In a one-day conference, Sixth IMF High Level Caribbean Forum—jointly hosted with the Government of Jamaica, under the theme “Unleashing Growth and Strengthening Resilience in the Caribbean”—International Monetary Fund (IMF) Managing Director, Christine Lagarde, says stronger economic growth is the essential foundation for a more resilient Caribbean. The Jamaica Observer reports.
[Christine Lagarde] noted that economic growth in the region has been low for several decades and this has led to rising social and economic challenges, including poverty, inequality, unemployment and crime. Lagarde said there is no one explanation for the low growth, but noted that Caribbean economies have been hit by external shocks, such as natural disasters and loss of international trade preferences. “At the same time, Caribbean countries have not been able to fully insulate themselves from such shocks, because of large macroeconomic imbalances. Growth has also been affected by structural impediments,” she noted. “A few come to mind: the region’s high cost of electricity, limited access to credit for households and medium and small enterprises, high rates of violent crime, and a persistent outflow of highly skilled workers,” Lagarde added as she addressed the Sixth IMF High Level Caribbean Forum held at The Jamaica Pegasus Hotel in New Kingston, yesterday.
The IMF’s Managing Director cited three specific issues that must be addressed in order to achieve sustained growth, namely, crime and youth unemployment, fiscal policy and political cycles, and stability and growth trade-offs in the financial sector.
Lagarde said that youth unemployment in the Caribbean is among the highest in the world, noting that crime, partly fuelled by this high rate of joblessness, is a major obstacle to growth. “Crime imposes several economic costs, including public spending on security and the criminal justice system, private spending on security, and social costs from the loss of income due to victimisation and incarceration,” she argued.
She cited a recent study from the Inter-American Development Bank (IDB), which found that, on average, crime in the Caribbean costs nearly four per cent of gross domestic product (GDP) per year, more than in most Latin American countries. “So, we need to create a virtuous cycle, where strong growth would reduce youth unemployment and crime, which, in turn, would contribute to boosting productivity and growth,” Lagarde pointed out.
With regards to fiscal policies and political cycles, the IMF managing director noted that too often, promising reforms have been cut short by policy reversals driven by political pressures. She added that strong institutions and fiscal frameworks are needed that can help safeguard and sustain prudent fiscal policy over time. “For example, well-designed fiscal rules can help guide consolidation efforts. Indeed, such a rule targeting a reduction in public debt to 60 per cent of GDP over the medium term, has been introduced in several countries in the region – the Eastern Caribbean Currency Union – and it has had success in putting public debt on a clear downward path in St Kitts and Nevis, Grenada, and Jamaica,” she said. She pointed out that fiscal councils are increasingly recognised as tools to promote sound fiscal policies by providing independent information and analysis, and by monitoring compliance with fiscal rules.
Lagarde said that well-designed institutions can play a key role in securing broad political consensus around important reforms. She cited Jamaica’s Economic Programme Oversight Committee, which has played a central role in monitoring Jamaica’s economic reform programme and building support for it, as an example.
Lagarde also urged Caribbean countries to consider the connection between financial stability and growth. “We know that a well-functioning and healthy financial sector should strike a balance between risk-taking, growth, and stability,” she said. [. . .]