Beware of austerity at cost of growth — Zacca
BY JULIAN RICHARDSON Assistant Business Co-ordinator email@example.com
IN its negotiations with the International Monetary Fund (IMF), the Government must ensure that austerity measures do not inhibit private sector-led economic growth, says Christopher Zacca.
The head of the Private Sector Organisation of Jamaica (PSOJ) expressed specific concerns about the trajectory towards reducing the country’s debt-to-GDP ratio to 100 per cent, which Finance Minister Dr Peter Phillips recently announced was one of the targets of the programme. The ratio stood at 128 per cent at the end of March.
“A ‘good’ agreement must balance the pace of debt reduction with growth creation, a very difficult balance indeed and one in which the private sector wants to play a part,” said Zacca, noting that too much austerity may “completely strangle” economic activity and growth.
In support of his argument, Zacca noted that most countries that adopted IMF austerity programmes have missed their deficit reduction targets after a sharp slowdown in economic growth hit tax revenues and private sector activity. This has triggered the IMF in recent months to urge governments to allow their austerity reforms to be planned over a longer period to lessen the impact on growth, he said.
A lack of details about the reduction of the debt-to-GDP ratio and other issues has caused concerns among the PSOJ’s members, despite the organisation being convinced that the Government has made significant progress towards reaching an agreement with the IMF.
“I hasten to stress that these concerns stem from a lack of information rather than something specific that we do know,” he told a Rotary Club of downtown Kingston meeting in The Hotel Four Seasons on Wednesday.
The private sector lobby group wants to hear more details on tax reform, one of the important elements of a new IMF agreement.
“A ‘good’ agreement would be one that takes into account the views of the entire private sector on this critical subject. The bottom line is we need more specifics to allow us to evaluate how good or bad the proposed agreement will be.” He expressed appreciation, however, that the finance minister has agreed to continue discussions with the Private Sector Working Group on Tax Reform.
The Government also needs to outline the development plan it intends to follow after an IMF agreement, said Zacca, who argued that lack of this information has contributed to waning confidence in the country.
“The Government has not, in the view of the PSOJ, articulated a credible and comprehensive plan for economic growth post an IMF agreement,” he said.
“We have gotten snippets about some major infrastructure projects and some major investments in tourism and ICT,” he noted. “Please don’t get me wrong, these are great, but not enough. We want to hear more.”
Zacca repeated some of the PSOJ’s recommendations, including reduction of bureaucracy, eradication of government corruption and comprehensive tax reform.