5 Solutions to Jamaica’s Economic Problems

This discussion presents five ideas which will allow Jamaica to secure an IMF deal in the short-term, reduce Jamaica’s energy cost almost immediately and double Jamaica’s GDP in the next 10 years.

1. Sustainable Community and Skills Development Centre (SCSDC)    


An actual SCSDC is a combination of a renewable energy (traditional) community center on steroids; a high-rise, renewable energy housing complex; and a renewable energy commercial center. Conceptually, the 24-hour security, gated community housing facilities should be made-up of 60 two bedroom units and 60 three bedroom units, encapsulated within the perimeter of the community center, which is itself within the perimeter of a forty (40) outlet commercial complex. The SCSDC will be equipped with three 1000KW solar generators to take advantage of Jamaica’s sunlight of 8 hours/day on average.

Additionally, roof-tops will be equipped with a Gym consisting of 1000 pieces of equipment which transform the kinetic energy from exercises into electricity. All general entry points should have revolving doors which generate electricity. A police station manned by five (5)officers on each shift, including two senior cops, is to be situated within the SCSDC. Eight member JDF teams are to be brought in, on three separate shifts each day, to provide skills training to persons in the surrounding communities within the walls of the SCSDC. Other civic and corporate groups, as well as individuals may also provide training. The police officers and soldiers will be paid by funds from the electricity. These payments are the return on the government’s mezzanine financing, and will be paid as long as the SCSDC exist.

2. Staggered Billing, Taxes and Fees (SBTF)    


The SBTF is a process to stagger the deadline date of payment for different agents in the economy. This will allow for less persons acting at the deadline on any one given day and therefore reduce the need for additional resources on artificially stipulated, coinciding deadline dates for significant masses of economic agents. As an example, Motor Vehicle Registrations (MVR) could be issued such that they expire with exact time reference to the day of issue – MVRs expire six months, or a year to the day of issue. This way, deadline dates for renewals and payment are only dependent on the day each person was first issued a license, the right, or privilege to operate. As another example, companies would be allowed to file taxes and fees at different dates depending on their date of incorporation.

3. 5-5-5 Rule (Debt Exchange and Fiscal Responsibility) 


The 5-5-5 rule is a hybrid between a debt exchange and a fiscal responsibility framework. The three 5’s communicate: (i) the rate of interest on all existing domestically owned government debt will be adjusted to a rate of 5 per cent or less within the next five years; (ii) the government cannot accumulate additional debt amounting to more than 5 percent of the five year moving average of GDP in any five year period, except in a global or regional economic crisis; (iii) The government cannot borrow at rates of interest exceeding 5 per cent unless at least one of the world’s largest five economies is borrowing at a rate above five percent on equivalent debt instruments.

The usefulness of the 5-5-5 rule is that it would help to reduce debt-servicing cost, and help to preclude high debt burdens in future periods. Of course, high debt burdens crowd out government spending on important social, human and physical capital. The restrictions imposed on government borrowing will put downward pressure on interest rates, and, therefore, mitigate any upward pressure on interest rates. Upward pressure on interest rates is anticipated as a result of the general policy stance of tight monetary policy and expansionary spending (fiscal and private sector combined) policy, which is also prescribed under this arrangement, and is necessary to stimulate the economy while avoiding inflation. Of course, lower interest rates will promote private investments.

  4. The Labor Sale Rule (TLSR)


The Labour Sale Rule (TLSR) is a novel process by which the government provides a zero cost to the government, retroactive discount on the first year of multiple years of labour services employed by firms. The process is zero cost to government because while it is essentially a discount paid for by the PAYE taxes that qualified employees would pay, the process is such that all qualified workers would under normal circumstances not be expected to be employed in the absence of TLSR.

5. Firms Absorbing Civil Servants Initiative (FACS)


The FACS is a plan which will see private sector entities receiving a discount (see the “labor sale” rule) to absorb civil servants in a transfer of labor from the public sector to the private sector. This will assist in the reduction of the public sector wage bill, while minimizing unemployment which arises from the public sector rationalization/retrenchment. Additionally, with a smaller work force in the public sector the government’s pension obligations will be reduced.

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About the Author:

Darron Thomas

Pristine Enterprises Limited

Email: darron.thomas@gmail.com



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The Jamaica & IMF Equation

The Equation:

The following outline what I believe to be the most likely economic outcome if an agreement is not reached (soon), between Jamaica and the International Monetary Fund (IMF):

Further exchange rate depreciation

If the Government of Jamaica is unable to secure a deal – in short order – continued domestic concerns, weakening markets and lower investor confidence could result in increased volatility in the foreign exchange market and further slide (depreciation) in the Jamaican dollar. Note that a slide in the Jamaican dollar would make it more expensive for Jamaicans to transact businesses with U.S exporters – put another way, it would be more costly to buy the new Iphone 5.

The recent fall in the in the Net International Reserves (NIR) by more than US$ 236 million during the June 2012 quarter, could indicate that the movement to safer more stable currencies (US$ and CAN$) might be slowly underway.

Further delays in reaching an IMF agreement will undoubtedly cause an erosion in the value of the Jamaican dollar against the currencies of its main trading partners (US$, CAN$ and GBP). Immediately after, the previous IMF deal was signed in Feburary 2010, the foreign exchange market stabilize and the JMD$ strengthened. Currently, the exchange rate is hovering at and around the $90 JMD : $1 US mark (As Seen in above chart).

Increase Interest Rates / Higher Cost of borrowing

The slide of the local currency coupled with the Government’s high level of indebtedness would likely trigger increases in the domestic interest rates. Higher interest rates would be the only incentive for investors to lend the Government money.

Jamaica’s high debt to GDP ratio (seen in chart above), limits the Government’s ability to pay its bills without having to borrow. Additionally, our economy is not growing fast enough to generate sufficient spending for the GOJ to collect tax revenues and earn money to repay its debt. Without a new IMF deal, the Government would have to find alternative money to pay bills, in order not to default on its obligations. Recently it was made public that the Government borrowed money from both NCB and Scotia bank in order to repay foreign debt owing and had matured – not a good sign.

 Further downgrade of Jamaican bonds by Rating agencies

If Jamaica is unable to sign a new deal with the IMF, a downgrade of domestically issued bonds/debt as well as international debt instruments such as the GOJ Global Bonds (GOJGB) would be inevitable.

These Euro-denominated bonds, if downgraded, would signal to investors that these are risky debt instruments with high likelihood of default by the issuing government (Jamaica). In this context, the GOJ would find it hard to generate well needed capital on the international market as its debt instruments would be undesirable to international investors.

Any downgrade would further make a case for higher interest rates when the government attempts to borrow internationally/ locally given the high propensity for defaulting (low credit worthiness) on these debt repayments – as indicated by the rating downgrade.

 Even slower economic growth/ no growth

The global economy is still precariously positioned, with uncertainty surrounding the Euro-zone and China’s economic growth rate slowing. This all equates to even slower growth forecast for developing countries like Jamaica, who rely heavily on consumer welfare in the developed countries to keep their economy vibrant – tourism, bauxite and cultural exports.

Higher inflation rates

The direct outcome of a declining Jamaican dollar, compounded by higher cost for foreign goods – wheat/ flour price being the most recent to increase.

Further losses on the Jamaica Stock Exchange (JSE)

During the June 2012 quarter there was a decline across all four JSE indices ranging from 1.1 per cent to 7.9 percent. This fall in equity prices across the indices reflects the weakness in the domestic economy and growing concerns about the impact of the noted slowdown in the global economy.

Steven Jackson recently wrote an article in the Gleaner, which stated that “investors have lost close to J$73 billion of their wealth” on the JSE – Year to Date. This “bear” market will likely continue once an agreement is not reached.

The above arguments only highlight some of the economic possibilities/ scenarios that might occur in the event of further delays in signing a new IMF agreement. Note that the social and cultural impact was not examined, due primarily to the plethora of possibilities that can arise – one thing for sure though, we are a resilient people who have proven time and time again that we can rise above adversities.

Please add a comment and share your opinion on any of the points which were highlighted.

Visionary Entrepreneur

About the author:

Luwayne Thomas Bsc., Msc.

Co-founder  @balcostics

Follow on twitter: @LuwayneThomas

At Balcostics our mission is to empower leaders with the required data and information to make better decisions. Learn more about our full list of research outsourcing services for individuals and companies: Click here