IDB projects weakened growth prospects for 2020 and beyond

Business

IDB projects weakened growth prospects for 2020 and beyond

Recovery will be based on availability of fiscal space and access to financing

BY KELLARAY MILES
Business reporter
milesk@jamaicaobserver.com

Wednesday, May 06, 2020

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The Inter-American Development Bank (IDB), in its latest assessment of the impacts of the COVID-19 pandemic, has said that shocks will have significant implications for Jamaica's economic performance and growth prospects this year and beyond.

In a recent assessment undertaken by the IDB Caribbean Country Department, it was highlighted that the magnitude of the impact will depend on the duration of the pandemic, its spread, and the country's prevention and response measures to contain the shock.

“It will also hinge on the structure of their economies and their exposure and vulnerability to global transmission channels such as commercial ties, integration into global value chains, role of the tourism sector, dependence on raw materials and financial integration, among others,” the report stated.

According to IDB economic advisor Henry Mooney, the nature of the unfolding crisis is one that is likely to affect a number of the country's key sectors.

“First among these is the tourism sector, which accounts for a very large share of both total economic output and employment [34 per cent and 31 per cent, respectively], he said.

He said that prior to the crisis, strong domestic conditions and buoyant external demand for tourism, along with other commodities such as bauxite, were expected to make significant contributions to a projected real gross domestic product (GDP) growth of 1.1 per cent.

Mooney noted that with the country being one that is greatly dependent on tourism as well as major arrival markets being hard hit by the crisis, the implications are without historical precedent.

“Given the weight of the sector, simulations suggest that a prolonged crisis could reduce output relative to pre-crisis expectations by an appreciable magnitude,” he said.

He further noted that outside of tourism, shocks to other transmission channels will also have implications for the economy.

“Beyond tourism, Jamaica's economy is likely to be adversely affected by shocks to trade and financial flows, as well as the costs associated with mitigation efforts at home [such as forced closures of businesses]. Revenue implications of shuttered businesses and sectors, as well as costs associated with mitigation efforts, will also have adverse implications for budgetary outcomes — forcing Government to run higher deficits than originally expected,” he added, also noting external financing, the availability of foreign exchange, and the balance of payments as other potential implications of the crisis.

He said that given the country's high dependence on private capital transfers from abroad in the form of remittances, the current decline in this area further affects the flow “which could weaken the balance of payments position, put downward pressure on the exchange rate, and have serious implications for poorer and more vulnerable citizens that depend on these funds as a key source of income”.

The IDB in its assessment asserted that the impact on growth will be contingent on the evolution of the pandemic outside and within the borders of each country, the vulnerability of each country and its response capacity – including that of its health system.

“Fiscal space and access to financing will be decisive for the response, as well as ensuring and providing liquidity to the banking sector and the rest of the economy,” the report stated.


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