Thu | Sep 21, 2017

Briefing | Jamaica and the IMF beyond 2017

Published:Wednesday | October 12, 2016 | 10:00 AMAndre Haughton

The Department of Economics at the University of the West Indies, Mona, will be hosting a Forum titled: The IMF and Beyond 2017 at the Medical Sciences Lecture Theatre tomorrow at 5:30 p.m. to 7:30 p.m..

The Forum will feature presentation from Colin Bullock, former executive director of the Planning Institute of Jamaica, who will give his perspective to Chart the Way Forward: Critical Reflections on Jamaica's Recent Relationship with the IMF.

Dr Constant Lonkeng Ngouana, resident representative of the IMF in Jamaica, will discuss; 'Jamaica and the IMF Beyond 2017: Prospects, Problems, Priorities.

Richard Byles, president and CEO Sagicor Group Jamaica and co-chairman, of the Economic Programme Oversight Committee will discuss: Will Jamaica Still Need the IMF after 2017? A Private Sector Perspective.

Dr Andre Haughton, lecturer in the Department of Economics, UWI, Mona will discuss, Beyond 2017: The IMF, the Growth Agenda and Good Economics.

What is the relevance of the forum?

 

GROWTH POTENTIAL

 

Over the last 40 years, Jamaica has entered 13 successive arrangements with the IMF, which has provided not just foreign-currency support through special drawing rights and drawdowns, but has also provided guidelines along the way to help increase the indebted nation's macroeconomic stability which is necessary to enhance its economic growth potential.

How has Jamaica performed historically?

The success Jamaica witnessed in the 1960s when GDP averaged more than five per cent per annum was extinguished by high public borrowing in the early '70s. Today, Jamaica is among the top five indebted nations in the world with a total debt ratio of 128 per cent of GDP. With a gradually depreciating currency, Jamaica's foreign-currency debt-servicing requirements continue to increase. Jamaica, once a positive example to other developing countries who needed a recipe for development, is now an example of what not to do to if a country wants its economy to remain stable with low debt, high growth rates and positive development efforts.

What challenges have we faced?

 

SIGNIFICANT CHALLENGES

 

Over the last 40 years, Jamaica has encountered significant internal as well as external challenges in its attempt to achieve economic growth, economic stability, and economic development concurrently. After experiencing rapid economic growth and infrastructural expansion in the years immediately following Independence in 1962, Jamaica's growth trajectory took a downturn in the 1970s and to date, has not recovered. Failure of both fiscal and monetary policies in their attempt to balance the market mechanism has given the invisible hand the freedom to determine economic outcome in some instances, and it has. The global market has sold more goods and services to Jamaica than Jamaica sold to it. This has resulted in insufficient accumulation of foreign currency needed to conduct international business (foreign-currency-liquidity problems). The nation's foreign currency earnings is a cause for concern and is now more questionable since the latest signed extended fund facility (EFF) agreement with the IMF which expires in 2017. This programme disburses an agreed quota of foreign currency on a quarterly basis from 2013 to 2017 on condition that Jamaica passes quarterly review tests.

What will happen after the IMF EFF concludes next year?

Now let us assume that Jamaica satisfies all the conditions stipulated in the EFF by the IMF, which concludes in 2017, then what? Will the implementation of these conditionalities be sufficient to ensure long run solvency? What strategies are being implemented to ensure that if the IMF decides not to renew the EFF, Jamaica can generate enough foreign currency on its own to satisfy local demand and foreign obligations? The issue of liquidity management has brought itself to the forefront. In order to get a deeper understanding of how to approach the situation, it is important to review the economic policies and exchange-rate strategies that Jamaica has pursued leading up to the current situation. The country must find ingenious ways to earn or generate foreign currency or must revert to more borrowing when the current EFF expires.

- 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 editorial@gleanerjm.com.