THE Caribbean Policy Research Institute (CaPRI) has concluded that Jamaica cannot do without the proposed loan agreement with the International Monetary Fund (IMF) at this time.
However, the think tank, established to promote evidence-based policy dialogue within Caribbean societies, says that, while the Government's debt reduction programme is necessary and effective, it is "insufficient" to ensure that the country gets on a path of fiscal sustainability.
According to Dr Damien King, co-executive director of CaPRI, based on current debt levels Jamaica would encounter difficulties sourcing funding from both the domestic and international loan markets.
"Doing nothing is unsustainable, some action had to be taken, whether this programme or some other programme. The programme is necessary, the programme is effective as it contracts the fiscal deficit in year one by close to two per cent of GDP (Gross Domestic Product)," said King as he emphasised that the debt problem had to be dealt with, even as the Government explores opportunities for economic growth.
King, who also heads the Department of Economics at the Mona campus of the University of the West Indies, along with his fellow CaPRI co-executive director Dr Christopher Tufton, were guests at yesterday's weekly Jamaica Observer Monday Exchange.
Their discussion at the Exchange followed on a forum staged by CaPRI last Friday at which King analysed the various options that the country now faces and the fiscal consequences of each.
Just over a week ago, IMF officials gave Jamaica's application for an extended fund facility a staff-level approval, but pointed out that the Government had to complete a series of measures before the request could go to the IMF board for its stamp of approval. Since then, there has been much public discourse on the need for an IMF agreement, with some contributors asking whether the facility that is being sought will do the country more harm than good.
But King is adamant that the Jamaican Government had to seek the IMF agreement, or something similar, to avert a fiscal crisis.
"There is no hope of economic growth in Jamaica with continued large fiscal deficits. So a programme to address the fiscal deficit that was carried for a dozen years is absolutely, critically necessary, and the programme has to be at least of the magnitude of the one that has been announced," said King.
"Once you can get past that, once you can get this programme implemented, and be faithful to it, then we are at least in the game of trying to generate some economic growth. This debt really is a major obstacle to economic growth," the economist explained, even as he acknowledged the insufficiencies of the proposed IMF pact.
"After eight years we will be at 100 per cent of GDP. A hundred per cent of GDP is a lot of debt, and if that's the best we can hope for after eight years it means that Jamaica is going to continue being highly vulnerable to economic and natural shocks over a very long period of time.
"So the programme is actually insufficient to ensure that Jamaica reaches a path of macro-economic stability, and it speaks to the need to ensure that what has been announced so far is strictly adhered to, that the estimates of revenue expected to be realised are correct, and that the other measures such as tax reform, public sector wage agreement are critical," King argued as he received support from Tufton who questioned the nature of the provisions that will guard against external shocks. "One of the issues I want the IMF and indeed the Government to point out is to what extent was this modelling that they did -- which would take us to a 95 per cent of GDP by 2020 -- factor in the external variables, some of which are quite predictable," Tufton said.
"The challenge with an assumption that takes us to 2020 on a particular programme is that all other things are never equal. If you have two or three bad hurricanes it throws you out of whack, and how flexible will the multilaterals be? The only counter to that is to what extent you can influence that model through a growth strategy," Tufton argued, as he committed CaPRI to working with the Government to identify areas that could be pursued as part of that growth strategy.
Meanwhile, King is highlighting the need for the Portia Simpson Miller Administration to implement all the agreed measures under the IMF programme.
"The programme is not complete yet," he said. "You know what we are talking about are just the prior actions to get to an agreement. When we get to an agreement there are more elements of it to come. So the second conclusion is that those elements to come are just as important."
The UWI economist said he is also aware that many Jamaicans will be adversely affected by the austerity measures that will result from the debt management programme.
However, in his view, wealthy Jamaicans are bearing the brunt of most of the tax measures associated with the IMF programme.