As the Bruce Golding administration moves slowly towards inking an agreement with the International Monetary Fund, there is no gainsaying that Jamaicans need to be prepared for very tough times ahead, whether or not the IMF imposes strong structural adjustment medicine.

The bottom line is that Jamaica's fiscal and balance of payments problems are so bad that the Government will have to undertake some drastic actions in the coming months.

In terms of our balance of payments problems, there will be a significant foreign exchange earnings gap created by a fallout in the bauxite/alumina sector and in most of our other export sectors, including agriculture.

Remittances are already down by 14.6 per cent down - from US$714 million in the January to May 2008 to US$610 million in the 2009 period - and while Tourism Minister Ed Bartlett is trumpeting the fact that Jamaica has not experienced any fallout in tourism arrivals as a result of the H1N1 pandemic, it is a dark cloud hovering over the industry.

Regardless of the impact of the virus, tourism earnings will be down at the end of this fiscal year as compared to original rosy projections during the budget debate.

The direct private foreign investment (DFI) flows to Jamaica over the past four to five years as a result of the Spanish investments in the tourism sector and the bauxite/alumina expansion works will also be scaled down.

Account deficit

This drop in DFI will not be made up by the drop in imports.

As a result the current account deficit will widen, and the foreign exchange gap will be in the region of US$800 million best case, or around US$1.2 billion at worst.

The worst-case scenario does not take into account any unforeseen hits this year by hurricanes or other natural disasters.

Analysts have been talking about the need to diversify the economy, but no road map has been presented. There are no immediate alternative sources of additional foreign exchange generating income by other sectors of the economy that can make up that forex gap in the next two to three years.

And suggestions that the tourism sector will be able to double its earnings over the next two to three years does not take into account the impact of the opening up of Cuba and the need to curtail crime.

In terms of the fiscal deficit, this year's Budget was one of the most clumsily crafted in recent memory.

Careful assessments of the projects suggest that the Government has severely underestimated expenditure and overestimated revenue projections.

And virtually all of the pressing off-budget expenditures on loss-making public bodies such as the JUTC, Air Jamaica and Sugar Company of Jamaica are still sitting off Budget.

These are debts that have been racked up over the years, with no hope of repayment, and should realistically be included as a part of the country's public debt stock.

More worrying is the trend to deplete any funds available in profitable public bodies, whether through the provision of loans to other public agencies, or expenditure on projects, overseas trips, etc, that have had the same negative impact on the bottom line for these entities.

Worrying losses

More and more of the traditionally profitable public entities are racking up worrying losses, which need to be monitored.

The coming IMF intervention should be welcomed by all Jamaicans, if for no other reason that we expect them to level with us as to how bad things really are in the Jamaican economy.

It is also important to note that Minister Audley Shaw stated publicly in Parliament for the first time on Tuesday that Jamaica needed a letter of support from the IMF before it could access funds from the IDB, CDB and the World Bank during the past fiscal year.

The IMF support is even more crucial this year, when the bottom has fallen out on the foreign exchange earning potential of the Jamaican economy.

It is doubtful whether the IMF would give the GOJ such a support letter in the current circumstances without the Jamaican authorities agreeing to take drastic actions to cut the fiscal deficit before the end of the current financial year.

Particular interest

Of particular interest will be the IMF's position on debt restructuring or realignment of the public debt, particularly in regard to the domestic debt position. One wonders, for example, if the IMF technocrats gave Ministry of Finance officials the thumbs up for the placement of a 30-year fixed instrument at an incredible interest rate of 23.75 per cent.

It will be interesting to read the IMF's frank assessment of the impact of this move on the debt maturity schedule of the GOJ and also on the prospects for lowering interest rates in the very near future.

One suspects that there will be some strong structural adjustment medicine presented as part of the stand-by facility currently being negotiated with the IMF.

It does not matter whether the IMF or the GOJ prescribes the medicine - Jamaicans will find the pills hard to swallow.

renee.shirley@yahoo.com