TOUGH ROAD AHEAD - Holness flags ­­­inflation, energy costs and drought despite economy ‘fighting back’ from hurricane fallout

Prime Minister Dr Andrew Holness says a report on the status of the economy has indicated that there are “headwinds” ahead even as recovery from Hurricane Melissa takes shape.

Holness, who was speaking at a ceremony where the European Union, through the World Bank, gave a US$5 million grant to the National Reconstruction Implementation Support Project on Tuesday, said Middle East tensions, high energy costs, and reported drought have created additional challenges for the country.

These come in the wake of the passage of Hurricane Melissa, which delved an estimated 55 per cent blow to GDP.

Holness said statistics from the Planning Institute of Jamaica and the Statistical Institute of Jamaica indicate that the economy is recovering faster than projected and is “fighting back”.

However, he disclosed that a report to Cabinet by Minister of Finance Fayval Williams indicates that there is trouble ahead.

“I don’t want to be overpromising, but yesterday, the Cabinet met. Minister Williams gave us a report on the economy, how it is doing. We see headwinds. We would really want to see a resolution of the Middle East issues. It’s having a terrible impact on prices,” said Holness.

Further, he said a drought affecting sections of the island is driving up inflation and the cost of food.

“So local supply of food is impacted. … We probably could import lower-cost food, but what we’re seeing is that food prices internationally are increasing. Why? Because oil prices are also increasing. So you’re going to have some imported inflation as well,” said Holness.

“All of these are matters that your Government that you elect, you can rest assured that we are up at night dealing with those problems. Things that you are not considering or looking at, your Government is contemplating it. So we’re going to use our fiscal responsibility, the wherewithal we have gained from it, we’re going to use it wisely,” he added.

TROUBLE LOOMS

He said the Government is set to engage the private sector on measures it could implement to mitigate the foreseeable challenges.

On Sunday, opposition Spokesman on Finance Julian Robinson, while speaking at the People’s National Party’s Annual Conference, warned that there is trouble ahead for Jamaican households, countering reports that the country’s economy is recovering faster than projected.

He said the economy has contracted for the last three quarters and is projected to contract again for a fourth quarter and pointed to a near-eight per cent inflation rate and a $28.7-billion revenue shortfall that forced $30 billion in new borrowing.

Headline inflation rose steadily over the summer, moving from 6.7 per cent in June to 7.5 per cent in July, and hitting 7.9 per cent in August. The figures exceeded the Bank of Jamaica’s target range of 4 to 6 per cent.

Economic contraction slowed to 2.9 per cent in the June quarter following deeper drops of 7.1 per cent and 4.1 per cent in the prior two periods. Although this marks a third straight quarter of decline, the figure beats both initial Budget projections and revised post-hurricane forecasts.

However, the prime minister cautioned that the figures must be taken into context.

He said Hurricane Melissa’s economic damage, at approximately 55 per cent of GDP, surpasses historical disasters like Hurricane Gilbert, which was 42 per cent of GDP, and the man-made 1990s FINSAC crisis to become the costliest disaster in Jamaica’s modern history.

“So sometimes when you listen to the conversation about the impact of the hurricane and the expectations, I think some of it ... would be better tempered when you look at the context of the impact. Meaning that for what we have suffered, relative to where we have recovered, it is far better than any of the other impacts of lesser consequences in the past. So Jamaica has done better, without question,” Holness asserted.

He said budgeting and fiscal responsibility by the Government caused Jamaica to withstand successive, overlapping global crises and natural disasters without destabilising the economy.

“But it is becoming clear that the Government may need to undertake countercyclical measures to support the economy even further in this period. And because we have gained, you know, fiscal management, we are in a position to do so without putting our stability at risk. And that is what you invest in fiscal responsibility for - to give you the capacity during these difficult times to give further support to the economy,” he said.

“Let’s be clear. The economy is doing better than was projected. … The growth is negative, but it gets less negative each quarter, right? It tells you our economy is fighting back. But we’re not going to take any chances. We’re going to support our businesses, support our small businesses, as much as we can to get out of the Hurricane Melissa drag,” he said.

kimone.francis@gleanerjm.com