IFC validates Gov’t’s fiscal response to Hurricane Melissa damage

The Independent Fiscal Commission (IFC) says it has validated the Government’s decision to temporarily suspend the country’s fiscal rules following the severe economic and social impact of Hurricane Melissa.

The Category 5 storm, the most powerful in Jamaica’s history, caused catastrophic damage when it made landfall on October 28 in the western end of the island.

Preliminary assessments conducted by the World Bank in collaboration with the Inter-American Development Bank (IDB) estimate physical damage at US$8.8 billion, equivalent to approximately 41 per cent of the country’s GDP.

The IFC said that under the Financial Administration and Audit (FAA) Act, a natural disaster of this magnitude allows for temporary suspension of the fiscal rules once the fiscal impact reaches or exceeds 1.5 per cent of GDP.

The commission said, following an official disaster declaration, that Finance Minister Fayval Williams requested an assessment to determine whether this legal threshold had been met.

Further, the finance ministry submitted to the IFC revised macroeconomic forecasts for financial year 2025-26 through financial year 2028-29.

It said that for nominal GDP growth rate (%), the current projection for financial year 2025-26 is -0.2, a sharp decline from the previous estimate of 8.9. The nominal growth rates for the subsequent years are projected to be 7.2 per cent, 7.4 per cent, and 6.0 per cent, respectively.

Real GDP growth rate (%) is now projected to be -4.3 per cent for financial year 2025-26, down from a previous projection of 2.2 per cent. Projections for the following fiscal years are 0.7 per cent, 3.1 per cent, and 1.0 per cent.

Annual point-to-point inflation (%) is projected to increase to 9.5 per cent in financial year 2025-26, up from a previous estimate of 5.3 per cent. This is then projected to stabilise at 5.0 per cent for financial years 2026-27, 2027-28, and 2028-29.

Lower oil price expected

The ministry said oil prices, West Texas Intermediate (Average US$/barrel), are now projected to be lower, at $62.4 for financial year 2025-26, compared to the previous estimate of $78.20. It said oil price projections for the medium term are $60.1, $60.0, and $62.5 for financial years 2026-27, 2027-28, and 2028-29, respectively.

The commission said after reviewing submissions from the Planning Institute of Jamaica (PIOJ) and the finance ministry that it validated the estimated fiscal impact of 5.3 per cent of GDP over the period 2025-26 to 2029-30, significantly surpassing the legislative requirement.

It said the estimated fiscal impact reflects both reduced revenue and increased expenditure associated with the Government’s response to the socioeconomic fallout from the hurricane.

“While the information provided is not as comprehensive as desired – given that damage assessments are still under way – the commission deems it broadly credible to validate suspension of the fiscal rules,” said Courtney Williams, fiscal commissioner.

The commission said that with this validation, the finance minister recently tabled an order and received affirmative resolution from Parliament to temporarily suspend the fiscal rules for an initial period to March 31, 2027.

The IFC said this suspension would allow the Government to prioritise recovery, rehabilitation, and reconstruction efforts without breaching legislated fiscal targets, particularly the 60 per cent debt-to-GDP ceiling.

The debt-to-GDP ratio for the specified public sector is expected to increase to 68.2 per cent by the end of March 2026, up from 62.4 per cent in March 2025, and is projected to remain above the legislative target of 60 per cent at the end of March 2028.

kimone.francis@gleanerjm.com