Growth above 2% unlikely unless led by private sector
The International Monetary Fund (IMF) has suggested that while the three-year standby agreement with Jamaica envisages a continuation of the ambitious reform agenda, bringing back growth to above two per cent is not likely to materialise without private sector-led growth.
"This underscores the importance of improving the business environment and cutting red tape," the Fund said in its November 2016 report on Jamaica.
As part of the move to encourage the private sector to become the engine of growth, last week the Private Sector Organisation of Jamaica (PSOJ) launched an updated corporate governance code.
Chair of the corporate governance committee, Greta Bogues, said the code is a framework document which will support businesses in establishing appropriate governance systems and structures that can effectively support their growth trajectory.
The code is targeted at the board of directors, who must set the business tone "at the top" through the policies
and practices that they implement, starting with ensuring that appropriately skilled personnel are elected to the board.
"A well-run, well-qualified board, together with the right executive management team which takes into account appropriate strategic information can lead to enhanced growth, which ultimately benefits stakeholders," Bogues said in emailed responses to Wednesday Business queries.
She said "research in developing economies has shown that companies
that have implemented appropriate corporate governance practices have demonstrated enhanced business performance, which naturally contributed to economic growth".
A statement from the PSOJ last week quoted Bogues as saying that "Over the past six years, we have seen significant changes in the
global and local economic environment as the way investors have been assessing companies is constantly evolving. This has forced both public and private sector entities to sharpen their focus on governance issues including disclosure, risk, sustainability, and information technology."
Asked how that applied to efforts to get the private sector to be the engine of growth, she said that, "What we have seen globally is that investors have become more sophisticated when making investment choices, and this has been driven by the easier access to company information through technology."
Bogues said investors have expectations of boards and management in terms of the performance that they deliver for the benefit of stakeholders, and they see a linkage between a company with very good governance practices and its performance.
She noted that "Jamaica is open for business and as the private sector continues to grow and explore business opportunities locally and globally within a very competitive environment, having an appropriate modern corporate governance framework in place, which emphasises transparency and demonstrates directors' accountability, will support these growth initiatives by giving Jamaican companies the best tools to navigate challenging environments and achieve sustainable growth."
According to the IMF, "Without better growth outturns, high unemployment and weak job prospects would further entrench long-term losses in skills and productivity, especially through brain drain, and undermine social support for the Government's reform efforts."
As an illustration of those risks, it said, in a scenario where constraints to growth remain unaddressed, and growth as a result averages one per cent for the forseeable future, public debt would still be at 80 per cent in 2025-26 - 20 per cent of gross domestic product (GDP) higher than the debt goal envisaged in the fiscal responsibility law.
"That low growth could make it difficult to maintain the current path for the primary surplus, leading to higher risk premia, both of which would push the path for debt-to-GDP even higher," said the Fund.
Furthermore, it said, Jamaica remains vulnerable to external shocks, including but not limited to natural disasters, as well as a sharp rise in risk premia due to volatility in international markets, economic slowdown in trade partners, and a worsening of the Zika virus, particularly insofar as it impacts tourism.
If any of those risks were to materialize, the medium-term impact on Jamaica could be significant, said the Fund, referencing a risk assessment matrix in the Article IV Consultation on Jamaica released earlier this year.
Without a significant growth payoff, the IMF said, public support for the programme may falter. Sustainable medium-term debt reduction also relies crucially on a growth pickup, it added.
The Andrew Holness-led administration has established an economic growth council with a mandate to help the Government achieve five per cent economic growth in four years, the base year being 2016.
At last week's launch of the corporate governance code, Minister of Industry, Commerce, Agriculture and Fisheries Karl Samuda said it was being done in an environment of growing business confidence, and where there is firm commitment by both Government and private sector to laying the groundwork for sustained economic growth.