Editorial | IMF was the only option

That Jamaica has turned to the International Monetary Fund (IMF) for financial support in the face of the COVID-19-induced global economic meltdown is hardly surprising. Nearly 100 countries have already sought help from the IMF to shore up their balance of payments. What, on Jamaica’s part, was surprising, was the delay in making up its mind to go to the IMF, or the public dissembling on the matter.

Applicants like Jamaica want to tap the IMF’s Rapid Finance Instrument, which is open to countries facing emergencies, but doesn’t require a full-fledged programme. Depending on the structure and length of a loan under this facility, Jamaica, by this newspaper’s estimates, could receive between US$280 million and US$580 million.

The finance minister, Dr Nigel Clarke, it seems, believes that this cash, plus what Jamaica can garner from other multilateral lending institutions, by way of new borrowings or the reordering of existing commitments – combined with an adjustment of spending and tapping the domestic markets – will be sufficient to tide the Government over, until the global economy recovers. However, the detailed assumptions upon which the Government rests its expectations would be useful for deeper analysis of the country’s medium-term prospects. Dr Clarke, no doubt, will soon put these into the public domain. In any event, the other multilaterals will pay attention to the posture of the IMF, even if there is no formal programme with them.

The Government is not at fault for the current situation. In one fell swoop, the emergence of the hitherto unknown coronavirus caused the lockdown of global economies, shutting down Jamaica’s critical tourism industry, likely wiping out two-thirds of the US$4.4 billion revenue tourism was expected to gross in 2020. Remittances, the island’s second major source of foreign exchange – bringing in approximately US$2.3 billion a year – have slowed to a trickle, as Jamaicans abroad, especially in the United States, Britain, and Canada, join the millions of people in those countries who have lost their jobs.

Jamaica has done much

Indeed, the IMF projects that world output will decline by three per cent in 2020, and that of advanced countries’ economies will drop by 6.1 per cent. The United States, Jamaica’s major trading partner and the main source of tourists and remittances, is expected to drop by 5.9 per cent. Latin American and Caribbean economies, as a group, the IMF estimates, will see a decline of 5.2 per cent, the range within which, in a best-case scenario, many analysts expect Jamaica would fall. This is against the 1.2 per cent growth the Government had targeted in the 2020-21 financial year, after the more modest 0.6 per cent growth in the previous year.

While the expansion in domestic output has been disappointing, Jamaica has done much over the past eight years, across administrations and under IMF programmes, to put its fiscal house in order. This is reflected most impressively in the lowering of the Government’s debt, from close to 150 per cent of national output, to 91 per cent of GDP, and in the balancing of its budget. Ironically, the last IMF programme, a US$1.6-billion standby arrangement, concluded less than six months ago, without the need for a drawdown from it.

It was obvious, even without the help of Dr Clarke’s circumlocutory intimation to the IMF’s managing director, Kristalina Georgieva, that the aggressive primary balances – as high as 7.5 per cent of GDP – which delivered this accelerated pay-down of the debt, can’t be sustained in the short term. Dr Clarke may have to seek Parliament’s approval for derogation from the obligation that the debt be reduced to at least 60 per cent of GDP by 2026.

It was clear, too, that weakened oil prices and soft import demand notwithstanding, the central bank’s US$3.2 billion of reserves could, in this environment, be quickly stressed, leading to pressure on the current account and the value of the Jamaican dollar. These issues, no doubt, would be exacerbated by a decline in tax revenues, as businesses falter and people become unemployed.

Whatever may be our sense of independence, or presumption of our capacity to manage this crisis, the need for external support was apparent. We are surprised that the administration didn’t make an early beeline, as this newspaper suggested, or if it was in talks with the IMF, as is probable, and it didn’t just declare its intention. Jamaica won’t emerge unscathed from this crisis, but the damage will likely be less if the solutions have consensus and buy-in. The best chance of that is if everyone is taken into confidence.