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PIOJ guestimates that informal economy stagnant

Published:Wednesday | August 29, 2012 | 12:00 AM

Steven Jackson, Business Reporter

The Planning Institute of Jamaica (PIOJ) economists reject the view that the informal economy is growing despite acknowledging underinvoicing, scammers and tax cheats.

Rather, they see it as largely stable.

"We believe that the informal economy is a standard error. Sometimes when you have economic decline, it gets larger because people move into that sector, but by and large, when it washes out, the size of it is pretty stable," said PIOJ director general, Dr Gladstone Hutchinson, in response to Wednesday Business following last week's quarterly economic press briefing.

In 2002, a team of consultants from the Inter-American Development Bank (IDB) estimated that Jamaica's informal economy would account for 43.5 per cent of GDP.

The formal economy has been stagnant since the 1990s, growing about one per cent per annum. The huge debt at J$1.68 trillion receives most of the blame but there is also the view that activity goes undetected and, therefore, uncounted.

"There is no doubt that the informal economy is a critical one. There is no doubt that the tax-reform effort is aimed at bringing greater formality to economic activities across the country. And there is no doubt that there is undercounting," Hutchinson said. "But I think we are making out best effort to understand it and track it."

An interesting feature of the economy is its inability to rebound and show recovery even a full year after devastating shocks, including hurricanes in the mid-2000s, and the Tivoli incursion in 2010.

Comparatively, regional neighbours hit by similar shocks have recorded double-digit growth in the year following the disasters, including Cuba and Haiti.

Everton McFarlane, deputy director general, said informal activity is being reflected in the formal economy via consumption and investment.

"If there was this informal sector that somehow was not being captured, then where are these people spending their money?" asked McFarlane.

"Are they not spending their money on agricultural goods? Would you not see that in the GCT sales? Are they not spending on electricity consumption? Are they not spending on housing? In other words, the intersection of the formal and informal economy is not an island by itself that is divorced from the formal sector. Whatever is taking place, people must consume."

Since last year October, some 150 persons labelled as scammers were arrested and charged by the police. During the police operations, expensive vehicles, cash, jewellery and other high-priced items have been seized. The perpetrators used Western Union to collect the proceeds of their scams, forcing the remittance company to temporarily lock down operations in St James.

Earlier this year, state minister in the technology ministry, Julian Robinson, said that approximately 30,000 calls are made each day to the United States by Jamaican criminals attempting to defraud persons. He estimated that Jamaican criminals earn approximately US$300 million annually from the lottery scam.

"You talk about the lotto scam. These people do not just make money and sit on it or put it under a mattress. They are spending," said McFarlane.

"What evidence do we have that it (the informal economy) is growing? It is conjecture," he declared. "What we do know is what we see from the production numbers that tell us this is what is happening."