Business

IMF gives Jamaica top marks

...but why the slow growth?

BY RICHARD BROWNE
Business editor
browner@jamaicaobserver.com

Friday, November 03, 2017

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While the IMF has praised Jamaica for its exemplary implementation of difficult economic reforms, the fund is still at a loss as to why Jamaica's economic growth should be so low.

“After more than four years of difficult economic reforms, Jamaica's programme implementation remains exemplary,” states the staff appraisal for the second review under the IMF Stand-By-arrangement, released yesterday.

“All quantitative condiditons and structural benchmarks were met and the Government's reform plan is broadly on schedule. Strong domestic ownership of the reform agenda across two different governments and the broader society has helped to entrench macroeconmic stability and fiscal discipline. The authorities sustained commitment coupled with the ongoing programme monitoring by civil society has paved the way for reforms to be increasingly domestically owned, designed and executed,” the IMF said in the staff appraisal.

Other positives included a reduction in unemployment to 12.2 per cent, the lowest rate in almost a decade, and the successful introduction of the FX auction system. But growth in the economy remains low — though higher than in previous years — at just 1.3 per cent, below IMF projections of 1.7 per cent growth.

Dr Uma Ramakrishnan, IMF mission chief to Jamaica, said that despite growth in areas such a construction, manufacturing and tourism, much of the blame for the low growth could be laid on agriculture, which has been variously affected by flood and drought.

“Agriculture is highly sensitive to fluctuations in weather,” Ramakrishnan told the Jamaica Observer from her Washington office in a video press conference at the IMF office at the Bank of Jamaica in downtown Kingston yesterday.“That is creating a drag on growth.”

Other negatives included stagnation in the mining industry, which should now end with the reopening of Alpart, but she added that the country needs to build “resilience in agriculture”.

Another negative may be the Government's slow approach to tackling the large size of the public sector.

Transformation of the public sector “will initially lead to some redundancies”, Ramakrishnan said, but she would not be drawn on how much that might mean in terms of the number of people losing their livelihoods.

“We are not saying its 10,000 or 3,000 — there is no number. We need to wait and see.”

“The right size is a choice the Government must take,” she informed the Caribbean Business Report.

Now could be the right time for making redundancies, as with unemployment falling, “the private sector is creating jobs and the economy is getting ready” to take on employees from the public sector.

“The public sector is not the engine of growth, it should be the private sector,” she reasoned.

Currently the public sector wage bill and debt financing take up about two thirds of the Government's spending envelope, leaving only one third for all other areas, including education, health and infrastructure.

“That is not an efficient or fair allocation of resources,” Ramakrishnan remarked.

Meanwhile, Jamaica needs to stop fixating on the exchange rate, especially with the US dollar, and start instead to concentrate on inflation.

“Moving to inflation targeting requires making price stability the anchor for monetary policy alongside a flexible, market-determined exchange rate,” the IMF said in the staff appraisal.

The Jamaican dollar “is broadly correctly valued”, Ramakrishnan said, noting also that inflation was currently less than five per cent — extremely low for Jamica.

“That is what people should be focusing on,” Ramakrishnan stated.

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