Editorial | Talk to IMF, create economic task force
Three weeks ago, as the depth of the global economic impact of the COVID-19 pandemic became increasingly clear, this newspaper urged the Jamaican Government to make a quick beeline to the International Monetary Fund (IMF) for a standby arrangement as insurance should the domestic economy go into free fall. It has, so far, declined to act on our advice.
In closing the Budget Debate on March 24, when he shored up the administration’s J$25 billion stimulus package with another J$9 billion in support for firms and workers who will lose jobs and income because of the coronavirus, Finance Minister Nigel Clarke insisted that the Government “has options”. Days later, he told The Gleaner that a new borrowing relationship with the IMF was “not on the cards” at this time but didn’t rule it out “should things deteriorate”.
This newspaper believes that the economic circumstance not only insists on an urgent engagement with the Fund, but that the Holness administration establishes a national task force to plan for the post-COVID-19 structure of the Jamaican economy. Further, as we proposed before, Jamaica should seek to lead its Caribbean Community (CARICOM) partners in a coordinated regional effort to mobilise international support for the Caribbean’s recovery effort.
That the initiatives by governments to slow the spread of COVID-19 have triggered a global recession is indisputable. The question was how bad it would be. The IMF’s boss, Kristalina Georgieva, has said that it would likely be worse than the Great Recession that followed the financial crisis of 2008. The global economy declined 0.7 per cent in 2009. A decade later, some Caribbean countries are still struggling to recover.
Numbers have begun to be attached to the COVID-19 recession. Last week, rating agency Fitch projected that global output would decline by 1.9 per cent in 2020, more than double the rate of 2009. Further, Fitch expects that the United States, Jamaica’s major trading partner, from which it gets more than 70 per cent of its tourists, will slump by 3.3 per cent while the UK’s gross domestic product (GDP) will fall by 3.9 per cent. The slump by eurozone countries would be even more precipitous, at 4.2 per cent. China, where COVID-19 emerged, might grow, but at less than two per cent, meagre by its standards.
This, of course, is bad news for Jamaica, whose central bank had projected economic decline in the order of three per cent. In response, it signalled its willingness to use its reserves to support the balance of payments and ease pressure on the domestic currency while at the same time being flexible with monetary policy to enhance liquidity.
The central bank, like the other overseers of the macroeconomy, has challenges. US$3.1 billion of reserves put Jamaica in a better place than it has been in the past, but that could fall under pressure and dissipate quickly if Jamaica’s major trading partner has a prolonged hiccup; its major source of foreign exchange, tourism, remains on furlough; and the second provider, remittances, slows to a crawl.
Indeed, analysts at the Inter-American Bank (IDB), who have looked at the potential impact of COVID-19 on tourism, are more pessimistic than the central bank about its short-term prospects for Jamaica’s economy. Their low-end fallout for this year is five per cent. We hope for the best-case scenario.
PRODUCTION CLOSER TO HOME
Among the options that Minister Clarke could utilise, if it becomes necessary, is pushing beyond 2026, the date by which he has to bring the debt – now 90 per cent of GDP – to 60 per cent or lower; and being more flexible about the requirement that the public sector wage bill be no more than nine per cent of GDP. This would allow him to run a lower primary balance, slow the rate of repayment of the debt, and use the money for growth-inducing spending. A higher public sector wage-to-GDP would similarly ease pressure to cut government spending on jobs at a time when the economy is in a crunch and people are on hard times.
The minister’s balancing act, in the circumstance, would ensure that even as he stimulates the economy, the Government doesn’t run up huge deficits and return to the borrowing binge that previously took the country to the fiscal cliff.
That, in part, is why a standby arrangement, similar to the one from which Jamaica emerged last November, that set US$1.6 billion for use if the need arose, would make sense, once appropriate terms were negotiated. By last week, more than 80 countries had approached the IMF about assistance.
Beyond these immediate concerns, COVID-19 will ignite questions about some of the assumptions of economic globalisation, especially supply chains. There is likely to be pressure to have some production closer to home, calling into question the viability of some of the logistics hub initiatives upon which Jamaica hoped to build its economic future.
Our proposed economic task force would allow stakeholders to take a hard look at these and other matters such as food security and land utilisation.