Sup­ply-side re­forms needed to cre­ate jobs

Jamaica Gleaner - - BUSINESS - McPherse Thomp­son As­sis­tant Edi­tor – Busi­ness mcpherse.thomp­son@glean­erjm.com

DE­SPITE AGAIN com­mend­ing Ja­maica for the progress it has made un­der the ex­tended fund fa­cil­ity, the In­ter­na­tional Mon­e­tary Fund (IMF) is still not sat­is­fied that enough has been done to spur growth and re­duce poverty and un­em­ploy­ment.

“Growth is low, poverty and un­em­ploy­ment are high, and crime and se­cu­rity chal­lenges im­pose a se­ri­ous drag on growth,” said Tao Zhang, deputy man­ag­ing di­rec­tor and act­ing chair of the IMF, fol­low­ing the ex­ec­u­tive board’s ap­proval of a three-year standby ar­range­ment for Ja­maica to sup­port the au­thor­i­ties’ con­tin­ued eco­nomic re­form agenda.

Ac­cord­ing to Zhang, “Sup­ply­side re­forms are crit­i­cal to un­lock Ja­maica’s growth po­ten­tial and cre­ate more pri­vate-sec­tor jobs. In this con­text, ev­ery ef­fort is needed, in col­lab­o­ra­tion with de­vel­op­ment part­ners, to ex­e­cute the struc­tural growth re­forms rec­om­mended by the au­thor­i­ties’ Eco­nomic Growth Coun­cil.”

POLI­CIES

Sup­ply-side poli­cies are mainly mi­croe­co­nomic poli­cies aimed at mak­ing mar­kets and in­dus­tries op­er­ate more ef­fi­ciently and con­trib­ute to a faster growth rate.

Sup­ply-side economists ar­gue that growth can be most ef­fec­tively cre­ated by in­vest­ing in cap­i­tal and low­er­ing barriers on the pro­duc­tion of goods and ser­vices. The re­sult, they sug­gest, is that con­sumers will ben­e­fit from a greater sup­ply of goods and ser­vices at lower prices, in­vest­ment and ex­pan­sion of busi­nesses will in­crease the de­mand for em­ploy­ees and, there­fore, cre­ate jobs. Typ­i­cal pol­icy rec­om­men­da­tions of sup­ply-side economists are lower mar­ginal tax rates and less gov­ern­ment reg­u­la­tion.

Zhang also sug­gested that “re­sources will have to be redi­rected to com­bat crime and en­sure na­tional se­cu­rity”, not­ing that “eas­ing of growth bot­tle­necks will fa­cil­i­tate a stronger pri­vate sec­tor job cre­ation, as the Gov­ern­ment re­fo­cuses and stream­lines its role”.

The IMF ex­ec­u­tive said “The au­thor­i­ties’ com­mit­ment and com­mend­able track record, to­gether with con­tin­ued broad­based sup­port for the re­form agenda, should help fos­ter its suc­cess­ful im­ple­men­ta­tion.”

Em­pha­sis­ing that a re­newed fo­cus on growth and job cre­ation is needed, Zhang said the new pre­cau­tion­ary standby ar­range­ment aims to sus­tain the macroe­co­nomic sta­bil­ity, while boost­ing em­ploy­ment, rais­ing the liv­ing stan­dards of the Ja­maican peo­ple, and pro­gres­sively re­duc­ing a poverty level that re­mains too high.

The main pil­lars of the pro­gramme are to bet­ter sup­port growth, jobs, and so­cial pro­tec­tion, in­clud­ing by im­prov­ing public­sec­tor ef­fi­ciency, re­bal­anc­ing from di­rect to in­di­rect taxes, strength­en­ing the so­cial safety net, and re­al­lo­cat­ing pub­lic re­sources to growth-en­hanc­ing cap­i­tal spend­ing;

It is also ex­pected to fur­ther re­duce pub­lic debt by main­tain­ing a pri­mary sur­plus at seven per cent of gross do­mes­tic prod­uct for the du­ra­tion of the new ar­range­ment.

Un­der the standby ar­range­ment, the Gov­ern­ment is also ex­pected to mod­ernise the mon­e­tary pol­icy frame­work and build the foun­da­tion for an even­tual move to in­fla­tion tar­get­ing, while main­tain­ing ex­change rate flex­i­bil­ity and continuing to build pre­cau­tion­ary re­serves, as well as bol­ster the re­silience of the fi­nan­cial sys­tem. Key re­forms in­clude strength­en­ing the op­er­a­tional au­ton­omy of the Bank of Ja­maica, refin­ing the mon­e­tary pol­icy sig­nalling and liq­uid­ity pro­vi­sion frame­work, and im­prov­ing macroe­co­nomic mod­el­ling and fore­cast­ing. “To­ward this end, the au­thor­i­ties are com­mit­ted to main­tain­ing ex­change rate flex­i­bil­ity and continuing to build in­ter­na­tional re­serves through mar­ket-based pur­chases of for­eign ex­change. Fur­ther­more, con­crete steps will be taken to fur­ther en­hance fi­nan­cial-sec­tor re­silience and pro­mote greater ac­cess to credit and fi­nan­cial in­clu­sion,” said Zhang.

QUAN­TI­TA­TIVE PER­FOR­MANCE

Among the main quan­ti­ta­tive per­for­mance cri­te­ria un­der the standby ar­range­ment are floors on the pri­mary bal­ance of cen­tral gov­ern­ment, which the IMF de­fines as to­tal rev­enues mi­nus pri­mary ex­pen­di­ture and cov­ers non-in­ter­est gov­ern­ment ac­tiv­i­ties as spec­i­fied in the bud­get. The tar­get for De­cem­ber 2016 is $54 bil­lion, ac­cord­ing to the Bank of Ja­maica quar­terly mon­e­tary pol­icy re­port.

It also in­cludes a floor on the over­all bal­ance of the pub­lic sec­tor – cen­tral gov­ern­ment and pub­lic bod­ies, the lat­ter in­sti­tu­tional units that are them­selves gov­ern­ment units or are con­trolled, di­rectly or indi­rectly, by one or more gov­ern­ment units.

The per­for­mance cri­te­ria also in­clude ceil­ings on con­tract­ing of new cen­tral gov­ern­ment­guar­an­teed debt and the ac­crual of do­mes­tic and tax re­fund ar­rears, as well as a con­tin­u­ous quan­ti­ta­tive per­for­mance cri­te­rion on the non-ac­cu­mu­la­tion of ex­ter­nal debt pay­ment ar­rears.

It also com­prise in­dica­tive tar­gets on spend­ing on so­cial pro­grammes and tax rev­enues, both floors, and a ceil­ing on the to­tal loan value of user-funded pub­lic-pri­vate part­ner­ships.

On Mon­day, Bank of Ja­maica Gov­er­nor Brian Wyn­ter said the new standby agree­ment was sig­nif­i­cant in that it pro­vides “pow­er­ful ad­di­tional as­sur­ance to prospec­tive in­vestors that, with­out adding to the debt bur­den, a very sub­stan­tial cache of re­sources is avail­able to the coun­try from the IMF in the event that it is needed”.

He said that be­gins with im­me­di­ate ac­cess to US$411.9 mil­lion of the US$1.64 bil­lion ap­proved, “now avail­able at our sole dis­cre­tion”, he said.

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