Time to employ inclusive growth strategies
How is the economy?
SIX YEARS after the global financial crisis of 2008, Jamaica has not recovered fully. Last year this time, the country recorded two quarters of consecutive economic growth, indicating that local production of goods and services were improving slightly. Growth, however, faltered after the summer, negatively affected by drought conditions and the unwillingness of oil-importing companies to pass on the benefits received from lower global oil prices to other local producers and consumers.
What is the impact of this?
1. Production did not increase because the cost of oil, which is a necessary input, did not fall significantly for domestic producers in line with global trends. The failure of downward pressure to reach domestic oil distribution prices kept input cost high for local producers, so companies found it difficult to extensively increase production without increasing prices.
2. Consumption could not increase via aggregate demand since there was marginal reduction in the average prices; even though the annual inflation rate last year was approximately 4.5 per cent, real disposable income did not increase by much, and subsequently, no increase in the size of a household's consumption basket. Growth projection for this year has been revised from 1.4 per cent originally to just 0.5 per cent based on these disadvantages.
What improvements or advantages remain?
Last year, credit rating companies Fitch, Standard & Poor's and Moody's upgraded Jamaica' credit rating based on the country's favourable performance under the International Monetary Fund (IMF) agreement. This should have a positive impact on the inflow of foreign direct investment and strengthen bilateral and multilateral partnerships. Jamaica is also benefiting from robust remittance inflows and tourists arrivals. Gross remittances was at its highest level in 2014 and tourism receipts as percentage of gross domestic product (GDP) was the highest since 2009. The economy is showing signs of recovery in certain aspects; however, the overall situation is far from where it ought to be. The IMF programmes continue on track thus far and have received much support; however, certain conditionalities remain difficult to achieve, including maintaining a primary surplus of 7.5 per cent of GDP and reducing the public sector wage bill to nine per cent of GDP, albeit, Jamaica has improved on the Global Doing Business Index and the Global Social Progress Index.
How will 2015 proceed?
The fall in oil prices globally is expected to hit Jamaica with a lagged effect. Therefore, it is expected that input cost should fall, production should increase, and households' real income and by extension, consumption, should rise. Lower oil prices should mean lower electricity prices as well, which should have a positive impact on all production growth prospects. Jamaica's current account has benefited from the fall in oil prices, the current account deficit improved from -13 per cent of GDP to less than -7 per cent of GDP currently and is expected to fall even further to approximately four per cent of GDP by the end of 2015. Both the value of exports and imports have been falling, but imports have been falling at a faster pace. An increase in domestic production is required if Jamaica is expected to favourably improve its terms of trade sustainably. The debt-to-GDP ratio is expected to fall a little lower to about 130 per cent of GDP this year, which is good, although foreign debt-servicing payments continued to increase as a result of a depreciating currency.
What does the public think?
to face efficiency problems in how the Government collects taxes; corporate taxes are low; and the Government still believes it can fill the gap mainly by collecting taxes owed by lower-middle-income earners and continue to neglect corporate-tax collections. Divestment of certain operations might increase government revenues in some regard, but may not be enough to solve the overall problems.
A vast majority are unhappy with the country's marginal progress and believe more can be done by both the public and private sectors to accelerate Jamaica's rate of growth and improve the overall standard of living of the people. National discussions on economic issues have become pervasive, which is a good sign.
What is being done?
I recently attended an economic expo in Clarendon, where the locals highlighted the progress they have been making in entrepreneurship and commerce. It was very well received and the parish is sending the right message.
Across Jamaica, more people are beginning to understand economics better and how the actions of each individual contribute to the advancement of the macroeconomy. All efforts now should be geared towards improving economic and social conditions via inclusive growth strategies.
- Dr André Haughton is a lecturer in the Department of Economics at the Mona campus of the University of the West Indies. Follow him on twitter @DrAndreHaughton; or email firstname.lastname@example.org.