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Combat the economic impact of COVID-19 | News


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THE NEGATIVE economic impact of the coronavirus (COVID-19) pandemic is projected to be severe, and an economic crisis appears to be certain. There is a slowdown in interaction and business activity worldwide.

Governments have issued disaster-type warnings. Restrictions have been placed on public gatherings, and schools and many business places are closed for at least the next two weeks. Two villages have been entirely quarantined in Jamaica, and there has been limited personal movement and transportation of goods, services and people.


The focus right now should be minimising the negative impact of the crisis on the most vulnerable citizens as well as businesses. Firms must at this time waiver fees, penalties and charges on many goods and services. Landlords should forego a part of the rent, and utility companies forego a percentage of utility bills. Everyone has to pool together and share.

The Government has announced a compensation package but needs to act swiftly and clearly with its delivery. Measures must be put in place to provide some type of unemployment and underemployment insurance to provide income to those who cannot work because of the crisis. The Government should deliberate tax relief for firms who compensate employees fairly or who lose out due to the crisis. Easing must be directed towards the productive sector.


In the short to medium term, many countries might be forced to produce some goods for themselves to meet local demand, where needed. This is an opportunity for Jamaica in particular to expand its manufacturing sector, counteracting the negative supply shock arising from the COVID-19 with a positive supply shock or supply-oriented fiscal policy measures.

Countries like Jamaica must strategise to increase domestic production. In light of the crisis, there should be a significant decline on the Special Consumption Tax (SCT) on petrol, petroleum products, heavy fuel oil, and similar products which are necessary input in the production, transportation, distribution and consumption processes. This would deliberately reduce the cost of production, transportation, distribution and consumption of everything domestic that uses energy to produce. It would be giving a tax waiver to domestic firms.

The measure would also reduce the cost of services and transportation, thereby putting the country on an upward growth trajectory. Lowering the cost of energy is a supply-side policy that could reduce costs across the board; manufacturing goods and services (restaurants, hairdressing, barber, taxi, goods transportation and logistics, BPOs and technology usage), while researching alternative energy.

This is necessary to stimulate the Jamaica economy that has not been able to explore goods production extensively due to the high cost of energy.


The cost per kilowatt hour in Jamaica makes manufacturing very expensive relative to other countries. As a result, Jamaica does not benefit from comparative advantage. In 2015, oil prices fell from more than $100 per barrel to approximately $40 per barrel. The huge decline in the price of oil should have provided an impetus for Jamaica to expand its manufacturing sector. However, many manufacturers and users of petrol, including taxi drivers, restaurants, households who cook, etc, did not benefit from the fall in oil prices because taxes were impose on petrol and related products right after.


In the 2015-16 Budget Revenue Measures, there was a $7 increase in the SCT on petrol and related goods which yielded $6.412 billion, and a $2 SCT on petroleum to raise $1.824 billion in tax revenue. In the 2016-17 Budget Revenue Measures, there was a SCT on LNG and HFO to the tune of $1.415 billion.

There was another SCT on petrol and diesel, as of May 13, 2016, to earn the Government $6.489 billion. In the 2017-18 Budget Revenue Measures, there was another increase in the SCT on petrol by $7.36 to earn $7.459 billion.

These taxes inflated the cost of energy and as a result, taxi drivers, manufacturers, people’s electricity bills, your cooking gas, the cost of everything that depended on oil were made artificially more expensive. Now that oil prices are trending downwards once more and there is the need to resurrect Jamaica’s manufacturing sector, we propose a role back of the more than $26 SCT on petrol and petroleum imposed in the years mentioned above. This would cost the Government roughly $24 billion.


This supply-side expansionary fiscal policy would counteract supply losses from the slowdown in global production, trade and commerce. This huge fall in the petrol and related taxes would lead to cheaper inputs in the production process, as well as cheaper transportation, cheaper electricity, cheaper gas; and as a result, every other good and service will become cheaper to everyone. This, along with a compounded multiplier effect, will put Jamaica on a positive upward growth trajectory.

Senator Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of The University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email: editorial@gleanerjm.com.

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