The upbeat sentiment following the signing of the Extended Fund Facility with the IMF on May 1, 2013 was short-lived. The approval by the IMF board marked the beginning of a heavy, front loaded adjustment that is being felt now. And it has not been an easy six months. On the one hand, confidence in the commitment of the government to the IMF program has been increasing, demonstrated also by the recent upgrade of Jamaica by the rating agency Standard & Poors. On the other hand, there has not been a shortage of worrying news either, even leaving out the consistent depreciation of the Jamaican dollar and the uptick of inflation. First, STATIN reported that unemployment had increased by 1.9 percent in three months to hit 16.3% as of April 2013. Surprisingly, the increase was completely driven by more persons looking for employment as the employed workforce had increased slightly. Then the third quarter survey of business confidence index recorded a plunge to levels last seen during the world economic downturn in 2009, indicating that businesses will keep investment low, further hurting the economic outlook.
These developments serve as a reminder that an adjustment, as much as it is needed for the medium to long term prosperity, is a shock to the economy that is trying to find a new equilibrium. At the same time, we all know that a new path is needed considering that Jamaica has close to 150% of debt-to-GDP and has on average grown a mere 1% per capita over the last 30 years. However, perhaps we can take heart in the recent news from Spain—a country with higher youth unemployment than Jamaica. Exports have started to grow (in the midst of austerity), after nine quarters of negative growth, this last quarter showed a positive uptick. Economic growth without macroeconomic stability is elusive even in the presence of growth enhancing measures. Knowing this might not make the suffering more bearable but it is a reminder that our children will thank us for not kicking the can down the road. Let’s take heart: if Spain can do it, so can Jamaica.
Juan Pedro Schmid is an IDB Country Economist in Jamaica.