WASHINGTON, DC June 22, (CMC) – The International Monetary Fund (IMF) says after several decades of low growth and rising public debt, Jamaica has made significant progress in restoring economic stability, due mainly to strong policies and program ownership.
The Washington-based financial institution said the government’s reform program, supported by a four-year IMF loan approved in 2013, has been a turning point for the Jamaican economy and a case study in ownership and collaboration.
It said the government took on the program to break the cycle of high debt and low growth that has afflicted Jamaica for decades.
“Although the economic recovery continues, growth remains weak,” the IMF said in a report on a survey conducted on the Caribbean island.
It said as a result the latest assessment of the Jamaican economy, it is projecting economic growth at 1.7 per cent this fiscal year, and that the government will therefore need to implement bold structural reforms to unleash the island’s potential.
However, the IMF noted that the obstacles to Jamaica’s growth and job creation are numerous and severe.
It said key among them are crime, the cost and availability of credit, tax compliance costs, unreliable and expensive electricity, and a large informal economy. The large size of the public sector has also stifled private sector dynamism and places too much emphasis on government as the engine of growth and employment.
The IMF said the Andrew Holness government is now working closely with it and other international partners to tackle key roadblocks to development and help expand the private sector.
It said five key reform areas top the list, including increasing access to finance by increasing banking sector competition and reforming financial sector taxation; downsizing the public sector through improving efficiency and reallocating public functions back to the private sector and cutting red tape and unnecessary “gate-keeping” at all levels of government to aid the business climate and strengthen productivity and competitiveness.
It is also noting the need for implementing labour market reforms that strengthen the link between pay and performance and increase labour market dynamism and reducing crime and tackling both its economic and broader social ramifications.
“These measures will take time to bear fruit. But they can only take place in an environment of fiscal discipline and economic stability. Despite the difficult road ahead, Jamaica can rise to the challenge and seize the moment,” the IMF said.
The international financial institution said that years of high fiscal deficits, public enterprise borrowing, and financial sector bailouts led to rapid debt accumulation, crowded out private credit, and stifled growth. Low growth, in turn, further weakened the fiscal situation and raised social pressures as standards of living stagnated.
“Jamaica’s historical vulnerability to natural disasters reared its head when, in October 2012, Hurricane Sandy brought the economy to a screeching halt. The current account deficit soared, reserves plummeted, and public debt reached 147 per cent of GDP (Gross Domestic Product), one of the highest levels in the world,” the IMF noted.
But it said that the government’s economic reform program, bolstered by the IMF program in May 2013, focused on boosting growth and employment, improving external competitiveness, achieving fiscal and debt sustainability, strengthening the financial system, and protecting the poor by requiring a minimum level of spending on social programs.
The IMF said that skeptics had regarded its program’s challenging targets, including a primary balance of 7.5 per cent of GDP at the time, and relaxed in December 2015 to seven per cent of GDP for fiscal year 2016/17, as unattainable.
“Jamaica’s patchy track record of reform did not help. But implementation has been extraordinary, over 95 per cent of program conditions were met. The creation of the Economic Program Oversight Committee (EPOC), a civil society group made up of representatives from the private sector, public sector, and civil society and a first in an IMF program, has ensured strong program ownership.”
The IMF said that the goal was to build recognition of the challenges, keep an open channel of communication with both the IMF and the government, and hold all sides accountable for achieving the program’s commitments.
“Three years into the program, the macroeconomic landscape has improved dramatically. Inflation is at a historical low and business confidence is at an all-time high. The current account has drastically improved and Jamaica has regained access to both domestic and international financial markets. Public debt dropped by over 18 percentage points of GDP, helped by strong fiscal consolidation and the PetroCaribe debt buyback.
“Furthermore, Jamaica’s credit ratings have moved up while its bond spreads have fallen and are now aligned with the emerging market average,” the IMF added.