The International Monetary Fund (IMF) says Jamaica should register economic growth of 4.3 percent this year, down from the projected growth of 4.7 percent last year.
The Washington-based financial institution said while the Jamaican economy is rebounding, risks remain significant, with the coronavirus (COVID-19) pandemic being the main risk.
“Renewed COVID-19 waves in Jamaica or abroad could lead to a more prolonged disruption of tourism, trade, and capital flows. Another risk is posed by the uncertain duration of global inflationary pressures, which have boosted inflation to well above the Central Bank’s target range of four to six percent. Natural disasters continue to be an ever-present risk,” the IMF said following the conclusion of the executive board’s 2021 Article IV consultation with Jamaica.
IMF says Jamaica continues to make progress
In the decade preceding the pandemic, Jamaica made good progress restoring macroeconomic and financial stability.
Aided by Fund financial support, the fiscal deficit was brought down from eleven percent of gross domestic product (GDP) in 2009 to a surplus; public debt fell from 142 percent of GDP to 94 percent in 2019, and inflation and the current account deficit declined.
The IMF noted that while an early lockdown in 2020 helped contain the number of COVID-19 cases, the impact on the economy was severe, with real GDP shrinking by ten percent.
“To mitigate the impact of the pandemic on public health and the economy, the authorities suspended the fiscal rule for a year and swiftly implemented public health measures and a fiscal package to support jobs and protect the most vulnerable segments of the population. The downturn and the fiscal package resulted in a fiscal deficit of 3.1 percent of GDP in Financial Year 2020/21.”
In its assessment, the IMF executive directors “welcomed the authorities’ swift and comprehensive policy response to the pandemic, which helped limit its health and economic impact.”
They noted that as the economy recovers, uncertainty and risks remain elevated and that the near-term policy priority is to protect lives and livelihoods while preserving macroeconomic stability.
Makes several recommendations
Over the medium term, the IMF directors stressed the need to rebuild buffers, safeguard debt sustainability, and prioritize structural reforms that reduce poverty and boost potential and inclusive growth.
They agreed that once the pandemic recedes, it will be essential to resume growth-friendly fiscal consolidation and put public debt on a downward trajectory toward the authorities’ medium-term target.
The directors recommended improving revenue and prioritizing expenditures to create space for health, education, infrastructure, and growth-enhancing investment, including climate resilience. “Enhancing spending efficiency and containing the wage bill will be crucial in this regard,” the directors said, noting that the newly established independent fiscal council will help strengthen fiscal institutions and safeguard the credibility of the debt anchor.
They acknowledged the critical role played by monetary accommodation during the pandemic. In light of inflationary pressures, they welcomed the authorities’ readiness to tighten monetary policy to firmly anchor inflation expectations and bring inflation to within the Central Bank’s target range by the end-2022.
The directors said they took positive note of the planned roll-out of the central bank digital currency, with appropriate safeguards, as part of the financial inclusion strategy.
They observed that the financial sector remains well-capitalized and liquid. The IMF also noted the sector’s complexity and potential risks from its concentration and connectedness while emphasizing the need to strengthen group-wide supervision of financial conglomerates by adopting the remaining legislation and improving data collection.
They also called for further efforts to strengthen the Anti-Money Laundering/Combatting the Financing of Terrorism framework, including swiftly implementing the action plan agreed with the Financial Action Task Force.
The IMF encouraged the authorities in Jamaica to address supply-side constraints to growth through well-prioritized structural reforms aimed at boosting competitiveness and resilience, including through digital transformation.
It also highlighted the need to strengthen education and training, upgrade infrastructure, reduce crime, and build resilience and adaptation to natural disasters.
CMC/
