Today, we begin a new series, The Briefing, with Dr André Haughton. It will explain and discuss various issues, including challenges facing the economy.
What’s the position, what went wrong?
With current debt burden at about 130 per cent of gross domestic product (GDP); unemployment at its highest level in 20 years, a sliding Jamaican dollar, a depleting Net International Reserve (NIR) and huge balance of payment problems; Jamaica’s economic problems did not occur overnight. Jamaica saw its first major economic crisis in the 1970s as a result of rising world oil prices. Then came the second in the 1990s with the financial crisis, after economic liberalization without sufficient control mechanism in place. The pseudo remedy to this second crisis was the establishment of FINSAC, for which the country had to borrow to support it. Subsequently, Jamaica’s debt-servicing payments increased by more than 70 per cent between 1999 and 2003. It continues to grow.
What is the result of these problems?
The increase in debt servicing requirements has put a significant strain on the country’s annual budget. Currently, approximately 55 per cent of government spending goes to service the debt. After paying public-sector wages, less than 22 per cent remains for capital expenditure and government programs. Continuous lack of proper infrastructural development reduces the country’s ability to adopt new technology, reduces its ability to increase productivity, resulting in a very inefficient economy with little or no growth in output since the 1970s.
How could it be solved?
The Jamaica Debt Exchange (JDX) program provided a significant window from which economic sustainability could be restored. However, the long-run success of the JDX required some amount of debt write-offs instead of just debt payment extensions, which wasn’t negotiated. Consequently, the JDX failed to minimize debt-servicing requirements and did not increase fiscal room. Now it appears the country’s progression rests on a new deal with the IMF.
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