PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

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Chapter 5 ________________ The Jamaican Economy - Economic Performance and Prospects 11 1.0 Summary Economic performance during 2010 was characterized by the following positive developments: • significant stabilization of fiscal and debt dynamics in the short-term, occasioned by the Jamaica Debt Exchange • stability in foreign exchange markets, reflecting the impact of BOP and budget financing from multilateral financial institutions in support of an IMF SBA, and central bank management of liquidity in line with monetary and fiscal targets under the GOJ’s economic programme • low and declining interest rates on GOJ benchmark instruments, which influenced a lagged and much smaller adjustment in bank lending rates. However, notwithstanding these positive developments, economic growth was depressed and performed worse than initially projected in the second half of the year (current projection for 2 nd half of 2010 is a decline of -0.8%, down from initial projection of - 0.2%). 12 PIOJ also projects a rise in poverty levels from 16.5 per cent in 2009 to within a range of 18.5 per cent and 20.3 per cent in 2010. These projections reflect, among other things, the negative effects of: weak aggregate demand occasioned by: (a) fiscal stabilization measures (b) reduced external demand for exports of goods and services (reflecting the “longtailed” global recession) exogenous shocks, such as the May 2010 civil disturbance and the extreme weather conditions in September and October 2010. In addition, production conditions continued to be negatively affected by long-standing structural constraints, including: high cost of doing business (financing, taxes, etc.) high levels of crime (notwithstanding a reduction in violent crimes during the latter half of 2010) high energy costs 11 In consultation with the Economic Policy Research Division, PIOJ. Data and analysis in this Chapter first presented on September 16, 2010. 12 Real GDP growth for 2010 is projected at -1.2 per cent. 51
inadequate provision of public infrastructural services (both physical and nonphysical infrastructure) inadequate stocks of human capital continued weakness in the real sector, as evidenced by a decline in private credit and rise in non-performing loans, which are leading indicators of real-sector business confidence. Real GDP is projected to grow by 2.1 per cent in FY 2011/12 on the basis of favourable assumptions about production and demand conditions. However, the continued negative impact of the above-mentioned structural weaknesses combined with the likely negative impact of higher commodity prices (particularly oil and grains), will weaken the likelihood of attaining the projected growth target. Current growth prospects are based on extremely fragile foundations and the PIOJ perceives most of the risks to its growth forecasts to be on the downside. The fragility of growth is underpinned by the following down-side risks: • uncertainty regarding the robustness of a nascent global recovery in output and trade • a further weakening of domestic aggregate demand consequent on continued fiscal contraction, in an environment where private sector “crowding-in” has exhibited significant inertia • further erosion of social capital under the conditions of: (a) a slower than projected decline in poverty rates, and (b) continued weak labour-market demand • vulnerability to weather-related shocks • continued low labour (and capital) productivity due to structural constraints previously highlighted. By retarding growth, these risks may threaten the sustainability of the current fiscal consolidation programme. In the absence of sustained growth, a fiscal consolidation programme would have to be supported by unsustainable cuts in public expenditures or additional revenue enhancement, the limits of which will be quickly reached. Such additional expenditure cuts and/or additional tax or revenue enhancing measures would further compound the pro-cyclicality of the current fiscal consolidation programme. Experience in other emerging economies operating under IMF programmes of fiscal consolidation confirms this pro-cyclical tendency, which is further aggravated by the nature of the political cycle. There are current signs that these risks are real, for example, in the underperformance of certain categories of fiscal revenues (April - December 2010), in particular, PAYE and GCT (local) tax collections. Therefore, the need to reduce the economy-wide risks to the sustainability of the current fiscal consolidation strategy and to achieve a higher growth target compels an urgent reconsideration of the medium-term macroeconomic policy agenda to focus on initiatives that achieve the following objectives: 52
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i A GROWTH-INDUCEMENT STRATEGY FOR
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To the many ordinary Jamaicans who
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Preface The Jamaican economy has ex
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for making a determined start on th
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the private sector groups, listed b
Page 11 and 12: Citibank N.A. Jamaica Branch Grace
Page 13 and 14: need for “additional fiscal space
Page 15 and 16: Chapter 2 ________________ Summary
Page 17 and 18: 1.0 The Economic Situation Today 1.
Page 19 and 20: expected to provide an essential an
Page 21 and 22: Table 2.1. The Policy Framework: A
Page 23 and 24: programme of social inclusion that
Page 25 and 26: Strategic Focus Table 2.2. Growth S
Page 27 and 28: 6.0 Short-Term Growth Stimulus 6.1
Page 29 and 30: decline of 2.0 - 2.2 percentage poi
Page 31 and 32: Table 2A.2. NWA Projects To be Fast
Page 33 and 34: Table 2A.5. Community Renewal Proje
Page 35 and 36: Table 2B.3. Impact of Repairing Far
Page 37 and 38: Appendix 2C Methodology of the Grow
Page 39 and 40: Part I _________ Overview 28
Page 41 and 42: 2.0 Vision 2030 Jamaica Before delv
Page 43 and 44: 3.0 May 2010 Security Event and Aft
Page 45 and 46: the longer than anticipated global
Page 47 and 48: April July October January April Ju
Page 49 and 50: Three industries recorded increases
Page 51 and 52: 9.0 Proposals for Growth-Stimulus I
Page 53 and 54: targeted economic and social infras
Page 55 and 56: partnering with government to disco
Page 57 and 58: 3.0 Growth Inducement Strategy The
Page 59 and 60: Growth-Inducement Strategy Alignmen
Page 61: 50 Part II _________ Situational An
Page 65 and 66: 2.0 Macroeconomic Assessment 2.1 In
Page 67 and 68: Increased global oil consumption wa
Page 69 and 70: $4,742.0 million and $688.4 million
Page 71 and 72: Non -Traditional Domestic Exports E
Page 73 and 74: negative impact of the Jamaica Debt
Page 75 and 76: ethanol and paint, whereas lower de
Page 77 and 78: Analysis of preliminary GCT data re
Page 79 and 80: The number of ship calls to the isl
Page 81 and 82: industry was, however, estimated to
Page 83 and 84: 4.0 Projected Performance 4.1 Calen
Page 85 and 86: increased marketing and extension s
Page 87 and 88: Electricity & Water For FY 2010/11,
Page 89 and 90: J$ Million Figure 5.1. Private Sect
Page 91 and 92: 2011/12). These extreme weather eve
Page 93 and 94: Chapter 6 ________________ Assessme
Page 95 and 96: creates allocative inefficiencies,
Page 97 and 98: Million $ Per cent Jun-10 Mar-10 De
Page 99 and 100: Table 6.1. Employed Labour Force by
Page 101 and 102: J$ million Mar-10 Dec-09 Sep-09 Jun
Page 103 and 104: FIGURE 7: GROSS NATIONAL SAVINGS RA
Page 105 and 106: 4.10.2. However, the extent of the
Page 107 and 108: Part III ____________ Analytical Fr
Page 109 and 110: functional relationship between the
Page 111 and 112: It follows that: (5) s = I/Y = [S -
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However, the existence of measureme
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(d) v* = Y*/K* This is a measure of
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in Chapter 8. The mutual interactio
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Transforming the complex set of str
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Appendix 7A A Methodological Note T
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Chapter 8 ____________________ Asse
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The DBI focuses more narrowly on qu
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to ask, is it possible to predict g
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can be made to serve a very useful
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For further elaboration of the cons
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progressive Jamaica-based firms and
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Table 8.2. Jamaica: Doing Business,
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Table 8.4. Global Competitiveness I
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Table 8.5 (continued) Rank Indicato
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Rank* Constraint Table 8.7 Business
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Chapter 9 ___________________ Inter
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3.0 The Burdens of LAC’s Logistic
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conditions. These combined with a p
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Figure 9.4. Proportion of Primary A
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6.0 Logistics are Essential for Tou
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7.0 Fundamental Steps Forward for J
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Part IV ________________ Policies a
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Current Status: Cabinet by decision
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e more than compensated for by the
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B ____________________ Eliminating
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Commercial Bank loan rates have als
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5.0 Expected Outcomes These measure
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capital, mainly in the form of equi
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oth local and overseas (including t
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Table C.1. Proposed Implementation
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Locally, the Scientific Research Co
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Develop formal and informal links t
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D ____________________ Business Pro
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5.0 Recommendations Based on the ma
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2.5 Coexistent with the levels of u
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industry as well as provide funding
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Table E.2. Unemployed Labour Force
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indirect losses experienced when th
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Table F.1 (continued) Area Type of
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G ____________________ Community Re
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Figure G.1 Community Renewal Progra
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Table G.1 Priority Initiatives Obje
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Table G.2 Phased Implementation Pla
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H ____________________ Proposed Wes
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3.0 Transparency Guarantees By desi
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and Coordinating Unit (PCMU) was es
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therefore need to have sanctioned o
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Figure I.1. Functions of National P
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The rationalisation was guided by t
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deliver services in an efficient an
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efurbishing to allow for accommodat
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Part V _______________ Panelists’
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With the benefit of hindsight, some
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ight. Where we as a society fail is
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and exclusion of the majority of th
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the elders, youth, children. What f
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C __________________ Enhancing Nati
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Figure C.1. National resilience is
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