Jamaica held up as model by IMF rep
Jamaica's current economic support programme with the International Monetary (IMF) was given short shrift at the beginning, but following years of implementation of reforms, has been hailed as an example of how the Caribbean region can emerge from its low growth and high debt trap.
In citing the Jamaican example, assistant director in the IMF's Research Department, Gian Maia Milesi-Ferretti, did not elaborate on the fundamentals of the programme, but said that with the Caribbean's precarious fiscal situation the way to support growth is for governments to undertake fiscal consolidation.
Under such a situation, reducing debt does not depend on cutting social expenditure and support for the poor, but should be as pro-growth as possible, he said.
"That is what our direct involvement in the region has always tried to achieve," Milesi-Ferretti said while addressing a press conference at the annual meetings of the IMF and World Bank Group in Lima on Tuesday.
He noted that there have been particularly challenging years, extending even up to last year, for Caribbean commodity importers, but the growth outlook has improved for those that rely mostly on tourism for two main reasons.
The first, he said, is the fact that the United States economy has strengthened and that has helped tourism. A second factor is the large decline in oil and other commodity prices.
"They are enormously important in many Caribbean countries because they have to import de facto all their (inputs for) energy and that implies a very needed strengthening of the current account," Milesi-Ferretti said.
Speaking at the same briefing, Maurice Obstfeld, economic counsellor and director of the Research Department of the IMF who presented the October 2015 World Economic Outlook (WEO) forecasts and analysis, said this comes as the world economy faces three powerful economic forces.
Those forces, which took centre stage during various discussions at the annual meetings this year, have particular impact in emerging markets and low income economies, "which will certainly be feeling these forces," he said.
First there is China's transformation, in that the economy is rebalancing from exports and public investment to consumption, as well as from manufacturing to services.
While noting that "this is both healthy and necessary in the longer term," Obstfeld said that in the near term there are implications for China's growth and for its trading relationships with foreign countries.
The second major current in the world economy is the fall in commodity prices which, of course, is not unrelated to China's growth experience, he said.
After years of high demand resulting in high prices for commodities and high investment in commodity-producing sectors, China's slowing, starting earlier this decade, has led to a trend decline that has accelerated in recent weeks, he explained.
The third major current is the impending normalisation with United States monetary policy. "This also is a healthy and necessary development. It is healthy in light of the relatively favourable growth in the US, but there will be global repercussions. Indeed, there have already been global repercussions, especially for emerging and low-income countries," Obstfeld added.
"So amid these very important developments near-term growth remains moderate and uneven. We see higher downside risks than we saw at the time of our last July update of our forecast," said the IMF economic counsellor.
The Holy Grail of robust and synchronised growth remains elusive, he said. World growth was 3.4 per cent last year and the IMF is projecting 3.1 per cent for 2015 and 3.6 per cent for 2016. That said, however, projections for both years are down by 0.2 per cent compared to the IMF's projections in July.
For the advanced economies, overall growth was 1.8 per cent in 2014, and the IMF's projections for 2015 and 2016 are two per cent and 2.2 per cent, respectively, also downgraded from what it thought would be the case in July.
Emerging and low-income economies control more than half of the world's gross domestic product and 2015 is projected to be the fifth straight year in which they saw declines in growth, said Obstfeld.
"The WEO underlines that all countries face challenges in the current environment, and it raises the question as to how to find the Holy Grail of robust and synchronised growth," he said.
"The right policy grades are challenging to implement, but they will benefit not only each country individually but the resilience of the international system."