Hurricane Melissa Shakes Jamaica’s Economy, Testing a Decade of Hard-Won Reforms

For more than a decade, Jamaica had been quietly rebuilding its economic reputation. With support from the International Monetary Fund and analysis contributed by the World Bank, the Inter-American Development Bank, the Planning Institute of Jamaica, and the UN Economic Commission for Latin America and the Caribbean, the country had cut public debt sharply, brought inflation under control, and restored investor confidence. By mid-2025, unemployment was at historic lows, tourism had fully recovered from the pandemic, and Jamaica was on track to meet its debt targets years ahead of schedule. Then, in late October, Hurricane Melissa changed everything.

Hurricane Melissa and the Scale of Destruction

On October 28, 2025, Hurricane Melissa made landfall as a Category 5 storm, one of the strongest ever to hit Jamaica. Winds of nearly 185 miles per hour tore through western and central parts of the island, killing at least 45 people and displacing around 90,000. Homes, schools, hospitals, roads, farms, and tourism facilities were severely damaged, particularly around Montego Bay, the heart of the tourism industry. Preliminary estimates put total physical damage at US$8.8 billion, about 41 percent of Jamaica's GDP, making Melissa the most costly hurricane in the country's recorded history.

An Economy Forced into Reverse

The economic impact was immediate. Before the storm, Jamaica was expected to grow by more than 2 percent in the 2025/26 fiscal year. The IMF now projects the economy will instead shrink by 4.3 percent. Tourism arrivals collapsed after the hurricane, agriculture suffered heavy losses, and power and water disruptions slowed activity across the country. Food shortages pushed prices higher, reversing a period of low and stable inflation. Even with reconstruction underway, the IMF expects the economy to take several years to fully recover, with output returning to pre-hurricane levels only around 2028.

How Jamaica Is Paying for the Recovery

Hurricane Melissa also created a serious external financing problem. Tourism, Jamaica's main source of foreign exchange, declined sharply just as imports of food, fuel, and construction materials surged. The IMF estimates Jamaica faces an urgent balance-of-payments financing gap of more than US$1.4 billion over the next two years. While remittances from Jamaicans abroad are expected to rise, they will not fully close that gap.

Jamaica entered the crisis better prepared than in the past. In recent years, it built a multi-layered disaster risk financing system that includes emergency reserves, catastrophe bonds, insurance through the Caribbean Catastrophe Risk Insurance Facility, and pre-arranged credit lines with development banks. These tools were activated quickly after the hurricane, providing rapid liquidity. Still, the IMF concluded they were not enough. In January 2026, the IMF approved about US$415 million in emergency financing under its Rapid Financing Instrument to help cover immediate needs and unlock further international support.

A Test of Resilience in a Warming World

The Jamaican government has temporarily relaxed its strict fiscal rules to focus on relief and rebuilding. A supplementary budget increased spending to support displaced households, repair roads and public buildings, rebuild schools and hospitals, and restore the electricity grid. The IMF supports this short-term fiscal easing but stresses the need for transparency, strong oversight, and a return to discipline once the crisis passes. The Bank of Jamaica, meanwhile, is managing higher inflation pressures while keeping the financial system stable. Banks remain well-capitalized, and the IMF judges public debt to be sustainable, despite a temporary rise.

Hurricane Melissa serves as a stark reminder that climate shocks can undo years of economic progress in a matter of hours. Yet the IMF's assessment carries a cautious note of confidence. Jamaica's strong institutions, hard-won policy credibility, and preparation for disasters have helped prevent a full-blown economic crisis. The challenge now is not only to rebuild what was lost, but to adapt faster in a world where extreme weather is becoming the new normal.