Mon | Aug 20, 2018

Column: Jamaica's first miss of key IMF target

Published:Friday | May 8, 2015 | 12:00 AM
Minister of Finance, Dr Peter Phillips.
Co-Chair of EPOC, Richard Byles.
The International Monetary Fund headquarters building in Washington, DC.
The International Monetary Fund building in Washington DC.

IN A difficult economic climate in which the lowly fish back replaced the vaunted campaign-promised oxtail and curried goat cuisine, the Government and its sycophants latched on to passing International Monetary Fund (IMF) tests as if it were their only reason for being. They hyped each pass to high heavens.

They passed seven of those tests and received accolades from the high and mighty foreign financial and political potentates and institutions - the only ones that seem to matter to our prime minister and her senior ministers. Local business and financial leaders lined up behind their foreign betters to pay gratuitous homage.

The IMF repeatedly made it clear that the centrepiece, the mother of all targets, of its Extended Fund Facility (EFF) programme with Jamaica was and is the primary surplus target. The primary surplus is government receipts net of spending - excluding interest payments on sovereign debt. Although Jamaica's debt-to-GDP ratio was just under 150 per cent when we signed the EFF, the IMF insisted and our leaders acquiesced to the unique-in-the-world-high primary surplus target of 7.5 per cent. By comparison, Greece's debt-to-GDP ratio was about 175 per cent and their primary surplus target was only three per cent of GDP.

When some of us, including Ralston Hyman, a prominent member of the government-appointed and IMF-lauded Economic Programme Oversight Committee (EPOC), took to the press and electronic media to point out that the primary surplus target was too high and was proving to be onerous, we were met with stiff resistance from the IMF, the Government and an even more prominent EPOC member. Our observation that the over-optimistic tax collection targets would continue to be missed and would thereby put the very steep primary surplus target in jeopardy was brushed aside.

When we further highlighted that the meeting of this oppressive target will continue to hamper growth, we were told in not-so-polite language that the fiscal consolidation programme will take us to the growth destination.


The co-chair and spokesman for EPOC, Richard Byles - president of Sagicor Group Jamaica - had the unenviable task of bringing the bad news to the nation on Tuesday of this week. Naturally, he had to find some kind of positive spin to put on news that he surely knows looks like the harbinger of a progressively terrible economic and even social set of circumstances ahead for our country.

The numbers, Byles knows, tell the story. The IMF primary surplus target for fiscal 2014-15 which ended in March was $121.3 billion. The actual intake was $117.2 billion. The Ministry of Finance and the Government missed the near-sacrosanct target figure by just over $4 billion or 3.3 per cent.

Richard Byles was left to sell hope as his positive spin. He held out that although we missed the IMF's very hard $121.3-billion figure, we could still make the 7.5 per cent target. For that positive sap to occur, the GDP denominator in the calculation of the primary surplus would have to fall by about $53 billion, as calculated by my colleague Fayval Williams. That economic contracting direction is the wrong way for GDP to go.

Indeed, the Government never seemed to want to accept the message that some of us have carried from almost the inception of the EFF. It is, economic growth is necessary to continue to meet the IMF targets and it cannot be seen as mutually exclusive to the fiscal consolidation programme. Also, the IMF-induced programme will not produce the required robust economic growth.

Now, maybe, the Government and its various important backers will begin to listen. More painfully for all parties who crafted and agreed to this IMF programme, the oversized primary surplus target is going to cause more social and financial pain and attract more critical attention.


Economic growth for the last fiscal year was forecasted at a meagre 1.7 per cent. In the end, GDP rose by a paltry 0.4 per cent, which is a mere 24 per cent of the very slim growth rate the Government had projected. There was more bad news for the primary surplus target; tax revenues for the year fell $13.4 billion short of the $384.3-billion projection.

In his press conference on Tuesday this week, and in the EPOC CommuniquÈ #24 published the following day, the EPOC co-chair went public in seeking a waiver from the IMF on the missed primary surplus target.

The communiquÈ included this in a highlighted section: "Going forward, we cannot overemphasise the importance of widening the tax net so that the country can reduce the risk of missing future revenue targets ...".

Byles and his EPOC colleagues seem to be calling for more taxes on Jamaicans and Jamaican businesses. Is passing the IMF tests much more important to them and the Government than relieving the poverty and pain faced by so many ordinary Jamaicans?

He argues that the primary surplus target is untouchable. Isn't it clear to him and the Government that the tax-paying capacity of the Jamaican people and businesses has been reached long ago? Look at the perennial revenue shortfalls. Listen to the vociferous rejection by local manufacturers of a proposed cess on imported refined sugar.

In his press conference, Byles referred to the good outturn of the 4.0 per cent inflation rate for the past fiscal year. It was less than 50 per cent of the projected 8.3 per cent. He used this favourable inflation rate and the lowering of key interest rates by the BOJ to make a full-throated call on the banks to reduce their interest rates, especially their lending rates. Sagicor Bank is part of Mr Byles' group, and the heads of the two biggest banks, NCB and Scotiabank, are on EPOC. The governor of the central bank is the co-chair of EPOC. We wait to see.

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


Twitter: @hillaubyn