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Jamaican Prime Minister Andrew Holness is credited with sticking to the IMF program. (Photo: Jamaica Information Service)
Wednesday, June 5, 2019

Jamaica: IMF Success Model

Thanks to bipartisan commitment to the IMF program, economy benefits.

Inter-American Dialogue

Jamaica has posted positive economic growth for 16 consecutive quarters, while the island has also seen record low unemployment and a rising stock market. What are the main reasons behind the Caribbean nation’s economic growth, and will the trend continue? What economic headwinds might the island see in the near future? How big a role have the policies of Prime Minister Andrew Holness played in the country’s economic growth?

Vangie Bhagoo-Ramrattan, head of research at First Citizens Investment Services: The Jamaican economy has benefited tremendously from the economic reforms that have been implemented under the IMF program, and this has largely supported the return in business and investment confidence. Economic reforms have stabilized economic growth at above 1 percent and have resulted in a notable decline in the country’s debt-to-GDP ratio, which fell below 100 percent for the first time in almost two decades in FY2018/2019. The Bank of Jamaica is also playing a crucial role in ensuring that monetary policy is conducive to growth and continues to maintain an accommodative stance. Due to the positive developments in the Jamaican economy, we have seen favorable trends in the country’s international credit ratings and an increase in investors’ appetite for Jamaican assets. The heightened uncertainty in the global economy, particularly fears of a slowdown in the United States, can negatively affect Jamaica’s outlook. Further, given the economy’s dependence on the agricultural sector, weather-related shocks may undermine economic growth. The country’s crime situation is another possible headwind. In the 2018 WEF Competitiveness Index, Jamaica ranked poorly for both ‘organized crime’ (134th) and ‘homicide rate’ (137th) out of 140 countries globally. This may have implications for the investment climate. There are also some persistent structural issues that must be addressed, including key reforms to the public sector. Notwithstanding these headwinds, we do believe that Jamaica will continue on its path of economic growth, anchored by the government’s adherence to the IMF-backed reform program.

Anthony T. Bryan, nonresident senior associate at the Center for Strategic & International Studies and professor and honorary senior fellow at the University of the West Indies in Trinidad & Tobago: Continuous stern fiscal discipline through two political administrations is the key to Jamaica’s economic turnaround. Jamaica had experienced several unsuccessful IMF adjustment programs during its almost 57 years of political independence, but this time around it was different. Most sectors of civil society seemed to take ownership of the reforms over the six years of the latest IMF program and stayed the course. Tribal politics also took a back seat for the national well-being. The results: Jamaica’s debt-to-GDP ratio has fallen to 96 percent after a record 147 percent in 2013 when the new IMF agreement came into play. It is expected to be 88 percent by 2020. Unemployment fell from 16 percent to 8.4 percent in 2018, and capital and social expenditure doubled. The icing on the cake is the rapid growth in tourism arrivals and the positive spinoffs for the hotels and restaurants subsectors. A major element of continued recovery is the reduction in the cost of energy. The introduction of an LNG and an integrated renewable energy program will reduce energy costs. The 2019/20 Fiscal Policy Paper tabled in the House of Representatives in January projects economic growth in the range of 1.5 to 2.9 percent over the next four fiscal years. But Jamaica is not yet out of the morass. There is need for continued structural reforms to encourage growth and boost economic added value, reduce a bloated public sector, curtail bureaucratic red tape, and combat crime and corruption. There are lessons in the Jamaica experience for countries such as Barbados that are currently undergoing an IMF adjustment program. It’s not all doom and gloom.

Curtis A. Ward, board chairman of the Caribbean Research and Policy Center, international consultant and former Jamaican ambassador to the United Nations: The fact that the Jamaican economy has been growing for ‘16 consecutive quarters,’ more than twice the period of the current administration’s stewardship, is evidence of the importance of continuity of successful policies and programs established under the prior administration. Prime Minister Holness’ administration is now reaping the economic growth benefit by its decision to maintain the structural changes of the Jamaican economy implemented by the previous government, though painful for the Jamaican people at the time. The Holness administration inherited a restructured economy that had the blessings of the IMF, World Bank and the Inter-American Development Bank. Continuity increased the confidence of domestic investors and foreign investors who had already targeted Jamaica as a place to invest. Hence, maintaining stability in the Jamaican economy meant continuation of an environment of confidence for foreign direct investments, in particular in the tourism, energy and bauxite/alumina sectors, as well as infrastructure development. The Jamaican stock market continues to grow on the heels of economic stability, business expansions and consolidations, as well as the huge profits of listed companies that benefit from a growing and stable economy. However, instability in Jamaica’s currency is a growing concern to the local business sector and needs urgent attention. Also, warnings to Jamaica and the region of China’s so-called ‘predatory economic practices’ by the Trump administration could have a chilling effect on the Jamaican economy in the future. One should not be overly optimistic that U.S. investors will supplant the Chinese and other foreign investors merely on President Trump’s wishes.

Anthony Wilson, head of the multimedia business unit at One Caribbean Media: Jamaica’s adoption and strong implementation of fiscal responsibility is central to the island’s extraordinary economic achievements over the last four years. The adoption of a fiscal responsibility framework in March 2010 and a new fiscal rule in 2014 predate the second term of Prime Minister Andrew Holness, which began in 2016. Critical to Jamaica’s success, therefore, has been its bipartisan commitment to fiscal responsibility, which has allowed a reduction of the country’s fiscal deficits over time. Holness’ achievement has been in his remarkable communication skills and his government’s decision to stay the fiscal discipline course. That, in turn, has led to a sustainable reduction in Jamaica’s debt-to-GDP ratio from above 135 percent in 2013 to an estimated 96 percent in March. A reduction of Jamaica’s debt over time has meant that less of its budget is being allocated to pay interest, which contributes to more money available to fund capital expenditure. If Jamaica can maintain its fiscal discipline, there is no doubt that its outstanding economic performance can be sustained and enhanced. Potential future shocks to the economy include a destructive hurricane or other natural disasters and the impact that a global slowdown will have on the island’s tourist arrivals and new investment in hotels and other tourism infrastructure. There is also a risk that hubris and over-exuberance, along with over-leveraged private sector balance sheets, may trip up the country in the future.

Richard Bernal, pro-vice chancellor for global affairs at the University of the West Indies: The main reasons for Jamaica’s growth performance are: macroeconomic stabilization, which is sustained and has improved in recent years; favorable external conditions, particularly oil prices; the continued very strong performance of the tourism sector; an increase in bauxite/alumina following FDI by a private Chinese firm; political consensus by both parties on economic policy, especially fiscal discipline; and growing business confidence. The policies of the Holness administration are a continuation of those of the previous government in conjunction with the International Monetary Fund. The government is to be commended for taking the tough decisions required to stay the course of the IMF program while upgrading the country’s physical infrastructure. The risks ahead are: exogenous factors, such as weather-related ones, ranging from drought to natural disasters, including hurricanes and floods; external shocks, in particular, oil prices; and internal factors, such as the adverse impact of crime on tourism and corruption in the public sector.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor


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