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Strategies for Stimulating Growth and Sustainability John W. Robinson Deputy Governor Bank of Jamaica. 4th BIENNIAL INTERNATIONAL CONFERENCE ON BUSINESS, BANKING AND FINANCE ‘Restoring Business Confidence & Investments in the Caribbean’ 22 – 24 June 2011 Trinidad & Tobago.
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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
Outline • Sustained Economic Growth • Role of Government • Strategies for Stimulating Growth in Jamaica • Economic Transformation Programme • Progress to date • Concluding Remarks
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
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
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.
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
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
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
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.
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
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.
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.
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.
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.