What the Budget must do

Ian Boyne, Contributor

When he makes his presentation later this week, Finance Minister Audley Shaw must be judged on whether his Budget can deliver growth, maintain fiscal prudence, and expand employment while reducing poverty. If his presentation indicates that these sometimes contradictory goals can be achieved, we would have a Budget we can applaud.

Why has economic growth eluded us for so long - even in good times globally and now at a time when developing countries are recovering from the global economic crisis of 2008? What is it abut our economy that makes it so impervious to sustained and respectable growth, despite the good intentions and planning of successive administrations? No, I am not calling for more studies and papers: enough of those have been done. I am calling for something to be done about economic growth!

It has not been for the lack of goodwill on the part of our governments why the economy has not grown appreciably for the last few decades. There are some serious structural problems with our economy and a lack of political will, in many instances. Playing populist politics by pandering to the base - as well as to the ruling class - has also been a major pitfall.

Dealing with challenges

However, we have come a far way in terms of identifying our challenges and in tackling some of them. The Patterson and Simpson Miller administrations made commendable progress in addressing some structural constraints, though robust economic growth eluded them, and the Golding administration has made significant moves in stabilising the economy (though the economy has declined for 14 consecutive quarters): But I agree with the administration and its critics: It's time to move "from stabilisation to growth". If that is what this year's Budget will prove to be, it has not come a minute too soon.

If this Budget will really be influenced by the Planning Institute of Jamaica's Growth-Inducement Strategy, it would be on the right track. As someone who has worked in a communications capacity with every single political administration since Michael Manley's in 1976, and, therefore, who has had to read various economic and industrial plans, I must say that the PIOJ's Growth-Inducement Strategy is the most honest, forthright, surgical and compelling one I have seen.

I was employed to JAMPRO (and working closely with Industry Minister Paul Robertson, I believe) under the People's National Party administration when Don Harris was contracted to develop the country's Industrial Policy. I was not at all impressed with it.

This Growth-Inducement Strategy, in my view, is the finest document of its kind from the Jamaican State, and represents what is possible in this era of Washington Consensus globalisation. (Ideologically, I am a globalist who believes in a strong role for the developmental state.) I was not surprised that there were favourable comments on the Growth-Inducement Strategy on Norman Girvan's website. (Girvan is one of the region's finest economists.) There have been some trite, facile and incoherent comments about the document which seem to clearly indicate that the document was just skimmed; I guess because it was deemed too lengthy and people have little time to spend on serious documents.

I was struck by the document's forthright, even trenchant, critique of the current pro-cyclical International Monetary Fund (IMF) path being taken by this Government. I could not believe that I would read this in a document put out by a government agency. "The current recession, where Jamaica is producing below its potential, is being worsened by the pro-cyclical nature of the IMF programme. Without immediate adjustment, the economic programme will achieve neither financial or fiscal stability and sustainability, nor sustainable economic growth in the medium-term. Near-term political economy will pose a critical challenge to the sustainability and, hence, credibility of the current economic programme and policy stance."

Hindering recovery

I thought I was listening to Ralston Hyman and Ronnie Thwaites on 'Real Business' on Power 106! This is precisely the critique they make almost every morning. (I have been an ardent listener, so I am well aware of the major arguments against the Golding administration's economic policies.) The PIOJ document continues: "While the country has successfully passed both IMF tests based on prudent fiscal management thus far, the PIOJ is forecasting potential danger to the socio-economic environment on the horizon if Jamaica continues with the current pace of dismal consolidation.

"Given the current global economic environment, the present pace of fiscal consolidation may lead to a worse-than-anticipated deterioration in the socio-economic indicators. This may hinder Jamaica's recovery efforts, possibly resulting in a double-dip recession, consequently threatening the success of the fiscal consolidation programme." I have never seen a Government allow such a public critique of its own path by its own agency charting an alternative course, in all my years of reading (and contributing to) economic- and industrial-policy documents.

This is the kind of intellectual freedom the State must continue to give its technocrats so they can work unconstrained by official dogmas and partisan considerations.

The widespread consultations which went into the preparation of the Growth-Inducement Strategy and its serious and high-quality economic analysis augur well for development planning in this country. The PIOJ continues in its telling analysis: "While the country's overperformance in meeting targets under the February 2010 IMF Fiscal Consolidation Standby Agreement (SBA) deserves the high praise it has been getting, PIOJ analysis compels bringing immediate attention to the corresponding significant negative out-turns in the real and social sectors and influential leading economic indicators." (Was it Teacher Ralston Hyman who wrote these sections, Lami?)

"Specifically," the document continues, "there have been rising levels of unemployment and poverty; ... fall in the demand for loans; rise in bad debts; fall in consumer confidence in line with declining purchasing power and fears of future job losses."

The PIOJ growth-strategy document says, "Given the pro-cyclical nature of the IMF programme, the PIOJ is recommending, among other things, an adjusted fiscal space in combination with key structural changes in the IMF (SBA) to facilitate the incorporation of a growth-inducement strategy which would make the financial/fiscal consolidation effort economic-growth-friendly and, hence, sustainable."

Urgent reconsideration

Consequently, the PIOJ says achieving a higher growth target "compels an urgent reconsideration of the medium-term macroeconomic policy agenda to focus on initiatives that achieve the following objectives.

• Provide a stimulus in the short term.
  
• Enhance the resilience of the economy to shocks.
  
• Reduce or remove over the medium term critical structural constraints to long-term growth.

Improve the social inclusiveness of economic policies, which would include arresting and reversing the upward trend in poverty and addressing urban-rural imbalances."

If the Government heeds the advice of the PIOJ, this could be a game-changing Budget. Its Budget theme, 'From Stabilisation to Growth', suggests this Budget will take its cue from the PIOJ document, which has the approval, interestingly, of the IMF. I suggest that financial analysts, talk-show hosts and other commentators not only listen to the Budget presentations, read the Estimates of Expenditure, but also take the time to read the 171-page document, as intimidating as that might be. To do your work properly and fairly, you need to read it carefully, not just skim through it, else you will be making superficial and facile comments.

The growth-strategy document takes a holistic approach to development. There is strong emphasis on energy, the environment, infrastructural development, the tax regime, job creation, poverty reduction - and the all-important area of a stimulus to the economy. The Budget has to move beyond consolidation and stabilisation. Indeed, as the document warns, if the Budget does not do that, the very stabilisation programme is threatened.

The strong emphasis on a community-renewal programme - and the targeting of 100 communities for poverty alleviation and development - is highly commendable. We can't pursue a top-down approach to development.

This Budget must have concrete, practical and workable solutions for the severe challenges small businesses face. There must be, not just the usual announcement of multiple millions to the small-business sector, which is never taken up because of onerous and ridiculous collateral requirements; easily accessible loan and capital facilities must be provided for the small and medium-sized (SME) sector. It's time to stop the talking and to do something about SMEs. Creative, entrepreneurial people who have great ideas but no cash and no friends in high society must be able to access development financing - not the still-too-high interest rates being charged by the risk-averse commercial banks.

This budget must:

This Budget must finally set the parameters for sustainable economic growth and must provide incentives for businesses to exploit export markets. It must tackle the serious structural constraints to production. It must reincentivise production and manufacturing, as well as value-added agriculture. It can't put just about everything into tourism while the manufacturing sector is starved and Jamaica continues its deindustrialisation thrust.

I concur fully with the PIOJ document, which says production continues to be hobbled by "the high costs of doing business (financing, taxes, etc.); high levels of crime; high energy costs; inadequate provision of public infrastructural services (both physical and non-physical infrastructure); inadequate stocks of human capital and continued weakness in the real sector as evidenced by a decline in private credit and rise in non-performing loans ... "

We need an immediate stimulus to boost aggregate demand. 'Teacher' Ralston Hyman has been preaching this and I agree with him. The Government's planning agency, the PIOJ, agrees. Let's hope the Golding Administration also agrees and that in Minister Shaw's presentation this week, and the Prime Minister's to follow, we will see the elements and practical outworking of this growth-inducement strategy. It's a strategy for all Jamaica and one which all Jamaica should embrace. We have waited for it for too long.

Ian Boyne is a veteran media practitioner. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.