Caribbean & Central America - March 2011 (ISSN 1741-4458)

Jamaica has both a serious debt problem (with a debt-to-GDP ratio of 130%) and a serious growth problem.   Constrained by a US$1.27bn IMF Stand-by Agreement, Jamaica is struggling to improve its growth prospects and is hinting at moves that will be opposed by the international lender.

The latest economic indicators suggest that the Jamaican economy declined by 1.1%-1.3% in 2010 (after falls of 2.7% in 2009 and 0.4% in 2008), although there were some signs of slowing decline in the fourth quarter - and the Planning Institute of Jamaica (PIOJ) is now suggesting a return to growth in the first quarter of 2011.

This anaemic return to growth has done nothing to alleviate fears about Jamaica's continuing propensity to lag behind its competitors.   The IMF is expecting Jamaica to grow by just 1.3% per annum over the next five years, a third of the projected average growth of the world economy.

The IMF, however, is not doing much to help.   The current stand-by agreement, signed in February 2010 does little to address the growth problem.   And in February this year, the IMF began to express concerns about Jamaica possibly not meeting all the performance targets set by the loan agreement.   The IMF warned, inter alia, about delays in the public-sector rationalization plan.   It also warned about mounting spending pressures and delays in some fiscal reforms.

Prime Minister Bruce Golding continues to assure that the tight economic measures stipulated by the loan agreement will be adhered to, but the local daily, Jamaica Gleaner has also reported that Golding is discussing a new economic strategy with Finance Minster Audley Shaw.   Golding is reported as saying: “I am hoping that we can allow enough fiscal space to put some money back into the economy, so that people can start working again and start spending again because we think that it is critical to support the investments that we want to see."

At the beginning of March, the Planning Institute of Jamaica (PIOJ) published a “Growth Inducement Strategy for Jamaica" aimed at overcoming the constraints that have led to 35 years of “near stagnation".   The report specifically looks at measures to boost short-term growth, and it argues that “aggressive front-loading and implementation" of short-term growth projects could add up to 3.1 percentage points to 2011 growth projections of 2.1%.   With the government facing elections by September 2012, such an immediate boost in growth must look attractive.   The PIOJ says implementing these short-term measures would need a total expenditure of J$14.4bn, about 1% of GDP.