Interruption in Jamaica’s Fiscal Consolidation in 2025 Due to Wage Increases

  • Jamaica’s fiscal consolidation efforts are expected to face a temporary setback in 2025 due to rising public sector wages, which will push the country into a fiscal deficit says Fitch solutions. Although next year will deviate from the ongoing fiscal consolidation due to the anticipated deficit, Fitch notes that recent market developments still favour Jamaica.
  • Jamaica’s fiscal is projected to improve from 0% of GDP in FY2023/24 to 0.2% in FY2024/25 (April 2024-March 2025), before flipping to a deficit of 0.7% in FY2025/26. The forecast of a deficit for FY2025/26 is due to rising public sector wages that exceed former caps, while tax increases are not expected during the election year to compensate for the rise.
  • For FY2024/2025 government revenue is expected to increase from 31.7% of GDP to 35.3%. Fitch notes that the increase in tax revenues in FY2024/2025 will be supported by the May 2023 public sector salary bill, which will bring more public employees into higher tax brackets. It also noted that although the one-off sale of government receivables will help to cover the cost of the wage increase for FY2024, a more permanent increase in revenues will be required to fund it indefinitely.
  • Jamaican authorities continue to make progress on reducing their debt burden, which declined from 78.1% of GDP at end-2023 to 74.7% by June 2024. Against this background, Fitch forecasts that central government debt levels will fall to 74.4% by end-2024 and anticipates that the government will remain mostly committed to its fiscally frugal approach in the coming years, which will see the debt-to-GDP ratio fall to 63.4% by FY2027/28.
  • Risks to the forecast are mostly balanced. Fitch could see a wider fiscal surplus if the Jamaican economy grows faster than expected. That said, its core view is that a slowing US economy will cause the Jamaican economy to decelerate. On the downside, if economic activity were to slow further, or another natural disaster were to occur, it would expect tax revenue to slow, causing fewer revenues and a narrower fiscal surplus, or even a narrow fiscal deficit.

(Source: BMI Fitch Solutions)