Editorial

Economic stimulus should come from private sector

Sunday, January 12, 2014    

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STABILISATION is generally assumed to be a precondition for economic growth because it makes it easier to achieve fiscal targets. Economic growth will increase tax revenue, reduce the debt-to-GDP ratio and increase foreign exchange earnings.

The Government's International Monetary Fund (IMF) programme is following this sequence by concentrating on stabilisation of the macroeconomic fundamentals and key economic indicators such as the exchange rate.

The current call for stimulation of the economy for growth is coming in that context.

Economic growth will require greater production and production of goods and services that are internationally competitive in quality and price. This requires new productive capacity, full utilisation of existing productive capacity and improving productivity and efficiency.

The big question is: who will finance this new investment in production? Given the tight fiscal targets of the IMF programme, the Government cannot increase expenditure without income, as both the overall level of public expenditure and the budget for capital expenditure for infrastructure projects are limited.

Neither can the Government borrow more money indiscriminately at a time when it is supposed to be reducing our indebtedness. This environment of restraint should prod local investors to shift funds out of financial paper into productive economic activity. Too many of us seem becalmed while good opportunities go unexploited.

For its part, the Government has to do more to stimulate local investors by reducing bureaucratic delays which, according to private sector leader Mr Chris Zacca, could free up investment projects amounting to two per cent of GDP.

Special attention has to be paid to parish councils which are holding up multi-million dollar projects. The Government must, in the short run, institute a programme to clear the backlog in the approval process and for the long term remove all projects over a certain money value to the national level.

Additionally, the Government should quickly open up new investment sectors. One glaring wasted opportunity is medical tourism. A recent report indicates that even the health service in Britain is a major source of foreign exchange earnings. Did someone say ganja?

Given the restriction in overseas borrowing, the focus must be on attracting foreign direct investment. Instead of borrowing money from the Government of China, mobilise private investment from China, which is now one of the largest sources of foreign direct investment.

China, however, is not the only source of investment as other emerging markets are garnering a larger share of international capital flows each year. Jamaica's investment promotion activities need to be scaled up. There are opportunities in Jamaica in agriculture, manufacturing, tourism, real estate and infrastructure.

Agriculture in particular is beginning to look good after years of trial and stress, though we fear even to utter it, lest we bring the proverbial 'goat mouth'.

We like Red Stripe's recent announcement that it will put over 2,500 acres into cassava to replace barley in the brewing process, providing thousands of jobs and saving foreign exchange.

Would that there be more of this.

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