Jamaica - Current economic position and prospects

RETURN TO RESTRICTED REPORTS DESK FILE COPY Report No. WH- 187a WIT'HIN ONE WEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it-be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF JAMAICA December 17, 1968 Western Hemisphere Department  CURRENCY EQUIVALENTS 1' Jamaican Pound (bJ) = US$ 2.40*- L-J 1 million = US$ 2, 400, 000 US$ 1 = bJ 0. 4167 US$ 1 million = hJ 416, 667 *New rate effective since hJ devaluation of November 21, 1967 (before:. ErJ 1 = US$ 2. 80)  TABLE OF CONTENTS Page Number BASIC DATA SUIIIARY AND CONCLUSIONS ........... ..... i -iii I. INTRODUCTION . .. .. ................... *. * *a 1 II. RECENT TRENDS 4. . .. .... .. ...... OveraLL Targets and Achievements 4 Savings and Investments ....4.... ........9 a 4 Agr-iculture ...................a *. . .a o a a a a *aa . a 7 a 5 Manufacturing .......... a a*.. aa a0aa* a*. 7 Tourism *9*a* 9***.9.. P9ee099-.. 8 Public Utilities and Transport .... ..... .. 8 Education *.,.. * ,........* a 9 0 * *9**. D999. O ....a.* . a 9 Public Finances * a aa .e o 11 Public Sector Investment ...... a a ..... a e S a @ 12 Financing of Public Investment .. ... . . .... 12 Money, Credit and. Capital Miarket 0 .o 13 Prices and Wages *a*eo*oe aa.. D990...-.. 14 Balance of Payments * .. .aaaaa.. aaa* *e * aaa*a a 15 Current Account .. *.... ***  * ** P 90999**e 15 Capital Account 99...9......*D***** 17 Direction of Trade ..... 19 Trade Policy ,.** . 20 III. DEVELOPMENT PROBLEMS AND PROSPECTS ,......... ,........ 21 Agr:iculture ......... * a 21 Mining .. .... 9 9, 9 9 22 Industry 4...... 24 Tourism .. ... . , 25 Population Control ........ 26 Employment and Unemployment ......................... 28 Prospects .9a0a.9.9.99.. ***.* . * . a ..a.a............. 30  Page Number IV. OTOK FOR PUBLIC FINANCE AND INVESTMENT ............... 31 Public Finances ........................................ 31 Public Sector Planni.ng .................................. 32 Public Sector Investment ................................ 33 Agriculture ........................................ 34 Transport ....... ..................................... 35 F3ectric Power .. .............. 35 Water Supply .......................................... 36 Telecommunications . ............ ... 36 Tourism .............. 37 Public Health ........................................ 38 Role of the Central Planning Unit .................. ..... 39 V. BALANCE OF PAYMENTS PROSPECTS AND CREDITWORTHINESS ...... 40 Exports .. .. ..................................... 40 Tourism .......................................... 45 Imports .... 45 Trade Policy Implications ............................... 46 Capital Movements and Debt Service ......... ............. 47 Conclusions ................................ 48 Annex A ................................ 49 STATISTICAL APPENDEI Annex I - National Income and Production Annex II - Public Sector Annex III - Money, Credit and Prices Annex IV - Balance of payments and External Debt Annex V - Population and Employment This report is based on the findings of an ecornomic mission to Jamaica in May/June 1968 composed of Messrs. M. Ross, N. G. Carter, S. Kuriyama, J. H. Pichler, Miss C. B. Singh and Mr. J. Clark (FAO Consultant).  BASIC DATA 1/ Area 10,992 square km Population (end 1967) 1,893,000 Rate of Growth (average 1950-67) 1.8 percent Rate of Natural Increase (1950-67) 2.6 percent Density per square km (1967) 172 Gross National Product (current) 1966 1967 1968 Total: EJ million 339.2 356.0 373.6 (US$ million) (949.8) (980.0) (896.6) 2/ Per capita: LJ 183 188 194 (us$) (512) (518) (466) 2/ Percent of GNP (market prices) Gross fixed investment 22.3 24.8 25.9 Gross national savings 16.5 16.1 15.5 Deficit on current account 4.5 7.1 8.6 Factor income payments (gross) 5.7 6.2 8.6 Central Government current revenues 17.2 18.3 19.1 Gross Domestic Product (factor cost) 1966 1967 1968 (EJ aillion) Total: Current 322.5 337.6 355.2 1960 Const. Prices 282.3 285.2 289.5 Rate of Growth (%): Current 8.5 4.7 5.2 Constant prices 4.7 1.0 1.5 Constant average 1963-67 5.3 Sectorial Origin (constant prices): 1960 1966 1967 (Percent of TotalT Agriculture, livestock, fishing 12.0 11.2 10.5 Manufacturing & electricity 14.7 17.4 17.7 Mlining & petroleum 9.6 10.4 10.7 Others 63.7 61.0 61.1 iMloney and Credit (EJ million) 1965 1966 1967 Total money supply (End of year) 31.8 35.5 37.7 Time & savings deposits (end of year) 45.6 54.2 61.4 Commercial bank credit to private sector 62.2 66.1 71.7 1/ 1967 data mostly preliminary; 1968 estimated. 2/ Drop reflects conversion at devalued rate of the EJ; corresponding 1967 figures adjusted for partial effect of devaluation.  Price Indices (December) 1955 = 100 1965 1966 1967 Kingston - All items 134.7 139.5 142.1 Food only 132.2 139.1 140.8 Rural - All items 130.8 135.3 142.2 Food only 134.5 139.4 147.1 Central Government Operations 1966 1967 1968 (1J million) (Fiscal year beginning April 1) Current Revenues 58.8 67.2 72.5 Current Expenditures 51.3 58.8 63.1 Budgetary Surplus 7.5 _TT 9E4 Funds from National Insurance Scheme 4.0 3.7 4.0 Gross Savings 11.5 12.1 1370 Sinking Fund 1.1 1.4 1.8 Debt Redemption 1.3 2.1 1.3 Net Savings 9.1 10.3 Capital Expenditure 18.9 21.4 31.4 Deficit 9.7 12.9 21.2 Financed by: Domestic borrowing 3.5 5.0 5.4 Foreign borrowing 3.4 4.1 15.0 Government deposits 2.8 3.8 0.8 Balance of Payments (EJ million) 1966 1967 1968 Exports of Goods and Services 147.1 151.7 170.3 Cormmodities (f.o.b.) U-2.3 83.3 92.0 Tourism 28.0 29.2 36.o Others 36.8 39.2 42.3 Imports of Goods and Services 162.4 177.1 202.4 Commodities (f.o.b.) 101.6 108.5 1188. Factor income payment; 3/ 19.3 22.1 33.7 Others 41.5 46.5 49.9 Balance on Current Account -15.3 -25.4 -32.1 Medium- and Long-term Public Capital 7.6 5.8 12.2 Inflow 8.7 7.2 1.T 9 Outflow -1.1 -1.4 -2.7 Private Capital (net) 19.1 25.9 24.1 Net Capital Account 26.7 _31.7 36.3 Errors and Omissions - 3.2 es Changes in Reserves (- Increase) - 8.2 -6.3 - 4.2 3/' Investment income payments and interest on external public debt.  Commodity Concentration of' Exports 1963 1964 1965 1966 1967 1968 TPercent of total exports) Bauxite 18.2 20.0 23.0 22.4 22.7 24.2 Alumina 21.4 23.2 22.6 23.5 25.4 28.0 Sugar 28.5 25.1 20.2 20.2 18.2 16.2 Bananas 6.5 7X7 7.9 7.7 7.9 7.1 Citrus and preparations 3.8 3.2 4.1 3.4 2.9 2.5 Clothing 3.3 4.0 2.7 3.0 3.5 3.1 Pimento 2.0 1.7 1.2 2.0 1.6 1.3 Rum 1.5 1u8 2.0 1.6 1.5 1.2 6752 gT - 7 sT 7 73 _37 Medium- and Long-Term External 1963 1964 1965 1966 1967 1968 Public Debt 4/ (US$ million) Debt Outstanding end of period (including undisbursed)5/ 68.1 80.2 96.4 142.2 131.0Y.. Annual debt service 7/ 5.5 5.9 6.9 7.9 9.9 13.0 8/ External I)ebt Service Ratio (i) 1.7 1.7 1.9 2.2 2.5 3.3 Foreign Reserves (end of year position) 9/ 1965 1966 1967 Amount (UJ million) 22.2 31.5 38.5 Months of Imports Equivalent (c.i.f.) 2.6 3.2 3.7 IMF Position 1965 1966 1967 (US$ million) Quota 20.0 30.0 30.0 Drawings Outstanding - - - Relationship to Large Monetary or Customs Area: Member of Sterling bloc British Commonwealth member Miember of Caribbean Free Trade Association (CARTFTA) 4/ As recorded by IBBD, Statistical Services Division g/ Net of accumulated sinking funds ~/ Excluding US$11.2 million IBRD loan cancelled in January 1968 7/ Including sinking funds provisions 8/ Revised projection 9/ Net position of banking system (including ITF gold subscription) plus Government's foreign assets.  SURRIARY AND CONCLUSIONS 1. Jamaica, a tropical island economy about 150 miles long and 50 miles wide, became an independent country within the British Common- wealth in 1962. The transition from a colony to an independent nation was effected very smoothly and mainly involved the adaptation of a solid public administration tradition to the exigencies of a rapidly developing economy. The current population is approximately 2 million and average per capita income was US$518 in 1967. In the last decade, Jamaica has experienced real rates of GDP growth of over 5 percent per annum, but the high rate of population growth poses serious problems for future income growth. Since the 1940s, the island has experienced a virtual population explosion with birth rates rising to 40 per 1,000 and death rates falling to 7 per 1,000. Density per square mile of cultivable land is estimated at 1,050 persons. The Government recognizes the problems raised by the high rate of population growth and is in the process of devising methods of population control. 2. Until recently, Jamaica was predominantly an agricultural economy producing sugar, bananas and other tropical products for export. Little or no attention was paid to domestic agriculture which was confined to the more or less subsist;ence production of fragmented landholdings on erosion prone hillsides. The problems of domestic agriculture today are still inherent in the continuation of this system of production. With the development of bauxite mining and alumina production, the rapid growth of the manufacturing sector and the discovery of Jamaica as a tourist paradise, the country entered a new phase of development in the 1960s. 3. On the whole, the performance of the economy during the Five Year Independence Plan 1963-1967 was quite satisfactory and the real rate of growth of GDP was 5.3 percent per annum. The leading growth sectors were public utilities, transport, bauxite and tourism. Agriculture was the only sector whose rate of growth lagged significantly below the average. The major impetus to economic growth was provided by heavy investments in the bauxite, alurmina and manufacturing sectors. The ratio of gross investment rose from 18 percent in 1963 to 24 percent in 1967. During this period, gross domestic savings were maintained at a steady rate of 16 percent of GDP. The resource gap between domestic savings and investment was met by large inflows of foreign private capital. 4. The primary concentration of the Five Year Independence Plan 1963-67 was on the Government's investment activities and on public policies as they influence the behavior of an essentially private enterprise economy. The major objectives of the Plan wiere the achievement of a 5 percent real rate of growth of GDP and a reduction in the level of unemployment. The growth objectires of the Plan were undoubtedly a success  - ii - but this growth was apparently not accompanied by any reduction in the level of unemployment. This situation mainly resulted from the high rate of population growth, the decline in the agricultural sector and the capital-intensive techniques of production in the leading sectors. The major shortcomings of the Plan emerged in the form of infrastructural deficiencies as a result of the inadequate preparation and implementation of public investment projects, the absence of reasonably realistic fin- ancing plans and the pursuit of inadequate or unsuitable programs par- ticularly with regard to the agricultural sector. 5. The management of public finances has on the whole been satis- factory. Government revenues grew by about 7 percent annually between 1963/64 and 1967/68 and amount to approximately 16 percent of GDP. The tax burden appears to be largely carried by the mining and manufacturing sectors; revenues from the agricultural sector account for about 2 per- cent of the value-added of this sector. Income tax is largely a wages and salaries tax and, during the last five years, the share of revenues from direct taxes fell from 40 percent to 30 percent. Current expendi- tures grew faster than current revenues at the expense of budgetary savings. Onily as a result of the recent establishment of the National Insurance Scheme have public sector savings risen. Public sector invest- ment increased from about