Minister of Finance, Planning and the Public Service, Hon. Dr. Peter Phillips, says the government is committed to the maintenance of a stable macro-economic environment.
“The return to high interest rates is not an option,” the Minister said, while opening the 2012/13 Budget Debate in the House of Representatives, on May 24.
Dr. Phillips told the House that the foreign exchange rate will continue to reflect the fundamental conditions in the market, noting that the Bank of Jamaica is aware of its responsibility to maintain interest rates at a certain point.
In the meantime, the Finance Minister informed that the macroeconomic outturn experienced in fiscal year 2011/12 was varied. He pointed out that gross domestic product (GDP) grew by 1.3 per cent, compared with an average decline of 1.8 per cent over the previous three years.
(Related Story: Reduced GCT to Benefit Consumers)
“All sectors experienced some growth. The goods sector grew by five per cent, while the services sector grew by 0.2 per cent,” he said. “This growth was influenced by improvements in the international economy and a slight strengthening of domestic demand,” he added.
The Minister said modest increases in remittance flows and increases in real wages during the year influenced the strengthening of domestic demand.
He also noted that the marginal increase in domestic demand occurred in a context of high unemployment, and some uncertainty of economic prospects, given the country’s inability to successfully complete the Stand-by Arrangement (SBA) with the International Monetary Fund (IMF).
“The expectations of the improved economic performance were pinned on the signing of a 27-month SBA with the IMF that was to be extended from February 2010 to May 2012,” he said.
“It is unfortunate that despite the windfall afforded by the Jamaica Debt Exchange (JDX) and generous front-loaded funding by the multilateral financial institutions, which provided room to undertake difficult policy initiatives, including public sector restructuring, wage containment and pension reform, Jamaica did not adhere to it commitments made under the SBA,” the Minister argued.
The Minister said that in accepting generous front-loaded financing, but not implementing policy commitments, Jamaica created a massive “trust deficit” with the international financial community.
He said as a result, external loan and grant financing for fiscal year 2011/12 was much lower than expected and as such, Jamaica must now take immediate steps to restore its trustworthiness.
By Athaliah Reynolds-Baker, JIS Reporter