WASHINGTON, United States – IMF Managing Director Christine Lagarde speaks during a discussion on the global economy at the IMF/World Bank Spring Meetings in Washington, DC, on Thursday. (PHOTO: AFP)
JAMAICA’S growth forecast was slightly lowered for 2015, but surprisingly it still beat the average growth in Latin America and the Caribbean, according to fresh data from the island’s multilateral lender the International Monetary Fund (IMF).
The IMF noted in its quarterly World Economic Outlook (WEO) that the island should grow at 1.7 per cent in 2015 down from 1.8 per cent in the previous report. The island should also grow at 2.2 per cent in 2016, but there was no immediate comparison from the previous report.
Its rare, at least in recent years, for the island to beat the region. Commodity prices led by energy and grains are no longer supporting the growth in Brazil, Venezula, Argentina and Mexico. As a result their growth is weak, but it also allows commodity importers like Jamaica a chance to grow.
Latin America and the Caribbean is set to grow at 0.9 per cent and 2.0 per cent in 2015 and 2016 respectively.
Panama will continue growing at the fastest pace in the Americas at 6.1 per cent and 6.4 per cent in 2015 and 2016 respectively.
Meanwhile, oil-rich Venezuela should decline by 7.0 per cent and 4.0 per cent in 2015 and 2016, the worst in the region.
Jamaica will beat oil-rich Trinidad & Tobago, set to grow at 1.2 per cent and 1.5 per cent in 2015 and 2016, respectively.
But the Dominican Republic should grow at the fastest pace in the Caribbean at 5.1 and 4.5 per cent over the review period.
The WEO acknowledged that tourism arrivals within the Caribbean are recovering but that long-standing competitiveness gaps, high public debt, and financial sector fragilities remain “pressing” concerns.
“Risks around this subdued outlook are considerable and somewhat weighed to the downside”, stated the report, adding that the fall in commodity prices could fuel increased importation. “To be sure, further declines in commodity prices would bolster net importers, especially in Central America and the Caribbean.”
It added that were the PetroCaribe concessionary oil agreement between Venezuela and the Caribbean to end, it would put added pressure on public finances. The WEO however thinks that currency depreciation (an unpopular policy within the region) would offer a means to balance trade shocks.
“Exchange rate flexibility can play a critical role in absorbing adverse terms-of-trade shocks and rebalancing demand. The room for easing monetary policy is limited: inflation generally exceeds midpoint targets, and depreciating currencies will at least partly offset the benign effect of lower commodity prices,” it stated.
The WEO also warned against governments stimulating Caribbean economies in an effort to spur growth.
“Misguided efforts to address the current slowdown with excessive policy stimulus, rather than by tackling supply-side bottlenecks and competitiveness problems, could also undermine countries’ hard-won macroeconomic stability. The principal challenge for the region, therefore, is to manage the adjustment to a new external environment while preserving sound fundamentals and raising potential growth,” it added.
On the upside, the WEO reasoned that strong US growth could provide a larger-than-expected lift to trading partners in the region. A key risk in the medium term is protracted weakness in investment that would further reduce the region’s potential growth.
Jamaica signed a US$932.3-million four-year Extended Fund Facility (EFF) agreement with the IMF. The programme calls for the reduction of Jamaica’s debt from some 145 per cent of gross domestic product (GDP) to 96 per cent by 2020. It also includes achieving a 7.5 per cent primary budgetary surplus target; implementation of a National Debt Exchange programme; currency depreciation; tax reform; and public sector reform — restructuring of salaries to reduce ratio to GDP from 10.6 per cent to nine per cent by 2015/16.
Published Date: April 17th, 2015
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