Jamaica More Resilient Against Possible Global Recession

Growing concerns resonating around the world of another possible global recession, consequent on prevailing geopolitical, economic and other factors, have not escaped Jamaica’s attention.

In fact, the United Nations Conference on Trade and Development (UNCTAD) says that slowing growth in both advanced and developing countries means that the possibility of a global recession in 2020 is “a clear and present danger”.

The UN body, in its Trade and Development Report 2019 released on September 26, said that “warning lights are flashing around trade tensions, currency movements, corporate debt, a no-deal Brexit and inverted yield curves, but there is little sign that policymakers are prepared for the storm ahead”.

With memories of the impact of the 2008 to 2010 economic downturn still fresh in the minds of many Jamaicans, there is understandably some unease locally.

However, Finance and the Public Service Minister, Dr. the Hon. Nigel Clarke, is assuring that Jamaica has the fiscal space to respond to any significant downturn in the global economy, and the country is much better able to absorb external shocks.

Under a robust economic reform agenda over the last six years, backed by International Monetary Fund (IMF) arrangements, Jamaica has recorded significant gains, with grow¬ing levels of reserves, uninterrupted periods of growth, and unemployment now at its low¬est in the country’s history.

Speaking at a media round-table forum at the Finance Ministry in Kingston on September 20, Dr. Clarke noted that Net International Reserves (NIR) totalled more than US$3 billion, with Non-Borrowed Reserves at the Bank of Jamaica (BOJ) increasing by more than US$1 billion over the last three years.

He further cited the “transformative” reduction in Jamaica’s debt from 147 per cent to 95 per cent of gross domestic product (GDP), as at March 2019.

Dr. Clarke said technical analysis indicates that in 2016, Jamaica would have had 77 per cent of the reserves that were required for a country of its size and complexity.

“Our reserves (now) stand at 115 per cent of the requirement, giving us that extra buffer in the event of exogenous shocks,” he noted.

The Government has also stimulated economic activity by abolishing distortionary taxes, including the minimum business tax and asset tax for non-financial businesses, which were an impediment to micro and small business development.

Dr. Clarke said that consumers and businesses now enjoy the lowest interest rates ever in Jamaica’s history, while credit growth has accelerated at a rate of 16 per cent per annum.

Bank of Jamaica (BOJ) Governor, Richard Byles, also agrees that should a recession occur, the country would be better prepared.

“Our preparation for this started many years ago. If you compare the condition of Jamaica then to the condition now, you’ll see a vast difference. First of all, our debt is lower than it was then.

Secondly, our reserves are higher… and those are two crucial aspects of defence that we are more prepared in,” he noted, while addressing a recent Central Bank briefing.

Importantly, he noted, “When you look at the Current Account of the Balance of Payments, you will see that instead of a yawning gap, the Current Account to GDP of six… eight per cent… is very small and, sometimes, it’s even balanced and in surplus.”

“So Jamaica is much better positioned, now, than it was during the previous recession,” he added.

This sentiment is also shared by several business leaders, including Jamaica Employers’ Federation (JEF) President, David Wan, who told JIS News that “we are much better positioned, as a country, to deal with a recession”.

He noted that in addition to higher NIR and lower debt, “our main industries, like tourism, are doing very well… and remittances are holding up”.

“It seems as though a recession could occur… and I don’t think there’s much or anything that we can do as a country to affect developments in that regard. But whatever happens, we are much better prepared to deal with it,” Mr. Wan said.

Small Business Association of Jamaica (SBAJ) President, Hugh Johnson, said that based on Jamaica’s vastly improved macroeconomic environment “I believe we are well able and capable of riding a recession successfully”.

Mr. Johnson believes that the country, through the buoyant Jamaica Stock Exchange (JSE), could serve to facilitate overseas investors seeking a haven to safeguard their finances against the ravages of a recession and, in the process, further bolster the stock market’s growth.

The SBAJ President said he does not believe that the JSE would suffer any significant repercussions from the onset of a recession.

“I think the management and supervision of the stock market has been excellent over the years and we commend the management and staff for that. We encourage them to continue with the prudent management of that entity,” he said.

Jamaica Chamber of Commerce (JCC) Director, Warren McDonald, for his part, told JIS News that he is “not sure there will be a recession”, although there is evidence that there has been or will be some degree of economic slowdown in several countries.

Either way, he believes the outcome will have some effect on Jamaica, particularly in the area of remittances, “which is an integral part of our foreign exchange earnings”.

“But our stronger position in Jamaica now, economically, has bolstered our ability to fight a recession,” he said.

Mr. McDonald noted, however, that there is need for greater streamlining of measures to deal with the impact of a recession, apart from what is already in place or in the process of implementation.

Among these, he outlined, is diversification in industries like tourism by either exploring new source markets or building on established ones.

Mr. McDonald further cited the need for inputs that will aid in safeguarding agriculture against the ravages of extreme weather and climatic conditions, particularly drought.

“We have to take measures to build resilience against any possible recession. We have to be on guard… and move to alleviate any possible negative repercussions,” he underscored.

Director General of the Planning Institute of Jamaica (PIOJ), Dr. Wayne Henry, said that policy certainty is among the measures that will be key in safeguarding the country against the possible emergence of another global economic recession.

“The intensity of any global recession is usually exacerbated by policy uncertainty. As such, policymakers have a critical responsibility to ensure that there is certainty surrounding policies related to external trade and macroeconomic fundamentals,” Dr. Henry said.

Key among these, he pointed out, are continued strengthening of the macroeconomic environment, creating the appropriate social safety nets for the society’s most vulnerable citizens, and facilitating investments and trade policies focused on encouraging product and market diversification.

Dr. Henry said other measures for consideration include industry-level retooling and training to improve productivity and competitiveness, and strengthening domestic linkages to minimise the adverse impacts of weakened external demand.

He pointed out that “efforts are already ongoing in the agriculture, manufacturing and the hotels and restaurants industries to strengthen and reduce the dependence on imports and are expected to augur well for Jamaica”.