EDITORIAL - No turning back

The past year of International Monetary Fund (IMF)-inspired economic austerity has been tough for Jamaicans. The next won't be much easier.

But having successfully completed the first year of the reform programme, the Simpson Miller administration has little choice but to stay the course, if it is serious about rescuing the economy.

If it is flagging, it should pay attention to the most recent assessment by Richard Byles, the private-sector co-chairman of the committee that monitors the agreement with the IMF.

"There is no doubt," Mr Byles told reporters, "that the Jamaican economy is in a better place today than it was 12 months ago."

Indeed, when the Government embarked on this latest round of reform, Jamaica's Greek-style debt was heading towards 150 per cent of gross domestic product (GDP), after years of callous borrowing at higher and higher interest. Unable to compete for capital, the private sector could not finance the projects to create jobs and drive growth.

But the Government's fiscal imprudence caught up with it. It was increasingly difficult for it to pay its debts and meet its other costs, and fewer and fewer people were willing to lend it money. And those who would lend insisted on greater risk premiums. It was a circle.

A year on, the debt is 138 per cent of annual national output; the public-sector wage bill, previously at more than 12 per cent of GDP, is closer to the target of nine per cent; and the current deficit has moved from 12.5 per cent to 10 per cent of GDP. Additionally, a raft of legislation has been passed, bringing greater transparency to how the Government manages its finances and generally does business.

Underpinning all the other targets, and critical to a lowering of the debt and, ultimately, the stability of the economy, is the one requiring the Government to run a fiscal surplus of 7.5 per cent of GDP. With the economy sluggish - growing at less than one per cent - and tax revenue below projected levels, the Government was forced to rein in spend to meet its fiscal target.

FAILURE TO STIMULATE GROWTH

Herein lies the fraught element of the reform programme: its failure, thus far, to stimulate significant growth. This has fuelled appeals to the Government for a so-called 'growth agenda', with its echoes of central planning and for the State to get into the business of picking winners, as though the hand of the State is better than that of the market.

The Jamaican economy, over the previous 40 years, may not seem, on average, any better than now. But more important is Ralston Hyman's reinforcement of a point often made by this newspaper: that fiscal stability is a critical part of the growth agenda. When the Government borrows less, there is more to lend to the private sector.

It is noted, too, that a substantial part of revenue underperformance was in customs duties, which, partly, is the flip side of the improvement on the current account. Jamaicans imported less, which suggests opportunities for the substitution/displacement of some foreign products, and when allied with a more competitive exchange rate, improved prospects for exports.

A critical foundation is being laid.

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