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<TABLE cellSpacing=0 cellPadding=1 width="100%" border=0><TBODY><TR><TD><SPAN class=TopStory>Oh for objectivity in discussing economic growth</SPAN>
<SPAN class=Subheadline></SPAN></TD></TR><TR><TD>Dennis Morrison
Sunday, September 03, 2006
</TD></TR></TBODY></TABLE>
<P class=StoryText align=justify>In the past few weeks, two of the leading rating agencies, Moody's and Fitch, have made pronouncements on Jamaica's credit rating and economic performance. Fitch's assessment, which is the later of the two, assigned Jamaica a B+/stable rating, one notch above that of Moody's [B1/stable] and also above the last one done by Standard & Poor's [B/stable]. Clearly, all three agencies view us as having a stable political environment and the commitment to honour debt obligations.<TABLE cellSpacing=0 cellPadding=5 width=70 align=left border=0><TBODY><TR><TD>
</TD></TR><TR><TD><SPAN class=Description>Dennis Morrison</SPAN></TD></TR></TBODY></TABLE><P class=StoryText align=justify>According to the reports, they have also commented on the fact that there has been a determination to correct the budget deficit, even in the face of the huge burden involved. In particular, they have noted the agreement between the government and public sector workers under the Memorandum of Understanding [MOU] that has helped significantly to reduce that deficit. Further co-operation in this regard is therefore seen as a critical component in the effort to balance the budget.<P class=StoryText align=justify>As is well known, one of Jamaica's major economic hurdles remains the heavy debt burden, which is sensitive to changes in interest and exchange rates. There is also the stark reality that while the rate of growth of the debt has fallen in the past three to four years, the country's slow GDP growth rate has prevented a faster reduction in the debt ratio.<P class=StoryText align=justify>It is this factor more than any other that stands in the way of a higher credit rating and therefore the rating agencies themselves, as well as the World Bank and IMF, have been looking more closely at the matter.<P class=StoryText align=justify>In 2003, the World Bank in its report, Jamaica: The Road to Sustained Growth, had highlighted the apparent paradox of high rates of investment and slow growth in the Jamaican economy, and had also pointed to the underestimation of economic growth in the 1990s. It stressed, in particular, difficulties related to correctly estimating output levels in the services sector, and that the underestimation of economic growth in the island would have been further aggravated by the fact that this sector had expanded to account for over 70 per cent of output.<P class=StoryText align=justify>In its assessment, the Bank indicated that there may be an underestimate of 1 - 2 percentage points per annum in terms of GDP growth for the period. If we accept the Bank's estimate, this would mean that GDP growth rates in Jamaica have been in the region of 2 to 3.5 per cent per annum, rather than 1 to 1.5, which are the official figures. Though 2 to 3.5 per cent is not high, it is a different scenario from the picture of stagnation, which is now the conventional wisdom.<P class=StoryText align=justify>The more recent IMF country report [Jamaica: Selected Issues] dated May 2006, has looked at the issue in more detail, emphasising the constraints to growth and the special challenges faced by Caribbean countries. It identifies small size and extreme vulnerability to external events as factors that impair the growth process in these countries. The issue of the underestimation of economic growth in Jamaica was given substantial treatment, as was the matter of declining productivity levels.<P class=StoryText align=justify>The IMF report concurs with that of the World Bank in terms of the difficulty of measuring output in the service
<SPAN class=Subheadline></SPAN></TD></TR><TR><TD>Dennis Morrison
Sunday, September 03, 2006
</TD></TR></TBODY></TABLE>
<P class=StoryText align=justify>In the past few weeks, two of the leading rating agencies, Moody's and Fitch, have made pronouncements on Jamaica's credit rating and economic performance. Fitch's assessment, which is the later of the two, assigned Jamaica a B+/stable rating, one notch above that of Moody's [B1/stable] and also above the last one done by Standard & Poor's [B/stable]. Clearly, all three agencies view us as having a stable political environment and the commitment to honour debt obligations.<TABLE cellSpacing=0 cellPadding=5 width=70 align=left border=0><TBODY><TR><TD>
</TD></TR><TR><TD><SPAN class=Description>Dennis Morrison</SPAN></TD></TR></TBODY></TABLE><P class=StoryText align=justify>According to the reports, they have also commented on the fact that there has been a determination to correct the budget deficit, even in the face of the huge burden involved. In particular, they have noted the agreement between the government and public sector workers under the Memorandum of Understanding [MOU] that has helped significantly to reduce that deficit. Further co-operation in this regard is therefore seen as a critical component in the effort to balance the budget.<P class=StoryText align=justify>As is well known, one of Jamaica's major economic hurdles remains the heavy debt burden, which is sensitive to changes in interest and exchange rates. There is also the stark reality that while the rate of growth of the debt has fallen in the past three to four years, the country's slow GDP growth rate has prevented a faster reduction in the debt ratio.<P class=StoryText align=justify>It is this factor more than any other that stands in the way of a higher credit rating and therefore the rating agencies themselves, as well as the World Bank and IMF, have been looking more closely at the matter.<P class=StoryText align=justify>In 2003, the World Bank in its report, Jamaica: The Road to Sustained Growth, had highlighted the apparent paradox of high rates of investment and slow growth in the Jamaican economy, and had also pointed to the underestimation of economic growth in the 1990s. It stressed, in particular, difficulties related to correctly estimating output levels in the services sector, and that the underestimation of economic growth in the island would have been further aggravated by the fact that this sector had expanded to account for over 70 per cent of output.<P class=StoryText align=justify>In its assessment, the Bank indicated that there may be an underestimate of 1 - 2 percentage points per annum in terms of GDP growth for the period. If we accept the Bank's estimate, this would mean that GDP growth rates in Jamaica have been in the region of 2 to 3.5 per cent per annum, rather than 1 to 1.5, which are the official figures. Though 2 to 3.5 per cent is not high, it is a different scenario from the picture of stagnation, which is now the conventional wisdom.<P class=StoryText align=justify>The more recent IMF country report [Jamaica: Selected Issues] dated May 2006, has looked at the issue in more detail, emphasising the constraints to growth and the special challenges faced by Caribbean countries. It identifies small size and extreme vulnerability to external events as factors that impair the growth process in these countries. The issue of the underestimation of economic growth in Jamaica was given substantial treatment, as was the matter of declining productivity levels.<P class=StoryText align=justify>The IMF report concurs with that of the World Bank in terms of the difficulty of measuring output in the service
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