Editorial | Preparing for life after current Jamaica-IMF agreement
The recent kerfuffle about the depreciation of the exchange rate; the hurried meeting between the Minister of Finance and elements of the private sector to cool tempers; and the reassertion of support for policy continuity, are indicators that there is at least nervousness and uncertainty about aspects of our economic affairs. This development is not helpful at this crucial period for Jamaica.
In November 2019, the current 36-month Stand-By-Arrangement (SBA) with the International Monetary Fund (IMF) will end. The country will likely then regain a greater degree of policy autonomy. Under normal circumstances, the ending of a successful borrowing relationship with the IMF is worthy of national celebration. But Jamaicans have celebrated such endings before, only to end up disappointed and back in the clutches of the Fund. This time around, hopefully there will be better preparation for life without a formal agreement with the Fund.
There is indeed much to celebrate from the implementation of this SBA, as well as from the 2013-2016 Extended Fund Facility (EFF). We should recall the dire situation the country faced in 2012, when there was very little appetite within the IMF for a borrowing relationship with Jamaica, following the disastrous breakdown of the previous agreement in 2011. Thanks to the resolve of the then Minister of Finance, Dr. Peter Phillips, and the administration, that EFF agreement was successfully implemented. That success provided a platform for the current administration to negotiate and also successfully implement the current SBA.
Jamaica’s long relationship with the Fund, starting in 1976, has been tough and turbulent. There, however, have been momentous achievements: liberalization of exchange control; implementation of the General Consumption Tax and an overall general improvement in the tax system; the two debt exchanges which gave the country much breathing room to improve fiscal management. These fiscal reform efforts culminated with the Fiscal Responsibility Framework legislation of 2011 committing the country to sharply reducing the debt to GDP ratio by 2025.
The country was able to accelerate the pace of debt reduction in 2015 with the PDVSA debt buy-back arrangement with Venezuela, which saw the debt-to-GDP ratio being slashed by close to 10 percentage points. As a result of these initiatives, and much sacrifice from the population over the years, the debt-to-GDP ratio has fallen below 100 per cent for the first time in nearly two decades.
AREAS OF UNDERACHIEVEMENT
Two significant areas of underachievement in Jamaica’s relationship with the IMF to date are the relatively low rate of GDP growth and the failure to sufficiently reform the public sector to achieve greater efficiency and thus cut corruption. In the post-IMF era, these will remain national priorities, which, if not tackled successfully, could result in the country knocking at the door of the Fund in the future.
Such a future outcome is the likely cause of the increasing disquiet at the level of the IMF board of directors and staff, as outlined in the latest review of the SBA. The board pointed directly to the need for Jamaica to tackle governance issues “swiftly and forcefully” to “bolster trust in public institutions and protect public funds”. In other words, the IMF is deeply concerned about the deep and entrenched levels of corruption in Jamaica’s public institutions.
As Jamaica prepares to exit the SBA, it is time to go beyond the justifiable current complaint about instability in the exchange rate and to begin charting a course for what the post-IMF Jamaica governance arrangements will look like. This is a job not only for the Government. The private sector, the Opposition, trade unions and civil society should be positioning themselves to influence the agenda and the outcome.
The IMF has already placed some issues on the agenda, including: strengthening the Integrity Commission; reforming public sector board appointments to ensure competent people are appointed, not just political hacks or those who are self-interested; moving public funds away from public bodies into the Treasury’s Single Accounts (TSA); and closing many more of the inefficient and wasteful public bodies. These IMF recommendations are necessary, but they are far from sufficient to secure a prosperous and independent future for Jamaica. Such a future requires much faster and inclusive economic growth and better governance; and these are the responsibilities of the government and people of Jamaica.