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Published: Thursday | September 3, 2009
Shaw
In a previous article, we argued that while the Government has kept a tight rein on its spending, fiscal sustainability remains at risk. In today's article, we show that this problem is more pronounced than in other Caribbean economies. However, other macroeconomic indicators reveal that Jamaica's recent slow economic growth performance and inflationary movements compare favourably with other countries. The Golding administration may not have excelled, but it has perhaps managed the economic crisis as well as it could be expected to.
Since the start of the crisis, Jamaica has experienced similar challenges to its Caribbean neighbours, many of which have also embarked on policy initiatives to offset the effects of the global downturn. Bar-bados, for instance, approved a BD$15 million stimulus package to the tourism sector, offered tax exemptions for essential consumption items and increased subsidies for educational institutions and public infrastructure agencies. Meanwhile, the government of Trinidad and Tobago cut spending, postponed some investment projects and provided support - in the form of a bailout to the Colonial Life Insurance Company (CLICO) - to prevent contagion to other financial institutions.
But while the levels of government expenditure for the economies of Trinidad and Tobago and Barbados have increased since 2008, the actual percentage change in fiscal spending in Jamaica has far exceeded theirs. For the first quarter of 2009, Barbados' public spending rose 9.1 per cent higher than the year before, and was backed by a nine per cent increase in total revenue. Govern-ment expenditure in Trinidad and Tobago increased by 10.2 per cent, although total revenue fell by 26 per cent over the first quarter. However, public spending for Jamaica for the first three months of 2009 shot up 23 per cent, despite a modest increase in government revenue of 2.85 per cent over the same period last year.
Inflation rates
Golding
On a more positive note, since the crisis erupted, Jamaica has held its own relative to Barbados and Trinidad and Tobago in terms of changes in the debt stock, growth rates and inflation rates. It is no secret that Jamaica compares less than favourably with Barbados and Trinidad and Tobago in terms of its debt-to-GDP ratio, but this is a problem it inherited. Recent changes in Jamaica's debt stock appear on par with at least one of its Caribbean counterparts: the public debt stock for Jamaica and Barbados increased by roughly three per cent and 3.4 per cent, respectively, between March and June.
Jamaica's recent growth performance also seems on par with its neighbours. At the end of June 2009, the Bank of Jamaica estimates that the Jamaican economy declined between three and a half and four and a half per cent, which it says represents the sixth consecutive quarter of economic contraction and the largest quarterly contraction in Gross Domestic Product (GDP) over the last ten years.
Nonetheless, after nearly fifteen years of steady growth, the economy of Trinidad and Tobago also contracted by 3.3 per cent. Meanwhile, for the first half of 2009, the Barbadian economy contracted an estimated three per cent, the country's first downturn in more than five years. In the circumstances, Jamaica appears to be holding up as well as can be expected.
The noticeable macroeconomic stability resulting from reduced inflationary pressures in the international commodity market can hardly be attributed to internal policies. Nonetheless, the Jamaican economy registered the lowest inflation rate at the end of the first half of 2009 in comparison to Trinidad and Tobago and Barbados: 2.7 per cent at the end of the second quarter of 2009, relative to the 1.3 per cent in the previous quarter and a rate of six per cent at the end of June 2008. According to the Central Bank of Barbados, the country's inflation rate fell to 3.8 per cent in April 2009 from its September 2008 peak of 11.2 per cent, while in the case of Trinidad and Tobago, inflation declined to 10.3 per cent by May 2009, down from a high of 15.4 per cent in October 2008, according to the Central Bank of Trinidad and Tobago.
On the whole, throughout the crisis, the administration has compared poorly with other regional economies in terms of the growth in fiscal deficit. However, Jamaica's recent growth performance, inflation outturn and changes in the debt stock are in the range of the two leading Caribbean countries.
Over the last three articles, CaPRI has reviewed the economic performance of the Golding administration. While we conclude that the progress on a number of key macroeconomic objectives is either slow or negligible after two years of office, this was due in large measure to external shocks beyond its control. Moreover, its policy of engaging the multi-laterals to access lower-interest rate loans probably put Jamaica in a better position to weather the financial storm.
Critics
Wehby Nonetheless, if the government's performance has not been as bad as its critics say, it has yet to present a coherent vision of how, once the country reaches the other side of the global recession, the Golding administration will lay the foundations for rapid economic growth and even more prudent fiscal and debt management. We can only hope that as we move out of the worst of the crisis, Mr Golding will present his vision of a more prosperous Jamaica, and a road map for getting there.
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