Jamaica's Economic Reform and Growth: Interview with Nigel Clarke

IMF News, May 10, 2017

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Since 2013, Jamaica has made significant strides in restoring economic stability: inflation is low, the current account deficit has been cut in half, and business and consumer confidence are high.
Economic growth remains low; unemployment and poverty rates remain high.
Public debt is on a downward trajectory but remains at 120 percent of GDP.
IMF engagement: the government requested a new IMF loan in November 2016 — a Stand-By Arrangement, treated as insurance against unforeseen external economic shocks.
Publication date: May 10, 2017.

Unemployment rate: 12.9 percent.
Sectors poised to absorb the most jobs:
- Agriculture: key impediments are access to reliable water and lack of strong linkages with the tourism sector. Priority interventions include investment in water storage and distribution systems, and irrigation; private-sector partnerships are required.
- Business process outsourcing (BPO): forecasts indicate this sector can employ an additional 20,000 to 30,000 people over the medium term; realization requires investment in training to ensure appropriate skills.

Public sector transformation priorities:
- Simplification; transparent systems for hiring, promotions, and exits; unification of practices.
- Merging entities with overlapping functions; sharing services where feasible.
- Divesting public entities that can perform better in private hands; improving service delivery and resource allocation.
Public pension reform:
- The new Public Pension Act replaces 30 separate pieces of legislation governing public sector pensions with a single law.
- Changes include raising the retirement age, changing accrual rates, and requiring pension contributions from all public sector employees.
Expected outcome: transformation and divestment will generate additional public resources and improve efficiency, fueling broader economic expansion.

Purpose: advise the government on initiatives to stimulate economic growth; government selects initiatives and specific policy recommendations to support.
Consultation process: engaged labor unions, academia, civil society, private sector groups, ministries, multilateral institutions, and diplomatic missions to build consensus on priority initiatives.
Relationship to IMF program: some policy recommendations incorporated into the precautionary Stand-By Arrangement.
Accountability: the Council is mandated to follow up on implementation and report to the Jamaican public on a quarterly basis.

Medium-term primary surplus commitment: 7 percent of GDP.
Historical precedent: Jamaica previously achieved a primary surplus target of 7.5 percent for a few years.
Strategy to sustain the 7 percent primary surplus:
- Sustained growth in government revenues and judicious management of expenditure.
- Continued expansion of the economy, increases in tax efficiency, prioritization of critical spending, and efficiency gains.
- Shift from direct to indirect taxation to broaden the tax base, simplify collection, and increase revenue assurance.
Recent outcome: tax revenues over-performed expectations in the last financial year, which is largely outside recent historical experience.

The new budget increases allocations for social protection: absolute dollar increases between this budget and the previous one are larger in absolute terms than the collective increases over the past four years combined.
Short-term increases delivered largely through two existing programs:
- A school feeding program ensuring children going to school have adequate nutrition.
- Monthly stipends to cover the basic needs of the most vulnerable people.
Medium-term objective: completely overhaul the system of social protection to improve targeting and expand coverage.

Priority reforms to improve the investment climate:
- Reduce or remove supply-side bottlenecks.
- Simplify procurement of licenses, regulatory compliance, and permitting processes.
- Improve small- and medium-sized enterprise access to finance at reasonable rates and terms.
- Implement structural, legislative, and operational reforms to improve citizen security and public safety to raise productivity of labor and capital.

Value added from multilaterals like the IMF:
- Provide technical knowledge, skills, and advice based on broad international experience — “the results of the world laboratory.”
- Offer financial resources that complement policy engagement.
Engagement approach: multilateral institutions can act as a collective policy bank and policy reservoir, but performing this role well requires listening and awareness of local nuances and context.
Overall assessment: despite occasional disagreements, the multilateral community and entities like the IMF are, ultimately, forces for good in the world.

International Monetary Fund