Economic tsunami looms
Renée Anne Shirley, Gleaner Contributor
There is no doubt that 2013 will be a difficult year for the Jamaican economy. While an inordinate amount of attention is being paid to the need to get an International Monetary Fund (IMF) agreement in place, the signing of a deal with the Fund does not mean that the Jamaican economy will be out of the woods.
We need to think of the IMF agreement as receiving a loan from the bank of last resort, which we will have to start paying back almost immediately with quarterly tests to pass.
Both the previous administration and the current one have encountered difficulties in convincing the IMF that the Jamaican Government will be able to meet all the conditionalities that are being placed in the agreement.
In October 2012, IMF Mission Chief Jan Kees Martijn, at a joint press briefing on the IMF-Government of Jamaica talks held at the Ministry of Finance, stated: "Jamaica has long-standing structural weaknesses. A key challenge is how to attain higher and sustainable rates of economic growth, while reducing macroeconomic risks, including from the high public debt and high unemployment."
Martijn also emphasised the need for the development of a medium-term economic programme that promotes growth and productivity, and one which reflects a narrowing of the current account deficit.
This is going to be a tall order for the Government to achieve because regardless of the steps that are going to be taken in the next 12 to 18 months to cut government expenditure, including the wage bill, there is the other side of the equation to worry about.
It should be obvious to every Jamaican that the prospects for growth in the economy in the short-to-medium term are extremely dismal. Here are the reason why:
The main foreign-exchange earners - tourism and remittance flows - will be threatened by the problems in the US and European economies and should lead to lacklustre growth prospects for these pillars of the economy.
There is uncertainty about the continued viability of the PetroCaribe agreement with Venezuela, given the health problems of President Hugh Chávez. The loss of this arrangement over the medium term would be a severe blow to the island's oil bill, which would increase significantly if we lost the concessionary arrangements under the PetroCaribe agreement.
The Jamaican dollar is already under threat given continued trade deficit problems, and while an IMF agreement will help to stabilise the Net International Reserves for a time, inflationary pressures will continue to be a major problem for the economy in 2013.
It is also important for us to note that the IMF agreement will undoubtedly include provision for strengthened regulation of financial institutions - including near banks, security dealers and credit unions.
In essence, we should not believe that the storm clouds affecting stronger economics in Europe and Asia could not have an impact of the Jamaican and Caribbean economies, including the financial sector.
Finally, the crafting of the Budget for fiscal year 2013-2014 will be a rather delicate affair as the Government will be constrained in its ability to extract greater tax revenues from the weak Jamaican economy which could result in further contraction of the economy.
Economic bright sparks
The brightest prospects for the economy will be in the highway and port expansion projects - all efforts should be made to get these under way expeditiously as they offer the greatest potential for increased employment and revenue generation.