IMF deal is not the problem, says King
Daraine Luton, Senior Staff Reporter
Head of the Department of Economics at the Mona campus of the University of the West Indies, Dr Damien King, has scoffed at a suggestion that Jamaica should re-engage the International Monetary Fund (IMF), with a view to lowering the primary surplus target.
Dr King told The Gleaner that if Jamaica were to go the route of trying to escape the 7.5 per cent of gross domestic product (GDP) target, "we would have permission only to abandon trying to solve our fiscal problem once and for all".
Financial secretary Devon Rowe told a parliamentary committee last week that cuts, which could be as deep as $6.9 billion, are likely to ensure Jamaica meets the 7.5 per cent of GDP target, or $121.3 billion, this year.
In response to Rowe's disclosure, Ralston Hyman, an economic commentator, said the cuts could significantly impact the country's capital and social infrastructure and make Jamaica less attractive to investments.
"In view of that, and in view of the impact of the chikungunya virus on productivity, and tax revenues, and the decelerating global economy, we should use the opportunity and see if we can get a recalibration of the primary surplus target down to about six or five per cent of GDP," Hyman argued.
But Dr King, asked by The Gleaner whether there are any examples of countries, that have attempted to run a 7.5 per cent primary surplus, which Jamaica is required to do under the IMF agreement, said the question of whether any country has ever maintained a 7.5 per cent surplus is irrelevant.
"It is like asking if any country has ever dug itself out of an 18-foot hole. That is the depth of the hole and if you want to get out of the hole, then 18 feet or 7.5 per cent is what is required," Dr King said.
He argued that even if Jamaica gets the IMF's permission to reduce the primary surplus target, "we would have permission only to resume borrowing and so resume the accumulation of government debt".
Rowe reminded the Public Administration and Appropriations Committee that the central plank of the programme was debt reduction.
Dr King said given the progress made in the past 18 months under the programme and "seeing the signs of improvement that we are already seeing (production up, employment up, interest rates down, doing-business ranking improved), I don't see how it makes sense to return to accumulating debt".
He said if the government fails to generate revenue, it has no choice but to cut expenditure.
"A decision to borrow an additional J$6.9b, instead of cutting expenditure, will also have a contradictory effect on the economy, so we would not be saving ourselves hardship by doing so. The problem is the hole; not the solution," Dr King said.
Rowe revealed that tax revenues have fallen behind target by $5.9 billion as at the end of August.
The financial secretary said Jamaica remains largely on track to achieving medium-term economic growth.
"There is evidence to suggest that the programme is on the right track and we are continuing to attempt to build a solid foundation for growth," Rowe said.