Editorial | Economy critical to election debate

THERE ARE many things for voters to consider in next month’s coronavirus-constricted general election. None, though, is more profound than which party is more capable of leading Jamaica not only out of the pandemic, but the economic crisis it wrought.

The latter point is especially important. For the absence of clear policies and a steady hand, at this time, could drag Jamaica towards the same precipice from which it took eight years to claw its way back. Yet, the new environment will require not only fiscal rectitude. It also calls for creative policies that induce growth and provide a safety net for the society’s most vulnerable, who have been slammed hard by the virus’ economic fallout.

It is in this context that a heavy focus of this campaign, especially the debates between the spokesmen of the governing Jamaica Labour Party (JLP) and the main opposition, the People’s National Party (PNP), must be on economic policy and how they expect the country’s fiscal situation will impact their social programmes. Cost and priorities must be an issue.

Some of the background to the island’s current economic situation is, in this context, important. Four decades of poor economic policies, including heavy government borrowing, produced growth of less than one per cent per annum. Exacerbated by the Great Recession of 2008, Jamaica was in a deep crisis. Its debt was close to one and a half times national output; and the fiscal and current account deficits were ballooning. By 2012, when Jamaica appealed to the International Monetary Fund to resuscitate a derailed economic support agreement, the island was all but shut out of global financial markets.

However, over nearly eight years, across administrations, and up to the onset of the pandemic, the Government demonstrated remarkable discipline in managing the fiscal accounts and pushing through tough economic reforms.

Indeed, by the start of the current fiscal year, the debt had fallen to 96 per cent of gross domestic product, the Government was balancing its Budget, and the current account was in the low single digit. There was relative optimism about the macroeconomic environment.

Then came the pandemic, which has upended the global economy, including Jamaica’s. Since the first COVID-19 case was confirmed on the island in March, the tourism industry, the island’s biggest earner of foreign exchange – US$3.7 billion gross in 2019 – has essentially collapsed. Sectors that rely on tourism are stressed. Further, lockdowns designed to slow the spread of the disease have put thousands of people out of work. And even before the virus, the bauxite-alumina sector was sputtering. The decline in commerce caused the Government to lower its expectation for tax earnings by around J$80 billion, or 13 per cent below its pre-coronavirus projection. The upshot: an expectation that the economy will decline by up to six per cent this year.

Jamaican dollar devaluation

The brittleness, and the slump in tourism and other exports, has stressed the value of the Jamaica dollar and put the pressure on the central bank’s reserves. Since March 10, the day the first COVID-19 case was reported, the value of the Jamaican dollar has slipped by 14.65 per cent against its US counterpart. It traded on Tuesday at J$151.04 for US$1, compared at J$135.42 to US$1 on March 10. At the same time, the net international reserves, at US$3.23 billion in March, fell approximately 15 per cent, to US$2.75 billion by July.

Perhaps because of lower import demand, including from the tourism sector, in the soft economy, the central bank’s projection was that its July reserves could fund 36.54 weeks of goods and services, compared to 23.22 weeks in July, when it had more foreign exchange on hand. Nonetheless, unless foreign exchange demand softens, or inflows pick up, the reserves could quickly dissipate – provided there is a decision to allow the market to determine the exchange rate with minimal interference by the central bank.

Given that tourism is unlikely to return to its old robust self in the short term, these are critical issues for which the contenders in this election should provide answers to voters. In the circumstances, perhaps the first of the debates, on August 25, should be on the economy rather than social issues. Or, the questioners should be aware that social matters are inevitably intertwined with economic ones.