Mark Ricketts | The weakness in the growth numbers is worrying
The best laid plans of mice and men can go awry.For a small, highly indebted, open economy such as Jamaica, which is subject to external forces it cannot control planning and forecasting can be a hope and a prayer.
There are three times in recent years that tourism suffered a downturn. The terrorist attacks on September 11, 2001 in the United States affected arrivals and earnings in our tourism sector and so did the outbreak of the SARS virus (Severe Acute Respiratory Syndrome) in 2003. The economy and the tourism sector were similarly affected by the 2008/9 global financial meltdown which accounted for the worst recession in the US since the Great Depression.
Developments beyond our control and seemingly beyond our expectations are giving us more cause for concern, a far cry from the optimism and rosy forecast that buoyed the Andrew Holness-led Jamaica Labour Party administration shortly after it took the reins of power in early 2016.
At that time commodity prices, including metals such as aluminum, were exhibiting robustness on the world market. Pairing higher prices for our bauxite/alumina with increase output arising from JISCO, formerly Alpart, coming back on stream, provided justification for expectations of solid export earnings from this sector. This would have been beneficial as it would decrease our ballooning merchandise trade deficit.
In addition, strong tourism earnings, continued robustness in remittances, and impressive inflows in foreign investment would help offset the trade deficit, leading to a belief that the country would finally enjoy annual current account surpluses in the balance of payment.
But things changed. By 2018 aluminum prices started trending down, in part due to global trade wars and tariffs, and, in mid-2019, JISCO shuttered its doors for two years to undertake major plant renovations and upgrading.
The combination of falling commodity price and lowered output in the mining sector have put a squeeze on export earnings, thereby worsening our trade deficit. Therefore, it will be harder for the country to not have annual increases in its current account deficit, and this is already in evidence.
Of even greater significance is that the country in having these setbacks have lost the full impact of one its major drivers of economic growth. This explains in part the aneamic 0.9 per cent annual growth rate in 2019, and the expectation of continued uninspiring performance in the near term.
Four years ago we justified and accepted the importance and significance of a five per cent annual growth rate in this fiscal year to: transform the economy, ensure prosperity for larger segments of the population, improve productivity, and better ensure the safety and security of citizens.
If five per cent annual GDP growth was imperative in achieving these targets, it is obvious that with less than one per cent growth rate currently, and no near-term improvements likely, the public sector will have to perform much better in governance, in resource allocation, in repositioning education, and in offsetting structural rigidities.
The private sector too, will have to be far more dynamic, visionary, export-driven, multiregional, multinational with enlarged capital base and highly skilled personnel, and innovative.
The country has to remember that growth rates are meaningful as they are synonymous with increases in the productive capacity of the economy.
Compounding the country’s woes is the worldwide outbreakof the coronavirus (COVID-19). Daily the Minister of Health Christopher Tufton and his team have to make tough decisions, balancing the potentially devastating impact of COVID-19 on the population and the loss of revenue in a growth underperformance economy.
For Tufton, uneasy lies the head that wears the crown. He is literally in a no-win situation where second guessing, long after the fact when the results are known, determine foresight and brilliance. Until then, the hope, the fear is the absence and avoidance of the unintended and predictable consequences if the unmentioned happens.
Similarly, the country has to struggle with tough decision on rights of travelers to Jamaicaand the vexing issues ofcontractual commitment to the cruise lines.
Contraction worldwide in transportation, particularly in airlines and shipping, which have a direct impact on tourism, on wharf activity, including final destination, transshipment and exports is occurring. Some major airlines are grounding 20 per cent of their planes and offering unpaid leave to staff while others are slashing domestic and international flights.
While Minister of Tourism Edmund Bartlett conceded in Parliament last Tuesday that there are some concerns, with likely declines in cruise ship activity he said that forward bookings of hotels for March through May remain strong. He, however, conceded that upcoming holidays, such as Spring Break, should provide a better insight as to likely outcomes as the year progresses.
The cutback in transportation worldwide has to be of some concern for us and the supply chain disruptions must be unnerving for businesses as so much of our economic activity is governed by international trade.
Some consolation is that oil prices on the global market have retreated and Finance Minister Dr Nigel Clarke believes that recent emphasis on macroeconomic stability, the impressive growth in employment, and the adequacy of the Net International Reserves offer a cushion and a level of resilience that should allow the country to weather any short term setbacks.
With the International Monetary Fund (IMF) holding Jamaica in good stead, having acknowledging its impressive performance in passing all assigned tests, it is encouraging to hear that the IMF is ready and willing to help Jamaica and other countries deal with the coronavirus.
The IMF Managing Director Kristalina Georgieva said, “the situation is evolving rapidly and we stand ready to provide a forceful, coordinated response if conditions require it. Some countries will see financing needs rise rapidly as the economic and human costs of the virus escalates.”
For Jamaica this IMF assurance is great and the fact that we remain in such good standing with the Fund should give us confidence going forward. If only we could get pass all of this and start to improve our growth performance.