New paper finds Jamaica suffering from most austere budget
Ahead of US President Barack Obama's trip to Jamaica this week, a new paper from the Washington, DC-based Center for Economic and Policy Research (CEPR) finds that Jamaica is running the most austere budget in the world, with a primary surplus of 7.5 per cent, due to a four-year economic support programme with the International Monetary Fund (IMF).
According to the report, the Government's interest payments on the debt as well as the austerity measures have brought public investment to a low.
The paper, Partners in Austerity: Jamaica, the United States and the International Monetary Fund, written by CEPR research associate Jake Johnston, suggests that Jamaica has a debt-to-gross domestic product (GDP) ratio of nearly 140 per cent and its public interest burden is one of the very highest in the world, at more than eight per cent of GDP last year.
The Jamaican Government's Fiscal Policy Paper for 2015-16, tabled in Parliament in February, projected the stock of public debt to end fiscal year 2014-15 at J$2.07 trillion or 131.6 per cent of GDP.
According to the CEPR paper, coupled with the IMF-backed austerity, high interest payments have all but displaced needed capital spending, reducing government capital expenditure to a low of 1.6 per cent of GDP in fiscal year 2014-15.
The paper notes that after three consecutive quarters of economic growth, GDP fell by 1.4 per cent in the third quarter of 2014, and the Jamaican economy is smaller today than it was in 2008.
"With anaemic growth and continued austerity, social indicators have drastically worsened, with the poverty rate doubling since 2007. Unemployment, at 14.2 per cent, remains higher today than during the height of the global recession," it said.
"When President Obama travels to Jamaica this week, he will be going as someone partly responsible for the high unemployment and poverty that the country is suffering," Johnston was quoted as saying in a release out of Washington yesterday.
"This paper shows that through its leadership role in the IMF, the US is imposing unnecessary pain on Jamaica through harsh austerity and a debt trap," he added.
According to the release, Jamaica has suffered declining average living standards over the past 20 years, with GDP per capita actually falling by 0.3 per cent annually over the past two decades.
"Jamaica's 7.5 per cent primary budget surplus dwarfs even the budget surpluses being demanded of crisis-hit countries such as Greece, which was expected to run a primary surplus of 3.0 per cent of GDP this year and 4.5 per cent for years thereafter - and even this is widely considered politically unsustainable," the CEPR said.
The paper finds that Jamaica's high debt-to-GDP ratio comes even after two debt restructurings, both as preconditions to receiving IMF support.
It added that after multilateral loans were cut off in 2012 following the breakdown of Jamaica's previous IMF agreement, net flows from the multilateral banks turned negative for two consecutive years.
"Even after the signing of the new IMF agreement, Jamaica paid J$138 million more to the IMF than it received last year, and Jamaica still owes the World Bank and Inter-American Development Bank over J$650 million through 2018," said the CEPR.
The paper concludes that multilateral debt relief for Jamaica would likely free up more resources than new loans. Finally, the paper finds that without hundreds of millions in financial support from Venezuela and investment from China, the impact of IMF-led austerity would likely be far worse, making the ongoing programme politically untenable.
"Alternatives to IMF-imposed austerity are key if Jamaica is going to emerge from its debt trap and begin economic recovery," Johnston said. "Perhaps most important would be debt cancellation."
The CEPR is an independent, non-partisan think tank established to promote democratic debate on the most important economic and social issues that affect people's lives. CEPR's advisory board includes Nobel Laureate economists Robert Solow and Joseph Stiglitz; Janet Gornick, Professor at the CUNY Graduate Center and Director of the Luxembourg Income Study, and Richard Freeman, Professor of Economics at Harvard University.