Sun | Nov 17, 2019

Jamaica debt development and the IMF

Published:Wednesday | October 16, 2019 | 1:33 AM
The  International Monetary Fund headquarters building in Washington.
The International Monetary Fund headquarters building in Washington.

The headlines that Jamaica is set to complete the latest standby agreement (SBA) with the International Monetary Fund (IMF) in 2019 have been interpreted by many that Jamaica has paid off all its debts to the Fund. However, this is not so; as of the end of August 2019 Jamaica has US$494 million in liabilities owed to the IMF.

Jamaica’s Net International Reserves (NIR) entered a downward trajectory in 2011, gradually falling from more than US$2.5 billion in March 2011 to less than US$900 million by March 2013. At that time, Jamaica’s NIR was considered unsustainable as it could only buy less than the benchmark 12 weeks of imports. With a debt ratio of over 140 per cent of gross domestic product (GDP) at the time, Jamaica for two years found it difficult to access funds from the international lending market. The country was given a lifeline when the IMF signed an extended fund facility (EFF) agreement in 2013 which provided a seal of approval.

This EFF made approximately US$932 million available to Jamaica for four years through disbursements based on the country’s ability to pass quarterly review tests. Throughout that time, Jamaica also embarked on two debt swops, a Jamaica Debt Exchange and a National Debt Exchange that allowed longer maturity period and lower rates of interest on some of the country’s loans. Jamaica also had to maintain a primary surplus of 7.5 per cent of GDP, which it did throughout the time of the agreement. The Government implemented a fiscal rule that was essential in guiding the proper use of government funds. The EFF ended in 2016 and was replaced by the SBA that made $1.6 billion available on standby. Today, Jamaica’s NIR is at US$3.7 billion and can buy 32 weeks of goods and 22 weeks of goods and services.

debt reduction policy reforms

Since the inception of the EFF in 2013, Jamaica embarked on a series of policy reforms directed at debt reduction. The country’s debt in percentage terms fell from more than 140 per cent of GDP to less than 100 per cent of GDP currently, and more restructuring is being done to reduce the debt percentages. The Ministry of Finance has outlined in the first supplementary budget that 37 per cent of this year’s Budget will go towards debt servicing, two per cent more than the 35 per cent tabled at the beginning of the year. Jamaica owes more than J$1.8 trillion in liabilities to its creditors and continues to struggle with its growth and development pursuits.

In 2016, the Government hypothesised that their policies could put Jamaica on an upward growth trajectory reaching real GDP growth of five per cent by 2020. To date, Jamaica continues to grow by less than two per cent per annum, regressing further away from the five per cent target. Sometimes GDP growth can be mistaken to be merely just a number derived from instinct; therefore, any arbitrary group can suggest a five per cent growth projection without a clear plan of action as to how the country will do so. Bear in mind that Jamaica has grown by an average of 0.7 per cent since Independence. I would not want us to believe that it’s a lack of effort rather than know-how why the country cannot grow to develop how it wants to.

GDP should be seen as a group of output activities that span different industries, laterally and vertically. The interconnectedness of the various industries and the possibility of the potential growth in each sector should be analysed using cost benefit analysis, swot analysis accompanied by sensitivity and contingency analysis in case of any unfavourable occurrences. The aim should be to create a thorough output plan for the country, mapping the industries that have the most potential based on calculated productivity outcome through processes, linkages and procedures to select the industries that are pursued.

Fiscal policy has a huge role to play. Any subsidies and leverage that exist in the Budget should be directed towards value added-driven industries and productive activity. Last year, the Government created leverage in the Budget and reallocated it to transfer taxes that gave advantage to those purchasing property. This leverage could easily be directed towards producers who vertically diversify products, or those creating renewable energy, or those making technologically driven products and processes. That leverage could even be used to invest in proper sustainable water harvesting and distribution facilities, so that agricultural output is stabilised and does not decline in the summer time, as it has been doing over the last couple of years.