2009 Index of Economic Freedom

Quick Facts

Population:

• 2.7 million

GDP (PPP):

• $20.2 billion
• 2.5% growth
• 1.6% 5-year compound annual growth
• $7567 per capita

Unemployment:

• 9.9%

Inflation (CPI):

• 9.3%

FDI Inflow:

• $850.0 million

Jamaica's economic freedom score is 65.2, making its economy the 52nd freest in the 2009 Index. Its score is 0.5 point lower than last year, reflecting substantial declines in freedom from corruption and financial freedom that offset an increase in business freedom. Jamaica ranks 9th out of 29 countries in the South and Central America/Caribbean region.

Jamaica has a sound record of implementing reforms that help to develop a vibrant private sector. The Jamaican economy scores very high in investment freedom and business freedom and above the world average in five other areas. Procedures for conducting a business are straightforward and simple. Foreign investment is generally welcome in many sectors.

Jamaica is weakest in freedom from corruption and in government size. The judicial system is rooted in English common law, but it suffers from a significant backlog of cases, some corruption, and an understaffed police force. Government expenditure is high as a percentage of GDP, though the government is planning to divest state-owned companies and reform the tax system to begin to correct the chronic debt burden. The average tariff rate remains relatively high.

Background Back to the top

Once a major sugar producer, Jamaica is now a net sugar importer. The economy is diverse, but industries lack investment and modernization. Most foreign exchange comes from remittances, tourism, and bauxite. Growing competition from foreign manufacturers and stagnating receipts from U.S. tourists have led to high unemployment and rampant underemployment. Relatively flat GDP growth was further slowed in 2007 by Hurricane Dean. Jamaica's public debt burden is 130 percent of GDP, and almost 60 percent of government revenue goes to debt service and recurrent expenditures. This, money laundering, and drug-related violence are among the challenges facing Prime Minister Bruce Golding, who took office in late 2007.

Business Freedom 87.8 Back to the top

The overall freedom to start, operate, and close a business is relatively well protected under Jamaica's regulatory environment. Starting a business takes eight days, compared to the world average of 38 days. Obtaining a business license requires 10 procedures and takes less than the world average of 225 days. Bankruptcy proceedings are relatively easy and straightforward.

Trade Freedom 70.6 Back to the top

Jamaica's weighted average tariff rate was 9.7 percent in 2006. Non-tariff barriers remain fairly low, but some high tariffs, import fees and taxes, import and export bans and restrictions, restrictive pharmaceuticals regulations, inefficient regulatory administration, and export subsidies add to the cost of trade. Ten points were deducted from Jamaica's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 75.3 Back to the top

Jamaica has moderate tax rates. The flat income tax rate is 25 percent, and the top corporate tax rate is 33.3 percent. Other taxes include a value-added tax (VAT) and a property transfer tax. In the most recent year, overall tax revenue as a percentage of GDP was 27.2 percent.

Government Size 62.2 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 35.5 percent of GDP. Public debt stands at around 127 percent of GDP, and almost 50 percent of government spending goes to interest payments on the debt.

Monetary Freedom75.4 Back to the top

Inflation is high, averaging 9.6 percent between 2005 and 2007. Most prices are set by the market, but the government regulates utility services, including electricity, water, and bus fares. There are no official policies on price regulation or control, but the government monitors the pricing of consumer items. Five points were deducted from Jamaica's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom80.0 Back to the top

Jamaica encourages foreign investment in all sectors. Foreign investors and domestic interests receive equal treatment, and foreign investors can acquire privatized state-owned enterprises. There is no screening, but projects that affect national security, have a negative impact on the environment, or involve sectors such as life insurance, media, or mining are subject to some restrictions. Applications for incentives require approval, which is usually straightforward and non-discriminatory. There are no limits on foreign control of companies. The legal system upholds the sanctity of contracts. The government is trying to improve bureaucratic efficiency and transparency. Residents and non-residents may hold foreign exchange accounts. There are no restrictions on international transactions, transfers, or the repatriation of funds, and non-residents may purchase real estate.

Financial Freedom50.0 Back to the top

Jamaica's financial sector has undergone major consolidation and restructuring. Government efforts to strengthen supervision and regulation of banking and insurance continue, but overall progress has been rather slow in recent years. Although some financial products are still not available, the private sector has access to a wide range of credit instruments. Six commercial banks, five merchant banks, and several credit unions comprise the banking sector. The three largest commercial banks account for around 85 percent of commercial bank assets, and five of the commercial banks are foreign-owned. Credit is generally allocated on market terms. Capital markets are small and centered on the stock exchange.

Property Rights50.0 Back to the top

Jamaica's legal system is based on English common law, but the judiciary lacks adequate resources, and trials can be delayed for years. Bureaucracy can cause significant delays in securing land titles. An inadequate police force weakens the security of property rights, and crime threatens foreign investment. Jamaica's patent law is not WTO/TRIPS-compliant.

Freedom From Corruption33.0 Back to the top

Corruption is perceived as significant. Jamaica ranks 84th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The executive and legislative branches of government, as well as the Jamaica Constabulary Force, are widely regarded as subject to corruption.

Labor Freedom67.4 Back to the top

Jamaica's relatively flexible labor regulations could be further improved to enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is costly. Regulations on the number of work hours are flexible.