IMF Executive Board Completes Second Review under the Stand-By Arrangement for Jamaica

October 23, 2017

  • The authorities’ commitment remains strong more than four years into the reform program.
  • Fiscal sustainability requires a continued reduction in the public wage bill, particularly as the government rethinks its role, responsibilities, and size of its workforce.
  • Jamaica’s structural reforms are critical to build resilience and support inclusive growth.

On October 23, 2017, the Executive Board of the International Monetary Fund (IMF) completed the second review of Jamaica’s performance under the economic program supported by the Stand-By Arrangement (SBA). The 36-month SBA with a total access of SDR 1,195.3 million (about US$ 1.68 billion), equivalent of 312 percent of Jamaica’s quota in the IMF, was approved by the IMF’s Executive Board on November 11, 2016 (see Press Release No.16/503 ). The Jamaican authorities continue to view the SBA as precautionary, and to use it as an insurance policy against unforeseen external economic shocks that could lead to a balance of payments need.

Following the Executive Board's discussion today, Mr. Tao Zhang Deputy Managing Director and Acting Chair issued the following statement:

“The authorities’ commitment to their Fund-supported program remains strong more than four years after embarking on difficult economic reforms. Program performance is on track and macroeconomic stability is entrenched, with stronger fiscal and external positions, subdued inflation, and employment at historic highs. Nevertheless, vulnerability to weather-related shocks continues to pose important challenges to Jamaica’s growth performance. Against this backdrop, supply-side reforms, including enhancing resilience to weather swings, must be accelerated to deliver better growth and job outcomes, reduce poverty, and improve living standards, while sustaining macroeconomic stability.

“Concluding the ongoing wage negotiations is necessary for budget certainty. More generally, fiscal sustainability requires a continued reduction in the public wage bill, particularly as the government rethinks its role, responsibilities, and size of its workforce. Overhauling the pay structure and reviewing the complex system of allowances are vital foundations to a modern public sector that can attract and retain talent. In addition, a smaller public sector remains essential to create space for much-needed spending on health, education, social safety nets, public safety, and growth-enhancing capital projects.

“The authorities recognize that reforms to the Bank of Jamaica Act, further enhancing the monetary policy toolkit, improving communications, and strengthening the central bank’s balance sheet are essential for moving toward inflation targeting. To this end, the authorities are committed to maintaining exchange rate flexibility and limiting foreign exchange interventions to smoothing excessive volatility.

“Implementation of the resolution framework for financial institutions is critical for strengthening the financial sector’s resilience. Any changes to investment and foreign exchange limits of non-bank institutions should first carefully analyze growth and stability tradeoffs and ensure that adequate supervisory capacity is in place.

“Structural reforms are critical to support a dynamic private sector that creates jobs. In this regard, efforts should be accelerated to divest underutilized public assets, upgrade procurement procedures, ease the development approval process, and foster financial inclusion.”

Table 1. Jamaica: Selected Economic Indicators 1/

Population (2013): 2.8 million

Per capita GDP (2014): US$4955

Quota (current; millions SDRs/% of total): 382.9/0.08%

Literacy rate (2011)/Poverty rate (2012): 86.4%/19.9%

Main products: Alumina, tourism, chemicals, mineral fuels, bauxite, coffee, sugar

Unemployment rate (Apr. 2017): 12.2%

Prog.

Est.

Projections

13/14

14/15

15/16

16/17

16/17

17/18

18/19

19/20

(Annual percent change, unless otherwise indicated)

GDP and prices

Real GDP

0.9

0.2

1.0

1.7

1.3

1.6

1.9

2.3

Nominal GDP

9.2

7.3

7.6

4.0

5.6

6.0

6.7

7.4

Consumer price index (end of period)

8.3

4.0

3.0

4.0

4.1

4.5

5.0

5.0

Consumer price index (average)

9.4

7.2

3.4

2.3

2.4

4.3

4.8

5.0

Exchange rate (end of period, J$/US$)

109.6

115.0

122.0

…

…

…

…

…

Exchange rate (average, J$/US$)

103.9

113.1

118.8

…

…

…

…

…

Nominal depreciation (+), end-of-period

10.8

5.0

6.1

…

…

…

…

…

End-of-period REER (appreciation +) (new methodology) 2/

-3.5

-0.2

-2.2

…

…

…

…

…

Treasury bill rate (end-of-period, percent)

9.1

7.0

5.8

…

…

…

…

…

Treasury bill rate (average, percent)

7.9

7.8

6.3

…

…

…

…

…

Unemployment rate (percent) 3/

13.4

14.2

13.3

…

12.7

…

…

…

(In percent of GDP)

Government operations

Budgetary revenue

27.2

26.3

27.0

27.9

28.0

28.7

28.5

28.2

Of which: Tax revenue 4/

23.6

23.7

24.5

25.6

25.8

25.5

25.4

25.3

Budgetary expenditure

27.0

26.8

27.3

28.8

28.4

29.0

28.8

27.8

Primary expenditure

19.5

18.8

19.9

20.9

20.4

21.7

21.5

21.3

Of which: Wages and salaries

10.1

9.7

9.6

9.6

9.4

9.6

9.0

8.9

Interest payments

7.5

8.0

7.4

7.9

8.0

7.3

7.3

6.5

Budget balance

0.1

-0.5

-0.3

-0.9

-0.3

-0.3

-0.3

0.5

Of which: Central government primary balance

7.6

7.5

7.2

7.0

7.6

7.0

7.0

7.0

Public entities balance

0.0

0.9

1.8

0.0

2.0

0.7

0.6

0.3

Public sector balance

0.1

0.4

1.6

-0.9

1.7

0.4

0.3

0.8

Public debt (FRL definition) 4/ 6/

…

…

…

115.2

111.9

107.1

102.2

94.2

Public debt (EFF definition) 5/ 7/

140.5

138.0

120.5

122.5

119.2

113.4

107.9

99.3

External sector

Current account balance

-8.7

-7.0

-1.9

-3.0

-2.5

-2.5

-2.5

-2.6

Of which: Exports of goods, f.o.b.

10.6

10.2

8.3

8.8

8.8

8.8

8.9

8.7

Exports of services

14.3

15.5

14.8

15.8

15.8

14.8

14.6

14.3

Of which: Imports of goods, f.o.b.

37.5

36.4

30.0

32.6

31.5

31.9

31.8

31.4

Imports of services

18.8

19.8

19.5

21.4

21.4

21.5

21.6

21.5

Net international reserves (US$ millions)

1,304

2,294

2,416

2,699

2,762

3,282

3,593

3,753

of which: non-borrowed

714

1,335

1,470

1,876

1,936

2,495

2,829

3,010

(Changes in percent of beginning of period broad money)

Money and credit

Net foreign assets

18.7

27.9

10.1

10.2

9.4

15.0

9.6

5.7

Net domestic assets

-12.6

-22.3

8.6

-6.2

-3.7

-9.0

-2.9

1.6

Of which: Credit to the private sector

8.2

3.1

8.2

8.0

11.4

7.1

9.5

10.1

Of which: Credit to the central government

-3.1

-15.2

5.5

-0.1

-0.5

1.3

0.2

1.3

Broad money

6.1

5.7

18.7

4.0

5.6

6.0

6.7

7.4

Memorandum item:

Nominal GDP (J$ billions)

1,461

1,568

1,687

1,759

1,783

1,889

2,015

2,164

Sources: Jamaican authorities; and Fund staff estimates and projections.

1/ Fiscal years run from April 1 to March 31. Authorities' budgets presented according to IMF definitions.

2/ The new methodology uses trade weights for Jamaica that also incorporate trade in services especially tourism.

3/ As of January 31.

4/ Consolidated central government and public bodies' debt, consistent with the Fiscal Responsibility Law. The most significant deviation from the EFF definition is the exclusion of debt to the IMF held by the BoJ.

5/ Central government direct debt, guaranteed debt, and debt holdings by PCDF, consistent with the definition used under the EFF approved in 2013

6/ Consistent with the Fiscal Responsibility Law (FRL), implementation of the FRL-consistent debt definition began in FY16/17. A backward series is not available since consistent data on public bodies' debt holdings is not available prior to FY16/17.

7/ The decrease in debt in FY15/16 partly reflects the PetroCaribe buyback operation that generated an immediate 10 percentage point reduction in debt. The increase in debt in FY16/17 partly reflects prefinancing for FY17/18 maturities.


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