Jamaican economic growth and inflation doing better, but budget overruns are worrying, says IMF

The IMF’s latest assessment of Jamaica’s economic performance is very positive (see http://www.imf.org/external/pubs/ft/scr/2007/cr07152.pdf). It notes that the economy registered its best growth for nearly a decade, at just under 3% in FY 2006-7. Equally significant, prices rose by 6 1/2% in FY 2006-7, compared to a recent high of 19% in September 2005. The improvement in agricultural activity helped in both cases. The current account of the balance of payments also improved, helped by increased tourist receipts and remittances. With the help of capital inflows, net international reserves reached historically high levels, at just about US$ 2.3 billion.

However, the budgetary picture remains worrisome, and fiscal targets for FY 2006/07 were missed by a wide margin notwithstanding the overall strong economic context. This reflects higher expenditures, although revenues also fell short of the ambitious target set out in the budget. A variety of mid-year expenditure increases were approved in a supplementary budget, giving agreed public sector wage increases and and dealing with higher interest costs. Budgetary expenditures for FY 2006/07 fiscal year are estimated to have exceeded fiscal targets by 2½ percent of GDP. Public debt remains very high at about 132 percent of GDP.

The action desired by the IMF’s Executive Board to deal with the fiscal slippages may not materialise in FY 2007-8, given that an election will be held during this period. Jamaica has done well in recent years to reduce the burden of debt on its finances, with a continued relative decline in interest payments; but continued action is needed to consolidate off-budget spending.

The central bank remains determined in its monetary policy, and managing to squeeze price increases, if really felt by ordinary people could do much to keep a lid on Jamaica’s social tensions.

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