This week, the IMF and Government of Jamaica hosted a conference/high-level forum in Jamaica on growth in the Caribbean, entitled ‘Unlocking Economic Growth‘. The agenda item that sparked my interest concerned energy issues, reliability and costs. For Jamaica, high energy costs have held down economic activity significantly. Aptly, the Gleaner takes the government to task on this in an editorial today.
No one can get very far without paying attention to the need for employment growth. Jamaica has had decades of economic stagnation, so needs jobs even more. Calls for much faster economic growth are becoming more common, and the PM weighed in on it during the conference. Let’s not be naive: the government would look great if growth accelerated and electoral hopes would rise for it as a result.
I’m a skeptic about how that can happen, with the base currently in place. One of the blockages is energy costs. We can’t be competitive enough to get 4-7 percent growth.
During the conference, Jamaica found itself in a new comfort zone: it’s become an IMF poster child. After the MD had visited in June and commended the PM for the government commitment to economic reform, now, one of her deputies says that it has performed a”miracle”.
“By our forecast, the growth this year will be stronger than last year and even more important, for next year the growth will be stronger than this year. Meanwhile, the fiscal deficit will drop to almost zero…so I think it’s absolutely a miracle. It’s a great achievement by the Jamaican Government,” he said. It sounds like hyperbole to me, but he’s said it now: two consecutive years of faster growth isn’t really a miracle. But, let’s just say the good air and lovely food in Jamaica got another one. 😉
Now, this unreserved praise from the IMF is a two-edged sword. It’s may be fine music to the ears of the finance minister, but it could also be the funeral dirge. The average Jamaican is unlikely to think that the depreciation of the local currency by 13 percent since the IMF Programme began in May 2013 (when the rate stood at about US$99) is the stuff of miracles. The MD had spoken about the consensus she found in support of the policies. I have no idea where that was located. Notably, Jamaica’s private sector has been amongst the loudest critics of the dollar slide. But, wasn’t it meant to help boost exports? So much of Jamaica’s production depends on imported inputs that devaluation hurts more than it helps, especially through the impact on imported oil prices. Also, our principal exports, tourism and bauxite/alumina are not sensitive to depreciation. The outcome is as clear as white rum.
For the past two months, we’ve seen the dollar settle at about US$112.70. Oil prices have fallen over recent months, so we’ve gotten the gains of that. Notably, for motorists, they’ve seen pump prices fall over several weeks. I’m sure some are tempted to fill up at these lower prices, needed or not.
But, can the government win by having the IMF royalty constantly kissing it on the cheek?