Threat of the floods
THE GOVERNMENT is yet to complete an assessment of the impact of this week’s rain and floods in most regions of Jamaica, but it is hardly debatable that the cost will be hefty, given the damage done to infrastructure and agriculture. Which is not good for the short-term trajectory of economic growth and the broader recovery project.
However, the Holness administration may be approaching this crisis with greater cushion than might have otherwise been the case, because of the Jamaica’s current standby agreement with the International Monetary Fund (IMF), depending on how flexible the parties interpret its terms.
Perchance we are right that the Government can indeed soften the fiscal and/or, balance of payments consequences of this event, Prime Minister Andrew Holness and his ministers still face another urgent matter: devising a strategy for the upgrade and upkeep of the country’s crumbling infrastructure.
First, on the matter of economic growth. After last year’s disappointing 1.2 per cent expansion in real output, the Government and the IMF projected that GDP would, in 2017, rise by over two per cent. Reaching this target would be a springboard for, and fillip to, the administration’s own ambitious aim, independent of IMF analysis, of driving growth to five per cent by 2020. Its Economic Growth Council has been working towards this end, pushing for and monitoring the implementation of policies that make it easier to do business, as well as encourage investments in Jamaica.
Significantly, much of last year’s growth rested on the double-digit expansion in agriculture, the second year of an upswing after a number of years of faltering performances because of drought. Good crops helped to contain food prices, and thereby contributed to low inflation.
The Government was counting on continued strong performance in the sector that accounts for nearly 200,000 jobs. We expect, however, that the reviews will show that floods left many fields destroyed, affecting the harvest of many crops. There are a number of potential consequences should this be the case.
Not least of these will be a shortage of domestic agricultural products, which translates to higher prices for the unavailable produce and food inflation. This is felt in people’s pocketbooks. Should this shortfall be significant, it could mean turning to foreign markets for substitutes, pushing up a food import bill that has declined in recent years. That could put pressure of the exchange rate, exacerbating the likelihood for price inflation.
POTENTIAL UPSIDE
If there is any upside in any of this, it is that the IMF agreement allows the Government to call on the IMF facility in the event of shocks that weakens the balance of payments. We believe that there is a case to be made that current circumstances meet the threshold for a drawdown of these resources.
The agreement, at its signing, front-loaded US$411.9 million of the US$1.6 billion that can be available over the three-year life of the facility. Another US$170 million became available on the completion of the first six-monthly review. So, on the face of it ,the Government could have access to nearly US$582 million from the Fund, depending on the terms of the drawdown.
Should that be the case, we would expect the Government to quickly approach the Fund with its logic for the release of the funds, or a portion thereof, and a defensible programme for its expenditure. In the meantime, the Government would be aware that, broadly, there are three reasons for the type of flooding experienced this week.
One is that public infrastructure, including drains and roads, have not kept pace with other areas of development, in part because we have not been able to afford it. Second, we are poor at the management and upkeep of what we have. Then, there is the lack of regulatory enforcement and permissiveness regarding zoning and construction.
These are matters to be addressed by the administration.