Sun | May 28, 2017

Fiscal consolidation versus economic growth

Published:Friday | February 20, 2015 | 2:00 AM
File Finance Minister Dr Peter Phillips walks behind Prime Minister Portia Simpson Miller (left) and IMF Managing Drector Christine Lagarde at Jamaica House on June 27, 2014.

The way the IMF playbook ordered events, what they labelled 'fiscal consolidation' was supposed to produce economic growth.

Dr Peter Phillips, and apparently his Cabinet colleagues as well, swallowed the bait hook, line, and sinker. Even if he didn't swallow it, he certainly has sold it and stuck to the storyline as if his entire political legacy depended on it being true.

The Government has had staunch support from prominent economists, financial sector heavyweights and luminaries like the governor of the central bank for the argument that following the fiscal consolidation course of suffering and deprivation - which the International Monetary Fund has prescribed, and our Government has accepted and signed - will bring us economic growth.

Not all observers and commentators bought the idea behind the IMF-Peter Phillips 'squeeze-and-tax-Jamaicans' strategy to meet fiscal consolidation goals and targets and then expect robust growth to be the result. Some of us were very early out of the gate, once the Extended Fund Facility with its tough terms and conditions were agreed by the IMF board, to warn that this package would tend to shrink the economy rather than grow it, and that any signs of growth would be anaemic at best.

Further, the Government, and the Prime Minister in particular, was warned that it could not treat fiscal consolidation and economic growth as mutually exclusive events. This columnist sent out an early call for Prime Minister Portia Simpson Miller to name an economic growth minister, which many around her and in the business community belittled, although some subsequently supported the suggestion along with the call to reshuffle and streamline her Cabinet.

A SPECIALIST'S JOB

My contention then and still is that Dr Phillips has too much on his plate in the form of fiscal probity, tax policies and revenue collection, monetary policy oversight, an extensive travel schedule and, of course, political activities to have time and energy for economic growth policies and their focused facilitation.

Take a simple example: Minister Phillips and the IMF's tax projections of about $384 billion for this fiscal year to December 2014 is off by $126 billion. He is going to need all his brainpower and attention to make his target in the remaining three months to March 2015 - at this stage an unlikely achievement.

Many influential leaders and policymakers refused, and I imagine still refuse, to accept that economic growth is not what any PNP government has planned, facilitated or executed well - on balance - over long spells of governing Jamaica. Come to think of it, the IMF also does not have a reputation of fostering

ordinary - never mind robust - economic growth in its client states.

Jamaica needs a Cabinet minister who has good business acumen and excellent connections and rapport with the business community to act as a specialist economic growth minister.

Well, we have had fiscal consolidation, alright. Government has been extremely short of cash as it makes Sisyphean efforts to meet the usually high primary surplus target of 7.5 per cent it agreed with the IMF.

This contentious target was only about 55 per cent achieved up to December last year. Making the other 45 per cent in the three months to March this year will be a challenge to the minister and his colleagues, and will cause much more pain and possible economic dislocation for many Jamaicans and maybe our institutions, too.

In fact, Sisyphus is the right Greek - our debt is like theirs but our circumstances are worse! - mythological character to use. He was the king of Ephyra who was punished for chronic deceitfulness and compelled to roll an immense boulder up a hill, only to see and suffer its rollback, and to repeat the action forever.

ECONOMIC GROWTH PLAN

The plenty jobs and bountiful and endless plates of oxtail have not happened. In fact, many people have become so poor and financially strapped that chicken back - from which they were promised to graduate - is even harder to afford. Maybe the Sisyphean rock of correction is getting ready to fall on the promise-makers who have practised deceit.

Under these circumstances, Jamaica needs an economic growth plan which will have the Government promulgate and implement clear growth policies. These must become the facilitating springboard to foster substantially better-than-average economic growth. In turn, these policies will need to lead to the creation of well-paying jobs for tens of thousands of Jamaicans - and not just wealth for political

supporters and cronies.

This focused effort will be led by a very capable minister who understands business and works extremely hard. He or she must have a strong performance record - maybe even be from the private sector.

The Prime Minister and her government do have the option of continuing on the IMF path without using the tools of regulation and legislation to facilitate and foster real and strong economic growth. Indeed, she can continue to refuse to craft a separate growth plan.

The PM may also choose to

continue with her oversized Cabinet which has not produced either

sensible economic growth, or an efficient Government. This will

continue to lead to very below-budget tax collections, no money to fund budgeted capital and recurrent expenses, and few if any worthwhile jobs for Jamaicans.

Without strong and sustained economic growth, abject poverty among Jamaicans will be another sure and continuing outcome.

• Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the opposition leader.

Email: writerhill@gmail.com

Twitter: @hillaubyn

Facebook: facebook.com/hillaubyn