Continuous high deficits have led Jamaica back to the IMF -- Portia Simpson Miller
JAMAICA'S inability to substantially reduce its fiscal deficit over the years has led it once again to having to adhere to the strictures of the IMF.
Special guest speaker at the recently held Jamaica Stock Exchange (JSE) Ninth Regional Conference on Investments and the Capital Markets at the Jamaica Pegasus, Jamaica's Prime Minister Portia Simpson Miller said: " The telling reality is that it was impossible for any government to continue running the level of deficit that had been accumulated in recent years. Let me put it as bluntly as I can. Continuation of that approach would invariably lead to a total collapse of the economy with no creditor, either local or foreign willing to lend to us."
As it currently stands, the fiscal deficit (the difference between what we take in as taxes and loans and what we spend) is over seven per cent of GDP. The Government is planning to reduce the deficit to 3.8 per cent of GDP over the next two years.
Jamaica entered into a new four-year Extended Fund Facility (EFF) Agreement with the IMF in May 2013 after a protracted period of negotiations. The agreement will lead to the disbursement of just under US$950 million as balance of payment support. Of great importance, the agreement with the IMF has triggered a release of other concessionary funds from other multilateral and bilateral agencies.
The Prime Minister squarely placed the blame for the country's ignominious return to the IMF on the shoulders of the previous Jamaica Labour Party (JLP) administration.
"There was debate in the media as to why the negotiations took so long. Part of the reason for the delay was because the task of the negotiations led by the Minister of Finance, Peter Phillips, was made more difficult as the country's track record in terms of carrying out firm and solid commitments contained in the last stand-by agreement had been unsatisfactory.
"The reality is that at that time, the government of the day failed to meet the deadlines and structural benchmarks set by the IMF which led to the belief that the agreement had been abandoned. Consequently the IMF and other multi-laterals began operating from a position of "prove to us that you are worthy of our trust,"said Portia Simpson Miller.
The Prime Minister went on to add that the onus was on Jamaica to prove that it could be a reliable partner. The present agreement like most IMF agreements focuses on improvement in both consolidation and the country's fiscal situation.
What has stymied the Jamaican economy has been the two ogres - a huge debt mountain and anemic growth of less than one per cent over successive decades regardless of which administration was in power.
From 1962 to 2011 , Jamaica'sGDP growth averaged 0.7 per cent. It's debt currently stands at $1.7 trillion with its public debt running at 13 per cent of GDP.
The Minister of Finance Dr Peter Phillips plans to balance the budget by 2015/16 and to take the debt ratio down from its present position of 140 per cent of GDP to 100 per cent of GDP by 2015/16.
The Government has targeted a Primary Balance of 7.5 per cent. It has stated on numerous occasions that the only way to achieve this is: one, create the environment for large-scale investment that generates growth and revenue, and two, severely contract expenditure and impose higher taxation. However, this is likely to lead to compression of the economy.
The last time Jamaica had a balanced budget was back in the eighties when the economy achieved annual average growth of six per cent between 1986 and 1990.
The Prime Minister has always insisted that any IMF agreement reached with Jamaica should not result in onerous measures which are particularly harsh on the least fortunate and that the deal would have to be structured accordingly.
She took the opportunity to return to that theme.
"My administration was equally concerned with while ensuring that achieving the objectives of the IMF, the population was still presented with a clear basis for hope for the future. Furthermore, while accepting that adjustments were unavoidable, my administration was unyielding in our insistence that the most vulnerable groups and individuals would be given maximum possible protection. I wish to make it very clear, my administration does not in any way seek to resile from taking responsibility for the tough decisions which had to be taken".
"Our greater understanding of the structure of our society and economy means we have a greater insight into the sensitive pressure points and what steps could lead to unbearable repercussions on the most vulnerable and what could lead to possibly disintegration of the society," said the Prime Minister.
Recently many in the local media have complained that they have practically no access to the Prime Minister and that she does not make herself available to them. On this occasion, however, the country's leading press professionals failed to show up to hear the Prime Minister's discourse on the IMF agreement and what it means for the country.
Portia Simpson Miller stressed that the fiscal management of the country was not now placed in the hands of the IMF, but rather Jamaica has had to take some tough decisions if it is to see a better future.
"We have not presented these decisions as being imposed by the IMF. That would be a cop-out. Whilst we may disagree with the funding terms of the pace of the adjustments, we accept that the adjustments are necessary.
"We would like to restate that we take full responsibility for the policy actions contained in the Extended Fund Facility and believe that in the long term, true benefits will accrue to the society."
Turning her attention to Jamaica's ominous debt mountain she said that perhaps the most critical objective to be attained during the life of the Extended Fund Facility, is a sharp reduction in the country's debt ratios.
"It is still not fully understood that the period 2007 to 2011 saw our debt to GDP ratio grow rapidly from 107 per cent to over 140 per cent. Any such ratio is unsustainable and the explicit objective of the Extended Fund Facility is to reduce this ratio to below 100 per cent in the medium term.
"A successful completion of the IMF agreement by my administration is seen as a necessary but certainly not a sufficient condition for moving our country forward," declared the Prime Minister.