KINGSTON – The International Monetary Fund (IMF) Friday said economic growth continues to disappoint, averaging only 0.9 per cent since Jamaica began its economic reform programme in 2013.
In a statement issued at the end of a third review of the Stand-By Agreement (SBA) the island has with the Washington-based financial institution, noted that consideration by the IMF executive board is scheduled for April and that “upon approval, an additional US$233 million would be made available to Jamaica, bringing the total accessible credit to about US$1.033 billion”.
“All quantitative performance criteria and structural benchmarks for the review period ending December 2017 have been met. Non-borrowed international reserves well-exceeded the programme target and tax revenues for financial year2017/18 were above the budget’s target, reflecting the payoffs from revenue administration reforms put in place by the government over the past few years.”
The 36-month SBA with a total access of US$1.68 billion was approved by the IMF on November 11, 2016.
“The Jamaican authorities continue to view the SBA as precautionary, an insurance policy against unforeseen external economic shocks that are beyond Jamaica’s control,” the statement added.
It said that entrenched structural obstacles, including crime, bureaucratic processes, insufficient labour force skills, and poor access to finance, continue to hinder productivity and growth.
“Moreover, the agricultural sector’s vulnerability to weather shocks exacerbated rural poverty in 2015. Not addressing these bottlenecks could pose risks for continued public support for the government’s policy programme,” the IMF warned.
It said that the economic reform programme that began in May 2013, has been a turning point for Jamaica with broad based social and political support over two administrations is intended to put the island on a path of fiscal discipline, monetary and financial sector reforms, and wide-ranging structural improvements to break a decades-long cycle of high debt and low growth.
The IMF said that considerable progress has been achieved on macroeconomic policies and outcomes with fiscal discipline, anchored by the Fiscal Responsibility Law, being essential to reduce public debt and secure macroeconomic stability.
“Employment is at historic highs, inflation and the current account deficit are modest, international reserves are at a comfortable level, and external borrowing costs are at historical lows,” the IMF said noting that structurally reducing the wage bill is critical for the government to reprioritise spending towards growth enhanced projects.
“More expenditure is needed for infrastructure, citizen security, building agricultural resilience, health, education, and the social safety net. Creating the space for such spending will require going beyond temporary remedies like wage freezes and adjustments to non-wage benefits.”
The IMF said this would require high-quality measures to overhaul the compensation structure to retain skills and reward performance, streamline the vast and inequitable allowances structure, prioritise key government functions and shed those activities that the government can no longer afford to undertake, and change the capital-labour mix through technology upgrades, including a better monitoring of and accountability for government spending.
“Inevitably, these reforms will also lead to a reduction in the size of the public workforce. Such a holistic approach will support a durable reduction in the wage bill, without frequent discordant wage negotiations, and enhance public service delivery with fewer but better paid public employees.”
The IMF said that improving social outcomes and fostering inclusive growth will require addressing structural bottlenecks and creating an enabling environment for the private sector.
It said countering both weak social outcomes and escalating crime will take time but will be essential for sustained growth.
“In this regard, the evidence suggests that early childhood education, interventions to improve school attendance, and skills training for the youth would foster a virtuous cycle of lower crime, higher wages, stronger growth, and increased economic opportunity, particularly for the young.
“Policies to support productive private investments, including improving lending to smaller businesses and reducing lending-deposit interest spreads, will help fuel such an upswing. However, the government must resist the pressure to use scarce public resources to ‘pick winners’ including through providing tax incentives”.
The IMF said that instead, the goal should be a uniform, broad-based, and low rate tax system, a level playing field for business, and harmonised rules for all.
It said that formalising the current inflation targeting regime will help entrench macroeconomic stability and promote growth.
“With inflation likely to remain in the lower part of the central bank’s target range, a looser monetary stance remains appropriate. Meanwhile, upcoming revisions to the Bank of Jamaica (BOJ) Act – including a clear mandate for price stability, a reformed governance structure, and a strong central bank balance sheet – will help institutionalise the inflation targeting framework,” the IMF said.
It said also, continued development of the foreign exchange (FX) market, liquidity management and forecasting toolkit, along with upgrading the BOJ’s communication practices, will improve policy signalling and enhance credibility.
“Successful inflation targeting will require a clear commitment to a flexible and market-determined exchange rate with limited involvement of the central bank in the currency market. This implies that FX sales should be confined to disorderly market conditions, especially given the reductions in the surrender requirements, and buy auctions should aim to build reserves in a non-disruptive way.”
The IMF said that financial sector stability is a prerequisite for strong and sustained growth, noting that ongoing prudential and supervisory improvements will enhance systemic stability.
It said while changes to investment limits for non-banks should be considered, they must be backed by a thorough assessment, including of appropriate regulations, risk management guidelines, and supervisory arrangements, to ensure that greater flexibility in non-banks’ asset-liability management practices does not jeopardise financial stability.
The Washington-based financial institution said that the introduction of a Special Resolution Regime for financial institutions will strengthen the system’s safety net while putting clear requirements in place for the use of public resources.
It said continued reform implementation will not only safeguard hard won gains, but also deliver stronger growth and job creation.
The IMF said that after five years of reforms and tenacious fiscal consolidation, risks from reform fatigue and loss of social support are high, especially as growth remains feeble and crime escalates.
“Addressing some of the entrenched structural problems that hamper growth is not an overnight task; these difficult reforms require continued broad-based support and policymakers’ commitment to persevere with the implementation,” it added. (CMC)
