Editorial | Economic Growth Council and GDP trends
The Jamaican economy has had an average of less than one per cent annual growth for the last 30 years. At this rate, it will take well over 70 years to double our current gross domestic product (GDP) level. The Holness administration in 2016 correctly posited faster GDP growth as an urgent national priority.
The Government quickly established the private sector-dominated Economic Growth Council, chaired by the head of the NCB Group, Mr Michael Lee-Chin. Members of the council often expressed strong conviction that the targets would be met as the identified reforms were carried out. These reforms included crime and governance (corruption) improvements, and a faster approval process.
Many observers and analysts at the time, while supportive of the need for faster growth, expressed scepticism about the time frame. The Government gave the assurance that the continued massive investment in infrastructure development in highways and housing, along with private-sector investments flowing from the improvements in the macroeconomic environment, would contribute greatly to getting the five per cent annual GDP growth.
The Economic Growth Council has become quite low-keyed recently. It would be useful to hear from the council if the original target still holds, and if its proposed reforms are being implemented.
In 2018, with the massive levels of infrastructural investment and the most benign macroeconomic environment in decades, the economy grew by 1.8 per cent. While this was an improvement, it was below the expectation of Growth Council projection. The Planning Institute of Jamaica (PIOJ), in its latest quarterly briefing on the economy, indicated that the rate of growth has slowed to 1.4 per cent for the first half of 2019. For the April to June 2019 quarter, the rate of growth of GDP was one per cent. The PIOJ, worryingly, pointed to the possibility of a further weakening of growth for the rest of the year.
The institute indicated that growth for the last quarter was stymied by “the winding-down of several major infrastructure projects … such as the Hagley Park Road and Constant Spring Road improvement projects which had contributed significantly to growth in construction …” Expenditure by the National Works Agency fell by 28.2 per cent during the quarter. Without elaborating, the PIOJ also drew attention to other growth-constraining issues like the Alpart alumina refinery and the 36.6 per cent reduction in sugar cane production.
The overall story emerging from the PIOJ briefing is that growth in 2019-20 will likely be lower than 2018-19. The current PIOJ projection does not consider the likely impact of a global economic slowdown.
LOW-LEVEL ECONOMIC GROWTH TRAP
The successful implementation of the current Stand-by Agreement with the International Monetary Fund (IMF), which ends in November, is credited with putting in place a benign macroeconomic environment which is expected to lead to a private sector-led take off in GDP growth. So far, however, the low inflation rate, low interest rate and stable exchange rate environment have not yielded the expected rate of growth. The IMF is on record expressing disappointment, suggesting that the economy is in some low-level economic growth trap. While unemployment has fallen, the country is seeing an increase in the poverty rate. This has created a seeming conundrum for the IMF and policymakers. Why, after all this effort at reform via the IMF programme and the Economic Growth Council, is the Jamaican economy still stuck at the same one per cent annual growth rate averaged over the last 30 years?
A fundamental explanation for this trend needs to be explored. The Economic Growth Council and the PSIOJ should urgently undertake research and initiate discussions to get answers to this critical national problem.
Despite the large increases in private-sector investment and government infrastructure expenditure, the basic structure of the economy has not changed significantly. While there has been much development in the finance sector and equities market, investment and innovation in the export sector have not been sufficiently deep and broad to drive faster growth. That is a major challenge that Jamaica must confront urgently.