Global economic growth can help Jamaica reduce its debt burden
JAMAICA is in a position to reduce its debt to gross domestic product (GDP) based on the projected growth in the global economy, declares the International Monetary Fund (IMF) country representative.
It is much easier to bring down the debt to GDP when the tide of the global economy is growing, than in an environment where the global economy is in a recession, said Bert van Selm, IMF Resident representative in Jamaica.
"For 2014-2015 we (IMF) expect to see growth rates that come close to four per cent globally, this is pretty average, but still is way better than 2009 and 2013," he said.
Moreover, the IMF expects the US to do quite better this year -- 2.8 per cent real GDP growth is projected for 2014, compared to 1.9 in 2013, and growth is projected to reach to 3.0 per cent in 2015.
"For Jamaica, more growth in the US is good news so you can expect more American tourists to come to Jamaica, so that provides an opportunity to grow," said van Selm.
On the other hand, islands in the Caribbean that are resource dependent may show less signs of growth because China differs from the US, he added.
Though China, is seeing better growth rates than the US, this is expected to slow down in the coming years; for 2014 real GDP growth is projected to be 7.5, compared to 7.7 per cent in 2013 and for 2015 it's expected to be 7.3
" So if you see growth in China coming down, that will certainly have an impact on commodity prices," he said.
Speaking at a corporate governance seminar put on by the Financial Services Commission (FSC) on Wednesday, the IMF representative pointed out that the Jamaica is off to a very good start with the IMF programme, but still has a way to go.
"The key point I want to make is that the adjustments to get to the primary surplus of 71/2 per cent of GDP happened in the first year of the programme and that is almost in the bag, said van Selm. "But we don't know yet the outcome for the end of March, but it looks like the government is on track to meet that target and that is very good news."
Furthermore, there is no need for further fiscal tightening.
He said: "We have actually had a bit of economic growth despite these adjustments, so going forward, this holds well with the programme because a lot of the difficult stuff has already been done in the first year of the programme.
"Year one was a tough year both in terms of macro economic adjustment but also in terms of the adjustments under reform," said van Selm.
He believes that the tax reform -- the corporate income tax reform, which was passed last year in parliament as well as the recently passed fiscal rule that will institutionalise fiscal policy are great achievements.
Still, debt to GDP remains high, and it was estimated that for the end of March 2013 to the end of March 2014, the ratio of debt to GDP would come down by about eight percentage points, he said. It's very important to bring down the debt to GDP even further as the programme is being implemented.
"So what we need is to restore fiscal and debt sustainability, improve business climate, pursue strategic investments in infrastructure, as well as policies that support the most vulnerable," he said.
More specifically, the country needs to replace domestic demand by net external demand; reduce electricity costs, speed up construction permit; improve the ease of paying taxes; make strategic investments to establish Jamaica as a logistics hub and reduce crime.
The executive board of the IMF recently completed the third review of Jamaica's economic performance under a programme supported by an Extended Fund Facility (EFF) arrangement. The completion of this review enables the disbursement of an amount equivalent to SDR 45.9 million (about US$71.4 million), which would bring total disbursements under the arrangement to the equivalent of SDR 222.6 million (about US$345.8 million).
"Jamaica's programme implementation under the EFF has remained strong. The current account has improved markedly and international reserves have increased in line with programme requirements. The execution of the 2013/14 budget has remained broadly on track. However, the economic recovery is fragile. Sustaining the reform momentum and continued implementation of sound macroeconomic policies is necessary to address the persisting challenges and risks," the IMF said.