Editorial | Explore new stand-by arrangement with IMF

While acknowledging that Jamaica’s economy, in the face of the COVID-19 pandemic, is “heading for challenging times”, Nigel Clarke, the finance minister, is confident that the island is in a better position than it has been for decades “to respond to the global economic shocks”.

“Our debt is substantially reduced and on a downward trajectory, and our expenditure profile, over the medium term, can be sustainably financed,” he wrote in this newspaper on Sunday. “We have also had several successive years of low inflation, and the level of foreign exchange reserves in our central bank provides us with a meaningful buffer.”

Broadly, we agree with Dr Clarke. We, nonetheless, believe that he needs to begin shopping for more insurance. For in the emerging international economic environment, the insulation that has been built up over the last seven years could quickly grow thin, with the risk of becoming badly affected.

Not since the Second World War, perhaps, has any event elicited such mass fear or been as disruptive to global supply chains, as has this new coronavirus, which has now reached 163 countries and territories, since it first emerged in China more than four months ago. So far, around 195,000 persons are confirmed to have contracted the virus, and deaths are fewer than 8,000.

Compared to some past pandemics, those numbers aren’t especially frightening. Except that there is as yet no vaccine for the disease, which is particularly fatal to older persons. Further, with insufficient testing for the virus, there is no certainty about its prevalence. The best guess is that it is substantially higher than is, thus far, presented in societies. The best tool governments now have for slowing the rate of infection is through quarantine and isolation, both within and between communities and countries. And therein, in this era of economic globalisation, lies the downside, of which Minister Clarke is concerned.

For instance, tourism is Jamaica’s major earner of foreign exchange. It provides 106,000 jobs, making it the third-largest employer after the wholesale and retail sector and agriculture. A fortnight ago, the tourism minister, Edmund Bartlett, was predicting that tourism’s earnings, accounting for a slack-off in visitor arrivals because of COVID-19, would decline by 13 per cent from the projected US$4.25 billion to US$3.69 billion.

However, with the lockdowns and warnings against international travel, especially the United States, from where more than 80 per cent of Jamaica’s visitors come, it wouldn’t be surprising if global tourism comes to a near standstill even several months after the COVID-19 scare has retreated. Several Jamaican hotels and tourism attractions may have to suspend operations, with a knock-on effect across the economy.

AFFECT REMITTANCES

The Jamaican situation is likely to be exacerbated by the expected recession in the world’s major economies, including the United States and China, further weakening already soft demand for the island’s bauxite and alumina. It could cause, too, a slowdown in the US$2 billion in remittances Jamaicans, mostly those in the United States and Britain, send home annually.

Even with the J$18 billion stimulus – less than one per cent of gross domestic product – mostly in the form of a one percentage point cut in the general consumption tax (GCT) Dr Clarke offered in his Budget last week, he may find it difficult to achieve his already downwardly revised growth target of 0.7 per cent. Of course, lower debt-servicing charges give the finance minister more fiscal space to juggle, and the central bank’s US$3.5 billion of reserves provide it with some cushion against balance of payments stresses.

There is, however, still a question of if these will be sufficient if the global economic tide doesn’t turn quickly. That is why we suggest that the administration urgently seek preliminary talks with the International Monetary (IMF) on resuming a stand-by arrangement, similar to the one it exited last November, which provided the country with US$1.6 billion of credit which it could draw on in an emergency.

It is ironic that so soon after emerging from that arrangement, which the Government didn’t have to use, the international situation might now make such a facility necessary. Even if, in the end, Jamaica doesn’t require the IMF’s money, it is better to be prepared than not.