Fri | May 25, 2018

UPDATED: Strong growth eludes Jamaica, much to IMF’s disappointment

Published:Wednesday | March 14, 2018 | 12:00 AMMcPherse Thompson/ Assistant Editor - Business
The International Monetary Fund headquarters in Washington DC.

The International Monetary Fund, IMF, has again expressed disappointment with the level of Jamaica's economic growth, which has averaged a mere 0.9 per cent since the reforms began almost five years ago.

Of note is that most of the more than 100 measures undertaken under the policy matrix for implementation under the IMF's Memorandum of Economic and Financial Policies, including the structural benchmarks and quantitative performance criteria, have already been completed or are near completion, according to the reports released so far.

The IMF has outlined some of the additional measures that need to be undertaken, which Jamaica's Resident Representative Dr Constant Lonkeng Ngouana has since confirmed are the immediate steps needed to spur economic growth.

The financial watchdog has attributed Jamaica's lack of growth to entrenched structural obstacles, including crime, bureaucratic processes, insufficient labour skills and poor access to finance.

 

Moreover, the agricultural sector's vulnerability to weather shocks exacerbated rural poverty in 2015, said the IMF, warning that "not addressing these bottlenecks could pose risks for continued public support for the Government's policy programme."

In its third review under the precautionary standby arrangement issued last Friday, the IMF said the economic reform programme that began in May 2013 has been a turning point for Jamaica. With broad-based social and political support for reforms, the Jamaican government - over two administrations - has embarked on a path of fiscal discipline, monetary and financial sector reforms, and wide-ranging structural improvements to break a decades-long cycle of high debt and low growth, it said.

 

Growth enhancement

 

However, even as public workers clamour for higher salaries, the IMF cautioned that structurally reducing the wage bill is critical for the Government to reprioritise spending towards growth-enhancing projects.

It said more expenditure is needed for infrastructure, citizen security, building agricultural resilience, health, education, and the social safety net. "Creating the space for such spending will require going beyond temporary remedies like wage freezes and adjustments to non-wage benefits," said the Washington DC-based organisation.

As it has pointed out before, the IMF said those will require high-quality measures to overhaul the compensation structure to retain skills and reward performance, streamline the vast and inequitable allowances structure, prioritise key government functions and shed those activities that the Government can no longer afford to undertake.

It will also require a change in the capital-labour mix through technology upgrades, including better monitoring of, and accountability for, government spending.

"Inevitably, these reforms will also lead to a reduction in the size of the public workforce. Such a holistic approach will support a durable reduction in the wage bill, without frequent discordant wage negotiations, and enhance public service delivery with fewer but better-paid public employees," it added.

Improving social outcomes and fostering inclusive growth will also require addressing structural bottlenecks and creating an enabling environ-ment for the private sector, the Fund said.

 

Essential for growth

 

"Countering both weak social outcomes and escalating crime will take time but will be essential for sustained growth. In this regard, the evidence suggests that early-childhood education, interventions to improve school attendance, and skills training for the youth would foster a virtuous cycle of lower crime, higher wages, stronger growth, and increased economic opportunity, particularly for the young," the IMF explained.

"Policies to support productive private investments, including improving lending to smaller businesses and reducing lending-deposit interest spreads, will help fuel such an upswing. However, the Government must resist the pressure to use scarce public resources to 'pick winners' - including through providing tax incentives. Instead, the goal should be a uniform, broad-based, and low-rate tax system, a level playing field for business, and harmonized rules for all," the fund said.

The multilateral agency also encouraged Jamaica to stick with its reform programme to safeguard hard-won gains.

"After five years of reforms and tenacious fiscal consolidation, risks from reform fatigue and loss of social support are high, especially as growth remains feeble and crime escalates. Addressing some of the entrenched structural problems that hamper growth is not an overnight task; these difficult reforms require continued broad-based support and policymakers' commitment to persevere with the implementation," the IMF said. 

mcpherse.thompson@gleanerjm.com