By: Kimberly Ramkhalawan
October 14, 2022
Jamaican Finance Minister Nigel Clarke is seek the IDB to have greater consideration to the region’s fiscal sustainability through a risk transfer instrument.
In putting forward the sole voice representing Caribbean islands at the IDB’s Conversation with Finance Ministers on Fiscal Policy at the 56th Meeting of the Network of Chief Economists of Central Banks and Finance Ministries of Latin America and the Caribbean, Clarke said “speaking for the Caribbean region, a risk transfer instrument which allows Caribbean states to navigate the climate crisis in a way that protects fiscal sustainability, even in the event of natural disasters will be helpful”. He called on the Inter-American Development Bank to look into this, and urged them to “continue to innovate in this area” as it will aid the region.
In offering up recommendations to the IDB, Clarke says while he was in support of the “Capital increase geared toward the private sector, in terms of what the IDB can do better”, he believed “private sector support and ensuring that members have the ecosystems within their country that allows them to be innovative, entrepreneurial and responsive to the environment is going to be critical and crucially important”. But on the public sector side, he believes “the skills and knowledge that the IDB has in the areas of digitization, and the areas developing in public financial management and public sector reform, in healthcare and education in particular. Making this knowledge and these skills available to our countries will be something very much appreciated”.
Clarke’s discussion at the IDB level comes after the Jamaican government rolled out a “$10 billion suite of business-boosting spending”, along with a package which includes taking equity stakes in small business to help them grow. Some $750 million from the IDB’s US$8.6 million or $1.3 billion financing for entrepreneurship in Jamaica was used for this as a venture capital project geared as aided small business start-ups.
His comments came post sharing what Jamaica did to navigate through the pandemic in sharing what worked and did not in making their economies more resilient or recoverable. Clarke says while his country was forced to suspend much of its fiscal rules during the pandemic, and move its debt target out by two years, it managed to come back stronger than pre-pandemic. In siting Jamaica’s unemployment levels before the pandemic, Clarke said it was at a record low at seven percent, which climbed under four months during the pandemic to just under 14 percent at 12.7 percent. He also shared Jamaica’s CARE Program, created as “its primary vehicle to respond to the social and economic impact of the pandemic, providing unemployment support having to improvise through a web-based solution constructed within four weeks, verifying information entered in with their workplaces in order to receive a cheque or funds in their accounts”.
Some of these he classed as sectorial grants that were targeted at groups affected and who were classed as being vulnerable.
However, concerns over Jamaica being mostly a tourism-based economy, Clarke admitted that “its foreign exchange flows saw a major dip during the pandemic, becoming a major threat to its economy with a looming crisis at the its financial institutions where there were balance and payments channels”.
This he said brought on a commensurate falloff in imports, but pushed them to ensure there was a flexible exchange rate, taking the adjustment through the exchange rate, pricing mechanism rather than through any artificial means.
During the crisis he said they began to differentiate themselves and continued along the path of institutional strengthening and reform, despite a wide sector working from home, and were unable to congregate, pushing policy reform to make its Central Bank independent with this coming to pass by December 2020, with a new mandate established in law to focus on targeted inflation and deepening of monetary transparency. This led to legislation passed “to put in place and independent fiscal commission which became the guardian of Jamaica’s fiscal rules”. Despite the crisis, he says they used the opportunity to strengthen Jamaica’s monetary and fiscal arrangements.
The Jamaican Finance minister noted while the output collapsed by 10 percent during the pandemic years while its debt went from 94 percent to a 110 percent in GDP as a result of the collapse in GDP. 2021 however saw a strong recovery, seeing a recovery by 8.1 percent during fiscal year 2021, taking the view to “tighten with the winds behind their sails than wait until the winds had died and reversed”, to do the fiscal tightening.
This he says, resulted in them re-engaging their fiscal rules they had in 2021, backed and supported in what he described as strong growth, with the anticipation that Jamaica’s economy will grow by 4.5 points this year.
In comparing Jamaica with 2019 to 2022, Clarke said “its debt, unemployment rate is lower than it was to pre-crisis, output in real terms are likely to achieve pre-COVID levels of economic output by early 2023.The policy approach that it has taken has resulted that trilogy he says is difficult to achieve at the same time.”
With respect to Jamaica’s cost of living crisis seen, supply chain induced impact along with the war induced impact, he says his country has responded with a “targeted approach with avoiding approaches on the revenue side that are indiscriminate in their targeting because he says it takes more resources, as they are able to do a lot more if they target their intervention to the people who need it”.
And as to how they handled the recent spike in fuel prices, Clarke shared his government’s beliefs that it was “inequitable to respond to a crisis by reducing the cost of persons who drive, as far more people have no access to cars, but kept bus fares constant, but allowed international prices to be represented in a domestic market”. Explaining how his government viewed the fuel crisis, Clarke said it was critical not to adjust prices so that volume imports go up, as ideally the prices should “come through the domestic market, so volumes would be adjusted down and the balance of payments impact will be muted”.
Instead while its understood everyone purchases electricity, it was critical to “target those who consume less than two kilowatts of electricity providing them with temporary support for the four months that prices were really high, by paying the bill directly to the utility company, thereby reaching hundreds of thousands of households, much more households that drove cars”.
In March this year, Clarke was elected to the chairmanship of the bank and its private-sector investment arm, the IDB Investment Corporation, or IDB Invest.