Strong Recovery in Jamaica but Bold Reforms Still Needed

SUMMARY

After several decades of low growth and rising public debt, Jamaica has made significant progress in restoring economic stability thanks to strong policies and program ownership.

 
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  • Jamaica’s reforms beginning to bear fruit but growth still too low
  • Fiscal discipline crucial to restore economic stability

  • Focus on growth-enhancing
  • structural reforms

    The government’s reform program—supported by a four-year IMF loan approved

    in 2013—has been a turning point for the Jamaican economy and a case study

    in ownership and collaboration. The government took on the program to break the

    cycle of high debt and low growth that has afflicted Jamaica for decades.

    Although the economic recovery continues, growth remains weak. In its latest assessment of the Jamaican economy [link to SR], the IMF

    projects growth at 1.7 percent in fiscal year 2016/2017. The government will therefore

    need to implement bold structural reforms to unleash Jamaica’s potential.

    An unhappy cycle of high debt and low growth

    Years of high fiscal deficits, public enterprise borrowing, and financial sector

    bailouts led to rapid debt accumulation, crowded out private credit, and stifled

    growth. Low growth, in turn, further weakened the fiscal situation and raised social

    pressures as standards of living stagnated (see Chart 1).

    Jamaica’s historical vulnerability to natural disasters reared its head when,

    in October 2012, Hurricane Sandy brought the economy to a screeching halt. The current

    account deficit soared, reserves plummeted, and public debt reached 147 percent

    of GDP—one of the highest levels in the world. The government’s economic

    reform program—bolstered by an IMF program in May 2013—focused on boosting

    growth and employment, improving external competitiveness, achieving fiscal and

    debt sustainability, strengthening the financial system, and protecting the poor

    by requiring a minimum level of spending on social programs.

    Proving the skeptics wrong

    Skeptics regarded the IMF program’s challenging targets—including a

    primary balance of 7.5 percent of GDP at the time, and relaxed in December 2015

    to 7 percent of GDP for fiscal year 2016/17—as unattainable. Jamaica’s

    patchy track record of reform did not help.

    But implementation has been extraordinary—over 95 percent of program

    conditions were met. The creation of the Economic Program Oversight Committee (EPOC)—a

    civil society group made up of representatives from the private sector, public sector,

    and civil society and a first in an IMF program—has ensured strong program

    ownership. The goal was to build recognition of the challenges, keep an open channel

    of communication with both the IMF and the...

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