Fiscal discipline crucial to restore economic stability
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...