Jamaica this month successfully completed its IMF reform programme. Says the Fund: “Unemployment is at an all-time low of 7.8 per cent, taxes have been reduced, business confidence is high, inflation and the external current account deficits are low, and the level of foreign currency reserves is comfortable.” That all sounds good.
The stock market value of Jamaican shares, they could add, has tripled in the past five years, and jumped 68 per cent in the year to mid-August. That sounds like a mega-boom. After half a century of stagnation, has Jamaica’s economy turned the corner?
One big plus for the IMF programme has been sustained support from both political parties—from Portia Simpson Miller’s government until 2016 and Andrew Holness since. It’s hard to imagine that happening in T&T.
Another plus has been support from a broad-based Economic Programme Oversight Committee, linking the private sector, banks, trade unions and influential academics. That too is a degree of consensus we don’t often see here. And there has been a sustained effort to explain the programme in clear and catchy terms to a wider public.
Success with the IMF has come at some cost. Public sector workers have been pretty much on a wage freeze most of the time since 2010, while inflation has slashed the value of their earnings. Income tax cuts have been funded by higher taxes on spending. The government has extracted way more in taxes than it has spent on public services and capital projects, using the surplus to pay off debt. Banks and private investors suffered a massive haircut when public borrowings were restructured. But there was no rebellion. Jamaicans, for once, get full marks for patience.
So, all is well? Maybe not. There is plenty road to travel.
Jamaica’s historically sky-high interest rates and soaring inflation were disastrous for business. But pulling the big macro-economic numbers back into comfortable territory—as Jamaica has done, painfully and creditably—does not automatically unleash a steady expansion. Yes, Jamaica’s economy has been growing for a year and a half, but at a painfully slow rate. Growth this year is expected to be less than one per cent.
So why the stock exchange boom? In the past, investors could earn a fast buck from lending to the government. But the rate of interest on Treasury Bills has come down from 33 per cent in 2003 to six per cent in 2016 to under two per cent this month. That leaves a lot of cash looking for a place to earn a quick return. With share prices booming, that looks like the way to go.
Asset bubbles carry their own risks. Jamaica’s stock market soared in the early 1990s, then crashed, carrying most of the financial sector with it. A costly bailout landed the government with a massive debt burden.
We’re told that the financial sector is now more carefully managed.
Another boom right now is construction and high end real estate, some of it with half an eye to the lucrative Airbnb market. There’s also a steady flow of funds overseas, to safe havens in the US and elsewhere.
So what’s happening in the real economy? Tourism is ticking over nicely, but there’s no sign of a step change. Remittances sent to granny from overseas Jamaicans run a close second as a foreign exchange earner. Again, the outlook is fairly flat.
A big plus has been converting electricity generation from fuel oil to LNG—imported, unfortunately, from the US, not from T&T.
Business process outsourcing is doing well. Call centres employ around 36,000 staff, around three per cent of the labour force. That’s nice—it’s a good way to soak up youth unemployment. But wages remain modest.
Sugar is a sour spot. For years, Jamaica and other Caribbean producers sold sugar at well above world price to the protected European market. Since 2017, that has been ancient history. A Chinese company in 2011 unwisely bought three sugar factories, promising a US$156 million investment programme. When that went wobbly, the government was forced to step back in, picking up the substantial losses.
And commercial ganja growing? Five years since the laws on medical marijuana were partly relaxed, there’s still no sign of a big money earner.
Bauxite is no gold mine. Aluminium prices are at best shaky. The Chinese-owned Alpart operation reopened in 2017 with promises of a US$3.0-plus billion industrial park on 27 square kilometres of adjoining land. It is to close for perhaps two years, apparently for an upgrade.
An ill-conceived Chinese proposal for a mega-port for container transhipment at Goat Island to the west of Kingston has been shelved.
Jamaica has been tied to IMF programmes in 34 of the 57 years since independence. Seven of the 14 agreements ended in tears. Two were completed with special waivers. Five were completed successfully, including the two most recent. Formal graduation from the current programme is scheduled for November. It’s a big achievement—but going from here to steady growth and prosperity will not be an easy ride. We’ve been here a couple of times before.