Another CARE package?
WHEN THE Jamaican economy began to implode at the start of the coronavirus pandemic, the initial expectation was that the contraction would be contained at under six per cent. Soon, government analysts were estimating that the decline would be deeper, at around seven and half per cent.
By last week, however, it was clear that even the revisions were grossly optimistic. After two quarters of declines, by 18.4 per cent and 11.3 per cent, respectively, both the Planning Institute of Jamaica (PIOJ) and the Bank of Jamaica (BOJ), despite saying that the worst is behind us, estimate that output over the calendar year will, in real terms, be 10 per cent to 12 per cent less than in 2019. The same level of decline will carry over to the end of the fiscal year, next March.
The good news, these institutions say, is that recovery will be faster than that of the Great Recession of 2008. The BOJ is the more optimistic of the two.
“The bank projects that a partial rebound of about three per cent will commence in fiscal year 2021-22 and could possibly be as high as eight per cent if there is strong recovery in tourism,” its governor, Richard Byles, told journalists and financial analysts at a briefing. “However, the Jamaican economy is not expected to return to pre-COVID-19 levels before 2022-23.”
Wayne Henry, the PIOJ director general, offered a longer time horizon for the rebound, though not the eight and 11 years, respectively, it took for jobs to return and output to reach its old levels, after the recession of a dozen years ago. The difference, he says, is that Jamaica’s macroeconomic fundamentals are in far better shape than they were in 2007 and 2008. “In light of this improved position, current projections are for GDP (gross domestic product) levels to recover within three to four years, and the labour market within two to three years,” Dr Henry said.
CRITICAL COMPONENT
These outcomes, if they hold, will be welcomed. But as encouraging as the data are, they, like statistics, generally do not fully capture a critical component of the equation: the real, live human beings, whose lives have been made topsy-turvy by the downturn.
In the quarter to the end of July, for example, the Jamaican economy shed 135,000 jobs, or, according to Dr Henry, “the largest year-on-year contraction ever recorded”. That pushed unemployment to 12.6 per cent, from 7.8 per cent a year earlier.
“The gravity of this development (the jobless in the July quarter) is highlighted when compared with the accumulated decline in the labour force from the 2008 global economic/financial crisis, which was 90,900 persons over a three-year period,” said the PIOJ head.
What neither Director General Henry nor Governor Byles addressed is what else, in the circumstances, the Government might do to soften the immediate impact of the fallout on the most vulnerable, while, at the same time, stimulate growth and recovery.
The resilience that ameliorated the shock of this crisis was bought with a hard, eight-year slog of fiscal and other economic reforms. This was manifested in a near 50 per cent reduction in Jamaica’s debt-to-GDP ratio, to 98 per cent at the onset of the pandemic. That was achieved by running consistently steep primary balances, including, in the early years, as high as 7.5 per cent of GDP. This newspaper firmly supported and encouraged those policies. They were right.
By the beginning of the pandemic, Jamaica had adjusted its primary balance target downwards to 3.5 per cent of GDP, and was on track to reduce its debt, as a ratio of national output, to 60 per cent by 2026. With the crisis, and the Government facing a decline in revenues, while funding a J$25-billion stimulus package, the administration lowered the primary surplus target to 3.1 per cent of GDP. The date for reaching the debt-to-GDP target was pushed back two years, to 2028.
SOCIAL STABILITY
That adjustment released an estimated J$8.8 billion for regular spending, rather than being sequestered for debt servicing. This was almost 90 per cent of the estimated J$10 billion the Government projected to spend on its COVID-19 employment and small businesses support initiatives. Snipping another 0.1 per cent from the primary surplus target would yield around J$2.2 billion, or nearly 85 per cent of the J$2.6 billion it, earlier this year, cost the Government to provide more than 264,000 Jamaicans with a J $10,000 C OVID -19‘ com passionate grant ’. This cash, plus job support payments, helped to keep many people afloat and prevented the economy tanking even further.
We are keenly aware of the need to maintain fiscal discipline and do not propose that the Government return to the bad economic habits of the past. However, Jamaica’s social conditions insist that we seriously consider, and implement, a second properly managed support initiative for people badly hit and thrown further on the economic margins by the pandemic.
Further, cash in the hands of the poor not only helps to stabilise their lives, but is high-velocity money that quickly generates economic activity.
In the circumstances, putting back the debt-to-GDP target for another year or two, or accelerating the timetable when the situation improves, might not be too high a price to pay for social stability.