A watershed for Jamaica’s economic reform and growth
Last week, an International Monetary Fund (IMF) team visited Jamaica to conduct discussions on the 10th review of the four-year Extended Fund Facility with the Fund. In meetings with the Jamaican authorities, private sector, academics and civil society, the team discussed recent economic developments and implications for the economic reform programme. We conveyed our findings at a concluding press conference jointly held with Finance Minister Dr Peter Phillips and Bank of Jamaica governor, Brian Wynter.
Key economic indicators continue to improve. The pace of growth is increasing and is projected at about 1.5 per cent in fiscal year 2015/16. The unemployment rate declined to 13.1 per cent in July, and employment gains are being generated in the tourism and business process outsourcing (BPO) sectors. Inflation fell to a historic low of 1.8 per cent in September and the external balance has dramatically improved, thanks to lower oil prices and the receding after-effects of the drought. Gross international reserves stood at US$2.9 billion at end-October, or five months of imports of goods and services. All of that has generated a stable macroeconomic environment.
However, this is not enough. Higher growth and more and better jobs are needed in order for Jamaicans to see the dividends from the government's reform efforts in their day-to-day lives. Responsible fiscal policy, a flexible exchange rate and a less vulnerable financial system are all just a means to an end. Our end goal is, and should be, better and more secure living standards for the Jamaican people.
To that end, with macroeconomic stability now well entrenched, the authorities and the IMF staff have agreed that it is time for fiscal policy to do more to support higher economic growth and job creation. Specifically, a staff level agreement was reached to lower the target for the primary surplus to 7.25 per cent of gross domestic product (GDP) for this fiscal year and to 7 per cent of GDP for FY2016/17. This additional fiscal space provides over J$12.5 billion this year, and next, to increase public spending to kick-start growth. Jamaica's infrastructure - roads, water, irrigation projects, ports and airports - clearly need an upgrade. This is a priority in the additional spending. This will complement the projects being undertaken by the private sector such as the development of the Kingston Container Terminal (KCT) and the Norman Manley International Airport. Also, part of the fiscal space will be devoted to protecting social spending and ensuring the better delivery of human services including the government's PATH social transfer programme, health care and education.
Monetary policy - which was tightened early on in the programme to protect Jamaica's international reserves - is also now on a loosening path and the revisions to the programme provide even more space for the Bank of Jamaica to support the economy. This more expansionary monetary policy stance is expected to help stimulate private sector credit growth and complement fiscal policy in supporting job creation and income growth.
With this loosening in both fiscal and monetary stances, prospects for higher growth are better than they have been in a long time. The team and the Jamaican authorities expect growth to increase to around 2.5 per cent in 2016/17. Better global growth, particularly in the US - a key source of tourists and remittances for Jamaica - alongside continued low oil prices which help put more money back into Jamaicans' pockets, will provide a conducive environment for accelerating growth in Jamaica.
Progress is also being made in a number of strategic projects. The most visible of these is, of course, the nearly completed North-South Highway, which, for the first time in history, directly links the Kingston Metropolitan Area, Jamaica's financial and administrative heart, to the dynamic economic activity on the north coast. Cutting the travel time from Kingston to Ocho Rios to an hour is bound to create new economic opportunities in and along the corridor. Dredging to expand the KCT is set to begin in 2016.
Improvements in the business climate - now well under way - should also support growth. The World Bank's Doing Business 2016 recently listed Jamaica among the top 10 most-improved economies worldwide. Building on this achievement, areas where there is scope for further gains include the ease of paying taxes, trading across borders, and getting electricity. The Electricity Sector Enterprise Team's efforts to lock in lower electricity prices by diversifying sources of energy used for electricity generation beyond oil are making steady progress.
In short, prospects for higher growth and job creation in Jamaica are looking good, supported by more expansionary macroeconomic policies, a favourable external environment, good progress in strategic projects, and an improving business climate.
Implementation of the reform programme remains strong and the IMF stands ready to support Jamaica in its efforts, in whichever way the country decides it needs. The road has been long and hard but our sense is these sustained efforts, along with a commitment to continued reforms, are beginning to pay off.
n Dr Bert van Selm is IMF resident representative in Jamaica. Email feedback to firstname.lastname@example.org.