Over the past few months this lovely island of Jamaica has been abuzz with news of the IMF (International Monetary Fund) and its pending agreement with Jamaica. Without intending to oversimplify the challenges, here’s a few points to sum up the Jamaican context:
- Jamaica’s debt-to-GDP ratio is around 140% with a public debt of 1.75 trillion
- Debt servicing interest charges are approx 130 billion and there is a current budget deficit of about 65 billion
- GDP real growth rate ranged from approx -1.5% (2010) to 0.9% (2012) with unemployment just over 14% and 16.5% living below the poverty line (2012 est)
- Statement by an IMF mission to Jamaica in January 2012 summed the challenges up as: “The Fund team and the authorities have a concurring view of the key challenges facing Jamaica, arising from the high public debt and low economic growth, and agree on the need for a strong policy response.”
What this has meant is a series of measures coming out of a Staff-level agreement with the IMF. Tax, tax and more tax! A second debt exchange, increases in education tax, stamp duty, transfer taxes, taxes on dividends paid to residents. The National Housing Trust will also be paying 11 billion a year to Government coffers. This particular measure has sparked much debate given the NHT’s mandate and source of funds.
The situation is not encouraging and one is left to wonder how it will affect the most economically vulnerable in society. The working poor and those who manage to live barely above the poverty line. One cannot also forget that likely the need to review spending may take its toll on basic social services and infrastructure. Still the IMF agreement thus far seems to have addressed this (Section iv):
“This involves implementing a coordinated set of reforms to: (i) strengthen public finances, including through comprehensive tax reform, expenditure rationalization, and improved public debt management and public financial management; (ii) enhance the resilience of the financial sector through strengthened supervisory, regulatory, and crisis management frameworks; (iii) improve growth-generating efficiency through enhancements to the business environment, increased competitiveness, and strengthened institutional capacity and governance (including through a broad legislative agenda); and (iv) protect the most vulnerable and promote economic self-reliance, including through the establishment of a floor on social spending, maintaining the real value of PATH (Program of Advancement through Health and Education) benefits, and expanding re-certification and the Steps-to-Work program.” [Extract from IMF Mission and Jamaican Authorities Reach Staff-Level Agreement on Key Elements for EFF-Supported Program, Press Release No. 13/51]
I think the proof will be in the pudding – assuming of course I can still afford pudding after these reforms, measures, cuts and chops!
Will these measures actually work? The Caribbean Policy Research Institute – an economic policy think tank at the University of the West Indies has tested the probability of the IMF model generating the reduction of debt as forecasted. The result? It is possible but dependent on the government following the prescription and with no external shocks thrown into the mix. However the country would still have a high debt to GDP ratio so it certainly would not be the end to this historical problem.
For more perspectives see newspaper article: “Until death do us part” and “Is Jamaica the Greece of the Western Hemisphere?”
Well one thing I know – I’ll probably be eating out a bit less and taking myself back to the kitchen. What does this mean for you? A few more culinary surprises! Keep looking out!
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