The International Monetary Fund (IMF) says Jamaica’s economic growth continues to disappoint, averaging only 0.9 per cent since Jamaica began its economic reform program in 2013.
Jamaica to receive additional US$233 million
In a statement issued on Friday, at the end of a third review of the Stand-By Agreement (SBA) the island has with the Washington-based financial institution, it however noted that consideration by the IMF executive board is scheduled for April and that “upon approval, an additional US$233 million would be made available to Jamaica, bringing the total accessible credit to about US$1.033 billion.
“All quantitative performance criteria and structural benchmarks for the review period ending December 2017 have been met. Non-borrowed international reserves well-exceeded the program target and tax revenues for financial year2017/18 were above the budget’s target, reflecting the payoffs from revenue administration reforms put in place by the government over the past few years.”
The 36-month SBA with a total access of US$1.68 billion was approved by the IMF on November 11, 2016.
IMF warning
The IMF warned “Entrenched structural obstacles, including crime, bureaucratic processes, insufficient labor force skills, and poor access to finance, continue to hinder productivity and growth. “Moreover, the agricultural sector’s vulnerability to weather shocks exacerbated rural poverty in 2015. Not addressing these bottlenecks could pose risks for continued public support for the government’s policy program.”
It said that the economic reform program that began in May 2013, has been a turning point for Jamaica with broad based social and political support over two administrations. The program is intended to put the island on a path of fiscal discipline, monetary and financial sector reforms, and wide-ranging structural improvements to break a decades-long cycle of high debt and low growth.
Employment at historic heights
The IMF said “Employment is at historic highs, inflation and the current account deficit are modest, international reserves are at a comfortable level, and external borrowing costs are at historical lows,” the IMF said noting that structurally reducing the wage bill is critical for the government to reprioritize spending towards growth enhanced projects.
Improvements needed
“More expenditure is needed for infrastructure, citizen security, building agricultural resilience, health, education, and the social safety net. Creating the space for such spending will require going beyond temporary remedies like wage freezes and adjustments to non-wage benefits.”
The IMF said this would require high-quality measures to overhaul the compensation structure to retain skills and reward performance, streamline the vast and inequitable allowances structure, prioritize key government functions and shed those activities that the government can no longer afford to undertake, and change the capital-labor mix through technology upgrades, including a better monitoring of and accountability for government spending.
Need to address structural bottlenecks
The Fund’s statement also cited improving social outcomes and fostering inclusive growth will require addressing structural bottlenecks and creating an enabling environment for the private sector. It believes countering weak social outcomes and escalating crime will take time but will be essential for sustained growth.
“In this regard, the evidence suggests that early childhood education, interventions to improve school attendance, and skills training for the youth would foster a virtuous cycle of lower crime, higher wages, stronger growth, and increased economic opportunity, particularly for the young.
“Policies to support productive private investments, including improving lending to smaller businesses and reducing lending-deposit interest spreads, will help fuel such an upswing. However, the government must resist the pressure to use scarce public resources to “pick winners” including through providing tax incentives”.
Formalize inflation targeting regime
It said that formalizing the current inflation targeting regime will help entrench macroeconomic stability and promote growth.
“With inflation likely to remain in the lower part of the central bank’s target range, a looser monetary stance remains appropriate. Meanwhile, upcoming revisions to the Bank of Jamaica (BOJ) Act—including a clear mandate for price stability, a reformed governance structure, and a strong central bank balance sheet—will help institutionalize the inflation targeting framework,” the IMF said.
It said also, continued development of the foreign exchange (FX) market, liquidity management and forecasting toolkit, along with upgrading the BOJ’s communication practices, will improve policy signaling and enhance credibility.
According to the Fund, financial sector stability is a prerequisite for strong and sustained growth, noting that ongoing prudential and supervisory improvements will enhance systemic stability. While changes to investment limits for non-banks should be considered, they must be backed by a thorough assessment, including of appropriate regulations, risk management guidelines, and supervisory arrangements, to ensure that greater flexibility in non-banks’ asset-liability management practices does not jeopardize financial stability.
The Washington-based financial institution said continued reform implementation will not only safeguard hard won gains, but also deliver stronger growth and job creation.
The IMF said that after five years of reforms and tenacious fiscal consolidation, risks from reform fatigue and loss of social support are high, especially as growth remains feeble and crime escalates.
