BRITTENWOODS

1. Introduction: The Paradox of Prudence and the Stabilization Trap

The fiscal year 2024/2025 stands as a definitive inflection point in the economic history of Jamaica, representing both a triumph of orthodox stabilization and a warning about the limits of financial derivation. Following a decade of rigorous fiscal consolidation, the nation has achieved metrics that were once deemed aspirational. As detailed in the 2025 Article IV Consultation, public debt has been driven below 70 percent of GDP, with a clear trajectory toward the 60 percent target by FY2027/28. Simultaneously, Gross International Reserves (GIR) have swelled to a historic US$5.8 billion, securing the country’s external solvency and earning the confidence of international capital markets through the successful completion of the Precautionary and Liquidity Line (PLL) and Resilience and Sustainability Facility (RSF) arrangements.¹

However, a granular examination of the national accounts reveals a condition identified herein as the “Paradox of Prudence.” While the sovereign balance sheet is pristine—rich in reserves and primary surpluses—the productive economy remains fragile and capital-starved. This divergence was starkly illustrated in FY2024/25, when the economy contracted by 0.7 percent following the impacts of Hurricane Beryl and Tropical Storm Raphael.¹ While the government’s financial buffers prevented a fiscal crisis, they could not prevent the physical collapse of agricultural output or infrastructure damage. This event exposed the structural weakness of “Sterilized Stability”—a stability maintained by holding expensive cash buffers rather than investing in physical resilience.¹

The cost of maintaining this stability is mathematically unsustainable over the long term. To hold US$5.8 billion in reserves, the Bank of Jamaica (BOJ) engages in massive sterilization operations, issuing high-yielding Certificates of Deposit (CDs) to neutralize the inflationary impact of purchasing foreign exchange. This creates a structural “cost of carry” where the state pays high interest rates (often exceeding 7 percent) on domestic liabilities to hold low-yielding foreign assets.¹ Consequently, the commercial banking sector is incentivized to hold risk-free government paper rather than lend to the real economy, keeping commercial interest rates for the productive sector prohibitively high.¹ The economy is thus trapped in a “Treadmill Dynamic,” where primary surpluses are generated not to fund development, but to service the accounting costs of maintaining a stable currency.

To break this cycle and secure prosperity through 2055, Jamaica must execute The Sovereign Pivot. This strategy moves beyond the defensive posture of stabilization to an offensive posture of transformation. It proposes a Dual Strategy of concurrent Physical and Financial Hedging designed to structurally remove US$2.5 billion in annual foreign exchange demand.[1] By transitioning from “sterilizing” liquidity to “securitizing” national savings, Jamaica can generate cumulative Free Cash Flow of US$39.8 billion over the next thirty years, funding the re-industrialization of the nation.¹

2. Forensic Audit of the Shadow National Accounts (1990–2025)

To chart the future, one must first reconcile the “Shadow National Accounts”—the unrecorded transfers of wealth driven by currency devaluation, profit repatriation, and the remittance subsidy that have defined the Jamaican economy for three decades.

2.1 The Structural Inheritance: The “Written-Down Value” of the Economy

The economic doctrine from 1990 to 2015 relied heavily on exchange rate depreciation as a primary lever to maintain export competitiveness and attract Foreign Direct Investment (FDI). While this strategy succeeded in attracting US$11.8 billion in FDI, the forensic audit reveals a “written-down value” of the economy amounting to approximately US$31.8 billion.¹ This figure represents the cumulative subsidy provided by the Jamaican state and citizenry—through the erosion of domestic purchasing power and asset values—to facilitate foreign capital entry. By 2015, the mechanisms for value extraction were entrenched: while GDP grew modestly due to foreign-owned production (e.g., tourism), Gross National Income (GNI) stagnated as profits were repatriated.¹

This stagnation is rooted in the structural conditions identified as early as the 2017 IMF Review, which noted that despite 7 consecutive quarters of positive growth, unemployment remained a “chronic issue” at 12.9 percent, and the economy was heavily reliant on construction and tourism rather than high-value manufacturing or modernized agriculture.³ The strategy of the time focused on fiscal consolidation—maintaining a primary surplus of 7 percent of GDP—which, while necessary for debt reduction, constrained the fiscal space available for public investment in productivity-enhancing infrastructure.³ The wage bill, standing at 9.6 percent of GDP in 2017, further crowded out capital expenditure, which was budgeted to rise only marginally by 0.2 percent of GDP that year.³ This historical context highlights that the “Written-Down Value” was not merely an accounting phenomenon but a consequence of a deliberate policy choice to prioritize external solvency over domestic asset formation.

2.2 The Anatomy of the Valuation Shock (The “Shadow Tax”)

Official debt statistics frequently obscure the “Valuation Effect”—the automatic increase in the local currency stock of debt caused by depreciation. This effect functions as a “Shadow Tax,” a silent levy on the population that funds no services but ensures the solvency of the sovereign’s external balance sheet.¹ A reconstruction of debt dynamics from 2016 to 2025 exposes the magnitude of this loss. In FY2016/17, the public debt stock increased by J$68.8 billion purely due to a 5.4 percent depreciation of the JMD, despite the government running a primary surplus. This single valuation shock accounted for nearly 85 percent of the debt increase that year, effectively neutralizing the fiscal sacrifice of the population.¹

The table below reconstructs the annual fiscal impact of this valuation effect, demonstrating how depreciation acts as a primary driver of debt accumulation independent of borrowing.

Table 1.1: Annual Cost of Devaluation (Public Debt Valuation Effect) 2016–2025

Fiscal Year	Depreciation Status	Valuation Cost (Loss) / Gain (J$ Bn)	Context & Analysis
2016/17	5.4% Depreciation	(68.8)	The 2016 Shock. Valuation drove 85% of debt increase, establishing the baseline risk.
2017/18	(2.8%) Appreciation	+34.0	The Revaluation Anomaly. Tight liquidity led to JMD appreciation, temporarily reducing the debt stock.
2018/19	1.2% Depreciation	(14.4)	Return to moderate slide; valuation costs resumed.
2019/20	5.9% Depreciation	(70.5)	Pre-pandemic volatility driven by capital market demands.
2020/21	9.3% Depreciation	(116.0)	The Pandemic Shock. Massive devaluation combined with emergency borrowing (RFI). The single largest valuation hit.
2021/22	5.0% Depreciation	(75.0)	Continued slide during the recovery period as tourism inflows lagged.
2022/23	1.5% Depreciation	(22.5)	Moderate depreciation as central bank intervention smoothed volatility.
Total		(J$ 345.3) Billion	Cumulative “Shadow Tax” absorbed by the Treasury.

Source: Reconstructed from Ministry of Finance and Public Service Debt Bulletins and The Sovereign Pivot Analysis.¹

Analysis: The cumulative J$345.3 billion cost of devaluation represents resources that could have fully funded a complete modernization of Jamaica’s energy grid or the construction of several major hospitals. Instead, this capital was transferred to the balance sheets of external creditors to cover exchange rate risk. It confirms a critical strategic axiom: Fiscal discipline is mathematically insufficient if the currency is unstable. Without a structural hedge against FX volatility, the primary surplus acts merely as a tribute paid to the Valuation Effect.

2.3 The Repatriation Cycle and the Remittance Subsidy

The economy is further drained by a “maturity mismatch” in the FDI cycle. Investments made in the early 2000s are now in their “harvest phase,” generating significant JMD profits that must be converted to USD for repatriation.

Table 1.2: Investment Income Outflows vs. FDI Inflows (2016–2024)

Year	Profit Repatriation (Outflow) US$ M	FDI Inflows (Inflow) US$ M	Net Flow (FDI – Outflow)	Ratio (Outflow/Inflow)
2016	(956.4)	682.0	(274.4)	1.40x
2017	(1,217.3)	888.8	(328.5)	1.37x
2018	(1,308.2)	774.6	(533.6)	1.69x
2019	(1,406.8)	665.4	(741.4)	2.11x
2020	(704.5)	265.1	(439.4)	2.66x
2021	(850.0)	320.5	(529.5)	2.65x
2022	(1,100.0)	318.7	(781.3)	3.45x
2023	(1,350.0)	376.5	(973.5)	3.58x
2024	(1,500.0)	400.0 (Est)	(1,100.0)	3.75x
Total	(10,393.2)	4,691.6	(5,701.6)	2.21x (Avg)

Source: Reconstructed from BOJ QMPR and Balance of Payments Updates.¹

Analysis: The data indicates that by 2024, for every US$1.00 of new FDI entering Jamaica, approximately US$3.75 was leaving the country as repatriated investment income. This structural insolvency is masked only by the Remittance Subsidy. Inflows of approximately US$3.4 billion annually from the diaspora provide the liquidity that prevents a balance of payments crisis.¹ The central bank effectively purchases these remittance dollars to build reserves, which are then sold back into the market to finance the repatriation of corporate profits and the import of fossil fuels. The diaspora thus functions as the “Shadow Sovereign,” subsidizing the current account deficit.

3. The Sovereign Pivot Strategy: The “Long Close” Architecture

To escape the “Treadmill Dynamic” described in Table 1.1 and the capital hemorrhage detailed in Table 1.2, the Sovereign Pivot operationalizes a Dual Strategy that integrates the physical economy with financial engineering. This approach moves beyond simple debt reduction to active wealth creation.

3.1 Pillar 1: Physical Hedging (The Shield)

Current policy mitigates FX risk through “financial derivation”—holding large cash reserves. The Sovereign Pivot replaces this with “Physical Hedging,” which involves investing in domestic assets that permanently remove the demand for foreign currency.¹

The Mechanism: Replacing imported Heavy Fuel Oil (HFO) with domestic Solar and Wind energy is a physical hedge. It locks in the cost of energy and eliminates future USD outflows for oil. Similarly, replacing imported corn and soy with domestic production removes the FX demand for food.

Strategic Target: The removal of US$2.5 billion in annual FX demand (Energy + Food imports). This structural correction eliminates the root cause of currency depreciation, rendering the “Valuation Effect” obsolete.¹ This aligns with global best practices in sovereign risk mitigation, where physical hedging is increasingly recognized as superior to financial hedging for commodities like energy, as it eliminates basis risk and counterparty risk associated with derivatives.⁴ By physically substituting the import, the sovereign removes the exposure entirely rather than merely insuring against its price fluctuation.

3.2 Pillar 2: Financial Hedging (The Sword) – The Long Close Position

The second pillar involves a sophisticated shift in the sovereign’s financial stance, designated as the “Long Close Position.” Currently, the sovereign is “short” USD (owing debt and needing imports) and “long” JMD (tax base). The strategy involves closing this short position not by buying derivatives, but by altering the flow of national liquidity.¹

A. From Sterilization to Securitization:

Currently, the BOJ “sterilizes” liquidity by selling high-interest CDs to mop up cash, a pure cost to the treasury. This was a key feature of the 2017 monetary framework, where the BOJ’s stock of Open Market Operations (OMO) instruments represented a significant liability, and high interest rates were used to defend the currency.3 The Sovereign Pivot transitions this to “securitization.” As the demand for USD falls (due to the Energy Pivot), the “avoided cost” liquidity is captured by a new vehicle, the Jamaica Sovereign Resilience Fund (JSRF).

B. The Mechanics of the Long Close:

• Closing the Short: The JSRF utilizes this JMD liquidity to aggressively buy back US$-denominated global bonds in the secondary market. This actively reduces the sovereign’s external liability. This effectively reverses the “original sin” of emerging market finance—borrowing in hard currency while earning in local currency.
• Impact on Savings: By reducing the external debt stock, the “Long Close” reduces the annual interest bill paid in USD. As shown in the National Cash Flow Analysis (Section 8), this contributes significantly to the US$39.8 billion savings, with reduced debt service growing to contribute US$500 million annually to Free Cash Flow by 2055.¹
• Going Long: Simultaneously, the state issues Green Bonds to fund grid modernization. Unlike CDs, which are liabilities, Green Bonds fund revenue-generating assets (the modernized grid) that pay for themselves via energy savings.¹ This transforms the sovereign balance sheet from one weighted with deadweight liabilities (sterilization instruments) to one backed by productive assets (renewable infrastructure).

4. The Energy Pivot: Manufacturing Strategy (The Hard Hedge)

The energy sector represents the single largest source of sovereign vulnerability and FX leakage. The 2024 storms, which caused widespread blackouts and economic contraction, highlighted the fragility of the centralized fossil-fuel grid.¹

4.1 The LCOE Arbitrage: Capturing the Sovereign Surplus

The technological landscape has shifted to create a massive arbitrage opportunity. The Levelized Cost of Electricity (LCOE) for solar PV and onshore wind has dropped to between US$0.04 and US$0.07 per kWh. In stark contrast, the cost of thermal (HFO) generation remains between US$0.18 and US$0.26 per kWh.¹ By replacing thermal generation with renewables, Jamaica can reduce the marginal cost of generation by approximately 75 percent. This margin is the “Sovereign Surplus”—wealth currently exported to oil producers that can be retained within the domestic economy.¹

4.2 Manufacturing Revival: The Energy-Industrial Nexus

The “Energy Pivot” serves as a catalyst for a manufacturing revival. The 2017 IMF Review implicitly identified high energy costs and low productivity as structural impediments to growth.³ The “Energy-Industrial Nexus” addresses these impediments directly.

Cost Competitiveness: By lowering the cost of electricity to US$0.15/kWh, Jamaica re-enters the competitive band for light manufacturing and agro-processing.¹ This is critical for sectors that are energy-intensive, such as cold storage, logistics, and food processing.

Savings Impact: The Energy Pivot targets the removal of US$1.2 billion in annual fuel imports by 2040 (via 80% RE target).¹ This massive retention of hard currency creates a structural current account surplus, stabilizing the currency without the need for BOJ intervention or high interest rates.

5. The Agricultural Imperative: Agro-FX (The Soft Hedge)

The 0.7 percent GDP contraction in FY2024/25 was driven partly by significant damage to the agricultural sector.¹ Food security is thus a matter of macroeconomic stability.

5.1 The Feed Dependency Trap and Import Substitution

Jamaica spends approximately US$140 million annually on imported animal feed ingredients, primarily corn and soy. This creates a direct transmission mechanism between global grain prices and domestic inflation.¹

The Agro-FX Strategy:

• Corn-Soya Rotation: Implementing large-scale crop rotation on idle sugar lands to produce high-yield corn and soy. This repurposes land that has historically been tied to the declining sugar industry.³
• Value-Added Processing: Re-establishing a local soybean extrusion plant to process raw beans. This captures the “crush margin” and produces both soybean meal for the feed industry and vegetable oil for the retail market.¹

5.2 The Agro-Industrial Multiplier

The synergy between the Agro-FX strategy and the Energy Pivot creates an “Agro-Industrial Multiplier.” Cheaper energy lowers the cost of processing domestic agricultural output (e.g., soybean extrusion, canning, freezing).

Financial Impact:

• Direct Savings: Substituting just 30 percent of imported feed and processing oil locally retains US$62 million annually.¹
• Inflation Control: It insulates the Consumer Price Index (CPI) from global volatility, allowing for a structurally lower neutral policy rate. This “Soft Hedge” complements the “Hard Hedge” of energy independence.

6. Financial Architecture: The Blue-Green Facility & JSRF

To operationalize the savings from the Dual Strategy, a new financial architecture is required to recycle “avoided costs” into productive investment.

6.1 The Blue-Green Facility

The Blue-Green Facility, currently being established with international partners including the DBJ, GCF, and World Bank, serves as the precursor to the Jamaica Sovereign Resilience Fund (JSRF).¹ This facility moves beyond traditional aid to a blended finance model. It is designed to mobilize up to US$500 million over five years, combining grants, concessional debt, guarantees, and equity instruments to leverage private investment.⁶

Capitalization via “Energy Levy”: As renewable energy drives the cost of electricity down from US$0.35 to US$0.15, the regulator (OUR) will maintain a small portion of that spread (e.g., US$0.02/kWh) as a “Sovereign Levy”.¹ This levy is deposited directly into the facility, capitalizing it with efficiency savings rather than new taxes.

6.2 Securitization via Green Bonds

With the Green Bond framework now completed—a key reform measure under the RSF—the Government of Jamaica can issue JMD-denominated Green Bonds.¹ These bonds are serviced by the “Energy Levy,” creating a closed-loop financing system. Proceeds will fund the upfront capital costs of the energy transition, specifically the Smart Grid upgrades and Battery Energy Storage Systems (BESS) required to support 80 percent renewables.¹

7. National Cash Flow Analysis (2025–2055)

The integration of the Dual Strategy alters the nation’s long-term cash flow profile, shifting it from a consumption-based deficit to a production-based surplus.

7.1 Scenario B: The Sovereign Pivot (Productive Sovereignty)

This scenario assumes the successful implementation of 80 percent RE by 2040 and 30 percent feed substitution by 2035.

Total Value Created: The cumulative Free Cash Flow (FCF) generated by the pivot is projected at US$39.8 billion by 2055.¹

This figure includes:

• Direct FX Savings: US$35.1 billion from reduced oil and food imports.
• Multiplier Effects: US$4.7 billion generated through the “Agro-Industrial Multiplier” (jobs, processing margins) and reinvestment returns from the JSRF.¹

Table 7.1: Projected Annual Free Cash Flow (FCF) Generation (US$ Millions)

Year	Energy Savings (Direct FX Retained)	Agri Savings (Direct Substitution)	Reduced Debt Service (Interest)	Total Direct Annual FCF	Total Value Created (Incl. Multiplier)
2025	50	10	10	70	85
2030	500	40	50	590	710
2035	750	62	100	912	1,150
2040	1,000	75	200	1,275	1,650
2055	1,300	110	500	1,910	2,450
Cumulative				~ US$35.1 Billion	~ US$39.8 Billion

Source: National Cash Flow Analysis (2025–2055).¹ Note: The “Reduced Debt Service” column specifically quantifies the impact of the “Long Close Position” financial hedging strategy, showing how debt buybacks reduce interest obligations over time.

The table illustrates the transformative power of the pivot. In the early years, savings are driven by initial energy projects. By 2040, as the 80 percent renewable target is met, the energy savings alone reach US$1 billion annually. Crucially, the “Reduced Debt Service” component grows over time. As the “Long Close Position” reduces the external debt stock and the FX risk premium vanishes, the government saves hundreds of millions annually in interest payments—money that was previously leaking to external creditors.

8. Conclusion: The Grand Reconciliation

The 2025 Article IV Consultation confirms that Jamaica has achieved the prerequisite stability to attempt a structural transformation. With reserves at US$5.8 billion and debt below 70 percent, the foundation is strong.¹ However, the data in Table 1.1 (Cost of Devaluation) and Table 1.2 (Repatriation Outflows) confirm that the current model is expensive and fundamentally insolvent without remittance subsidies.

The Sovereign Pivot offers the only viable path to genuine economic independence. By substituting US$2.5 billion in annual imports with domestic production, Jamaica can stop the hemorrhage of national wealth. The projected US$39.8 billion in total economic value created over the next thirty years represents the difference between perpetual debt servitude and a high-productivity, net-creditor status.

This strategy reconciles the “Shadow National Accounts” with the official ledger. It converts the “Written-Down Value” of the economy into realized equity. It replaces the “Shadow Tax” of devaluation with the “Sovereign Surplus” of renewable energy arbitrage. It transforms the diaspora from a “Shadow Sovereign” subsidizing consumption into a partner investing in resilience via Green Bonds. The foundation has been laid; the time to build the superstructure is now.

Works cited

DBJ to launch Blue Green Fund – Jamaica Observer, accessed on December 29, 2025, https://www.jamaicaobserver.com/2024/12/04/dbj-launch-blue-green-fund/

The Sovereign Pivot: A Thirty-Year Structural Reconciliation and National Cash Flow Analysis for Jamaica (2025–2055)

Jamaica: 2025 Article IV Consultation-Press Release; and Staff Report in – IMF eLibrary, accessed on December 29, 2025, https://www.elibrary.imf.org/view/journals/002/2025/146/article-A001-en.xml

IMF REVIEW 2017.pdf

Navigating energy management amidst geopolitical instability: A guide for business leaders, accessed on December 29, 2025, https://www.world-kinect.com/news-insights/navigating-energy-management-amidst-geopolitical-instability-guide-business-leaders

Managing Natural Gas Price Volatility: Principles and Practices Across the Industry – The Brattle Group, accessed on December 29, 2025, https://www.brattle.com/wp-content/uploads/2017/10/8115_managing_ng_price_volatility_graves_levine_nov_2010.pdf

Jamaica, International Financial Institutions, Donors Collaborate on Establishing a Programmatic Approach to Finance Climate Needs, accessed on December 29, 2025, https://www.imf.org/en/news/articles/2024/04/17/pr24121-jamaica-international-financial-institutions-donors-collaborate-climate