The paper summarized here is part of the Spring 2024 edition of the Brookings Papers on Economic Activity (BPEA), the leading conference series and journal in economics for timely, cutting-edge research about real-world policy issues. The conference draft of this paper was presented at the Spring 2024 BPEA Conference on March 28-29, 2024 (conference drafts, recordings, and slides are available via the link). Submit a proposal to present at a future BPEA conference here.
Final version posted: November 2024
Download final paper with discussant comments and discussion summary
Download replication package for discussant comments
At a time when many countries, large and small, are confronting heavy and growing public debt burdens, Jamaica offers a rare example of a country that succeeded in substantially reducing its debt, according to a paper discussed at the Brookings Papers on Economic Activity (BPEA) conference on March 28. Jamaica cut its debt, as a percentage of its gross domestic product (GDP), in half—from 144% in 2012 to just 72% in 2023, according to the paper—”Sustained Debt Reduction: The Jamaica Exception.” And the International Monetary Fund (IMF) expects Jamaica’s debt ratio to decline still further, to less than 60%, by 2028.
The authors—Serkan Arslanalp of the IMF, Barry Eichengreen of the University of California-Berkeley, and Peter Blair Henry of Stanford University—examine how and why Jamaica succeeded and whether its success can be replicated by other countries. First, Jamaica adopted fiscal rules that highlighted the debt problem, encouraged the formulation of a medium-term plan, and limited slippage from the plan’s targets. The Fiscal Responsibility Framework introduced in 2010 required the minister of finance, by the end of the financial year 2016, to reduce the budget deficit to zero, the debt-to-GDP ratio to 100%, and public-sector wages as a share of GDP to 9%. The framework as augmented in 2014 required the minister, by the end of financial year 2018, to specify a multi-year trajectory to bring the debt-to-GDP ratio down to 60% by 2026. It included an escape clause to be invoked in the event of large economic shocks, which prevented the rule from being so rigid that it lacked credibility, the authors write. Second, Jamaica’s leaders leveraged the country’s success in sharply reducing political polarization since the end of the 1970s. The government, parliamentary opposition, and other stakeholders in 2013 formed the Partnership for Jamaica Agreement, which fostered a common belief that the burden of debt reduction would be widely and fairly shared. The Agreement supported the creation and ensured broad national acceptance of the Economic Programme Oversight Committee to monitor and publicly report on fiscal policies and outcomes, and to provide independent verification that all parties kept to the terms of their agreement. “Meaningful debt reduction was accomplished only when Jamaica put in place two prerequisites: a set of rules anchoring fiscal policy … and a series of partnership agreements. … Both elements were needed,” the authors write. They also examine three other countries that achieved significant debt reduction—Ireland in the late 1980s, Barbados starting in the 1990s, and Iceland after its 2008 financial crisis—by successfully pursuing a similar approach. The authors conclude that partnership agreements such as in Jamaica are most likely to be achieved in smaller countries where it easier to bring relevant stakeholders to the negotiation table. And they are most prevalent in small, open economies dependent on a few economic sectors and thus vulnerable to shocks, making cooperation on fiscal adjustment urgent. Our “observations leave us relatively pessimistic about the efficacy of fiscal rules in countries such as Germany, whose provisions lack flexibility,” the authors write. “And they leave us concerned about the scope for sustained fiscal consolidation in large countries like the United States with high levels of political polarization.”
CITATION
Arslanalp, Serkan, Barry Eichengreen, and Peter Blair Henry. 2024. “Sustained Debt Reduction: The Jamaica Exception.” Brookings Papers on Economic Activity, Spring: 133–181.
Alfaro, Laura. 2024. “Comment on ‘Sustained Debt Reduction: The Jamaica Exception.’” Brookings Papers on Economic Activity, Spring: 182–192.
Verner, Emil. 2024. “Comment on ‘Sustained Debt Reduction: The Jamaica Exception.’” Brookings Papers on Economic Activity, Spring: 192–202.
Authors
Authors
Discussants
-
Acknowledgements and disclosures
Peter Blair Henry is on the board of Citigroup. The communications department of the International Monetary Fund (IMF) had the right to review this work prior to publication but did not inform the findings. The authors did not receive financial support from any firm or person for this paper or from any firm or person with a financial or political interest in this paper. Other than the aforementioned, the authors are not currently an officer, director, or board member of any organization with a financial or political interest in this paper. The discussant, Laura Alfaro served as a consultant for the IMF Evaluation Office and a visiting scholar at the Bank for International Settlements from 2023 to 2024. Views are the authors’ and do not necessarily represent those of the IMF, its executive board, or the IMF management.
The authors thank Laura Alfaro, Eleanor Brown, Patrick Honohan, Tracy Robinson, Jón Steinsson, Emil Verner, DeLisle Worrell, and Karina Garcia, Thomas Pihl Gade, Vitor Gaspar, Jan Kees Martijn, Pablo Morra, Constant Lonkeng Ngouana, Uma Ramakrishnan, Bert van Selm, and Esteban Vesperoni (all IMF) for helpful discussions.
David Skidmore authored the summary language for this paper. Chris Miller assisted with data visualization.
The Brookings Institution is committed to quality, independence, and impact.
We are supported by a diverse array of funders. In line with our values and policies, each Brookings publication represents the sole views of its author(s).
