Editorial | Holness faces tension between politics and economics
This week’s confirmation by the Planning Institute of Jamaica (PIOJ) of the continued softening of gross domestic product (GDP) output poses two significant challenges to the government, one economic and the other political. The most immediate, and important, of these ought to be what is to be done to induce stronger growth. What, however, is more likely to concentrate Prime Minister Andrew Holness’ mind is reconciling the PIOJ’s reporting, and his response to it, with the timing of the general election.
Constitutionally, Jamaicans should go to the polls by the next March. The smart money is on Mr Holness, in the absence of a major hiccup, calling the vote by June, or very soon thereafter. That would allow time for whatever offerings the PM, and Finance Minister Nigel Clarke, unveil during next month’s Budget debate, to sink in before the vote, and ahead of any fiscal containment global circumstances may force on Jamaica.
This newspaper has mostly agreed with the fiscal policies, and their execution, that Jamaica has had in place, across administrations, since 2012. Since then, and after two agreements with the International Monetary Fund (IMF), Jamaica has balanced its budget, brought its current account deficit to low single-digit, from nearly 14 per cent of GDP, and, more critically, yanked its debt-to-GDP ratio from close to 150 per cent, to 92 per cent of national output. Indeed, for the 2020/21 fiscal year, around 38 per cent of the country’s budget of J$853 billion will go to debt servicing (interest and amortisation), compared to over 54 per cent eight years ago.
What Jamaica hasn’t achieved, however, contrary to the expectations of this newspaper, and others, is robust growth.
According to PIOJ’s boss, Wayne Henry, during the last quarter of 2019, the economy grew 0.1 per cent, its 22nd consecutive quarter of positive output. That brought total growth for the calendar year to 0.9 per cent – the range that is expected to carry over to the end of the fiscal year, on March 31. That’s a sharp slow-down from the meager increase in GDP of the 1.5 per cent in 2018/19. There are echoes here of 40-year annual average growth of below one per cent, which Jamaica sought to escape with its tough, IMF-supported reforms.
Two significant factors primarily account for the economy’s current flaccid performance. Mining and quarrying plummeted – by 38.7 per cent – in the December quarter, the result of the closure of an alumina refinery owned by China’s Jiuquan Iron and Steel Company (JISCO). The reopening of that plant, previously owned by Oleg Deripaska’s UC Rusal, after being mothballed for nearly a decade, accounted for nearly half of 2018/19 growth. Then, notwithstanding an apparent continuing boom in private real estate activity, construction declined two per cent, as major Chinese-financed civil works wind down.
There are other potential downside risks facing the government, which likely influence its economic interventions and political actions.
The corona virus, COVID-19, which emerged late last year in China, is projected to cause a deeper downturn in that country’s economy than was expected from its trade wars with the United States. The global know-on effect from China’s slower growth may be exacerbated by the virus’ emergence in a swathe of countries. An international downtown, and worse, a recession, if it comes to that, won’t be good for Jamaica, especially its critical tourism industry.
Tourism has been moving along at an annual clip of more than four per cent. Although more than 70 per cent of Jamaica’s tourists come from the United States, which, as yet, hasn’t had a significant major problem with COVID-19, international concern over the virus could cause Americans, for the time being, to stay at home. Moreover, last week’s decision by the Jamaican authorities to turn back a cruise vessel with a case of COVID-19 aboard underlines Jamaica’s vulnerability.
Clearly, Finance Minister Clarke has to take action to shore-up the economy and to stimulate growth, while, at the same time, maintaining the fiscal discipline that has delivered macroeconomic stability. The Economic Programme Oversight Committee (EPOC), which was effective in monitoring the government’s behaviour when an IMF agreement was in place, has to be especially vigilant at this time – as well as the rest of us. Jamaica has come too far for the immediacy of politics to again win in the tensions with economics.