Jamaica’s IMF score good at half-time
Last week, an International Monetary Fund (IMF) team led by Jan Kees Martijn and Uma Ramakrishnan visited the island to conduct discussions on the eighth review of Jamaica's four-year extended fund facility - just over two years after the programme was approved by the IMF's executive board, on May 1, 2013.
With seven quarterly reviews completed, and seven more scheduled after the current review has been considered by the board in June, the team's visit marked the programme's mid-point. Meetings with the Jamaican authorities, private sector, academics, and civil society provided an excellent opportunity to take stock of what has been achieved in the first half of the programme, and what remains to be done in the second half.
The findings of the team were conveyed in a press release that was presented in the customary joint press conference with Minister Peter Phillips. Journalists' questions focused on a key fiscal target under the programme, the 7.5% of GDP primary surplus, which was adhered to in terms of GDP,
but missed in nominal (J$) terms. Ramakrishnan and Martijn explained that minor deviations under IMF programmes do happen, as targets are typically ambitious; and that one narrowly missed performance criterion over eight reviews is still an exceptionally strong performance by IMF standards. The authorities remain well on track to achieve the central goals of the programme, and a missed performance criterion can be waived by the IMF's executive board under a standard procedure.
The half-time macroeconomic score-board looks good. The threat of an acute financial crisis - that was very real just over two years ago - now seems a distant memory. Inflation was down to 4% in March 2015, the lowest in 48 years. The Jamaica Chamber of Commerce's (JCC's) Index of Business confidence reached 132 in the first quarter of 2015, the highest level in eight years. And the JCC Index for Consumer Confidence increased to 114, the highest in three years. There can be no doubt that Jamaica's economic prospects are looking up. Growth is projected at almost 2% in 2015-16 - that would be the highest in nine years.
PUBLIC DEBT DECLINING
Perhaps, most important, public debt has firmly been put on a downward trajectory: debt-to-GDP declined from 147% in March 2013 to 139% of GDP in March 2015, and is projected to reach 133% by March 2016. Steadfast progress in reducing debt-to-GDP is critical to increasing domestic and international investor confidence and reducing crisis risks.
The declining debt-to-GDP ratio is clear evidence that Jamaica's strategy for dealing with its debt - combining prudent fiscal policy with efforts to boost growth by improving the business climate and promoting strategic investments - is working. While the 2010 and 2013 debt-rescheduling operations, the JDX and the NDX, were helpful in reducing government debt service, events over the past two years have also made it very clear that such operations are not without costs.
More than two years after the NDX, the domestic market for Jamaica's government debt is still affected by the second debt restructuring, with implications for the Government's ability to borrow on the domestic market, and commercial banks' ability to lend.
Unemployment in Jamaica still remains too high, but with some positive developments. The January 2015 number came in at 14.2% - up from January 2014, unchanged from October 2014. But the recent labour market numbers also showed strong increase in employment in manufacturing. The positives should improve further as growth picks up in 2015-16.
Another important indicator of the programme's success is Jamaica's export performance - especially of services. With annual receipts well over US$2 billion, tourism is by far the most important sector for Jamaica's overall export performance. The sector is clearly benefiting from enhanced competitiveness - our latest estimates show 11% growth in tourism receipts in FY2014-15 over the year before.
Looking ahead, and as the reforms take hold, there is also huge potential for further growth in exports of other services, in particular in the business process outsourcing sector (BPO).
In sum, over the past two years, Jamaica has adopted ambitious policy changes that have laid the foundation for a gradual recovery of economic growth and employment. Although painful in the short run, these measures are now starting to pay off.
Much has been achieved, yet much remains to be done. Modernising public administration, public pension reform and reducing the cost of electricity are all key to raising growth. Economic reform in Jamaica is a marathon effort, not a sprint. We at the IMF are looking forward to run with Jamaica on its track to prosperity.
- Bert van Selm is the IMF's resident representative in Jamaica. Email feedback to firstname.lastname@example.org.