KINGSTON, Jamaica, Jun 12, CMC – The main opposition Jamaica Labour Party (JLP) is accusing the Washington based International Monetary Fund (IMF) of not accurately placing the country’s current economic situation into a proper context.
Former finance minister Audley Shaw in a statement said the international lending agency had also failed to acknowledge major achievements of the JLP government over the past four years.
“The IMF should also acknowledge that the previous Administration had to grapple with a range of critical issues, including the global economic crisis which led to revenue loss; two tropical storms; a global food and oil price crisis; and a public sector that demanded wage increases which were contracted,” Shaw said in the statement.
He said that the settlement of the public sector wage increases, which contributed to the challenges of fiscal consolidation, had now paved the way for the IMF to declare that the current favourable political environment provides an opportunity to address the significant macroeconomic and rising vulnerabilities.
“Indeed, this current favourable political environment has been garnered in part due to the sacrificial decisions of the previous Administration, inclusive of wage settlements, which have now paved the way for acceptance of wage restraint by some groups in the public sector,” he added.
In a statement issued at the end of an IMF mission to Jamaica on May 30, the IMF said the economy recorded a fragile recovery in 2011, following three years of recession in the wake of the global financial crisis.
It said that Real Gross Domestic Product (GDP) grew by 1.2 per cent in the fiscal year 2011-12 as agricultural production rebounded from the destruction of Tropical Storm Nicole in 2010 and production at an alumina firm was restarted.
However, the Washington-based financial institution stated that unemployment rate remained high, at 14.1 per cent as at January 2012.
It said inflation moderated to about 7.2 per cent at end April, reflecting a negative output gap and real exchange rate appreciation. But the country’s external current account deficit widened to over 11 per cent of GDP, in part owing to a higher oil bill.
“At the same time, the financial account weakened from a sharp drop in external loan disbursements to the central government, and net international reserves fell to US$1.8 billion at end-March 2012 from US$2.3 billion in mid-2011.
The IMF said that the fiscal position was weaker in the fiscal year 2011/12 than projected and that the primary surplus of the central government is estimated at 3.1 per cent of GDP compared with 6.8 per cent under the Stand-By Arrangement, reflecting lower tax revenues associated with cuts in fuel taxes, weak tax administration, and widespread use of tax incentives and waivers.
The IMF said that recurrent expenditures remained flat, with a higher wage bill offset by lower capital expenditure. As a result, the central government deficit remained at 6.4 per cent of GDP, the IMF added.
The Fund said that the outlook is for low growth, as well as weaker fiscal and debt positions, in the absence of strong fiscal and structural reforms.
“In this context, real GDP growth would hover at around one per cent a year, the public sector deficit would increase to about nine per cent, and debt would exceed 150 per cent of GDP over the medium term.
“However, ongoing improvements to the regulatory and supervisory frameworks, as well as the crisis management framework, are expected to contain financial sector risks. The risks to the outlook are tilted to the downside, given the uncertainties about the pace of the global recovery and world commodity prices, as well as natural disasters.
“Further, rollover and interest rate risks on the public debt could be exacerbated by waning investor confidence and a continued drain on net international reserves could lead to intensified portfolio hedging,” the IMF said.
The IMF said that its board of directors “generally agreed with the thrust of the staff appraisal.
“They regretted that the successful debt exchange under the 2010 Stand-By Arrangement had not been accompanied by fiscal consolidation to put Jamaica’s public debt on a sustainable downward path.
“The current favourable political environment provides an opportunity to address the significant macroeconomic imbalances and rising vulnerabilities, and Directors welcomed the authorities’ progress in developing a comprehensive economic programme.”
It said that reducing the high level of public debt and boosting growth and competiveness, while improving social conditions, are key priorities, while noting the government’s interest in a new arrangement with the Fund, stressing “that strong commitment to decisive implementation of the programme, underpinned by prudent growth assumptions, will be essential”.
In his statement, Shaw listed the achievements obtained under the JLP government as “a successful debt exchange, which led to significant savings on interest cost to the budget, and has led to sharply reduced interest rates in the mortgage and commercial banking system which, in turn, has resulted in a return to growth of 1.3 per cent for the last fiscal year”.
He said there had also been the successful divestment of loss making public sector entities, notably Air Jamaica and the Sugar Company of Jamaica which, combined, required billions of dollars in annual support to keep them afloat, and the sale of another entity, Clarendon Alumina Productions, being well on its way;
“The introduction of a fiscal responsibility framework, which includes greater transparency and control of public expenditure by legislation; and the critical commencement of work on tax reform, pension reform, public sector reform and public sector wage reform, as well as the start-up of the first phase of a new central treasury management system,” he said.
He said the JLP would not stay silent if the IMF seeks to make statements which cast doubt on the significant accomplishments of the previous administration and urged Finance Minister Dr Peter Phillips to “stop hiding from the reality of the critical game-changing decisions that have to be made in moving forward”, and should not comfort himself with statements from the IMF or any other entity.
“The minister will find out soon enough that, in the final analysis, it is the Government of Jamaica that must take ownership and act in the best interest of the people of Jamaica,” Shaw said.