Clarke hails Ja's economic turnaround at IMF/World Bank Spring Meetings

Finance Minister Dr Nigel Clarke today hailed "laws, institutions and principled decision-making"supported by fiscal transparency and social consensus as key to Jamaica's economic turnaround at the 2023 Spring Meetings of the World Bank Group and the International Monetary Fund.

He was speaking at a panel discussion moderated by World Bank President David Malpass.

The talk was under the theme "Overcoming Debt, Generating Growth”. 

The spring meetings in Washington come at a time of profound concern about persistent inflation, poverty, and the health of the banking system. 

According to Clarke, based on economic data for the quarter ending December 2022, Jamaica has the "distinction ...of being - with the exception of Guyana that discovered oil - the only country in the Western Hemisphere that can say the following three things: 

-Economic output in real terms being higher than for the similar quarter prior to the pandemic.

-Unemployment is lower in 2022 than it was prior to the pandemic, and a few people can say that, but no one can say those two, plus the third 

-Our debt to GDP as at 2022 is lower than prior to the pandemic."

For about 50 years, Jamaica was in a "debt trap" cemented by the financial crisis of the 1990s and the government's intervention then which he said cost about 40 per cent of gross domestic product (GDP), the minister told Malpass. 

"This cost was socialised, borne by the government, and the last 25-30 years of our debt experience is inextricably linked with this banking sector failure in the 1990s. For your audience, by comparison, the financial sector crisis here in the US in 2008-10 was about 9 per cent of GDP. So, for Jamaica it was severe at 40 per cent of GDP and we didn't pursue a market solution, the government just took it on. And we never worked that debt off and it eventually brought us into crisis," he said. 

But, he pointed to fundamental changes spanning political administrations led by his Jamaica Labour Party and the now Opposition People's National Party since 2010, and particularly from 2013 when "Jamaica was on its knees".

The finance minister noted the passage of a series of laws dealing with revenue administration, fiscal incentive reforms, the public pension system, which since 2017 includes contributory arrangements, and the move from direct to indirect taxation.

There have been criticisms that the tax policy only emerged to save a near-doomed political promise in 2016. 

Regarding institutions,Clarke pointed to the rolling out of the Independent Fiscal Commission and making the Bank of Jamaica, the country's central bank, independent in implementing monetary policy focused on achieving an inflation target.

"We instituted fiscal rules and strengthened those rules over time, that governments over the last 10 years have followed," he said, before highlighting the country's economic recovery to pre-COVID levels.

"Jamaica got its debt down from 147 per cent of GDP all the way down to 94 per cent of GDP over a seven-year period and then COVID comes. An economic GDP contraction of 10 per cent, debt/GDP goes back up to 110 per cent, alarm bells go off, because before we went to 147 per cent, the train stopped before that was 115 per cent. So, at 110 per cent, are we going to go back? No. We escaped from our fiscal rules, but our policy approach was targeted and temporary unlike what we saw in many parts of the world where it wasn't targeted nor temporary," he said. 

Jamaica's debt reduction was positively highlighted in the IMF's latest World Economic Outlook released today. 

"The possibility of success of (deep enough) preemptive restructuring executed through cash flow relief, rather than face value reductions, is illustrated by the case of Jamaica," the IMF said of Jamaica's debt restructuring exercises. 

Global economic outlook

On Tuesday, the International Monetary Fund downgraded its outlook for global economic growth.

It now envisions growth this year of 2.8 per cent, down from 3.4 per cent in 2022 and from the 2.9 per cent estimate for 2023 it made in its previous forecast in January.

The fund said the possibility of a “hard landing,” in which rising interest rates weaken growth so much as to cause a recession, has ”risen sharply,” especially in the world's wealthiest countries.

“The situation remains fragile,' Pierre-Olivier Gourinchas, the IMF's chief economist, told reporters Tuesday. 

The global economy, the fund warned in Tuesday's report, is “entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner.”

The IMF, a 190-country lending organisation, is forecasting 7 per cent global inflation this year, down from 8.7% in 2022 but up from its January forecast of 6.6 per cent for 2023.

The world economy has endured shock after shock in the past three years.

First, COVID-19 brought global commerce to a near-standstill in 2020.

Next came an unexpectedly strong recovery, fuelled by vast government aid, especially in the United States.

The surprisingly powerful rebound, however, triggered a resurgence of inflation, worsened after the Russian invasion of Ukraine drove up prices of energy and grain.

- The Associated Press contributed to this report.

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