Briefing | The 13th IMF test
What is the current situation?
Jamaica has successfully completed 12 consecutive quarterly review tests under the Extended Fund Facility (EFF) offered by the International Monetary Fund (IMF). An internal review IMF team visited the island in August and they have outlined a set of policies necessary for Jamaica to complete the 13th review under the EFF.
The Fund will make its decision in September after which, if favourable, they will make US$40 million available to Jamaica. The IMF has outlined that programme implementation under the new EFF has remained strong, all the targets that can be quantified were met with ease, tax revenue were more than expected and other structural reforms are well on track.
How has GDP progressed?
Since the beginning of the latest EFF, the IMF and the international investment community have been very optimistic about Jamaica's economic future, in particular its economic growth prospects, given the IMF's recommendations. After recording economic growth of 1.6 per cent for the quarter ending March 2014, Jamaica has struggled to materialise growth above one per cent until recently for the quarter ending June 2016; they were able to grow little above one per cent. Looking at annual growth over the past few years, Jamaica grew by 0.7 per cent in 2013, 0.9 per cent in 2014 and 1.0 per cent in 2015, the latter arising as a result of increased manufacturing and agricultural produce. This slow but positive growth trajectory is expected to improve this year; growth for the 2016/2017 is expected at 1.6 per cent.
Where is the country coming from?
After several periods of GDP decline and unfavourable macroeconomic conditions, in the 2012/2013 the international community speculated negatively about Jamaica's hope for recovery. An article published by the Financial Times, in mid-2014, reiterated the need for Jamaica to take its economic conditions seriously. The article explained that Jamaicans hold the key to its own success, highlighting that the country must act accordingly to fuel its own economic growth. The article classified the recent agreement with the IMF, supported by the Inter-American Development Bank and the World Bank, as a "high-risk programme, a last-ditch effort to avoid massive adjustment, even a collapse". The international community was fearful that the Jamaican economy could collapse if the country did not change its approach.
For the 2013/2014 fiscal year, the country's strategy was to focus on three main areas: 1. Improving fiscal and public sector management (public sector modernisation and e-governance) 2. Increase competitiveness to grow (improving the investment climate) and 3. Reducing vulnerability and improving resilience (disaster mitigation, risk management and social protection).
How has Jamaica capitalised on this?
The IMF and the international community are more pleased with Jamaica's performance thus far under the latest EFF, so much so that they and the Jamaican Government are having preliminary discussions to enter a new EFF when this one expires in April 2017. According to the latest IMF report, Jamaica's economy is recovering gradually, growth for 2016/2017 will be above the last three years as investments continue in tourism, agriculture and other industries. They highlight the fact that inflation has remained low, and the gross international reserve continue to increase, reaching more than US$3 billion at the end of June. Amid this, unemployment across the island remains high at 13.7 per cent, though partly as a result of expansion in the labour force.
What else did the IMF highlight?
The IMF has suggested that continued implementation of the Government's growth strategy is important for job creation and poverty alleviation gradually over time. Also, strong and robust social safety net programmes are needed to safeguard the poor from increase expenditure that might arise from the Government's switch from direct to indirect taxation. Public sector reform to increase efficiency in their operations must continue.
What are the other concerns?
The exchange rate is gradually depreciating, closing at another record high above J$128 to US$1 at the end of trading day on Tuesday. Recall as the exchange rate depreciates, the external debt stock increases. Despite this, the IMF and the international community are pleased with Jamaica's progress thus far under the EFF. The IMF, in particular, outlined that a lot has been achieved in the first three years of implementing the programme. There has been significant progress in the implementation of needed reforms, including fiscal reform, a fiscal rule and a large fiscal adjustment which has resulted in Jamaica materialising a large primary surplus by international standards. This has given the country a surviving edge as it aims to reduce the public debt.
- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on twitter @DrAndreHaughton; or email email@example.com.