Thu | Jun 17, 2021

Vital signs and the IMF PIN prick

Published:Friday | June 15, 2012 | 12:00 AM

By Wilberne Persaud, Financial Gleaner Columnist

International Monetary Fund (IMF) Article IV consultations are annual discussions between a group of staffers from the IMF and member country representatives - actually, technocrats, government officials and ministers. Insights from 'unofficial' discussions with private citizens may also find their way into the IMF's outlook.

Of course, such discussions would make no sense without a basis in what we might call 'vital signs' of the country's economy.

It's like the well-known annual report of a publicly listed company interpreted for shareholders by the company's leaders, but also subject to independent analysis coming from anywhere.

So the IMF team collects economic and financial informa-tion that forms the core of these annual Article IV consultations. Once complete, the whole shebang finds its way into a discussion of the executive board. The chairman of the board, that is, the managing director, today Christine Lagarde, approves a summary of these discussions for transmittal to the country's government.

The IMF then issues a PIN - Public Information Notice - which the fund describes as "part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies."

The current PIN became available June 7. Its reports of 'vital signs' is worth quoting.

"The economy recorded a fragile recovery in 2011, following three years of recession during 2008-2010 in the wake of the global financial crisis. Real gross domestic product (GDP) grew by 1.2 per cent in FY2011-12, as agricultural production rebounded from the destruction of Tropical Storm Nicole in 2010 and production at an alumina firm was restarted. However, the unemploy-ment rate remained high, at 14.1 per cent as at January 2012. Inflation moderated to about 7.2 per cent (year-on-year) at end April, reflecting a negative output gap and real exchange rate appreciation. The external current account deficit widened to more than 11 per cent of GDP, in part owing to a higher oil bill. At the same time, the financial account weakened from a sharp drop in external loan disbursements to the central government, and net international reserves fell to US$1.8 billion at end-March 2012 (from US$2.3 billion in mid-2011)."

The meat of the matter

Well, here we go. Non-disbursement of external loans caused a weakening of the financial accounts. No money was forthcoming because the agreed programme was stalled. But here's chicken and egg: actual loan disbursement would have exacerbated the debt overhang without necessarily improving the prognosis.

The PIN actually identifies some of the prevailing regimen that would cause this.

"The primary surplus of the central government is estimated at 3.1 per cent of GDP (compared with 6.8 per cent under the stand-by arrangement), reflecting lower tax revenues associated with cuts in fuel taxes, weak tax administration, and widespread use of tax incentives and waivers. Recurrent expenditures remained flat, with a higher wage bill offset by lower capital expenditure. As a result, the central government deficit remained at 6.4 per cent of GDP. The ratio of government debt to GDP remained high, at about 140 per cent (compared with an objective of 134 per cent under the programme), while gross financing requirements of the public sector rose, as the effects of the 2010 debt exchange on amortisation payments falling due have now waned," the IMF said.

Their view, although diploma-tically expressed almost as a mere hint, is that we squandered the 'bligh' JDX provided.

The PIN, which it is useful for readers to peruse in its entirety, may be found here:

Discussion of our financial sector and the problem of non-performing loans are highlighted with some optimism based on our more robust regulatory arrangements. When we consider the international situation of a weak recovery, downgrading of the Caribbean Development Bank, by both Moody's and Standard & Poor's, the outlook worsens.

The IMF's prognosis is ambivalent. The Budget as tabled and agreed seems to meet with their approval. There are several other issues that need to be addressed among which are the high level of food imports, expected inflation and the ever-prevailing IMF view that the exchange rate should exhibit more 'flexibility', waivers and other taxation incentives that appear not to have their desired effects.

The room for government to manoeuvre is tight.

Wilberne Persaud is author of 'Jamaica Meltdown: Indigenous Financial Sector Crash 1996'. Email