Fri | Sep 22, 2017

Another IMF pact after 2017?

Published:Sunday | April 3, 2016 | 4:00 AM
Danny Roberts

If Jamaica is to continue its borrowing relationship with the International Monetary Fund (IMF) beyond April 2017, some fundamental changes would have to take place in the programme.

The structural benchmarks and quantitative targets we have achieved over the 10 consecutive quarterly tests have failed to meet the desired objectives of significant economic growth, job creation and improved per-capita income as set out in the programme. It is incomprehensible, therefore, how we can laud the strong programme implementation, speak about the substantial reduction in vulnerabilities, and the benefits of structural reform, while ignoring the social indicators, which, in fact, it had set out to improve.

There is, however, a strong feeling that we should continue with the programme because it has brought a level of fiscal discipline that had never before existed. It is disconcerting to hear the arguments, more so from our politicians, implying that as a sovereign, independent nation, we lack the discipline to prudently manage our economic arrangements, and that, left on our own, we have demonstrated a penchant for reckless and imprudent spending.

Never mind the fact that our economy has recorded insignificant growth under the IMF programme, that poverty and unemployment remain stubbornly high, and that at the end of the four years, we would have added US$932 million to our debt stock.

Any agreement with the Fund beyond 2017 must, therefore, examine some of the contradictions, inconsistencies and major failures of the programme. But we must lay no blame at the feet of the IMF for our failure to grow the economy; and surely, we must give no further credence to the belief that we are incapable of managing our own affairs.

Unless the economy grows, we will effectively be caught in a debt trap, worsened by the growing income inequality, increasing poverty and high unemployment, which locks us into dependency on the IMF plaintively mirroring our colonial past.

The truth is whether we seek an extension of our agreement beyond 2017 or not, we are locked in the IMF's projections and forecasts which it sets out for us up to 2020-21. The 10th review under the EFF arrangement recognised social threat as the greatest impediment to the programme if economic growth and job creation are not achieved in the short run, yet the policy measures are not to be adjusted over the next five years. In fact, the IMF admits that the reduction in the primary surplus from 7.5% to 7.0% by 2016-17 will not do much to stimulate growth, for although the additional fiscal space will be directed towards capital spending in areas designed to stimulate growth, the Fund concludes that "the direct growth effects from such spending are likely to be modest given its large import component".

Paradoxically, the greatest risks over the next five years have been identified as the weakness in the revenue, and, more important, to so-called 'high public-sector wage bill'. The wage bill, which stands currently at 10.3% of GDP, is to be reduced to 9.0% by the next wage cycle, and projected to do so largely through attrition and voluntary separation. If this is not achieved, we stand to lose the benefit of a reduced primary surplus by having to cut capital spending, upon which growth largely depends.

It seem counterintuitive, therefore, to freeze the salaries of public-sector workers for the next five years, even if the economy were to grow on average of 2.5% per annum over the period. Or, put it more starkly, to reduce the real wages of public sector workers by about 20 percent based on projected inflation outcome.

 

DISPROPORTIONATE BURDEN

 

This is a programme, we were told, that was to be front-loaded, with the austerity measures imposed in the first two to three years. But if the projections are anything to go by, it seems iniquitous for the workers to continue to carry a disproportionate burden of an adjustment that they now seem unlikely to benefit from.

For while the Budget restricts the wages of the public sector (and, by extension, private sector), with the consequential effect of fettering consumer spending, its allocation to service the repayment of the domestic side of the debt has increase exponentially from $25.2b in 2014-15 to $261.6b in 2015-16 as a result of payback on the JDX and NDX. So much for shared sacrifice.

The Fund's forecast for Jamaica over the next five years is predicated on an average growth rate of 2.5% per annum with annual inflation between 6 and 7%. But even at that projected growth rate, the public-sector wage bill must be frozen at 9.0% of GDP, while the Budget is adjusted for significant increases in the debt repayment on the domestic loan and total debt repayment as a percentage of GDP to the IMF from 0.06% in 2015 to 0.86% in 2021.

Under the current structural adjustment programme, workers are bearing the brunt of the sacrifice through wage stagnation to meet the Fund's expectation for the financial sector to achieve a 20% pretax profit margin.

Unless and until we harness the political will and mobilise our collective effort to achieve growth as a sovereign state, the Fund's performance in the Asian crisis and Latin America seems destined to lead us to the same conclusion that the medicine may turn out to be worse than the disease.

- Danny Roberts is head of the Hugh Lawson Shearer Trade Union Education Institute at the Consortium for Social Development and Research, UWI, Open Campus. Email feedback to columns@gleanerjm.com and strebord02@gmail.com.