Theodore Mitchell, group sovereign economist with the JMMB Group, says the likelihood of growth above two per cent for the Jamaican economy is diminished because promises of large investment projects have failed to materialise.

In a forecast for the Jamaican economy for 2016 which was released on February 4, Mitchell noted that while the Extended Fund Facility (EFF) under the latest International Monetary Fund programme has facilitated the stabilisation of the macro economy, “Jamaica has failed to secure major investments in high-growth areas that could lead to elevated and sustainable growth.

“Progress has been halted in the much-heralded logistics hub and Caymanas Economic Zone. These were priority investment projects factored in the government’s growth projections over the medium term.”

Noting as well the usual lag between investment flows and the pace of economic expansion, Mitchell said ,“To the extent that the investment flows that were expected in these areas have not been realised, the likelihood of the domestic economy expanding at or above 2.0 per cent over the medium term is diminished.”

The deployment of capital, unlike the other factors of production – land and labour – can result in an exponential growth path, he stated.

On a more upbeat note, Mitchell said the macroeconomic outlook for Jamaica in 2016 is positive, noting that economic fundamentals in Jamaica are relatively sound.

“Progress has been made in reducing the fiscal deficit and debt-to-GDP ratio, which have declined from 6.3 per cent and 142.0 per cent in 2010 to 0.1 per cent and 124.8 per cent in 2015. The strengthening of the fiscal accounts and debt dynamics culminated with new taxes imposed since FY 2009/10 amounting to $68.5 billion – or 4.4 per cent of GDP being imposed on the general populace – and three liability management programmes executed, including two domestic and one external, which involved the buy-back of debt from Petr61eos de Venezuela, S.A. (PDVSA) arising from debt incurred under the PetroCaribe Accord,” the economist observed.

It is highly probable, he said, that the Jamaican authorities will maintain fiscal discipline “given that most of the more difficult reforms have been undertaken”. He added that, with the passage of the Fiscal Rule Legislation and Debt Management, the finance minister is held responsible and is expected to report deviations from budgetary targets to Parliament and formulate corrective measures.

The economist expressed concern that the new laws are not enshrined in the Constitution and are therefore subject to change by an Act of Parliament, but stated, “Notwithstanding this concern, the government has demonstrated a willingness to maintain fiscal discipline and political risk is low, as there are no major policy deviations between the two political parties that could form the next government.”

Mitchell noted that the current account deficit is expected to improve to 4.6 per cent in 2015 compared to a deficit of 7.6 per cent in 2014. “As a result of the lowering of the current account and relatively robust capital inflows, in particular remittances, the NIR remains elevated at US$2.4 billion (33.4 weeks of import cover). This is approximately US$900.00 million more than is programmed under the EFF,” he observed.

The economist said the inflation rate is expected to remain subdued in 2016 and as such the BOJ should maintain an accommodative monetary stance.

In conclusion, Mitchell said downside risks to the economy have subsided, but have not been eliminated. “External shocks in the form of low growth in source markets, adverse weather conditions, and increases in commodity prices could adversely impact economic growth and the inflation rate. External liquidity conditions have improved as noted in the reduction in the current account deficit and increase in the NIR.”

He said political stability and the Government’s continued willingness to pay debt bode well for the sovereign credit scorecard. “The country is in a very good position to continue meeting its debt obligations in the future,” Mitchell observed.