Strategies for Stimulating Growth and Sustainability John W. Robinson Deputy Governor Bank of Jamaica

1. Strategies for Stimulating Growth and SustainabilityJohn W. RobinsonDeputy GovernorBank of Jamaica 4th BIENNIAL INTERNATIONAL CONFERENCE ON BUSINESS, BANKING AND FINANCE ‘Restoring Business Confidence & Investments in the Caribbean’ 22 – 24 June 2011 Trinidad & Tobago

2. Outline • Sustained Economic Growth • Role of Government • Strategies for Stimulating Growth in Jamaica • Economic Transformation Programme • Progress to date • Concluding Remarks

3. Sustained Economic Growth • A steady increase in the productive capacity of the economy. • In the medium to long run, production possibilities are enhanced by improvements in technology, the quantum and quality of the labour force as well as the capital stock. • Fundamental considerations • Issues of the quality of education and the cost of capital • Adequacy of supporting infrastructure • Environmental sustainability • Social and economic stability

4. Role of the Government • Provide an enabling environment for private sector led growth -macroeconomic, social and political stability, - sound physical infrastructure - secure property rights - stable financial system - well-trained labour force - competitive markets - efficient public sector - environmental sustainability

5. Strategies for Stimulating Growth in Jamaica • Jamaican economy grew by 0.8 per cent over the last decade. • Despite relatively high rates of investment. • Weak growth performance attributed to low productivity. • Reflecting the influence of macro / microeconomic and social factors. • Relatively unstable macro environment • Embedded in elevated public debt levels • Adverse debt dynamics • Relatively high rates of inflation • Resulted in distortion of private investments • Difficult to project production costs, cash flows and rates of returns. • High interest rates environment • As such, long-term investment decisions were either postponed or shelved, while some new ventures folded.

6. Main Elements of Current Economic Strategy • The main areas of focus of the transformation programme are: • Restoring fiscal discipline and debt sustainability • Enhancing financial system stability • Improving the business environment

7. Fiscal Discipline & Debt sustainability • Primary objective • Elimination of the fiscal deficit over the next four years • Institutionalization of prudent fiscal practices • Strategies • Voluntary par-for-par exchange of domestic bonds for longer dated, lower coupon instruments (JDX) • Establishment of a fiscal responsibility framework • Implementation of a centralized treasury management system • Public sector reform • Divestment of non-core assets

8. Financial System Stability • Primary objective - reduce systemic risk • Strategies • Amendment of BOJ Act to give the Bank responsibility for overall financial system stability • Development of an Omnibus Banking Law • Strengthening prudential framework of securities dealers, • Combating unregulated financial schemes • Improving the regulatory framework for collective investment schemes

9. Enhancing the Business Environment • Primary objective – Enabling business environment • Comprehensive transformation of the tax system • To reduce distortions & inefficiencies & stimulate growth • Strategies • Simplify the tax system, widen the base and improve equity mainly through the streamlining of waivers and exemptions. • Elimination of stamp duties on financial transactions & transfer tax and stamp duties on registered corporate securities.

10. Supporting Infrastructure • Achieving sustainable economic growth also require adequate supporting infrastructure, physical and social. • Physical • Investments through the Jamaica Development Infrastructure Programme (JDIP) • Social • Special emphasis placed on early childhood development • Training for the out of school population • Improving teacher quality • Restoration of law and order

11. Progress to Date • Fiscal Discipline & Debt Sustainability • Successful implementation of JDX in February 2010. • All quantitative targets under the IMF-SBA programme have been met. • Divestment of Air Jamaica and Sugar Company of Jamaica Holdings. • Fiscal responsibility framework passed in Parliament. • Pilot CTMS . • Public sector transformation plan tabled in Parliament. • Financial System Stability • Amendments to the Bank of Jamaica Act have been drafted. • Phased introduction of risk weights for foreign currency denominated GOJ securities (started June 2010). • Draft Omnibus Banking Law is being prepared.

12. Progress to Date (Cont) • Enhancing the Business Environment • Stable Macroeconomic Environment • Trend decline in inflation & interest rates • Improving business confidence • Single tax authority established • Streamlining of customs procedures • First phase of the reforms implemented in the FY2011/12 budget • Elimination of stamp duties on financial transactions. • Abolition of transfer tax and stamp duties on registered corporate securities.

13. Conclusion • The major challenge for policy makers is the restoration of sustained economic growth. • The recent global crisis exposed a number of underlying weaknesses in the Jamaican economy, to which the Government responded with a raft of far-reaching economic reforms. • The macroeconomic programme is being complemented by initiatives to enhance social capital.

14. Conclusion • Jamaica has made notable progress in its economic programme • very stable macroeconomic environment • improving business confidence. • indicators suggest that Jamaica should emerge from the recession in the first quarter of 2011 • However, transitioning from recovery to sustained high growth rates will require a long-term commitment by the society to the process of economic reforms and social transformation that have begun.