Wednesday, April 24, 2024

IMF issues warning to Jamaica

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WASHINGTON – The International Monetary Fund (IMF) Monday warned Jamaica that continued reform implementation will not only safeguard hard-won gains but also deliver stronger growth and job creation.

The IMF Executive Board earlier this month concluded a review of the US$1.68 billion Stand-By Arrangement (SBA) and the IMF in a statement said 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,” the IMF noted. 

The Washington-based financial institution said that the economic reform programme, which began in May 2013, has been a turning point for Jamaica. 

“With broad-based social and political support for reforms, the Jamaican government – over two administrations – has embarked 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, noting that fiscal discipline, anchored by the Fiscal Responsibility Law, has been essential to reduce public debt and secure macroeconomic stability.

It said 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.

“Growth and social outcomes, however, have been discouraging. Economic growth continues to disappoint, averaging only 0.9 per cent since the reforms began. 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.”

The IMF said that structurally reducing the wage bill is critical for the government to reprioritise spending toward growth-enhancing projects. It said 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. It will require high-quality measures to (i) overhaul the compensation structure to retain skills and reward performance, (ii) streamline the vast and inequitable allowances structure, (iii) prioritize key government functions and shed those activities that it can no longer afford to undertake, and (iv) change the capital-labour mix through technology upgrades, including a better monitoring of (and accountability for) government spending.

“Inevitably, these reforms will also require 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 in the statement.

It said improving social outcomes and fostering inclusive growth will require addressing structural bottlenecks and creating an enabling environment for private sector.

“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.

“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 added. (CMC)

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