Fitch Solutions Expects Jamaican Dollar to Weaken Through 2025 as External Sector is Strained

  • By the end of 2024, the Jamaican Dollar (JMD) will trade at JMD160.0/USD and weaken further to JMD164.0/USD by the end of 2025 according to projections from Fitch Solutions.
  • In 2024, it projects that Jamaica will run a current account surplus of 2.0% of GDP (from 3.1% in 2023). While a current account surplus usually signals economic strength, this anticipated decline suggests that the external sector will likely act as a headwind to the JMD.
  • Jamaica’s surplus is primarily supported by services exports, particularly tourism, and remittances (secondary income). However, Fitch anticipates that a slowdown in the US economy will limit both US residents’ appetite to send money abroad and tourism growth, negatively impacting these critical sources of foreign exchange.
  • Looking ahead to 2025, the JMD is projected to face increased pressure as it is a managed crawl1, so the FX will continue to depreciate gradually. The BoJ will strive to maintain JMD competitiveness given that inflation will be higher in Jamaica (averaging 4.0%) compared to the US (2.1%).
  • The current account surplus is expected to narrow from 2.1% of GDP in 2024 to 1.9% in 2025, largely due to weakening external demand. In H1 2025, Fitch expects a reduction in tourism arrivals and remittance inflows, key sources of foreign exchange. However, a rebound in the US economy in H2 2025 should support these streams of FX inflows.
  • Risks to this outlook include potential further depreciation of the JMD due to external factors such as fluctuations in global oil prices and heightened geopolitical tensions, which could drive up import costs and worsen Jamaica's trade balance. Additionally, capital outflows could reduce foreign exchange availability, further challenging the JMD's stability.

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1A managed crawl currency strategy, often referred to as a crawling peg, is a type of exchange rate regime where a country’s currency is allowed to fluctuate within a specified range or band. The central bank periodically adjusts the exchange rate to reflect changes in economic conditions, such as inflation or balance of payments.

 

(Sources: Fitch Solutions)