SINCE 2013 JAMAICAN DEBT IS DECLINING

Jamaica 2018 | ECONOMY | VIP INTERVIEW

TBY talks to Therese Turner-Jones, GM Country Department Caribbean Group of Inter-American Development Bank, on macroeconomic developments, the five-year country strategy, and the short-term economic outlook.

Could you pin down the macroeconomic landscape of Jamaica?

The Jamaican economy has not grown substantially for 30 years. It is heavily indebted, a combination of domestic and external debt. Jamaica's financial crisis in 1997 had a massive impact on the financial landscape and economy at large (costing 45% of GDP). There are a lot of residual effects associated with that crisis, possibly mostly on the level of public debt. In recent years, notably since 2013, the debt is on a declining trajectory and the macroeconomic management of the country is much improved. This, however, does not mean that Jamaica is out of the woods as debt to GDP is still over 100%. Nevertheless, the country is on the right track. Where there is room to improve quickly is on the growth side. Jamaica's private sector is dominated by a few family-owned companies, of which some are some listed on the stock exchange. Our research on the private sector shows that there is little innovation in the country—not that some pockets do exist, but there needs to be more. For example in the manufacturing, there is room for more use of technology to augment what labor does so that productivity can increase (this is what drives growth). In the past, businesses have been protected by policies that have kept domestic productivity ratios behind those of similar countries of the same size, partly reflecting a lack of competition. Jamaica has real social challenges. Unemployment has been high for a long time, and about 33% of the young people are unemployed. Besides, there is a high migration rate so you end up with skills that are less than optimal for higher productivity. Jamaica has very low economic productivity, which is reflected in the low growth rates over the last two decades. Crime is high and Jamaica's murder rate is one of the highest in the world.

What is the IDB focusing on?

Our five-year country strategy began in 2016 and focuses mainly on private sector development, public sector transformation, and public financial management. Climate change, gender and crime are cross cutting themes in the strategy. We are involved on both the social and economic fronts. The IDB has been at the forefront of Jamaica's recent economic reforms, including implementing the fiscal responsibility law, public financial management and tax reform. Crucially, our social sector operations include helping Jamaica with its social safety net, specifically, the PATH program. We have been engaged in education over the years, both in school construction, but more importantly in helping the country transform its educational system and enhance its teacher quality and school curricula. The return on investment in education in Jamaica has been suboptimal. Only 30% of kids graduating high school in Jamaica are able to reach a tertiary level education, so 70% of the school leaving population is below par and require remedials training. There is a big mismatch in skills needed in the workplace and what is available in the labor market. Jamaica has a reputation for having good doctors, lawyers, and engineers but regrettably they are migrating to other countries. About 60% of the people with degrees say they want to migrate, so there is a constant brain drain; this is a big issue. We can only reduce that by improving the economy and making things more stable here.

How do you help the government to tackle these challenges?

We have a number of projects. For example, we are working to make the public sector more efficient by introducing e-government and streamlining processes. To do so, we finance operations for investment after providing technical assistance through grants. We have over 20 such grants in Jamaica. Right now, we have a water project that is coming to an end, mainly to reduce losses and to recover revenue for water consumption. Thanks to this program, we are replacing pipes and meters to make the system more efficient with fewer losses. We also have an energy efficiency operation to replace the lighting system in 80 public buildings and hospitals—the intent being to lower the energy costs of the public sector. Furthermore, we are working with the Government to diversify the energy mix in Jamaica. New gas infrastructure and clean energy projects are being developed in the country, are offshoots of this work. JPS, you will recall has recently built a new LNG plant in Bogue, on the north coast, and is refurbishing the Old harbor plant in Kingston to deliver natural gas (LNG). We are heavily involved in citizen security and justice (over 15 years), focused on crime prevention as well as changing the lives of at risk youth in vulnerable, low-income communities—who are generally the most common victims and perpetrators of crime. We train young people in techniques to resolve conflict without resorting to violence. The main drivers of crime are many—lack of good education, social well-being and detachment being some of the many documented factors. Poverty alone does not explain crime.

How do you see the outlook of the economy in the short term?

It is positive, but the private sector is moving slowly to adjust to the macro-economic environment. Recall that in the past, the Jamaican government was pumping a lot of credit into the economy by issuing bonds. Those bonds attracted very high rates of interest, thereby offering great returns to investors.. That has changed now. Interest rates have come down considerably and rather than holding government paper, investors are beginning to realize opportunities in the real sector. With declining government borrowing, and lower returns on government debt it is no longer so lucrative, so now the private sector is responding with other investments (new construction, new agri-businesses, tourism plan expansion are good examples). As for SMEs, gaining access to credit is still a challenge , but with IDB instruments including guarantees to the DBJ (Development Bank of Jamaica) to on lend. Economic growth s has started to rise and for the 2017 and 2018 fiscal years they are projected to be near 2%, a rate of growth that has eluded Jamaica for many years. That said, tourism is doing well, and there are several new investments on the north coast. One issue would be to unlock the enclave nature of hotel developments in Jamaica to allow more value added to be created in Jamaica. Linkages to other sectors, including agriculture and the creative sectors. However, given the perception of and actual crime, hotels are naturally protective with their guests. As a reference for foreign exchange earnings from the tourism industry, Jamaica's remittances from abroad total 15% of GDP on an annual basis, which exceed tourism receipts. This suggests a lot of untapped potential for more to be retained in the country.

Do you have any projects to link tourism to more local attractions?

Not directly. It would be terrific to create downtown Kingston as an attractive spot for visitors, as the Ministry Of Tourism desires. It will require major investment in rehabilitation and security. However, the IDB has experience in downtown renewals and this would be a very exciting prospect, not only to reenergize economic opportunities for the communities of downtown but to restore life to a long lost beautiful city.