Should Jamaica fear failing IMF test?

Darron Thomas, Contributor

Jamaica having raised US$400 million in the capital markets within the last month, and by all indications will be recording single-digit inflation for the fiscal year 2010-2011, it seems all is well. However, it might be quite the opposite.

This week's release of significant revenue shortfalls, despite spending below projected level on the expenditure side, could pose serious problems for Jamaica. Already, the International Monetary Fund (IMF) seems unhappy with the way Jamaica has gone about managing its fiscal affairs, and any further deviations from IMF conditionalities under the February 2010 IMF standby agreement could see the fund suspending loan disbursements under the programme.

Against the backdrop of a J$4-billion shortfall in revenue collection, provisional numbers for January 2011 suggest that there is a revenue shortfall, compared to Budget, of 7.7 per cent. These shortfalls, along with some hints that the Jamaican Government, in the eyes of the IMF, may be acting less than thrifty, are impetus for grave concern.

Gloomy outlook

With the unemployment rate firmly above 10 per cent and energy prices likely to rise against the backdrop of the turmoil in the Middle East and North Africa, it is difficult to make the case that the Jamaican economy will realise the positive growth projections that a number of experts have forecast.

Despite the effects of Jamaica's absence from an IMF programme and the 'IMF 2.0', Jamaica's chequered record with the fund may factor into the IMF's decision to continue loan disbursements should Jamaica fail an IMF test. With suspended loan disbursements, low productivity and the debt burden in the region of 139 per cent of GDP, Vision 2030 could very well be delayed, if not entirely jettisoned. This would, of course, ruin any confidence the capital markets have in Jamaica and, as a consequence, set Jamaica's economic progress back for decades to come.

Not only is Jamaica in a low-productivity trap, but it will need to repay the IMF as well as honour debt obligations to creditors whose maturity was extended as part of the Jamaica Debt Exchange. This gloomy outcome is a real possibility!

Therefore, as Jamaicans - private sector, public sector, individuals and the diaspora - let us work hard to stave off this rather undesirable outcome.

Darron Thomas is a lecturer. Email columns@gleanerjm.com or darron.thomas@gmail.com.