Editorial | Case for new IMF pact
It is to the credit of the Holness administration and its finance minister, Audley Shaw, that in the four months they have been in office they have maintained the fiscal discipline to which Jamaicans had largely become accustomed over the previous four years. They were pragmatic enough to accept that their promise of a J$30 billion income tax give-back, without off-setting revenue, was untenable. So, the government decided to deliver the undertaking in tranches and to support it with new consumption taxes.
Further, for the first two months of the current fiscal year, up to May, the government collected six per cent more taxes than projected. It spent J$7.2 billion, or approximately nine per cent less than it budgeted. Additionally, Mr Shaw informed a Private Sector Organisation of Jamaica (PSOJ) economic seminar yesterday that the government's primary surplus, which was to have been J$11 billion for the quarter ending June, was J$14 billion above the target.
These numbers are of more than academic relevance. For while it is early days yet, they are taken as tangible evidence of Mr Shaw's commitment to adhere to Jamaica's economic reform agreement with the International Monetary Fund (IMF), whose major target is a primary surplus of seven per cent of gross domestic product (GDP) for this fiscal year. That target used to be 7.5 per cent of GDP.
That was no easy requirement. But neither was it, though painfully achieved, without rewards. When the previous administration struck the deal with the IMF, Jamaica's debt as a ratio of its output of goods and services was near 150 per cent of GDP. It is now around 125 per cent. The current account deficit hovered around 13 per cent of GDP; its decline is around 10 percentage points. Five years ago, inflation was closer to 12 per cent. In 2015, it was at a 40-year low of 3.7 per cent - and falling.
In other words, Jamaica is achieving macroeconomic stability, of which its debt sustainability is a crucial component. Indeed, it is widely accepted that the government's high, unmanageable debt, which crowded out the private sector, inhibiting their investment, was the largest single contributor to the island's more than 40 years of aneamic economic growth.
That the previous administration mustered the courage to undertake, and maintain for four years, the tough reforms was due in no small measure to the oversight of the IMF and the threat of sanctions for failing to achieve quarterly performance criteria. That agreement ends next March. It is possible, in the circumstance, for our government to slip back into bad habits.
That is why we support Mr Shaw's promise to enter a new arrangement with the IMF when the current Extended Fund Facility (EFF) ends. But like Professor Densil Williams of the Mona School of Business, and others who spoke at the PSOJ seminar, we believe a new agreement should be more than a staff-monitored programme being contemplated by Mr Shaw, notwithstanding Jamaica may be without a balance of payments problem, requiring a borrowing deal. A successor arrangement must have sanctions - a price to pay if the government falls, or lurches from the fiscal wagon.
We do not believe that Jamaica's institutional arrangements are as yet sufficiently strong enough to resist, without help, the pressures that politics can exert on fiscal discipline, And despite Mr Shaw's recent posture, given his past history with the Fund, we are not ready to take a chance.