IN a recent presentation to the Sagicor group, local IMF representative Bert van Selm argued that Jamaica now faced a supportive external environment, with US and global growth projected by the IMF at 3.6 per cent and 3.5 per cent respectively for 2015, as well as falling oil prices.

Internal macroeconomic stability had also improved, with the budget likely to be in approximate balance again this year, as part of the 7.5 per cent primary fiscal surplus target, and an inflation rate that has been declining on a year-on-year basis. In fact, like the US, Jamaica has seen an absolute fall in prices for the past three months, partly due to the fall in oil prices.

He also argued that Jamaica now had a more business friendly regulatory environment, as suggested by the sharp improvement in the World Bank’s Doing Business Survey, and improving infrastructure.

Van Selm argued that Jamaica’s economic prospects had improved due to lower oil prices, and that consequently this year we should see higher growth, lower inflation, a lower current account deficit, and although fiscal revenues would be reduced due to lower tax revenues, this would be at least partially offset by lower expenditures.

In addition, the debt-to-GDP ratio, while still very high, was now firmly on a downward trajectory and the initial 2013 tightening of fiscal and monetary policies, needed to rebuild buffers, was “now well behind us.”

He confirmed that the real exchange rate was now at a level that supports competitiveness (meaning a sustainable current account deficit), suggesting a much lower level of future depreciation, and observed that the new corporate income tax regime lowers the effective rate of taxation on any business.

He suggested the main question mark remained over what the great British economist John Maynard Keynes called “animal spirits”, meaning whether local investors had sufficient confidence to invest.

As van Selm notes, there has been a dramatic improvement in our macroeconomic numbers. Indeed, one could go even further and remember that in May 2013, the UK’s leading financial newspaper, the Financial Times (FT), had a headline “IMF bailout looks like last chance for Jamaica”, where it quoted what it described as a senior official involved in the talks as saying, “It’s a high-risk programme, a last-ditch effort to avoid a massive adjustment, even a collapse.” The article went on to accurately summarise the then view of the international financial community as being that “there is widespread pessimism over Jamaica’s ability to enact fiscal cuts and economic reforms of the dimensions required.”

Only weeks before, in a previous FT article on the IMF rescue package, I was quoted as saying “it could be different this time around”, as “the government’s two-thirds majority, as opposed to the razor-thin majority of the former government, and upfront wage freeze with the public sector unions will help, as will a recent devaluation”.

At the time, there was widespread scepticism of Jamaica in the international financial community, with the predominant view being that a further debt restructuring was almost inevitable.

As van Selm notes, there has been a huge turnaround in the international view on Jamaica, perhaps best evidenced by the dramatic decline in the yields on our international bonds. These are now roughly in line with the average for emerging markets, having fallen from a peak of nearly six per cent above the average yield on emerging market debt in January 2010 just before the first IMF agreement, and just under four per cent above the average emerging market yield in January 2013, preceding the second IMF agreement.

It has been suggested that local investors have been much slower to recognise this turnaround, and even that they may be in danger of missing out on opportunities to foreign investors. In making such a critique, it should first be remembered that Jamaica is really two economies. One is based largely on trading and imports, in Kingston and its surrounding areas, whilst the other is based on tourism (with a still nascent business processing industry) and largely located on the North Coast. The first economy has been suffering what I call “the great squeeze” since 2007, whilst the second has shown much greater resilience, particularly as the US economy has recovered.

Tourism growth

If we look specifically at the tourism industry, for example, it would be an exaggeration to call recent growth a boom. It is only in the past three years that the situation has really normalised after the great recession dip, and much of the improvement has been in the past six months. Whilst Jamaica’s performance is certainly better than some fellow English-speaking Caribbean islands, such as Barbados, last year’s growth of 3.6 per cent in arrivals is only a fraction of the 10 per cent or more growth seen in the Dominican Republic and the tourism-dependent part of Mexico.

Indeed, it is probably not a coincidence that virtually all the new foreign investment in tourism in Jamaica has been from Mexican operators, expanding their footprint regionally with profits from their native land. Whilst welcome, very little of the investment so far has been greenfield, no doubt reflecting the high degree of uncertainty and perceived financial risk of the past few years. Business process outsourcing, whilst fast growing, has had its own challenges. Businesses based on the domestic economy have faced a much more difficult situation, having in many cases seen a significant economic contraction due to the negative demand impact of Jamaica closing its twin fiscal and current account deficits.

Nevertheless, in a global context, Jamaican assets look relatively cheap, and local investor confidence as measured by the Jamaica Chamber of Commerce in its Business and Consumer Confidence Index is improving. The government has so far been steadfast in trying to get out of the way of the private sector, and improve the local business environment, after decades of little progress. If this level of reform effort continues, and we successfully get through the hurdle of the public sector wage negotiations, we should easily be able to refinance the debt coming due next fiscal year. Indeed, excluding a change in external circumstances (we will discuss some of these risks in future articles) Jamaica should then finally be well positioned for a take-off (defined as growth above three per cent rather than the more normal five per cent), giving an advantage to those early local investors with improving “animal spirits”.