IMF impressed by Jamaica's performance

Business editor

Friday, November 09, 2018

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Jamaica came in for more praise from the International Monetary Fund (IMF) in its forth review under the Stand-By Arrangment on Wednesday.

Jamaica's “impressive performance continues”, noted Uma Ramakrishnan IMF mission chief for Jamaica, via teleconference at the IMF offices at the Bank of Jamaica in downtown Kingston on Wednesday.

She noted that Jamaica has also done very well on most of the tests in the Financial Stability Assessment Programme, though more needed to be done in terms of data collection and further capacity building for financial institutions. She noted that some of those institutions were so good that empoyees were highly sought after.

Questioned about volatility in the exchange rate, with the Jamaican dollar recently strenthening by about $10 against the US dollar, Ramakrishnan said, “We wern't worried when the rate was 137 and we aren't worried now it's 127.”

“It's not a matter of concern,” she said, noting the “movement is due to market forces. This is a baby market and it still needs to mature.” The swings are likely to tame down as the market matures, she added.

One matter of concern, however, was the growth rate, and with it the apparant reluctance of the private sector to step up its investment in the economy.

“After nearly six years of economic reforms, unemployment is at an almost 11-year low, poverty is at a nine-year low, inflation is low, public debt is firmly on a downward trajectory, and international reserves are at historically high levels,” the IMF said in its official statement.

Noting that these were historic times for Jamaica, and that private sector fundamentals are unprecedented, Ramakrishnan said, “We would expect probate investors would be jumping.”

Another problem is that the “crime rate is still high by international standards”.

“A new business model is needed,” Ramakrishnan said.

She noted that many businesses were now looking at more innovative ways for financing such as private capital and venture capital.

And while “growth in employment is fantastic for Jamaica”, Ramakrishnan noted that “most types of jobs are low value added, such as those in the BPO sector”.

As a result, Jamaica's growth rate continued to underperform, even though “growth rates are higher than they were historically”.

Asked about the impact of a booming US economy on Jamaica's growth, Ramakrishnan responded, “It is positive news for Jamaica with tourism.”

“US growth is a good thing for Jamaica and that is being factored in,” she said.

Meanwhile, Jamaica is one of “the most open economies,” Ramakrishnan said, and is benefitting from growth at Alpart and in mining, while “construction is exploding — but it has to be persistent”.

“Small countries like Jamaica are affected by what is going on at the large country level,” Ramakrishnan said. An example was sanctions imposed by the US on Russia, which could impact Windalco in Jamaica.

The “easy way out” is for small countries such as Jamaica to represent themselves independently to large countries to seek a reprieve, as its not the intention to harm these countries, Ramakrishnan said.

“Jamaica needs to make the deals that work for it,” she said.

On a more positive note, she said that Jamaica's recently concluded four-year wage agreement (as opposed to the more regular two year) “opens a window of opportunity for fundamental reform”.

She noted that there were currently some 168 allowances in the public sector, which were “highly inequitable” and might require streamlining, and possibly raising some wages.

“Government needs to prioritise what it really wants to do,” she said.

Last of all, moves to create an independent Bank of Jamaica came in for much applause from the IMF.

The BOJ act is “a flagship reform from our standpoint”, Ramakrishnan said.

“We think moving from multiple objectives to one is a huge step in the right direction,” she said of the bank's move to focus only on price stability, and not on the FX rate.

“Countries that follow inflation targeting have higher growth,” she said, with several emerging countries having growth rates in the “four to six per cent range”.

“At the end of the day, the people of Jamaica will benefit because they will have price stability,' she said.

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