Bruce Golding | Don’t buy the hype
Much has been said about what is loosely referred to as the 'management of the economy', and much credit for this has been given to the previous government. Our macroeconomic indicators are said to have been moving in the 'right direction'.
Undoubtedly, the Simpson Miller administration deserves credit for the improvement in the fiscal accounts, where a sturdy primary surplus has been maintained and the fiscal deficit has virtually been eliminated. That alone is a significant achievement, Jamaica having endured 18 consecutive years of fiscal deficits.
Important fiscal reforms have been instituted, although, it must be pointed out, some of these, such as the fiscal responsibility framework and central treasury management system, were actually done during the previous Jamaica Labour Party (JLP) administration.
However, we have been inclined to overlook or undervalue the huge impact that the dramatic fall in oil and other commodity prices have had on many of these indicators, including inflation, balance of payments, and debt reduction. It is important for us to not only recognise but also quantify this impact, especially since these are external factors that are not likely to be sustained even over the medium term.
It will also unmask some of the fundamental and persistent weaknesses in the economy that need to be addressed if the improvements we have seen are to continue beyond the cyclical slump in prices. The breathing space this has given us, together with our improved fiscal position, provides a better opportunity to address these problems than we have had for a long time.
The dramatic fall in oil prices saved us US$1.4 billion on our import bill for the last fiscal year, the equivalent of 10 per cent of GDP, and is primarily responsible for the reduction in the current account deficit to 2.4 per cent. It was the fall in oil prices that forced Venezuela to put some of its PetroCaribe receivables on the market and created the opportunity for us to repurchase US$2.9 billion of debt at a discounted price of $1.5 million. This, effectively, reduced our total debt stock by US$1.4 million, equivalent to 10 per cent of GDP, and accounted for much of the reduction in the debt-to-GDP ratio.
The $33-billion drawdown from the National Housing Trust (NHT) that would otherwise have had to be financed by debt accounts for another two per cent reduction in the debt-to-GDP ratio. Without those 'good fortunes', our debt-to-GDP ratio would hardly have changed from what it was in 2011.
Because of the fall in oil prices, two of the 12 categories that make up one-quarter of the cost of living basket - electricity and transportation - actually saw a decline in their price indices over the last fiscal year and had much to do with producing the low three per cent inflation recorded. The reduction in the world market price of major import items such as wheat, corn, soybean meal and fertilisers was also a factor. The world is not level. We have benefited from the same things that have had a devastating effect on commodity-producing countries like Brazil, Venezuela and even Canada.
We must not downplay the achievements that have been made, however much they have resulted from fortuitous circumstances. But when we take credit for things that happen to us rather than things that we cause to happen, we run the risk of slumbering into complacency and leaving ourselves at the peril of less-beneficial things that might happen to us going forward. We must be careful not to celebrate when we soar as a result not of the thrust of our engines but the favourable winds beneath our wings.
A reliable indicator of an energetic economy is the amount of raw materials it utilises for the production of goods and services. Our imports of raw materials in 2015 were 20 per cent below what they were in 2011. Another reliable indicator is electricity utilisation, which showed a decrease in 2015, compared to 2011, after deducting the increase in transmission losses.
Our merchandise exports have fallen by 21 per cent in the last four years. On the services side, we have improved by only US$233 million, and that is after taking into account the US$431-million improvement in tourism which, despite its modest eight per cent growth in retained earnings, has not been able to take up the slack.
One takeaway from all of this is that the external market has to be at the centre of the growth agenda. The domestic market of 2.7 million people, with a per-capita income of just over J$12,000 per week, does not have the spending power to provide a platform for robust economic growth. Many years ago, our exporters proffered a mantra, 'Export or Die'. We have ignored that in the same way we have ignored the warnings that obesity and smoking are likely to lead eventually to serious illness.
Global competitiveness in a virtually borderless global market is the key. The Jamaican brand is a powerful but underutilised resource. Smart marketing will give us the penetrative force, and I have no doubt that we are capable of that, given the expertise that we have developed in tourism that needs to be replicated in selling our other goods and services, including our cultural products.
In the last few days, we have heard warnings from the World Bank and United States Vice-President Joe Biden that the "good fortune" of low oil prices is coming to an end. We benefited from it while it lasted. We must ensure that we can benefit after it is gone.
- Bruce Golding is a former prime minister of Jamaica. Email feedback to firstname.lastname@example.org.