WITH THE much-needed reprieve of the Christmas and New Year holidays behind us, the challenges facing the economy become more apparent.This process of facing up to the economic challenges has been furthered by the Government's correct decision to publish the results of the latest IMF article IV Consultations on the 'Net. What's really in store for the economy this year? One doesn't need a crystal ball to see that the national debt looms large. The total debt internal and external stands at J$650 billion, a position the IMF describes as unsustainable.
To be fair, the Government has moved to try and come to grip with the fiscal crunch. It has curtailed its expenditure with substantial cuts in its recurrent and capital expenditure, the latter being slashed by $4 billion more than budgeted. Additionally, the Government has given signals to the public sector that more cuts are under way. But the debt problem demands more fundamental corrective strategies than these.
There is a clear need to involve all the social partners in the solution. That is why we are somewhat bullish about the latest private sector-led initiative to revive a call for a social partnership. The suggestion of a possible $25 billion debt conversion scheme also augurs well for the economy. This is especially so if the proceeds of the recent Bank Nova Scotia (Canada) loan are used judiciously.
Another worrying issue that the economy will face this year is the increased inflation rate. The authorities had targeted seven to nine per cent for the fiscal year 2003/4 but by the end of the calendar year the rate had exceeded 13 per cent according to STATIN data. This is not only a noticeable reversal of a successful area of Government's economic policy but it opens a Pandora's box regarding wage increases in the economy.
On this related issue of economic forecasting, this is an area that demands greater focus. There is a tendency for the authorities to skew their predictions to favour positive outcomes (as occurred with the inflation forecasts) only for the final figures to be adjusted downwards. Optimism has defined psychological advantages but unrealistic forecasts can fuel frustration.
Another problem carried forward to this year that should not escape us is the economic costs associated with the high crime rate. A recent IDB study on the Jamaican economy put the cost of controlling crime at $19 billion annually. Our efforts to date to confront this problem have borne little fruit and the issue of international assistance should be put squarely on the table.
What is interesting in all this is that these challenges facing the economy are occurring in a context where there are some favourable economic factors. In the first place, tourism continues to perform more than creditably, with tourist arrivals and cruise ship visitors in excess of a million tourists. Bauxite is also performing creditably with the sector expected to earn 5.9 per cent more than last year. Despite periods of heavy rainfall domestic agriculture is also said to be recording significant success. Of note too, the Bank of Jamaica recently reduced the rates on its longer dated repo instruments. With the heavy demand for cash behind us and the tourist season in full swing, the monetary authorities could pull rates down further in the fiscal quarter. Finally the American economy our major trading partner seems to be rebounding, having recorded its fastest growth rate in 20 years in the third quarter.
The economy faces a number of formidable challenges this year. With transformational leadership in all areas, we could take bold steps and put the economy on a self-sustaining path.
