Near-Term Budget Deficits Expected as Govt Suspends Fiscal Rules

• In the aftermath of Hurricane Melissa, Jamaica is expected to run sizeable fiscal deficits in the near term, estimated at 6.5% of GDP in FY2025 and 3.1% in FY2026, as the government ramps up disaster relief efforts. This is a reversal of Jamaica’s well-established trend of fiscal responsibility, which saw Jamaica run budget surpluses each year since FY2017, save for 2020 during COVID.
• Hurricane Melissa will put strong pressure on Jamaica’s fiscal position. Initial government estimates had put total economic damage at US$6–US$7Bn, more than 30% of GDP, an estimate officials described as conservative. The scale of the damage implies a massive recovery program to rebuild infrastructure, support households and businesses and strengthen climate resilience against future shocks, necessitating substantial increases in government outlays.
• While the size and scope of the relief package are still to be determined, substantial budget deficits will be required to finance recovery and rebuilding. Prime Minister Holness has indicated that the government will suspend Jamaica’s fiscal rules, as it did in 2020 in response to COVID-19. This enables the government to run the necessary budget deficits while allowing the debt-to-GDP ratio to rise relative to existing fiscal targets, which is designed to lower the debt-to-GDP ratio to 60% by FY2027. That said, as seen after COVID, expectations are for policymakers to return to a fiscally sustainable posture after the recovery from Hurricane Melissa.
• Jamaica’s recovery will likely be lengthy; however, the country has built fiscal buffers to withstand natural disasters and fund rebuilding. Its US$150Mn catastrophe bond was fully triggered on November 7th, providing essential disaster relief. Additionally, as of June 2025, the Minister of Finance has already set aside total disaster funding of over US$800Mn (already budgeted and financed), supporting fiscal stability by reducing the amount that the government must borrow.
• Furthermore, if recovery needs exceed current allocations, which they almost certainly will, given the extent of the estimated cost of damage, Jamaica’s strong fiscal position provides room to increase relief spending without jeopardising fiscal stability. In addition, international support is being deployed, offering further tailwinds for Jamaica’s extended recovery. Finally, initial assessments from the International Monetary Fund (IMF) underpin the optimistic view, indicating that Jamaica has sufficient buffers to fund immediate disaster relief efforts, empowered by a strong fiscal and external position.

(Source: BMI, a Fitch Solutions Company)