Having toured this region I have come to realize the seasonal tourism industries are merely making a slight financial impact into the local Jamaican economy and has been a continuing problem since Jamaica received its independence from British rule on August 6, 1962.
Since the post-independence such talk has merely been reaffirmed by the Finance Minister Dr Peter Philips this past week. His position describes a local economy in a hazardous state and very little assistance from the population growth rate. The last forty years have only produced a growth rate of 0.8 percent increase to offset a $1.7 trillion national debt. With a local population of nearly 3 million, the average per Jamaican household is being left with a $600,000 debt to be covered. Dr Philips asserted his perspective to the situation by referring to it as an “empty shop” and went on to say “it makes no sense for anybody to break into the empty shop”.
Dr Philips is also meeting with various financial sectors and has indicated that there is no proposal to rollback taxes in the tours sector. These statements were expressed recently to the Jamaica Hotel and Tourist Association (JHTA) where the existing 10 percent General Consumption Tax (GCT) will remain unchanged. The GCT amounts to $2 USD to $12 USD per night depending on the size of the hotel. With a high current room taxation revenue rate, then add GCT and deduct commissions and transportation, the effective tax rate ends up as high as 16 percent. With the millions being acquired from the tourist room rate this will affect their profit margins.
In the tourism sector you have the seasonal periods of December through mid May where cruise lines arrive several dozen per week. Outside of the peak travel period represents the later part of May through November where hurricane season occurs and cruise ship travel is reduced over 75%. With reductions in tourist travel combined with higher economic deficits, lower tax revenues is the end result.
How did Jamaica arrive at their current economic deficit? Dr Philips traced the path back to when the country was debt-free in the 1970s but reached an alarming debt-to-GDP level of 212 percent. During 2007 to 2008 the level was 109 percent and then rose again to 128 percent as of March 2012. Presently, Jamaica sits at 131 percent representing $912.6 billion domestic debt and $749.6 billion external debt.
Out of the 2008 debt level, Jamaica launched a pre-condition arrangement with the IMF through a Jamaican Debt Exchange (JDX) program. In an effort to lower the government interest debt payments from the 17 percent level in 2009 to 9.3 percent in 2011-2012. However, much of the interest debt reduction appears to have been absorbed by the importation of goods consumption, financial and private investment sector interests.
There were also additional deficits outweighing gains all resulting from unbudgeted Jamaican Urban Transit Company (JUTC) bus purchases combined with divesting of Air Jamaica, and a reduction in sugar company expenditures of the national budget.
Jamaican IMF senior representative, Dr Gene Leon, indicated that the country did not take advantage of the JDX opportunity and as a result did not meet its targets set by the 27 month arrangement. Leading to the collapse of the lending agency agreement, a trust deficit with the IMF, and other multilateral institutions like the World Bank, the InterAmerican Development Bank and the European Union.
As a result, the IMF is not receptive to loaning any more money to Jamaica due to their uncontrollable debt level and unable to show a willingness to repay its debt. The combined picture is banks have no money for loans and the private capital loan market have now been closed. So the ending message is not only one of Dr Phillips “empty shop” but also one where no money is getting added.
So how is the economic debt going to be resolved without loans to accomplish it? The civil society group of Jamaicans United for Sustainable Development (JUSD) minister has taken the first steps in accomplishing this tasks by asserting those best able to accomplish it to do so. Through the development of a tax package and cancelled waivers, a minimum amount of $60,000 has been set for all registered companies, a hotel industry room tax, a higher vehicular duty tax on motor vehicles over 2000cc, 5 percent investment withholding dividend, 50 percent increase to vehicle license, 10 to 20% gambling profit tax increase, and cooling additional money from telephone calls.
All of this will get passed on to the tourist in raising service costs to cover additional tax revenues of provided services. Hotel room rate, taxi cab rates and other tourist related services.
According to the JUSD, “All of this is predicated on the notion that the whole country will mobilize itself in the effort to have the debt paid down – the single most important factor being no IMF agreement, no funding, no door open to massive investments and development.”
So when tourists come to Jamaica and especially in offseason months, be prepared to see less in shops and store at discounted prices, and a steady rise to tourist sector services like taxi cab service, hotel rates combined with higher food and drink prices. Out of increases to fund the debt reduction come the passing of increases on to tourists as a debt crisis that has loomed is attempting to work on its decline.