Mon | Jan 21, 2019

IMF, World Bank sound growth warning

Published:Friday | June 26, 2015 | 12:00 AM

Finally, the International Monetary Fund (IMF) and World Bank, two years into the IMF-devised and Peter Phillips-negotiated Extended Fund Facility (EFF) agreement, are sounding a very serious warning that 'Support for reforms will falter without strong growth - IMF', according to a headline in the business section of the online Gleaner on Wednesday.

Earlier that same day in its print edition, the newspaper ran this front-page banner headline 'Austerity works' with a picture and comments of JÈsus Gracia Aldaz, Spain's secretary of state for international cooperation.

It might work in Spain, but given the content of what one has to consider to be a reluctant warning by the IMF and World Bank, and the long and continuing painful experience that the vast majority of Jamaicans suffer under the EFF, The Gleaner print headline sounds shrill and oxymoronic.

Needless to say, tough measures have been taken by Spain, but its economic environment in the Eurozone and its approach to economic growth are quite different from Jamaica's.

According to Der Spiegel, the German magazine, "It was exports, and not domestic demand, that lifted Spain out of the worst economic crisis since the civil war in the 1930s. 'Ninety per cent of our Mercedes vans and trucks, which we produce in two plants in the Basque region, head outside of the country'," JosÈ Luis Lopez-Schummer, the president of Mercedes-Benz Espana, is quoted as saying in its March 25, 2015 edition.

In 2014, Spain made 2.4 million cars and continues to leave traditional car-manufacturing countries like France and Italy further and further behind. Ninety per cent of Mercedes' vans and trucks are sold outside Spain.

Meanwhile, this current Jamaican Government seeks to create and implement the most thoughtless and off-putting set of taxes and regulatory impediments on Jamaican businesses - and especially on manufacturers and exporters.

These novel and logic-defying taxes pop up with such regularity that it appears that every week there is a new one. The focus of Finance Minister Dr Peter Phillips and the Government is still on fiscal consolidation - not growth.


Jamaica is at a serious economic crossroad. Fiscal consolidation - squeezing as much money out of people, businesses and the overall economy to pay back rich and often imprudent lenders at an incredibly rapid pace - is only serving to contract, not grow, the economy.

Since the IMF is now talking about 'Strong economic growth' - I want to believe that phrase does not describe the anaemic-nothing 'growth' it has been praising over the last two years - Jamaica needs to call out the fund on the mercilessly steep and unusually high 7.5 per cent primary surplus target that is straining our economy into deep sleep.

To say that we should get on a course of strong economic growth with that 7.5 per cent primary surplus target and a debt-to-GDP figure coming down to about 138 per cent, when Greece is being given a one per cent primary surplus target with a debt-to-GDP number topping out at 176 per cent, is beginning to look brutish and patently anti-growth.

Sure, the Government must come up with a sensible growth plan that is based on more than mega projects announcements that are underpinned by little more than ministerial figments of imagination, but the exceptionally high IMF primary surplus figure must be seen and addressed for what it is - a major stranglehold on economic growth.

The World Bank's commentary at the recent eighth quarterly review of Jamaica's performance under the EFF was very pointed and telling. It is reported that the bank said 'Jamaica's growth forecast is subject to considerable risks. A key challenge, it said, is to generate sufficient growth to more than offset the contractionary impact of the ongoing fiscal consolidation. Fiscal consolidation, in turn, needs to rely more on revenue generation which has been difficult in a low-growth environment.'


It is nice to see the World Bank coming around and speaking frankly. For more than two years, a few of us have been asking for this strong growth-facilitation approach, and stating that contractionary fiscal consolidation by itself hurts economic and revenue growth.

The World Bank is echoing that a combination of fiscal consolidation and no-growth, or very low growth, is a recipe for disaster and one which will foment the slide in public support, or even the rise of social unrest, to which the IMF referred.

One only needs to think of the price of bread, corned beef, bus fares, school fees and health-care costs three years ago and compare them to today to realise how much more Jamaican dollars a person has to pay to secure these goods and services. Match that declining buying power against civil servants' pay, which has not been increased in over five years.

Equally bad are the relatively paltry increases that private-sector companies, which are overtaxed and shrivelling under both the tax and currency depreciation burdens, have been able to offer, and the sense of the pain of poverty and economic deprivation begins to sink in.

The underspending in the economy by the Government in order to meet the increasingly unbearable primary surplus target and growing debt repayment amounts continue to shrink the spending power of both the employed, and that whole swathe of our population that is unemployed and underemployed. People around the country - in urban and rural communities - are going hungry and many are finding it increasingly impossible to make ends meet.

Apparently, the IMF and World Bank are beginning to get it. The Government appears to be much slower at understanding the hardships of ordinary Jamaicans.

Aubyn Hill is CEO of Corporate Strategies Ltd and chairman of the Economic Advisory Council of the Opposition Leader.


Twitter: @hillaubyn