Melissa’s economic blow heavy, yet Jamaica has chance for fast rebound

This is the second in a series highlighting Youth Voices in Hurricane Melissa recovery, featuring young people’s perspectives on resilience, rebuilding and the future after the storm.

Hurricane Melissa’s economic impact will be significant. But, unlike past downturns, Jamaica now has a chance for quicker recovery thanks to its disaster risk financing framework. To appreciate the importance of this framework, it is important that we describe the fallout from Hurricane Melissa.

It is expected that Jamaica’s gross domestic roduct (GDP) will decline by double digits in the October to December quarter of 2025. This will be large enough to drag the country’s overall GDP below last year’s figure. In other words, we will experience negative growth this year.

Output in the agriculture sector will fall precipitously as crops in Jamaica’s ‘breadbasket’ have been destroyed. Economic activity in tourism will slow due to closures of some hotels and other accommodation services. Electricity production, which is a sizeable portion of GDP, will decline as one-third of the grid is still inoperable. Moreover, small businesses in affected parishes will also experience challenges.

Of course, this decline in economic activity will induce other maladies, as well. Unemployment will rise as affected firms adjust to the reality of lower revenues. Foreign exchange inflows will slow with the downturn in tourism. Tax revenues will decline and even without a single cent of new borrowing, Jamaica’s debt to GDP ratio will climb.

Robust Preparations

In the past, economic shocks that have produced such outcomes would set Jamaica back for at least a decade. However, with the preparations the country has made, this need not be the case this time. First, Jamaica’s macro-economy is stable. Our debt is low, our foreign exchange reserves are adequate, inflation is contained and our financial sector is sound. This gives Jamaica some shock absorption capacity.

Second, Jamaica’s robust multi-layered disaster

risk-financing framework will deliver significant resources that can be deployed immediately to begin the reconstruction effort. Former minister of finance and the public service, Dr Nigel Clarke, who championed these reforms, has written extensively about this.

Instead of an ad hoc approach, Jamaica’s disaster risk financing policy is sufficiently comprehensive and

multi-layered to mitigate the substantial fallout from this storm. The top layer, which consists of a catastrophe bond, will deliver $24 billion. A further $15 billion will be received from the Caribbean Catastrophe Risk Insurance Facility. While at the bottom layer, Jamaica had a further $6 billion in its Contingencies and National Natural Disaster Funds tucked away between 2019 and 2024. This totals $44 billion of immediately available resources which do not have to be repaid.

In addition, Jamaica can also access up to $80 billion from contingent credit claims with organisations like the Inter-American Development Bank. Therefore, the country has immediate access to approximately $124 billion from its multi-layered disaster risk-financing framework. This can be supplemented by an additional $80 billion in emergency financing available from the International Monetary Fund which comes with no conditionalities.

Furthermore, Jamaica has not engaged in much new borrowing from multilateral banks in recent years. Thus, it has at least $100 billion more of borrowing room with these agencies. These combined sources of financing ensures that Jamaica can access more than $300 billion in support.

While I am not suggesting that additional loans be taken out at this time, the point of itemising these measures is to underscore how we have an opportunity to exit the trough of economic decline within one to two years.

Rare Opportunity

The government has the rare opportunity to lead a post-disaster investment boom if it can turbocharge capital expenditure in the current and next fiscal year. If the disaster risk-financing resources are deployed at a sufficient scale, these resources can be used to reconstruct roads, bridges, hospitals, schools, police stations, and other buildings. This would need to be supplemented by capital spending from the national budget as Jamaica’s disaster insurance is designed for initial recovery not long-term reconstruction.

To achieve this, the government will need to be bold. With the fallout in tax revenues, Jamaica will have to suspend its fiscal rules for the remainder of the fiscal year and for the full 2026/27 fiscal year. This would allow the government to reallocate resources from other parts of the budget to finance these investments.

This escape needs to be used strategically, and the goal should be to double if not triple the current capital budget. These additional resources would then allow the government to front-load reconstruction. This would help speedily improve the delivery of public services and set the stage for a quick economic rebound.

There mght be a temptation to worry about the debt-to-GDP ratio in the short term. This is understandable. However, the greater danger is if GDP does not recover quickly enough as it will lead to more economic strain. Nevertheless, this can be avoided by copious amounts of timely, investment spending by the government.

Furthermore, while infrastructure damage has been conservatively estimated at over $1 trillion, this represents both public and private losses. When private-market insurance is accounted for, the government’s liability will likely be a fraction of this figure.

In other words, the private sector can also contribute to reconstruction as inflows from reinsurance for local insurance companies and large corporations is estimated at $100 billion. Together, this spending has the potential to lift economic output from post-Hurricane Melissa lows, thereby leading to a faster economic recovery than expected.

Necessary Precaution

On the flip side, the government should not believe that Hurricane Melissa provides an opportunity to borrow and spend without restraint. As with our experience during the COVID-19 pandemic, once GDP recovers, the fiscal rules should be reinstated so that the debt to GDP ratio can resume its downward trajectory. So, with careful calibration we can achieve both a surge in capital spending that boosts GDP and meet our March 2028 debt to GDP target.

As far as the macroeconomic dynamics are concerned, the Government of Jamaica has an opportunity to lead a strong and timely economic rebound. This can be achieved if we unleashed the financial firepower of Jamaica’s multi-layered disaster risk-financing framework coupled with finely tuned, yet bold policy action.

Keenan Falconer is an economist with experience in Jamaica’s public and private sectors, as well as the international multilateral space. To send feedback, email keenanjfalconer20@gmail.com.