Credit-rating agency Moodys says that with travel restrictions placed on UK, a primary tourism market for Jamaica, the island could see a slowdown in growth in the industry.
Last Friday, March 13, The Government of Jamaica imposed travel restrictions on the United Kingdom after finding that five people who contracted coronavirus (COVID-19) had travelled to that country.
“The ban on flights and cruise ships from the UK add to restrictions already in place for visitors from China (A1 stable), Italy (Baa3 stable), South Korea (Aa2 stable), Singapore (Aaa stable), France (Aa2 stable), Spain (Baa1 stable), Germany (Aaa stable) and Iran. The latest restrictions will exacerbate the slowdown in tourism, which is an important component of Jamaica’s economy,” a Moody’s report, dated March 18, stated.
According to the World Travel and Tourism Council, travel and tourism, either directly or indirectly accounted for 34 per cent of Jamaica’s 2018 GDP, with 31 per cent of employment and almost 60 per cent of total exports.
Since 2010, when the island recorded 2.8 million tourist arrivals, the sector has grown steadily with tourist arrivals (including cruise passengers) reaching 4.2 million in 2019.
The increased arrivals resulted in spillover growth in other productive sectors including hotels and restaurants, retail trade, accommodation services, and construction.
“Although UK tourist arrivals accounted for around nine per cent of total arrivals in 2018, Jamaica’s tourism-dependent economy will slow in 2020 as a result of coronavirus-related travel restrictions, a credit negative. However, Jamaica’s large primary surplus and adequate international reserves provide the government with ample buffers to limit the immediate credit-negative effect,” Moodys noted.
The credit rating agency said, in addition, that the country should have adequate fiscal and external buffers to cope with a shock in the tourism industry and, by extension, mitigate any immediate credit-negative effects.
” …The Government’s timely measures amid the coronavirus outbreak reflect its stronger institutional capacity to cope with external shocks.”— Moody’s
Moody’s pointed to International Monetary Fund-backed reforms which enhanced Jamaica’s reduction fiscal and external imbalances. It also highlighted the use of a formal inflation target and flexible exchange rate regime to lower the country’s current-account deficit while the building international reserves.
“Additionally, the Government’s timely measures amid the coronavirus outbreak reflect its stronger institutional capacity to cope with external shocks,” the agency said.
During his presentation in Parliament last week Tuesday, Jamaica’s Minister of Finance and the Public Service Dr Nigel Clarke announced the allocation of JM$7 billion to a contingency fund for COVID-19. The contingency fund will complement JM$2 billion announced a week earlier to support medical staff and health facilities.
Notwithstanding, the report raised concerned about negative global economic trends which, combined, have created severe and extensive credit shocks across many sectors, regions and markets.
“Compared with other Caribbean islands, Jamaica’s vulnerability to tourism is moderate (see Exhibit 1). The country is particularly vulnerable to a slowdown in tourist arrivals from the US (Aaa stable), which accounted for 66 per cent of total arrivals in 2018, followed by Canada (Aaa stable) with 16 per cent of arrivals and the UK, which accounted for nine per cent of arrivals,” the Moody’s report said.
“While we expect growth to slow from declining tourist arrivals, the effect on Jamaica’s external accounts will be partially offset by the high import content of tourism earnings, which will reduce the country’s import bill. Moreover, lower oil prices will also have a positive effect on Jamaica’s current account,” it added.