rate 
as an anchor for inflation expectations, while succeed ing in keeping inflation low, has done so at the 
cost of a widening current account deficit and an ov erall decline in competitiveness, and that greater 
exchange rate flexibility would better safe guard competitiveness and respond to shocks.19 
28. After appreciating in real effective terms dur ing most of the 1990s and hence suffering an 
erosion of competitiveness, the Jamaican dollar h as depreciated since 2001.  The improvement in 
external competitiveness h as been aided by the depreciation of the U.S. dollar vis-à-vis third 
currencies, and was strongest in 2003, when the BOJ calculates that the J$ expe rienced a real effective 
depreciation of 12.2%.20 
(v) Prices 
29. The use of tight monetary policy in the mid and late 1990s resulted in a significant reduction 
in inflation, which declined from two-digits to an annual average of 6% in 1999.  In 2003, the 
combination of wage increases in the public sector, a depreciating exchange rate, the adjustment in 
GCT rates, the increase in some administered pr ices, and higher commodity and oil prices had pushed 
the consumer price index (CPI) up to 14.1% by December, largely overshooting the BOJ's 6-7% 
target.  Core inflation, which excluded the more volatile components of the CPI, also increased in 
2003, to 8.1%, up from 3.6% in 2002.21 
30. Inflation moderated somewhat in the first half of 2004, but continued to exceed BOJ 
expectations.  Increases in commodity prices, upward adjustments in some administered prices, in 
particular a 26% increase in water prices, and ex change rate depreciati on continued to provide 
inflationary impulses.  Prices were also aff ected by the 11% national minimum wage increase 
effective in November 2003. 
(vi) Balance of payments 
31. After a slight improvement in 1998 and 1999, the current account deficit reached 13.3% of 
GDP in 2002 (Table I.4);  a similar level is estimat ed for 2003.  This result has been mainly caused by 
higher levels of debt servicing and a deterioration in the trade balan ce, affected by higher oil prices 
and weaker export earnings.  The latter are due ma inly to depressed alumina prices and a decline in 
                                                      
18 Bank rates equivalent to Jamaica's 30-day repo rate were 5.25% and 7%, respectively, in Guyana and 
in Trinidad and Tobago in late 2003, compared  to 15% in Jamaica (Bank of Jamaica, 2003). 
19 IMF (2004a). 
20 Bank of Jamaica (2003). 
21 Bank of Jamaicat(2003). Jamaica WT/TPR/S/139 
 Page 9 
 
 
garment exports.  Jamaica's current account defic it is structural, reflecting excess consumption and 
investment with respect to domestic savings.  The trade deficit is traditionally large.  Jamaica has a 
narrow export base comprising mainly alumina/baux ite and some non-traditional exports, and a strong 
dependence on imported raw materials, oil, and cap ital goods.  The correlation between imports and 
exports is high.  Imports of goods and services represent nearly 60% of GDP, heavily outweighing 
exports, which represent less than 40%;  they have al so been expanding faster than exports.  Imports 
of goods are more than twice the value of exports. 
Table I.4 
Balance of payments, 1998-03  
(US$ million, unless otherwise indicated) 
 1998 1999 2000 2001 2002 2003 
Current account balance (% of GDP) -4.3 -2.8 -4.7 -9.4 -13.3 -12.3 
Current account balance -331.2 -215.1 -367.2 -757.5 -1,118.2 -1,001.6 
 Merchandise trade balance -1,130.5 -1,185.2 -1,441.0 -1,618.1 -1,870.3 -1,949.8 
  Exports f.o.b. 1,613.4 1,500.3 1,562.9 1,454.4 1,309.2 1,356.5 
  Imports f.o.b. -2,743.9 -2,685.6 -3,003.9 -3,072.5 -3,179.5 -3,306.3 
 Services balance 476.8 655.3 602.9 383.1 270.7 446.5 
  Transportation -278.4 -233.6 -256.6 -256.2 -245.6 -202.3 
  Foreign travel 998.9 1,052.3 1,123.6 1,026.2 950.6 1,075.3 
  Other services -243.7 -163.4 -264.1 -386.9 -434.3 -426.5 
 Balance on goods and services -653.7 -529.9 -838.1 -1,235.0 -1,599.6 -1,503.3 
 Income balance -308.1 -332.5 -349.9 -437.8 -605.5 -633.3 
 Transfers (net) 630.6 647.3 820.8 915.6 1,086.9 1,135.0 
   Private 587.4 601.5 672.9 795.9 979.3 1,050.3 
   Official 43.2 45.8 147.9 119.7 107.6 84.7 
Capital and financia l account 331.2 215.1 367.2 757.5 1,118.2 1,001.6 
 Capital account balance 15.5 13.1 2.2 -23.6 -16.9 -17.1 
  Capital transfers 15.5 13.1 2.2 -23.6 -16.9 -17.1 
   Official  4.2 4.1 15.6 2.2 0.2 0.1 
   Private 11.3 9.0 -13.4 -25.8 -17.1 -17.2 
 Financial account 315.7 202.0 365.0 780.8 1,135.1 1,018.7 
  Official invest ment -41.3 -331.4 383.7 653.4 77.1 -363.8 
  Private investment, net (including errors and  
  omissions) 276.9 443.3 543.2 990.3 801.6 1,682.4 
Change in foreign exchange reserves (net) -41.5 131.8 -519.3 -871.2 243.7 432.1 
Net international reserves 582.0 450.2 969.5 1,840.8 1,597.1 1,165.0 
Gross official reserves 706.5 551.8 1,048.8 1,903.3 1,643.1 1,196.3 
Gross official reserves in weeks of goods imports 11.9 10.6 18.3 33.2 27.9 18.3 
External debt 3,306.4 3,024.1 3,375.3 4,146.0 4,347.5 4,192.1 
External debt/GDP (%) 43.0 39.5 43.2 51.5 52.0 .. 
Debt service ratio/exports of goods and services 15.4 14.6 10.5 13.4 18.0 .. 
Exchange rate (J$ per US$ period average) 36.7 39.3 43.3 46.2 48.7 58.2 
 
.. Not available. 
 
Note: A minus sign indicates a gain in reserves.  
Source : Bank of Jamaica (2004a and 2002);  and Inte rnational Monetary Fund (2003, 2004a, and 2004b). 
32. The current account deficit in 2002 totalled US $1 billion, more than 2.5 times the 2000 level;  
in the 2000-02 period, the current account deficit widened by about 4 percentage points of GDP per 
year, before seemingly stabilizing in 2003. 
33. Exports of services exceed those of goods.  Touris m is the main earner of foreign exchange:  
net inflows from foreign travel totalled US$951 milli on in 2002.  Most other services subsectors post a 
deficit (see blow).  The income balance is traditiona lly in deficit, which, after falling during the 1990s, 
has been increasing since 2000.  Profit remittances of  foreign companies account for a substantial part WT/TPR/S/139 Trade Policy Review 
Page 10 
 
 
of the deficit;  interest payments  on central government foreign debt al so contribute to the deficit.  An 
important source of investment income comprises net inflows of the earnings of Jamaicans working abroad, primarily associated with higher receipts from the U.S. Hospitality Programme.
22 
34. Net current transfers, predominantly private re mittances are, after tourism, Jamaica's most 
important source of foreign exchange.  Net inflows from current transfers  accounted for some 13% of 
GDP in 2002.  Some 42% of transfers were through  financial institutions an d 51% through specialized 
remittance companies. 
35. The increasing current account deficit was partly financed with net international reserves in 
2002 and 2003.  The capital and financial  account recorded a surplus of US$1.12 billion in 2002 
(US$717 million in the first three quarter s of 2003), of which some US$820 million 
(US$657.6 million in 2003) were private investments.   Gross investment inflows to the Government 
declined considerably in 2002, and net outflows were  posted in 2003.  This reflects the retreat of the 
Jamaican Government from international financial markets as financial conditions worsened, and the 
resort to domestic debt to finance the fiscal deficit. 
(3) TRADE AND INVESTMENT FLOWS  
(i) Developments in merchandise trade 
36. Between 1998 and 2002, total merchandise trade grew at an annual rate of 1.9%, but the 
merchandise trade deficit increased by almost two thirds.23   This resulted from an annual average 
decline in exports of 4.0%, to total US$1.1 billion, while imports (c.i.f basis), representing more than 
three times the level of exports in 2002, incr eased by an annual average of 4.1%, to total 
US$3.57 billion.  The contraction of exports is due mainly to a considerable decline of exports of 
manufactured goods, despite enhanced preferential a ccess to the United States, Jamaica's main export 
market.  Exports expanded somewhat  (by 4.4%) in the first eight months of 2003 over the same period 
the previous year;  but this was due mainly  to an increase in primary product exports. 
(a) Composition of trade 37. The distribution of exports changed considerably over the 1998-02 period, as the share of 
manufactured goods declined sharply, increasing Jamaica's dependence on exports of primary 
products in 2002.  The share of these products in total exports has increased by some 14 percentage 
points since 1998, reaching 90% of total exports in 2002 (Table AI.1).  Exports of manufactures 
suffered a substantial reduction;  their share of tota l exports declined from almost 24% in 1998 to less 
than 10% in 2002;  in value te rms, exports of manufactured goods  declined from over US$300 million 
in 1998 to about US$110 milli on in 2002.  This result reflects mainly  the strong decline in the share of 
apparel exports between 1998 and 2002, from more than  15% of total exports to less than 2%;  this 
substantial fall could not be fully compensated by the increasing share of chemicals exports.  In 2002 
                                                     
 
22 Bank of Jamaica (2002).  The U. S. Hospitality Programme was put in place in 19 97 (as the Jamaican 
Hotel Workers Programme).  Under the programme, U.S. -based hotels that have  clearance from the U.S. 
authorities, contact Jamaica's Minist ry of Labour, which places advertis ements in one of Jamaica's daily 
newspapers.  Chosen candidates are granted special (H-2B) visas.  The duration of the stay is generally of 
between six and nine months, but repeated visits are allowed.  A similar programme exists for farmers.  It is 
estimated that by 2002 some 4,500 U.S. hospitality worker s were sending back to Jamaica US$7.5 million, while 
3,500 farm workers sent US$3.8 million.  (See Thomas, 2003). 
23 This section is based on data provided by the Jamaican authorities;  unless stated otherwise, free trade 
zone operations are excluded.  COMTRADE data were not used because information is available only until 
2000. Jamaica WT/TPR/S/139 
 Page 11 
 
 
alone, exports of apparel contracted by US$69.4 milli on, or 78.2%;  the BOJ reports that this was due 
to the scaling down or withdrawal from the sector of local operators.24 
38. The scaling down of the apparel industry has also  affected free-zone exports.  Export earnings 
within the free zones in 2002 totalled US$162.7 m illion, US$33.2 million below the earnings of the 
industry in 2001, and considerably below the US $270.1 million posted in 1998.  This was primarily 
due to the closure of a major apparel factory.  The BOJ notes that exports from free-trade zones are 
affected by the relocation of companies to lower cost countries.25 
39. Manufactures remained the main import category over the 1998-02 period, accounting for 
some two thirds of imports in 2002 (Chart I.1);  machinery and transport equipment accounted for 
almost 30% of total imports.  Within this s ub-category, office machines and telecommunication 
equipment grew at an annual rate of more than 26% to  reach almost 10% of total imports (Table AI.2).  
Imports of clothing declined, while, reflecting higher prices, import of fuels increased significantly almost doubling their share in total imports. 
                                                     
 
24 Bank of Jamaica (2002). 
25 Bank of Jamaica (2002). WT/TPR/S/139 Trade Policy Review 
Page 12 
 
 
Chart I.1
Merchandise trade by  product, 1998 and 2002
1998 2002
(a)    Ex ports (f.o.b.)
Total: US$1,316 million
(b)    Im ports (c.i.f.)
Manufactures
Total: US$3,030 million Total: US$3,565 million
Source:    WTO Secretariat estimates, based on data prov ided by the authorities of Jamaica (SITC Rev.3).Total: US$1,118 millionSugars
7.2% Coffee
2.8%
Alumina
45.6%Other 
agriculture
14.5%Other manuf.
4.6%
Clothing
15.3%
Agriculture Chemicals
3.8%Spirits
3.4%
Other 
agriculture
11.6%
Alumina
54.0%Other mining
12.6%Chemicals
5.3%Other manuf.
2.7%
Sugars
5.9%
MiningAgrilculture
Mining
Other 
agriculture
0.6%
Chemicals
10.9%
Other semi-
manuf.
11.3%Machinery & 
transport eqpt.
26.1%Other manuf.
9.7%
Other mining
0.7%Fuels
10.0%Not specified
2.9%Food
18.1%
Chemicals
10.3%Other 
agriculture
1.4%Food
15.1%
Agriculture
ManufacturesMiningAgrilculture
Mining
Fuels
18.0%
Other 
mining
0.6%
Other semi-
manuf.
9.8%Machinery & 
transport eqpt.
29.2%Other manuf.
5.0%Not specified
1.7%Spirits
2.0%
Manuf.Manuf.
Other 
mining
6.9%Clothing
1.7%
Automotive 
products
9.7%Automotive 
products
8.7%
 Jamaica WT/TPR/S/139 
 Page 13 
 
 
(b) Direction of trade 
40. The United States continues to be Jamaica's main export market, though its share in total 
exports (excluding free-trade zones) declined shar ply, from almost 40% in 1998 to some 28% in 2002 
(Table AI.3).26  As a result, although exports to Ca nada and other countries in the Western 
Hemisphere increased, exports to the Americas as a whole declined during the period under review, to 
some 50% in 2002, compared to 57% four years earlie r (Chart I.2).  Europe's share remained at some 
40%, the decline of Eastern Europe being compen sated by an increasing share of exports to EFTA 
countries and to members of the European Union.  The share of Asia increased from 2.4% in 1998 to 
6.5% in 2002, and China became the major market of  that region, absorbing 4% of Jamaican exports 
in 2002. 
41. Jamaica's import structure remained stable over the 1998-02 period, with the Americas, 
Europe, and Asia accounting for around 74%, 12% a nd almost 11% of total imports, respectively.  
The main changes appeared within the Americas region, where imports from the United States lost 
market share while imports from other countries of  the region increased.  Although the United States 
remains Jamaica's principal supplier, its share dec lined from 51% to 44%, while other countries in the 
Americas increased their share by some 8 percen tage points between 1998 and 2002, to reach 27%.  
Within this region, Trinidad and Tobago, Ven ezuela, and Mexico were the main suppliers 
(Table AI.4).  This shift in the origin of imports reflects to a large extent the increase in the petroleum 
and petroleum products import bill, since these thre e countries are major oil suppliers to Jamaica. 
42. Trade with CARICOM partners remains small.  Jamaica's main trading partner in the region 
is, by far, Trinidad and Tobago, followed by Barb ados and Guyana.  Jamaica runs a sizeable trade 
deficit with CARICOM (over US$400  million in 2002).  The largest deficit is with Trinidad and 
Tobago, on account of Jamaica's large petr oleum product imports from this country. 
                                                      
26 Using data provided by the Jamaican authorities, the decline in value terms is from US$526 million 
in 1998 to US$312 million in 2002.  U.S. statistics show an even more dramatic fall in imports, from 
US$736 million in 1998, to US$373 million in 2002; the brunt of the decline corresponded to a contraction of 
apparel imports from Jamaica, which fell from US$423 million in 1998, to US$124 million in 2002.  (USITC database.  Available at:  www.usitc.gov). WT/TPR/S/139 Trade Policy Review 
Page 14 
 
 
Chart I.2
Merchandise trade by main origin and destination, 1998 and 2002
1998 2002
(a)    Ex ports (f.o.b. )
Total: US$1,316 million
(b)    Im ports (c.i.f.)
Total: US$3,030 million Total: US$ million
Source:    WTO Secretariat estimates, based on data prov ided by the authorities of Jamaica (SITC Rev.3).United 
Kingdom
12.1%
Total: $1,118 millionCanada
11.7%Others
2.1%
United States
39.9%
Canada
14.1%
Other America
5.2%Other Europe
11.9%
Canada
3.1%China
0.8%Other Asia
1.6%
AmericaUnited States
28.2%EFTA
5.2%
Netherlands
10.8%
Other America
7.6%China
3.9%
Netherlands
12.1%EFTA
8.8%Other Europe
8.5%Other 
Asia
2.6%Others
2.4%
EuropeAsia
America EuropeAsia
United States
51.4%
Trinidad & 
Tobago
7.9%Other America
11.0%EU (15)
9.5%Other Europe
2.1%Japan
6.7%China
1.6%Other Asia
2.8% Others
3.9%
United States
43.9%
Trinidad & 
Tobago
9.0%Canada
3.2%Other America
17.9%EU (15)
10.5%Other Europe
1.8%Japan
6.0%China
1.7%Other Asia
2.9%Others
3.0%
AmericaAmericaEuropeEuropeAsiaAsiaUnited 
Kingdom
12.0%
 Jamaica WT/TPR/S/139 
 Page 15 
 
 
(ii) Trade in services 
43. Jamaica runs a traditional surplus in services, but this has been declining since 2000, as 
exports have grown less rapidly than imports.  In 2002, exports of services (receipts) totalled US$1.92 
billion, while imports (payments) were US$1.65 b illion (Table I.5).  Net earnings from services fell 
with a decline in net earnings from travel and an  expansion of net payments for other services. 
Table I.5 
Trade in services, 1998-02 
(US$ million) 
 R P R P R P R P R P 
 1998 1999 2000 2001 2002 
Total 1,770.4 1,293.6 1,978.4 1,323.0 2,025.7 1,422.5 1,897.0 1,513.9 1,919.6 1,648.5 
Transportation  276.0  554.4  300.3  533.9  328.6  585.2  350.5  606.7  368.7  614.3  
Travel  1,196.9  198.0  1279.6  227.2  1,332.6  208.7  1,232.2  206.0  1,209.4  258.4  
Insurance services  5.9 71.7 6.4 56.2 12.1 87.2 11.9 94.1 15.4 118.4  
Communication services  184.5  40.0 275.0  42.4 209.4  31.8 164.7  50.1 177.8  103.9  
Financial services  9.2 3.2 11.3 3.5 12.6 18.4 15.8 29.7 22.4 17.7 
Computer & information 
services  37.0 5.0 40.0 5.9 40.4 7.1 36.6 13.8 34.1 11.6 
Royalties & license fees  6.6 30.0 6.2 40.5 6.4 41.0 5.9 38.3 6.1 32.1 
Other business services  16.2 346.3  20.7 365.6  36.4 396.8  40.7 427.2  45.2 436.4  
Personal, cultural, & 
recreational services  9.6 3.6 9.7 3.7 9.6 4.1 9.0 4.0 9.2 4.0 
Government services  27.5 35.4 29.2 36.6 37.6 32.0 29.7 34.0 31.3 45.8 
Construction services  1.0 6.0 0.0 7.5 0.0 10.2 0.0 10.0 0.0 5.9 
 
Note: R:  receipts;  P:  payments.  
Source : Bank of Jamaica. 
44. The main surplus is posted in travel.  Estim ated net foreign exchange earnings from the 
tourism industry amounted to US$951 million (o r some 15% of GDP) in 2002, down from 2001 
following the 11 September 2001 events.  Gross tr avel earnings totalled US$1,209.4 million.  The 
transportation balance is traditionally in deficit;  this shrank between 2001 and 2002 partly due to an 
increase in receipts from airfares.  In the remaining services, as a whol e, Jamaica also has a traditional 
deficit.  Inflows for communication services have been among the fastest growing in recent years, 
associated with a higher volume of international ca lls terminated in Jamaica in the context of a 
rebalancing of external and domestic call rates. 
(iii) Foreign direct investment 
45. The stock of foreign direct investment (FDI) has increased substantially since the mid 1990s, 
to reach some US$4.4 billion in 2002 (Table I.6).  According to an UNCTAD study, the stock of FDI 
represented 26.4% of gross fi xed capital formation in 2001.27 
46. Direct investment inflows peaked in 2001 (Tab le I.7).  Retained earnings, divestment, and 
investment in the bauxite industry account for most  of the flows in recent years.  Apart from 
investment in the bauxite industry, the main FD I flows have been in communications, insurance, 
banking, information technology, t ourism, manufacturing, and, to a lesser extent, agriculture and the 
film industry.  The main foreign investors are the United States, the United Kingdom, and Canada.  
                                                      
27 UNCTAD (2004). WT/TPR/S/139 Trade Policy Review 
Page 16 
 
 
There are also a number of joint foreign investment projects and partnerships between Jamaican and 
foreign investors. 
Table I.6 
Jamaica FDI stock, 1980-02 
(US$ million and per cent of GDP) 
          1980         1985         1990        1995         2000         2001         2002 
 R P R P R P R P R P R P R P
Inward 564 21.3 522 25 791 18.7 1,568 32.3 3,316 45.0 3,930 50.5 4,409 56.7
Outward 5 0.2 5 0.2 42 1.0 308 6.3 709 9.6 798 10.3 872 11.2
 
Source:  UNCTAD (2003), World Investment Report. 
Table I.7 
FDI Inflows, 1998-02 
(US$ million) 
  1998 1999 2000 2001 2002 
Total foreign direct investment 369.1 523.7 468.4 613.9 485.7 
  Sub-total sectors 254.8 218.1 254.7 258.7 222.7 
  Bauxite  109.9 67.8 98.0 84.0 108.4 
   Agriculture, manufacturing and distribution 53.9 18.4 15.0 23.0 13.0 
   Information technology and co mmunications 85.2 49.6 57.0 113.0 52.0 
   Minerals and chemicals 3.1 29.5 9.6 15.7 0.3 
   Insurance 0.0 0.0 6.0 0.0 0.0 
   Tourism 2.7 52.8 69.0 24.0 49.0 
  Retained earnings 101.1 87.3 116.0 116.0 169.0 
  Divestment 0.0 177.2 40.9 234.0 83.6 
   Insurance 0.0 38.0 1.3 39.5 0.0 
   Manufacturing 0.0 44.6 0.9 3.0 0.0 
   Tourism 0.0 20.5 38.7 0.0 0.0 
   Communications 0.0 0.0 0.0 0.1 0.0 
   Banking 0.0 7.7 0.0 0.0 83.6 
   Electricity 0.0 0.0 0.0 191.4 0.0 
   Minerals 0.0 66.4 0.0 0.0 0.0 
 
Source:  Information provided by the Bank of Jamaica, and UNCTAD (2003). 
(4) OUTLOOK  
47. Reflecting an improvement in world economic gr owth, Jamaica's GDP growth is expected to 
rise moderately.  The IMF is tabling growth rates of 1.6% for both 2004 and 2005, while inflation is 
expected to be at 7% for both years.28  Jamaica will continue to be affected by high debt payments, 
which put pressure on interest rate s and have a contractionary bias. 
48. The Jamaican Government is more optimistic wi th respect to the future performance of the 
economy.  The Ministry of Finance, in the 2004/05 budget expresses its confidence that growth will 
be supported by a continued downward path of domes tic interest rates, a more competitive exchange 
rate, and a resurgence in domestic and export agri culture, tourism, and mining (Table 1.8).  The 
Ministry also expects that these developments will lower the balance-of-payments current account 
deficit.29  While sustained growth in the industrialized countries is expected to exert a positive effect 
on Jamaica's financial, tourism, and bauxite exports, higher interna tional oil and commodities prices, 
in the near term, are expected to continue  to negatively affect the Jamaican economy. 
                                                      
28 IMF (2004b). 
29 Ministry of Finance and Planning online information.  Available at:  http://www.mof.gov.jm/ 
jabudget.shtml. Jamaica WT/TPR/S/139 
 Page 17 
 
 
Table I.8 
Jamaica's medium-term economic outlook 
(Per cent ) 
 2003/04 2004/05 2005/06 2006/07 2007/08  
Real GDP growth 2.2 2.5 2.5 3.0 3.0 
Inflation 16.5 9.0 7.0 6.0 6.0 
Fiscal balance/GDP -5.8 -(3-4) 0 0.5-1 1.0–2 
Primary surplus/GDP 12.3 13.7 13.4 13.1 12.8 
 
Source : Ministry of Finance and Planning (2004a), 2004/05 Budget Memorandum .