The World Bank is urging the government to consider easing austerity measures, in order to boost growth.
In a report released yesterday, the World Bank says higher public capital expenditures can spur private investments, to achieve higher growth.
This, they say would help to reduce Jamaica’s debt ratio faster than the current path.
The authors of the World Bank report write that after two years of successful macroeconomic stabilization and structural reforms, the authorities may wish to consider easing austerity measures.
They say this would, to some extent, generate the necessary fiscal space for increased public investment.
Public investment, they find, is key to boosting growth.
They argue that growth would rise from 1.5 percent projected for this fiscal year, to 4.5 percent in five years.
That’s significantly more than the current scenario, where growth is projected at 2.7 percent in 2020.
The World Bank says the government could leverage the success of its reforms over the past two years to create additional fiscal space for growth-enhancing investments.
This strategy could support a decline in the debt ratio, but would be contingent on achieving higher growth rates.
Jamaica’s debt to GDP ratio is about 120-percent. This means the country owes more than it earns.
There are two ways to bring that ratio down. One is to reduce the debt, the other is to increase growth.
According to the World Bank, the current strategy focuses primarily on reducing debt, at the expense of growing the economy.
That’s because the austerity required to maintain a large primary surplus limits real GDP growth.
The multilateral notes that public spending is only programmed to increase marginally between now and 2020, but that won’t be enough to meaningfully impact growth.
Detractors of the IMF programme have criticized the 7.5-percent primary surplus, saying it doesn’t give government enough room to invest in the country.
The IMF recently reduced the primary surplus to 7.25-percent for the remainder of this fiscal year, and 7-percent next year.
This gives the government an extra $12-billion to spend on capital projects over the next two years.
But the World Bank’s proposed growth model has an even lower primary surplus, 6.8 percent over the medium term.
Using the IMF’s formula, that would increase the level of capital expenditure by nearly $16-billion.