A new paper from the Center for Economic and Policy Research (CEPR) finds that Jamaica’s unsustainable public debt burden continues to displace needed investments, preventing long-term growth. Jamaica’s IMF agreement has remained stalled, preventing disbursements of necessary multilateral financing, which, together with pro-cyclical macroeconomic policies supported by the IMF, have held back the country’s recovery from the global recession, with its economy still below its 2008 level of GDP. Jamaica is not expected to regain its pre-recession output level until 2015.
“The IMF, World Bank, IDB, and other multilateral institutions deserve a large share of the blame for Jamaica’s prolonged and ongoing economic stagnation and debt trap,” CEPR Co-Director Mark Weisbrot said. “Their contractionary policies prioritize the servicing of debt over growth and development. They have also favored debt service over the paying of back wages, stimulus, public investment, and other measures that could help Jamaica get out of the hole it’s been in.”
The paper, “Update on the Jamaican Economy,” by Jake Johnston and Juan Antonio Montecino, looks at Jamaica’s stalled agreement with the IMF, its economic performance over the past year and examines its persistently high debt burden. It argues that Jamaica’s economic performance and development prospects have been seriously damaged by an unsustainable debt burden, with the economy stagnating for decades. During the 15 years prior to the 2008-2010 recession, Jamaica’s real GDP growth averaged just 1.1 percent annually and real per capita growth was a meager 0.4 percent per year. Although growth resumed in 2011, the paper finds the current recovery to be inadequate, as evidenced by high levels of unemployment and poverty.
The paper notes that Jamaica remains one of the most highly indebted countries in the world, and that its interest payments as a percent of GDP were higher than anywhere else in the world in 2011, including even crisis-stricken countries in the eurozone. Jamaica’s large debt burden has displaced most other public expenditures, taking up almost 50 percent of total budgeted spending over the last four fiscal years while health and education have been only around 20 percent combined.
“Jamaica should be able to invest in infrastructure and human capital, and have the financial resources ready to be able to respond to frequent natural disasters, such as hurricanes and tropical storms,” lead author Jake Johnston said. “Instead, it is forced to prioritize servicing its debt, with payments that are exceptionally large even compared with other debt-burdened nations.”
“Jamaica offers a stark example of the long-term costs that an excessive debt burden can impose on a developing country, especially when the interests of creditors are prioritized over the needs of the country as a whole,” the paper states.