## cr17329-jamaica

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---

### EXECUTIVE SUMMARY — IMPROVING MACROECONOMIC FUNDAMENTALS
- Growth and labor:
  - Real GDP growth reached 1.3 percent in FY16/17; June quarter recorded a small GDP contraction of 0.1 percent, y/y (0.8 percent growth, q/q, SA).
  - Strong sectors: manufacturing, housing construction, hotels and restaurants.
  - Drags: mining and agriculture (beet armyworm infestation and floods).
  - Employment at an all-time high; labor force participation rising; unemployment rate at a 7-year low (12.2 percent in April 2017).
  - Growth forecast for FY17/18 revised down from 2.1 to 1.6 percent; negative output gap estimated to have widened.
  - Medium-term outlook: described as strong as reforms support higher investment and productivity.

- Inflation:
  - Core and headline inflation were 2.5 and 4.4 percent y/y, respectively, in August.
  - Inflation expected to be 4.5 percent by end-FY17/18.
  - Balance of risks skewed toward lower inflation.

- External sector and reserves:
  - FY16/17 current account deficit widened slightly to 2.5 percent of GDP.
  - Non-borrowed net international reserves (NIR) stood at US$1.8 billion at end-June, about US$300 million above the program performance criterion.
  - Gross reserves at 81 percent of the IMF’s reserve adequacy metric.
  - REER and NEER depreciated by 0.2 and 2.8 percent y/y, respectively, in July.
  - J$/US$ appreciation during the June quarter mostly reversed in September.

- Capital markets and liability management:
  - GOJ reopened 2028 and 2045 global bonds at yields-to-maturity of 5.0 and 6.45 percent, respectively, in August.
  - US$1 billion proceeds used for buyback of international and domestic US$ bonds maturing in 2019–2025, improving the refinancing profile.

- Monetary and financial conditions:
  - BOJ cut the overnight policy rate by 25bps to 3.5 percent in August; switched official policy rate from 30-day CD to the overnight rate on July 1.
  - Credit expanded by 18 percent in FY16/17—11 percent excluding a single large corporate acquisition loan.
  - Non-performing loans at 3.5 percent of total loans.
  - Banking sector described as provisioned sufficiently and well-capitalized.

- Key risks:
  - Risks include continued growth setbacks, high crime, public anxiety about a flexible exchange rate, and pressures on reform ownership.
  - Risk of demands to use BOJ reserves to resist two-way currency movements.
  - Ongoing wage negotiations and need to rationalize public sector employment could create tensions.

### A STRONG PROGRAM PERFORMANCE
- Program implementation and outcomes:
  - All quantitative performance criteria for end-June 2017 were met.
  - Tax revenues over-performed; central government primary balance and overall public sector balance for Q1 FY17/18 exceeded program targets.
  - Social spending significantly exceeded the program floor.
  - Non-borrowed NIR was US$298 million above the end-June target.

- Structural reform progress (through end-September):
  - 15 benchmarks met, including establishing the financial inclusion council; strengthening oversight of securities dealers; advancing crisis resolution framework and BOJ governance reforms; reviewing public sector employment rules; improving management of public bodies.
  - Progress in tax administration, public financial management, financial oversight, and implementing a system of competitive FX auctions.

- Selected quantitative outcomes (end-June 2017; table entries preserved as shown):
  - Primary balance of the central government (floor): PC Adjusted 15.0; end-June Actual 30.6; Difference 15.6 — Met.
  - Overall balance of the public sector (floor): PC Adjusted -39.2; end-June Actual -48.1; Difference -8.9? (table shows 5.6 and 53.7 under columns — preserve table entries as shown in source) — Met.
  - Net increase in central government guaranteed debt (ceiling): PC Adjusted 0.0; end-June Actual -2.5; Difference 2.5 — Met.
  - Central government accumulation of domestic arrears (ceiling): PC Adjusted 0.0-0.9; end-June Actual 0.9 — Met.
  - Central government accumulation of tax refund arrears (ceiling): PC Adjusted 0.0; end-June Actual -8.4; Difference 8.4 — Met.
  - Stock of non-borrowed NIR (floor), in millions of U.S. dollars: PC Adjusted 1,521; end-June Actual 1,522; Actual reported 1,820; Difference 298.1 — Met.
  - Monetary policy consultation clause (in percent): Upper band 9.0; Center inflation target 5.5; Actual 4.4; Lower band 2.0 — Met.

### ENTRENCHING FISCAL SUSTAINABILITY — MAINTAINING FISCAL DISCIPLINE
- FY17/18 supplementary budget:
  - Higher revenues of J$5.4 billion envisaged in September supplementary budget (stronger corporate income tax, travel tax, transfers from public bodies).
  - More than half of the higher revenues to be deployed to security spending.
  - Additional spending and reallocations to cover flood repairs, settlement of some arrears, funding for public sector early retirement program, and HOPE training program.
  - Additional J$2bn required by local authorities to offset property taxes roll-back covered.

- Wage bill and public sector size:
  - Current wage negotiation round aims to reduce the wage bill to 9 percent of GDP by FY18/19; no agreement yet reached.
  - Authorities intensifying efforts to conclude negotiations.
  - Allowance system described as large, complex, unequal, and non-transparent.
  - Government to complete a new compensation philosophy and structure by January 2019.
  - Goal to rebalance public spending from wages toward health, education, security, and capital spending.

- Revenue base protection:
  - 2013 reforms curtailed sector and firm-specific tax incentives and halved Jamaica’s tax expenditures.
  - Prescription to avoid discretionary tax incentives or waivers.
  - Protect revenue from potential leakages from Special Economic Zones (SEZ) requires clear regulations and procedures — to be completed by early-2018.

### ADVANCING CRITICAL PUBLIC SECTOR REFORMS
- Pension reform and early retirement:
  - Public pension reform bill passed in October.
  - Key reforms: mandatory public employee contribution, lower benefits accrual rate, less generous commutation benefit.
  - Passage paves way for IDB-supported early retirement program.
  - All technical work to roll-out early retirement program should be finalized without delay; parameters should maximize downward impact on public-sector wage bill (including replacing only a fraction of retirees).

- Public bodies reforms:
  - Reforms aim to enhance efficiency, service delivery, oversight, and accountability through closure, merger, or divestment.
  - Need to enhance capacity of public sector transformation implementation unit and begin human resources “change management” early.
  - Auditor General to undertake analytical reviews for National Health Fund, Clarendon Alumina Production, and Urban Development Corporation by end-March 2018 to assess potential fiscal risks.

### MODERNIZING THE MONETARY FRAMEWORK — REVISION TO INFLATION FRAMEWORK
- Inflation target:
  - Inflation target revised from 5.5 percent to 5.0 percent.
  - BOJ extended inflation target horizon from a fiscal year to a medium-term target.
  - New medium-term inflation target has a band of ±1 percent.

- Monetary stance and outlook:
  - An accommodative monetary stance warranted given downside risks to growth and inflation, absence of fiscal space, widened output gap, and subdued core inflation.
  - Current overnight policy rate: 3.5 percent.
  - Staff estimate: current overnight policy rate (of 3.5 percent) should result in an inflation of 4.5 percent by end FY17/18 (absent further growth setbacks or negative shocks to inflation).
  - There is scope to lower the policy rate further should downside risks materialize.

- BOJ toolkit and communication:
  - Moved policy rate to overnight lending rate (from the 30-day CD rate).
  - Narrowed interest rate corridor; standing liquidity facility repo set at 300 bps above the policy rate.
  - Introduced competitive, multiple-price FX sale auctions (B-FXITT).
  - Plan to establish a pre-announced calendar for BOJ monetary policy decisions and clearer public communication.

- Exchange rate flexibility and FX market development:
  - Maintain exchange rate flexibility as critical to inflation targeting.
  - BOJ committed to undertake FX sales only sparingly via FX auction mechanism; limit sales to excessive volatility and disorderly conditions.
  - BOJ to announce a mid-day market rate for its non-auction FX transactions.
  - BOJ will issue upgraded market directives allowing both buy and sell reserves through FX auctions at market-determined rates.
  - BOJ plans to reduce the FX surrender requirement by 5 percentage points before end-2017; further reductions reviewed every three months.
  - Transition public entities toward purchasing FX through the market; BOJ to accumulate reserves increasingly via buy auctions.

- BOJ operational autonomy, governance, and solvency:
  - Proposal on revisions to the BOJ Act submitted to Cabinet in August (in line with IMF TA recommendations).
  - Governance reforms include clarifying BOJ’s primary objective as price stability; strengthening financial, personal, operational, and institutional independence and accountability; identifying effective Board decision-making structure.
  - Recapitalizing the central bank by injecting new capital through issuance of government liabilities to offset accumulated losses and provide a capital buffer.
  - Revised BOJ Act expected to be submitted to Parliament by end-October 2018 (proposed modified structural benchmark).

### FINANCIAL SECTOR RESILIENCE AND CRISIS RESOLUTION
- Special Resolution Regime:
  - Proposals submitted to Cabinet in July to introduce a Special Resolution Regime for failing/non-viable financial institutions; public money only as last resort.
  - Next steps: introduce modified insolvency framework; parliamentary submission expected by January 2019; industry consultations on funding modalities to begin.

- Securities dealers and retail repos:
  - As of May 2017, all securities dealers (SDs) compliant with Master Retail Repo Agreements.
  - Remaining balance sheet risks addressed by deciding on systemically safe level of retail repos and regulating the retail repo leverage ratio.
  - Work underway to develop a liquidity ratio for SDs.
  - Measures include monthly monitoring of RRLR; study on retail repo indicators to be completed by end-June 2017; determine implementation by end-October 2017.

- Investment limits and pension funds:
  - Government beginning review of existing investment limits for non-bank financial institutions, starting with pension funds.
  - Aim to deploy a larger share of private sector capital toward domestic assets and loosen restrictions on international diversification, subject to resolving regulatory capacity constraints and ensuring appropriate regulations and supervisory arrangements.
  - Authorities intend to undertake thorough assessment and stress testing before relaxing pension fund investment rules.

- AML/CFT:
  - Authorities intend to fully address AML/CFT deficiencies identified in the CFATF Mutual Evaluation Report.
  - Progress required on oversight of money services businesses and implementing preventive measures before the next CFATF progress report due in May 2018.

### GROWTH AGENDA AND DATA STANDARDS
- Growth-focused reforms prioritized on key bottlenecks.
- Divestment plans submitted to Cabinet to divest up to 20 percent of assets owned by the Urban Development Corporation and the Factories Corporation of Jamaica.
- Public procurement and development approvals: accelerate reforms to upgrade the Procurement Act and associated handbook.
- Reforms to cooperatives and micro-credit legislation to foster financial inclusion to proceed without delay.
- Statistics and data:
  - Progress toward SDDS subscription continues, supported by IMF general government statistics mission scheduled for October 2017.
  - Rebasing of GDP to 2014, transition to SNA 2008, and new supply-and-use tables delayed to 2019.
  - Authorities working on restructuring plan to boost STATIN’s technical resources.

### PROGRAM FINANCING, MONITORING, AND SAFEGUARDS
- Program financing:
  - Program remains fully financed; Jamaica’s capacity to repay the Fund considered adequate.
  - Downside scenario where precautionary resources of the SBA fully drawn would still leave moderate debt service ratios.

- Performance criteria and benchmarks:
  - Performance criteria for end-June 2018 and indicative targets for end-September 2018 proposed.
  - Staff proposes modification to QPC for overall balance of the public sector for end-December 2017 to reflect higher than expected outcomes.
  - Staff proposes modification of structural benchmark for submission to Parliament of revised BOJ Act for October 2018 to allow stakeholder consultations.

- Safeguards:
  - Updated safeguards assessment of the BOJ completed in May 2017 found a relatively strong safeguards framework; actions to address remaining priority recommendations underway.

### STAFF APPRAISAL AND POLICY RECOMMENDATIONS
- Program assessment:
  - After more than 4 years of reforms, Jamaica’s program implementation remains exemplary.
  - All quantitative conditions and structural benchmarks met; reform plan broadly on schedule.

- Fiscal priorities:
  - Public-sector wage bill remains high and crowds out other spending.
  - Need to right-size public sector, control wages and allowances, and create space for growth-enhancing public spending.
  - Transform public sector via pay-structure overhaul, streamlining allowances, modernizing pension system, rolling out early retirement, and advancing procurement reforms.

- Monetary policy anchor and FX policy:
  - Move to inflation targeting requires making price stability the anchor alongside a flexible, market-determined exchange rate.
  - Maintain accommodative monetary stance with loosening bias if weak growth persists and downside inflation risks materialize.
  - Improve monetary toolkit, BOJ communications, and BOJ balance sheet.
  - Retain the MCP relating to the multiple price foreign currency auction for twelve months from decision date; staff recommends retention because the measure is temporary and does not: (i) materially impede Jamaica’s BOP adjustment; (ii) harm the interests of other members; (iii) discriminate among members.
  - Reserve-use discipline: resist pressure to use accumulated reserves to counter healthy two-way currency movements; reserve FX sales for smoothing excessive volatility; gradually reduce reliance on FX surrender requirements and support reserve accumulation via FX buy auctions.

- Financial sector stability:
  - Implement Special Resolution Regime; continue reforms to address balance sheet risks in securities dealers.
  - Carefully assess changes to investment limits for nonbank institutions via institution-by-institution assessment and ensure macroprudential regulations before relaxing limits.

- Staff recommendation:
  - Staff recommends approval of the authorities’ request for completion of the second review of the Stand-By Arrangement, approval of the retention of the MCP, and the proposed establishment and modification of performance criteria.

### BOX 1 — ALLOWANCES IN CENTRAL GOVERNMENT WAGE BILL: KEY FINDINGS
- Allowances make up one-third of compensation and total over 3 percent of GDP.
- At least 174 different types of allowances exist.
- Across government employees, allowances can make up between 7 and about 55 percent of total compensation.
- Compensation allowances total 2 percent of GDP and a further 1 percent of GDP is disbursed each year for travel allowances.
- Example disparities:
  - Housing allowance: legal and judiciary services average over J$2 million per person; eligible central government employees average about J$94,000 per person.
- Cost drivers:
  - Costliest allowances are either small allowances received by large numbers (e.g., book and software allowances for teachers; housing and overtime allowances for security personnel) or large per-person allowances for few people (e.g., overtime allowances for health).
  - Last wage round example: teachers received a 50 percent increase in book, software and special teacher allowances that added 0.2 percent of GDP per year to the budget.

- Top 10 allowances by group (selected figures):
  - Central Govt - Travelling Allowance: 0.63% of GDP
  - Teachers - Special Teacher: 0.25% of GDP
  - Security - Housing: 0.22% of GDP
  - Health - Emergency Duty Allowance: 0.20% of GDP
  - Health - Acting Allowance: 0.18% of GDP
  - Health - Sessional Rates: 0.16% of GDP
  - Teachers - Book & Software: 0.15% of GDP
  - Security - Overtime: 0.14% of GDP
  - Health - Travelling Allowance: 0.11% of GDP
  - Security - Travelling Allowance: 0.08% of GDP
  - Other: 1.05% of GDP

- Central Government total employment costs (percent of GDP):
  - Wages, 7.5
  - Allowances in compensation, 2.1
  - Employer contribution, 0.6
  - Travel allowances (in Programmes), 1
  - Pension costs (in programmes), 1.7

### FINANCIAL SECTOR BALANCE SHEET RISKS (BOX 3 — HIGHLIGHTS)
- External positions and NIIP:
  - NIIP series presented with axis labels from -250 to 100 (in percent of GDP) for annual observations 2011/12–2016/17.
  - Figure categories: Direct investment, Portfolio investment, Other investment, Reserve assets, External public debt, and NIIP.

- Banks’ FX risk exposure:
  - Banking sector assets/liabilities panel uses axis 0–45 (in percent of GDP).
  - Text conclusion: "Banks’ balance sheets appear robust to FX risks."

- Non-bank financial institutions and CIFs:
  - Non-loan private sector investment axis: 0, 2, 4, 6, 8, 10, 12 (in percent of GDP).
  - Estimated CIF asset distribution axis: 0, 5, 10, 15, 20, 25, 30, 35 (in percent of managed assets).
  - Headline: "... but non-bank financial institutions are also large ...with sizeable FX investments."
  - Sources: BOJ, company filings and staff calculations.

- Cross-border and inter-group financing; CIFs contagion risk:
  - Panels include Securities Dealers' net financing (in J$ billions) and Financial Sector Assets (in percent of GDP) for 2011–2016.
  - Conclusions emphasize interconnected exposures across banks, securities dealers, CIF families, pension funds, insurers, and other non-bank financial institutions that create channels for potential contagion.

### QUANTITATIVE FISCAL, MONETARY, AND PROGRAM TARGETS (SELECTED)
- Primary balance of the central government (floor) — values shown in program table (preserved as in source): 135.9 15.0 30.6 37.0 59.0 59.0 132.0 18.0 40.0
- Overall balance of the public sector (floor) — values shown: 3/-17.2 32.8 -39.2 -48.1 5.6 -36.9 -59.3 -44.3 -14.8 -25.0 -30.0
- Tax revenues of the central government (floor) 3/: 440.0 458.3 100.0 117.1 215.0 328.0 328.0 473.0 110.0 230.0
- Stock of non-borrowed net international reserves (floor), in millions of U.S. dollars: 1,475 1,936 1,521 1,522 1,820 1,637 1,777 1,777 1,917 1,978 2,097
- Monetary policy consultation clause (in percent) — inflation bands (selected entries preserved):
  - Upper band: 9.0 9.0 8.5 9.0 8.5 7.5 7.5 7.5
  - Center inflation target: 5.5 4.1 5.5 4.4 5.0 5.5 5.0 5.0 5.0 5.0
  - Lower band: 2.0 2.0 1.5 2.0 1.5 2.5 2.5 2.5

- Program exchange rates (End-August, 2016):
  - Jamaican dollar to the US dollar 127.57
  - Jamaican dollar to the SDR 178.07
  - Jamaican dollar to the Euro 144.50
  - Jamaican dollar to the Canadian dollar 98.73
  - Jamaican dollar to the British pound 167.23

- CAP repayment schedule (cumulative repayment flows to central government from beginning of each fiscal year, US$ millions):
  - end-March 2017: -1.0
  - end-June 2017: 0.00
  - end-December 2017: 7.96
  - end-June 2018: 7.46
  - end-December 2018: 14.68
  - end-June 2019: 6.99

### REPORTING, MONITORING, AND DATA REQUIREMENTS
- Daily reporting: NIR; nominal exchange rates; BOJ repo rates; total currency issued; BOJ deposits; outstanding foreign currency CDs by maturity; required/excess reserves; total liquidity assistance; overnight interest rates; GOJ bond yields; BOJ FX purchases/sales by transaction type; open market operations data; amounts offered/demanded/placed in government auctions; daily foreign currency GOJ debt payments.
- Weekly reporting: balance sheets of core securities dealers (coverage ≥70 percent of market), liquidity indicators, capital positions, funding details; deposits and currency in circulation.
- Monthly reporting: central government operations, public entities’ statements, central government debt amortization and repayments, balances of Consolidated Fund, stock of domestic debt and arrears, tax refund arrears, social protection spending, debt stock by currency and creditor, maturity structure of government debt, BOJ balance sheet within three weeks, monetary accounts, BOJ profits, deposits breakdown, average monthly interest rates, financial statements of core SDs and insurance companies, FSIs, imports/exports, tourism indicators, remittance flows, CPI and sub-components, PetroCaribe Fund balance sheet, user-funded PPPs loan data.
- Quarterly reporting: holdings of government bonds by holder category; use of PetroCaribe Fund; stock of self-financed public entities non-guaranteed debt; balance of payments summary; GDP growth by sector; updated macro assumptions and programme indicators; BOJ Quarterly Financial Stability Report; quarterly income statements for deposit-taking institutions; securities dealer and insurance sector summaries; capital adequacy and profitability ratios.

### POVERTY, SOCIAL, AND GROWTH NOTES
- Poverty and labor:
  - Jamaica’s poverty rate in 2015 was 21.2 percent, an increase relative to 2014 by 1.2 percentage points.
  - Rural poverty increased from 24.9 percent to 28.5 percent between 2014 and 2015; city and town poverty fell by 1½ percent from 2014 to 2015.
  - Severe drought in 2014-15 contributed to contraction in agricultural output by 0.6 percent over two years and contraction in agricultural employment by over 3 percent in 2015.
  - Construction, BPO, and hotel industry expansion facilitated decline in unemployment and poverty in urban areas.

- Government social measures:
  - FY17/18 budget included nearly 50 percent increase in social spending for PATH and the school feeding program.
  - PATH graduation program to allocate resources to the most needy families and provide training to facilitate exit from social assistance.
  - Implementation of new contributory pension scheme scheduled for April 2018.

### PROGRAM OUTLOOK AND STAFF CONCLUSIONS
- Program assessment:
  - All QPCs for end-June 2017 and all structural benchmarks up to September 2017 met.
  - NIR healthy and less reliant on borrowed FX; inflation and current account deficit at low single digits; financial system sound.
  - Growth outlook: temporary setback from 0.1 percent contraction in June 2017 quarter due to adverse weather; economy projected to expand by 1.7 percent in fiscal year 2017/18 and to approach 3 percent over the medium term.
  - Labor market: unemployment fell to 12.2 percent as at April 2017; record high employment level as at April 2017.

- Staff recommendation:
  - Approval of authorities’ request for completion of the second review of the Stand-By Arrangement; approval of retention of the MCP; approval of proposed establishment and modification of performance criteria.

*IMF staff report: Jamaica — Revision to the medium-term inflation target and related policy measures (content unit).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### IMPROVING MACROECONOMIC FUNDAMENTALS

- Real GDP growth reached 1.3 percent in FY16/17; June quarter recorded a small GDP contraction of 0.1 percent, y/y (0.8 percent growth, q/q, SA).
- Growth dynamics:
  - Strong performance in manufacturing, housing construction, and hotels and restaurants.
  - Drags from mining and agriculture (including beet armyworm infestation and floods).
  - Employment at an all-time high; labor force participation rising; unemployment rate at a 7-year low (12.2 percent in April 2017).
  - Growth forecast for FY17/18 revised down from 2.1 to 1.6 percent; negative output gap estimated to have widened.
  - Medium-term outlook described as strong as reforms support higher investment and productivity.

- Inflation:
  - Core and headline inflation were 2.5 and 4.4 percent y/y, respectively, in August (one-off water and electricity tariff hikes and food price increases from floods noted).
  - Inflation expected to be 4.5 percent by end-FY17/18.
  - Balance of risks skewed toward lower inflation.

- External sector and reserves:
  - FY16/17 current account deficit widened slightly to 2.5 percent of GDP due to imports (cars and machinery, construction-related manufactured goods, fuel).
  - Non-borrowed net international reserves (NIR) stood at US$1.8 billion at end-June, about US$300 million above the program performance criterion.
  - Gross reserves at 81 percent of the IMF’s reserve adequacy metric.
  - REER and NEER depreciated by 0.2 and 2.8 percent y/y, respectively, in July.
  - Appreciation of J$/US$ during the June quarter mostly reversed in September.

- Capital markets:
  - In August, the GOJ reopened 2028 and 2045 global bonds at yield-to-maturity of 5.0 and 6.45 percent, respectively.
  - US$1 billion proceeds used for buyback of international and domestic US$ bonds maturing in 2019–2025, improving the refinancing profile.

- Monetary and financial conditions:
  - BOJ cut the overnight policy rate by 25bps to 3.5 percent in August; switched official policy rate from 30-day CD to the overnight rate on July 1.
  - Term structure of interest rates fell; interbank rates modestly lower.
  - Credit expanded by 18 percent in FY16/17—11 percent excluding a single large corporate acquisition loan—with growth in personal and business loans.
  - Non-performing loans at 3.5 percent of total loans.
  - Banking sector described as provisioned sufficiently and well-capitalized.

- Key program risks and ownership:
  - Risks include continued growth setbacks, high crime, public anxiety about a flexible exchange rate, and pressures on reform ownership.
  - Potential for policy reversal or erosion of social support for structural reforms if dividends (growth, jobs, security) are not evident.
  - Risk of demands to use BOJ reserves to resist two-way currency movements.
  - Ongoing wage negotiations and need to rationalize public sector employment could create tensions.

### A STRONG PROGRAM PERFORMANCE

- Program implementation:
  - All quantitative performance criteria for end-June 2017 were met.
  - Tax revenues over-performed, enabling central government primary balance and overall public sector balance for Q1 FY17/18 to exceed program targets.
  - Social spending significantly exceeded the program floor.
  - End-June inflation within the target band.
  - Non-borrowed NIR was US$298 million above the end-June target.

- Structural reform progress (through end-September):
  - 15 benchmarks were met, including:
    - Establishing the financial inclusion council.
    - Strengthening oversight of securities dealers.
    - Advancing reforms to crisis resolution framework and BOJ governance.
    - Reviewing/proposing public sector employment rules (merit increases, hiring, promotion, exit).
    - Improving management of public bodies.
  - Progress also in tax administration, public financial management, financial oversight, and implementing a system of competitive FX auctions.

- Selected quantitative outcomes reported for end-June 2017 (as presented in program monitoring table):
  - Primary balance of the central government (floor): PC Adjusted 15.0; end-June Actual 30.6; Difference 15.6 — Met.
  - Overall balance of the public sector (floor): PC Adjusted -39.2; end-June Actual -48.1; Difference -8.9? (table shows 5.6 and 53.7 under columns — preserve table entries as shown in source) — Met.
  - Net increase in central government guaranteed debt (ceiling): PC Adjusted 0.0; end-June Actual -2.5; Difference 2.5 — Met.
  - Central government accumulation of domestic arrears (ceiling): PC Adjusted 0.0-0.9; end-June Actual 0.9 — Met.
  - Central government accumulation of tax refund arrears (ceiling): PC Adjusted 0.0; end-June Actual -8.4; Difference 8.4 — Met.
  - Accumulation of external debt payment arrears (ceiling): PC Adjusted 0.0; end-June Actual 0.0 — Met.
  - Tax revenues of the central government (floor): PC Adjusted 100.0; end-June Actual 117.1; Difference 17.1 — Met.
  - Change in stock of public bodies non-guaranteed debt (ceiling): PC Adjusted 2.5; end-June Actual 11.4; Difference 0.1 — Met.
  - Central government spending on social programs (floor): PC Adjusted 6.1; end-June Actual 8.9; Difference 2.8 — Met.
  - Total loan value of all user funded PPPs (ceiling, percent of GDP): PC Adjusted 3.0; end-June Actual 0.9; Difference 2.1 — Met.
  - Stock of non-borrowed NIR (floor), in millions of U.S. dollars: PC Adjusted 1,521; end-June Actual 1,522; Actual reported 1,820; Difference 298.1 — Met.
  - Monetary policy consultation clause (in percent): Upper band 9.0; Center inflation target 5.5; Actual 4.4; Lower band 2.0 — Met.
  - Notes: 1/ Targets as defined in TMU; 2/ Based on program exchange rates defined in the TMU; other TMU definitions and measurement notes included in the program tables.

### ENTRENCHING FISCAL SUSTAINABILITY

A. Maintaining Fiscal Discipline

- FY17/18 supplementary budget:
  - Supplementary budget submitted in September envisages higher revenues of J$5.4 billion.
  - Higher revenue reflects stronger than expected corporate income tax, travel tax, and transfers from public bodies.
  - More than half of the higher revenues to be deployed to security spending.
  - Additional spending and reallocations to cover flood repairs, settlement of some arrears, funding for public sector early retirement program, and a new training program for vulnerable youths (HOPE).
  - Additional J$2bn required by local authorities to offset property taxes roll-back after budget approval is covered.

- Wage bill and public sector size:
  - Current wage negotiation round (covering FY17/18 and FY18/19) aims to reduce the wage bill to 9 percent of GDP by FY18/19; no agreement yet reached.
  - Authorities intensifying efforts to conclude negotiations.
  - Allowance system described as large, complex, unequal, and non-transparent (see Box 1 in source); has generated inequities across public employee groups.
  - Recommendation to structurally simplify and make allowances equitable.
  - Need to rethink size and composition of workforce, redesign public sector pay scales to retain skilled employees and reward performance.
  - Goal to rebalance public spending from wages toward health, education, security, and capital spending.
  - Government to complete a new compensation philosophy and structure by January 2019.

- Revenue base protection:
  - 2013 reforms curtailed sector and firm-specific tax incentives and halved Jamaica’s tax expenditures.
  - Prescription to avoid discretionary tax incentives or waivers; focus on equitable, broad-based tax system as envisaged in 2013 Omnibus Legislation.
  - Protecting revenue from potential leakages from Special Economic Zones (SEZ) requires clear regulations and procedures ensuring coordination between SEZ authority and revenue collection agencies — to be completed by early-2018.

B. Advancing Critical Public Sector Reforms

- Pension reform and early retirement:
  - Public pension reform bill passed in October.
  - Key reforms: mandatory public employee contribution, lower benefits accrual rate, less generous commutation benefit.
  - Passage paves way for IDB-supported early retirement program for public employees.
  - All technical work to roll-out early retirement program should be finalized without delay.
  - Program parameters should be calibrated to maximize downward impact on public-sector wage bill (including replacing only a fraction of retirees).

- Public bodies reforms:
  - Reforms aim to enhance efficiency, service delivery, oversight, and accountability through closure, merger, or divestment of public bodies.
  - First wave experience highlighted need to enhance capacity of public sector transformation implementation unit and to begin human resources “change management” early.
  - Auditor General to undertake analytical reviews for National Health Fund, Clarendon Alumina Production, and Urban Development Corporation by end-March 2018 to assess potential fiscal risks.

### MODERNIZING THE MONETARY FRAMEWORK

- Monetary policy actions and framework adjustments documented in text:
  - BOJ switched official policy rate from 30-day CD to overnight rate on July 1; cut overnight policy rate by 25bps to 3.5 percent in August.
  - Central bank cautiously lowering policy rates in response to modestly weaker growth and low inflation.
  - Ongoing need to improve central bank governance and operational framework noted in discussions (focus of the review included BOJ governance and operational framework improvements).

*International Monetary Fund. Discussions took place in Kingston during September 6–15, 2017; staff recommends completion of the second review based on continued strong program implementation and reform commitments.*

### 14. Revision to the medium-term inflation target. To entrench the lower prevailing and

### Revision to the medium-term inflation target. To entrench the lower prevailing and

### Revision to inflation framework
- Inflation target revised from 5.5 percent to 5.0 percent.
- The BOJ has extended its inflation target horizon from a fiscal year to a medium-term target.
- The new medium-term inflation target has a band of ±1 percent.
- Rationale: the lower target reflects the recent success in lowering inflation and anchoring inflation expectations.

### Monetary stance and inflation outlook
- An accommodative monetary stance is warranted given downside risks to growth and inflation, absence of fiscal space, widened output gap, and subdued core inflation.
- Current overnight policy rate: 3.5 percent.
- Staff estimate (absent further growth setbacks or negative shocks to inflation): the current overnight policy rate (of 3.5 percent) should result in an inflation of 4.5 percent by end FY17/18.
- There is scope to lower the policy rate further should downside risks materialize.

### BOJ policy toolkit and communication
- Toolkit upgrades while transitioning to inflation targeting to strengthen policy signaling and transmission:
  - Moved the policy rate to the overnight lending rate (from the 30-day CD rate).
  - Narrowed the interest rate corridor so that the standing liquidity facility repo is set at 300 bps above the policy rate.
  - Introduced competitive, multiple-price FX sale auctions (the “BOJ’s Foreign Exchange Intervention and Trading Tool” or B-FXITT) to enhance price-discovery and deepen the interbank FX market.
- Planned communication enhancements:
  - Establishing a pre-announced calendar for the BOJ’s monetary policy decisions.
  - Clearer public communication of policy decisions.

### Exchange rate flexibility and FX market development
- Maintaining exchange rate flexibility is critical to successful move toward inflation targeting.
- FX sales policy:
  - BOJ committed to undertake FX sales only sparingly through existing FX auction mechanism and to limit sales to periods of excessive market volatility and disorderly market conditions.
- Market signaling measures:
  - BOJ begun announcing a mid-day market rate to use in its own non-auction FX transactions with public entities and the market.
  - BOJ will issue upgraded market directives for FX auction operations to allow both buy and sell reserves as needed through FX auctions at market-determined rates.
  - Strengthening BOJ market oversight, particularly on FX net open positions for authorized FX dealers.
- FX surrender requirement:
  - BOJ plans to reduce the FX surrender requirement by 5 percentage points before end-2017.
  - Further reductions will be reviewed every three months, taking into account market development and reserve accumulation needs.
- Transition objective:
  - Gradually transition public entities toward purchasing their FX through the market rather than bilaterally from the BOJ; BOJ to increasingly accumulate reserves through buy auctions rather than surrender requirements.

### BOJ operational autonomy, governance, and solvency reforms
- A proposal on revisions to the BOJ Act was submitted to Cabinet in August (proposal in line with IMF TA recommendations).
- Governance reforms include:
  - Clarifying that the BOJ’s primary objective is price stability.
  - Strengthening the BOJ’s financial, personal, operational, and institutional independence and accountability.
  - Identifying an effective Board decision-making structure, with clear roles and responsibilities.
  - Recapitalizing the central bank to address the currently weak balance sheet of the BOJ by injecting new capital through the issuance of government liabilities to offset accumulated losses and provide a capital buffer in line with international best practice.
- Timeline: revised BOJ Act expected to be submitted to Parliament by end-October 2018 (proposed modified structural benchmark).

### Financial sector resilience and crisis resolution
- Special Resolution Regime:
  - Authorities submitted proposals to Cabinet in July to introduce a Special Resolution Regime for failing/non-viable financial institutions; seeks public money only as a last resort.
  - Next steps: introduce a modified insolvency framework for financial institutions; parliamentary submission of the legislation expected by January 2019; industry consultations to begin on modalities for funding the resolution framework.
- Securities dealers:
  - As of May 2017, all securities dealers (SDs) are compliant with the Master Retail Repo Agreements.
  - Remaining balance sheet risks being addressed by deciding on a systemically safe level of retail repos and regulating the retail repo leverage ratio.
  - Work underway toward developing a liquidity ratio for the SDs.
- Investment limits and pension funds:
  - Government beginning review of existing investment limits for non-bank financial institutions, starting with pension funds.
  - Aim to deploy a larger share of private sector capital toward a broader range of domestic assets and loosen restrictions on international diversification, subject to resolving regulatory capacity constraints and ensuring appropriate investment regulations, risk management guidelines, and supervisory arrangements.

### AML/CFT and FX debt vulnerabilities
- AML/CFT:
  - Authorities intend to fully address AML/CFT deficiencies identified in the recent CFATF Mutual Evaluation Report.
  - Progress required on enhancing oversight of money services businesses and implementing preventive measures and risk-based AML/CFT supervision before the next CFATF progress report due in May 2018.
- FX debt and market development:
  - Despite the August 2017 external bond issuance at historically low yields, growing FX debt exposure creates vulnerabilities.
  - Government committed to accelerating development and implementation of the domestic J$ debt-market to lessen dollarization of public liabilities and increase secondary market liquidity.
  - Ministry of Finance coordinating closely with the BOJ and the Accountant General’s Department.

### Growth agenda and data standards
- Growth-focused reforms prioritized on key structural bottlenecks due to capacity constraints and need for high-yield interventions.
- Divestment plans:
  - Plans submitted to Cabinet to divest up to 20 percent of the assets owned by the Urban Development Corporation and the Factories Corporation of Jamaica.
- Public sector and procurement reforms:
  - Authorities committed to accelerating reforms to upgrade the Procurement Act and associated handbook to improve the timeliness and execution of growth-enhancing public spending and to enhance the ease of the development approval process.
  - Reforms to the legislative framework for cooperatives and micro-credit to foster financial inclusion should proceed without further delay.
- Statistics and data:
  - Progress towards subscribing to SDDS continues, supported by an IMF general government statistics mission scheduled for October 2017.
  - The rebasing of GDP to 2014, transition to SNA 2008, and new supply-and-use tables have been delayed to 2019.
  - Authorities working on a restructuring plan to boost STATIN’s technical resources.

### Program financing, monitoring, and safeguards
- Program financing:
  - Program remains fully financed and staff considers Jamaica’s capacity to repay the Fund to be adequate.
  - Even in a downside scenario where the precautionary resources of the SBA were fully drawn, debt service ratios would be moderate.
- Performance criteria and benchmarks:
  - Performance criteria for end-June 2018 and indicative targets for end-September 2018 are proposed.
  - Staff proposes modification to the QPC for the overall balance of the public sector for end-December 2017 to reflect higher than expected outcomes.
  - Staff proposes modification of the structural benchmark for submission to Parliament of the revised BOJ Act for October 2018 to allow stakeholder consultations.
- Safeguards:
  - Updated safeguards assessment of the BOJ completed in May 2017 found a relatively strong safeguards framework in place; actions to address remaining priority recommendations are underway.

### Staff appraisal and policy recommendations
- Program implementation:
  - After more than 4 years of difficult economic reforms, Jamaica’s program implementation remains exemplary.
  - All quantitative conditions and structural benchmarks were met; reform plan broadly on schedule.
- Growth and vulnerability assessment:
  - Employment is rising, unemployment falling, and economic activity robust, but vulnerability to weather poses growth risks.
  - Inflation and the current account deficit remain subdued.
- Fiscal priorities:
  - Public-sector wage bill remains high and crowds out other spending.
  - Need to right-size the large and inefficient public sector, better control wages and allowances, and create space for growth-enhancing public spending on safety nets, citizen security and capital projects.
  - Transforming the public sector through pay-structure overhaul, streamlining allowances, modernizing pension system, rolling out early retirement, and advancing procurement reforms is critical.
- Monetary policy anchor and FX policy:
  - Move to inflation targeting requires making price stability the anchor for monetary policy alongside a flexible, market-determined exchange rate.
  - Maintain accommodative monetary stance with loosening bias should weak growth persist and downside inflation risks materialize.
  - Ongoing improvements to monetary toolkit, improved BOJ communications, and a strong BOJ balance sheet will help anchor expectations.
  - Support retention of the MCP relating to the multiple price foreign currency auction for twelve months from decision date; staff recommends retention because the measure is temporary and does not: (i) materially impede Jamaica’s BOP adjustment; (ii) harm the interests of other members; (iii) discriminate among members.
  - Reserve-use discipline: resist pressure to use accumulated reserves to counter healthy two-way currency movements; reserve FX sales for smoothing excessive volatility; gradually reduce reliance on FX surrender requirements and support reserve accumulation increasingly via FX buy auctions.
- Financial sector stability:
  - Implement Special Resolution Regime to enhance system safety net and minimize public exposure.
  - Continue reforms to address balance sheet risks in securities dealers.
  - Carefully assess changes to investment limits for nonbank institutions, starting with pension funds, via institution-by-institution assessment of FX and domestic currency exposures and ensure macroprudential regulations are in place before relaxing limits.
- Staff recommendation:
  - Staff recommends approval of the authorities’ request for completion of the second review of the Stand-By Arrangement, approval of the retention of the MCP, and the proposed establishment and modification of performance criteria.

### Box 1 — Allowances in Central Government Wage Bill: key findings
- Allowances make up one-third of compensation and total over 3 percent of GDP.
- There currently exist at least 174 different types of allowances.
- Across government employees, allowances can make up between 7 and about 55 percent of total compensation.
- Compensation allowances total 2 percent of GDP and a further 1 percent of GDP is disbursed each year for travel allowances.
- Examples of disparities:
  - Housing allowance: legal and judiciary services average over J$2 million per person; eligible central government employees average about J$94,000 per person.
- Cost drivers and examples:
  - Costliest allowances are either (i) small allowances received by large numbers of employees (e.g., book and software allowances for teachers; housing and overtime allowances for security personnel) or (ii) allowances received by few people with large amounts per person (e.g., overtime allowances for health).
  - Last wage round example: teachers received a 50 percent increase in book, software and special teacher allowances that added 0.2 percent of GDP per year to the budget.
- Top 10 allowances by group (selected figures):
  - Central Govt - Travelling Allowance: 0.63% of GDP
  - Teachers - Special Teacher: 0.25% of GDP
  - Security - Housing: 0.22% of GDP
  - Health - Emergency Duty Allowance: 0.20% of GDP
  - Health - Acting Allowance: 0.18% of GDP
  - Health - Sessional Rates: 0.16% of GDP
  - Teachers - Book & Software: 0.15% of GDP
  - Security - Overtime: 0.14% of GDP
  - Health - Travelling Allowance: 0.11% of GDP
  - Security - Travelling Allowance: 0.08% of GDP
  - Other: 1.05% of GDP

*IMF staff report: Jamaica — Revision to the medium-term inflation target and related policy measures (content unit).*

### Box 1. Allowances in Central Government Wage Bill (Concluded)

### Box 1. Allowances in Central Government Wage Bill (Concluded)

### Overview
- Total cost of public employment includes a complex system of allowances.
- There are at least 174 allowances distributed across all groups.
- Allowances represent more than one-half of total compensation for some groups.
- The dispersion across groups is sizable, and even within one category of allowances, the amounts vary wildly across different types of public employees.

### Key statistics (Central Government total employment costs, percent of GDP)
- Wages, 7.5
- Allowances in compensation, 2.1
- Employer contribution, 0.6
- Travel allowances (in Programmes), 1
- Pension costs (in programmes), 1.7

### Structure and distribution of allowances
- The high costs to GOJ come from both large amounts paid to small groups and small amounts that are widely available.
- Allowances received by all groups are shown as amount per eligible person (J$'000), with categories including:
  - Acting
  - Housing
  - Seniority
  - Duty
  - Emergency Duty
  - Overtime
  - Sessional
  - Overtime Allowances
- Allowance types summarized by functional grouping:
  - Additional pay
  - Condition of service
  - Overtime
  - Reimbursable
  - Salary Related
  - Travel
- Visualization cues in the source emphasize:
  - How many people receive each allowance?
  - Allowances: (i) how many receive them?, (ii) how much per person and (iii) how much do they cost?
  - Size of marker = total cost to GOJ

### Dispersion across groups (categories appearing in source)
- Groups shown include:
  - Central Govt
  - Health Sector
  - Security
  - Library Aides
  - Parish Council
  - Correctional Services
  - Executive Agency
  - Teachers
  - Legal and Judiciary
  - Fire Brigade
- Metrics illustrated in source:
  - Allowances as % of total Compensation (Central Gov excluded travel; average and group-specific bars)
  - Number of Allowances per Group
  - Amount per person, J$ Millions (scale shown from 0 to 3)
  - J$'000 per person for specific allowance types (scale up to 3,000)

### Analytical questions highlighted
- How many receive each allowance?
- How much does each allowance pay per person?
- How much does each allowance cost in total to the GOJ?

*Source: Box 1. Allowances in Central Government Wage Bill (Concluded), cr17329-jamaica*

### Box 3. A Snapshot of Jamaica’s Financial Sector Balance Sheet Risks (Concluded)

### Box 3. A Snapshot of Jamaica’s Financial Sector Balance Sheet Risks (Concluded)

### External positions and NIIP
- Jamaica’s NIIP series in the figures shows a path of foreign assets and liabilities with panel scales labeled from -250 to 100 (in percent of GDP) and annual observations for 2011/12–2016/17.
- Chart title: "Jamaica's foreign assets and liabilities (in percent of GDP)"; data categories shown include Direct investment, Portfolio investment, Other investment, Reserve assets, External public debt, and NIIP.
- Figure captions attribute underlying data to "IMF staff calculations."

### Banks’ FX risk exposure and balance sheet robustness
- Panel title: "Banking Sector Assets and Liabilities, FY 2016/17 Average (in percent of GDP)" with axis scale 0–45 and breakdowns by Assets (of which Loans, of which Investment) and Liabilities (of which Deposits); bars distinguished by Foreign Currency / Local Currency.
- Text conclusion: "Banks’ balance sheets appear robust to FX risks." (as presented in the Box)

### Non-bank financial institutions and FX investments
- Headline: "... but non-bank financial institutions are also large ...with sizeable FX investments."
- Panel title: "Non-loan private sector investment (in percent of GDP)" with axis 0–12 and series labeled Banks, Securities Dealers, Largest CIF Family.
- Another panel: "Estimated asset distribution for largest family of CIFs (in percent of managed assets)" with asset categories including Real Estate, GOJ, Corporate bonds, Domestic Equity, Other CIFs, Money Market, Global Equity; axis markers shown 0–35 (in percent of managed assets).
- Figures sourced to "BOJ, company filings and staff calculations."

### Cross-border and inter-group financing; CIFs contagion risk
- Headline: "...and significant cross-border and inter-group financing...  ... and there are potential contagion loops from CIFs."
- Panel: "Securities Dealers' net financing (in J$ billions)" shows net funding from (-ve) / to (+ve) and net funding position with own group, with axis scales and time series covering 2011–2016.
- Panel: "Financial Sector Assets (in percent of GDP)" presents time series for Bank assets, Securities dealer's assets, Pension fund assets, Insurance assets, Credit union's assets, Collective investment funds (rhs) for years 2011–2016.
- Conclusions drawn in the Box emphasize interconnected exposures across banks, securities dealers, CIF families, pension funds, insurers, and other non-bank financial institutions that create channels for potential contagion.

### Key labels and data contexts preserved from figures
- Fiscal year reference: "FY 2016/17 Average" used for banking sector balance-sheet breakdowns.
- Monetary and balance-sheet scales shown in figures:
  - Banking sector assets/liabilities axis: 0, 5, 10, 15, 20, 25, 30, 35, 40, 45 (in percent of GDP).
  - Non-loan private sector investment axis: 0, 2, 4, 6, 8, 10, 12 (in percent of GDP).
  - Estimated CIF asset distribution axis: 0, 5, 10, 15, 20, 25, 30, 35 (in percent of managed assets).
  - NIIP axis: -250, -200, -150, -100, -50, 0, 50, 100 (in percent of GDP).
  - Securities dealers’ net financing axis and financial sector assets panels include scales and time series in J$ billions and percent of GDP, respectively, with year markers covering 2011–2016.
- Figure source notes (verbatim where shown): "Sources: BOJ and staff calculations"; "Sources: BOJ, company filings and staff calculations"; "Sources: BOJ Financial Stability Report, company filings and staff calculations"; "Sources: BOJ Financial Stability Reports; staff calculations."

*Sources: BOJ and staff calculations; company filings and staff calculations (as shown in the figures).*

### 1. Primary balance of the central government (floor) 3/123.0

### 1. Primary balance of the central government (floor) 3/123.0

### Fiscal performance and quantitative fiscal targets
- Primary balance of the central government (floor):  
  135.9 15.0 30.6 37.0 59.0 59.0 132.0 18.0 40.0
- Overall balance of the public sector (floor):  
  3/-17.2 32.8 -39.2 -48.1 5.6 -36.9 -59.3 -44.3 -14.8 -25.0 -30.0
- Net increase in the central government guaranteed debt (ceiling):  
  3/ 0.0 -8.3 0.0 -2.5 0.0 0.0 0.0 0.0 0.0 0.0
- Central government accumulation of domestic arrears (ceiling):  
  4/ 10/ 0.0 0.0 0.0 -0.9 0.0 0.0 0.0 0.0 0.0 0.0
- Central government accumulation of tax refund arrears (ceiling):  
  5/ 10/ 0.0 -7.8 0.0 -8.4 0.0 0.0 0.0 0.0 0.0 0.0
- Accumulation of external debt payment arrears (ceiling):  
  4/ 9/ 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

### Indicative fiscal and public-sector targets
- Tax revenues of the central government (floor) 3/:  
  440.0 458.3 100.0 117.1 215.0 328.0 328.0 473.0 110.0 230.0
- Change in the stock of public bodies non-guaranteed debt (ceiling) 11/3.3:  
  0.6 2.5 11.4 0.1 2.0 3.5 3.5 11.5 13.0 15.0
- Central government spending on social programs (floor) 3/7/24.3:  
  27.8 6.1 8.9 11.2 18.3 18.3 26.6 6.4 11.9
- Total loan value of all user funded PPPs (ceiling, percent of GDP):  
  3.0 0.7 3.0 0.9 3.0 3.0 3.0 3.0 3.0 3.0

### Monetary targets and operational parameters
- Stock of non-borrowed net international reserves (floor) 6/ 8/ (in millions of U.S. dollars):  
  1,475 1,936 1,521 1,522 1,820 1,637 1,777 1,777 1,917 1,978 2,097
- Monetary policy consultation clause (in percent):  
  Upper band: 9.0 9.0 8.5 9.0 8.5 7.5 7.5 7.5  
  Center inflation target: 5.5 4.1 5.5 4.4 5.0 5.5 5.0 5.0 5.0 5.0  
  Lower band: 2.0 2.0 1.5 2.0 1.5 2.5 2.5 2.5

- Notes on target definitions and measurement conventions included in TMU:
  - 1/ Targets as defined in the Technical Memorandum of Understanding (TMU).
  - 2/ Based on program exchange rates defined in the TMU.
  - 3/ Cumulative flows from April 1 through March 31.
  - 4/ Includes debt payments, supplies and other committed spending as per contractual obligations; full definition in TMU.
  - 5/ Includes tax refund arrears as stipulated by law.
  - 6/ In millions of U.S. dollars.
  - 7/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes (defined in TMU).
  - 8/ Stock of BOJ NIR minus all foreign currency CDs to domestic residents; full definition in TMU.
  - 9/ Continuous performance criterion.
  - 10/ The accumulation is measured against the stock at end-March 2016, which is J$21.0 billion for domestic arrears and J$17.3 billion for tax arrears.
  - 11/ For end-Dec 2016 and end-Mar 2017, these are cumulative flows from October 1, 2016. For subsequent dates, these are cumulative flows from April 1, 2017.

### Calendar reference points (selected)
- end-Mar 2018
- end-June 2017
- end-Dec [dates listed in source table]

### Fund credit and debt-service projections (excerpted figures)
- Prospective drawings (3-year SBA): 552.10321.60321.60 (in percent of quota) 144.1983.9983.99
- Amortization (total and by modality):  
  Amortization total: 11.4037.1164.8083.68449.57610.37322.93136.4228.329.440.00  
  Amortization (4-year EFF): 11.4037.1164.8083.6893.1293.1281.7356.0228.329.440.00  
  Amortization (3-year SBA) 1/: 0.000.000.000.00356.45517.25241.2080.400.0
- Interest and service charges 1/: 2.5 12.8 8.8 38.7 44.3 24.1 20.6 6.3 2.0 2.0 0.4 0.1 0.0
- GRA surcharges 1/: 0.1 59.9 21.5 47.1 8.2 11.9 24.6 6.1 8.0 0.0 0.0 0.0
- SDR charges and assessments 1/: 0.1 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
- Total debt service 1/: 16.7 96.8 101.7 127.7 249.1 416.3 513.3 329.7 138.9 29.3 10.0 7.5 0.2
  - (in percent of exports of G&S) 2/: 0.64 2.42 3.49 3.95 14.56 17.74 8.97 3.66 0.75 0.24 0.01
  - (in percent of GDP) 2/: 0.19 0.79 1.20 1.38 5.05 6.18 3.08 1.23 0.25 0.08 0.00
- Outstanding stock 1/: 1,099.4 1,383.9 1,640.7 1,557.0 1,107.4 497.1 174.1 83.7 69.4 0.0 0.0
  - (in percent of quota): 287.13 361.43 428.50 406.64 289.23 129.83 45.49 9.86 2.47 0.00 0.00
  - (in percent of GDP) 2/: 12.20 16.04 18.68 16.84 11.39 4.87 1.62 0.34 0.08 0.00 0.00
- Memorandum items: Exports of goods and services (US$ millions) 2/: 3,915.5 4,202.5 4,514.9 4,826.6 5,030.6

### Program coverage and publication
- Table and notes indicate projections and assumptions based on Fund staff estimates and TMU definitions.

### Policy commitments and program orientation (from Letter of Intent and Memorandum highlights)
- Programme arrangement: 3-year precautionary Stand-By Arrangement (SBA).
- Fiscal objective: reduce public debt to or below 60 percent of GDP by FY2025/26, consistent with the Fiscal Responsibility Law.
- Primary surplus target referenced: 7 percent of GDP primary surplus (programme goal).
- Monetary policy: maintain price stability with medium-term target range of 4–6 percent; medium-term inflation target adjusted from 5.5 percent to 5.0 percent with symmetric band of ±1 percent.
- Exchange rate policy: commitment to exchange rate flexibility; limit FX intervention to smoothing excess volatility and countering disorderly FX market conditions.
- Public sector reorganization commitments: reintegrate 8 public bodies into central government by June 2019; close/merge/divest 5 public bodies by April 2018.
- Public sector compensation reform: complete and submit new compensation policy and structure to Cabinet by January 2019; incentivize early retirement during the fiscal year.
- Central bank reform and operations: amend BOJ Act to create statutory mandate and operational autonomy; adopt overnight deposit rate as main policy rate; reduce reliance on borrowed FX reserves; introduce FX sale auctions; establish pre-announced calendar for monetary policy decisions.
- Financial sector resilience: submit legislation for a new resolution framework for financial institutions by January 2019.

*Source: IMF staff report materials and attachments as presented in the supplied content.*

### 10. To strengthen financial stability, we are committed to improving the risk management

### 10. To strengthen financial stability, we are committed to improving the risk management capabilities among pension and insurance companies, we are closely monitoring leverage among the remaining retail repo funds, and will gradually implement the “mismatch ratio” regulation for retail repos. We are also examining the feasibility of relaxing investment rules for pension funds to allow them to safely diversify their investments. We will undertake a thorough assessment of the broader macroeconomic implications of such a change, and undertake stress testing to better understand the potential financial stability risks from such a move.

### Overview
- Commitment to improve risk management capabilities among pension and insurance companies.
- Ongoing monitoring of leverage among remaining retail repo funds.
- Gradual implementation of the “mismatch ratio” regulation for retail repos.
- Examination of feasibility of relaxing investment rules for pension funds to allow safe diversification.
- Planned thorough assessment of macroeconomic implications and stress testing to evaluate financial stability risks.

### Securities dealers, retail repos, and related regulatory work
- The BOJ/FSC will continue to monitor market conditions and compliance with existing limits in foreign investment; assess readiness to lift the investment cap for CIS and SDs further, from their current level of 25 percent. (Continuous; Ongoing)
- The FSC requires all securities dealers to conduct regular stress tests and submit test results on a semi-annual basis, commencing end-June, 2017. Additionally, one stress test should be conducted using the dealer’s audited financial statements and the other using end-April data. Results to be used as feedback to risk-based supervision. (Continuous; Ongoing)
- With the goal of addressing remaining balance sheet risks in the SD industry:
  - By end-June 2017, complete a study on appropriate indicators for a systemically safe level of retail repos, including the retail repo leverage ratio (RRLR). Indicators studied will also include additional capital and/or margin requirements.
  - Goal to determine, by end-October 2017, how to implement suitable indicators. In the meantime, the FSC will continue monthly monitoring of the RRLR. (Oct-17)
- Instituting mechanisms to ensure full compliance with the provisions of the Securities (Retail Repurchase Agreement) Regulations that require "retail repos" to be governed by a MRRA that is signed by both the dealer and the client. (May-17; Yes; Completed)

### Pension funds: proposed revisions and analytical work
- Submit to Cabinet proposals for a revised investment framework for Pension Funds to include:
  - (i) investment regulations;
  - (ii) risk management guidelines;
  - (iii) supervisory arrangements;
  - (iv) data reporting requirements.
  (Jun-18)
- The authorities are examining the feasibility of relaxing investment rules for pension funds to allow them to safely diversify their investments.
- Planned actions before relaxing rules:
  - Undertake a thorough assessment of the broader macroeconomic implications of such a change.
  - Undertake stress testing to better understand potential financial stability risks from such a move.

### Studies, definitions, and complementary regulatory reforms
- The FSC to complete a study on the appropriate definition and level of the liquidity ratio. (Oct-17; On track for completion by target date)
- The FSC, in collaboration with the BOJ Supervision Department and Financial Stability Unit, will by September 2017 complete a study on the appropriate level of single and group counterparty exposure limits. Following consultation with the industry in October 2017, the guidelines, including the timeline for enforcing intermediate targets, will be finalized by end-December 2017. (Dec-17; On track for completion by target date)
- The suite of regulations for Financial Holding Companies (FHC) and consolidated supervision, including capital adequacy requirements for FHC and the form of application, will be shared with the industry by end-November 2016; drafting instructions to be prepared by end-April 2017. (Apr-17; Completed)
- Crisis resolution framework: submit to cabinet a proposal for the crisis resolution framework, based on consultation paper outcomes. (Jul-17; Yes; Completed)

### Key implementation dates and statuses (selected)
- May-17: Instituting MRRA requirement for retail repos — Yes; Completed.
- end-June, 2017 / end-June 2017: FSC semi-annual stress test submissions commence; study on retail repo indicators to be completed by end-June 2017.
- end-October 2017 / Oct-17: Goal to determine how to implement suitable retail repo indicators by end-October 2017.
- Oct-17 / Dec-17: Studies on liquidity ratio and counterparty exposure limits targeted for Oct-17 and final guidelines by end-Dec-2017 (on track).

*International Monetary Fund. Jamaica: Policy Matrix excerpt — Financial sector stability measures and related implementation timelines.*

### 1. Primary balance of the central government (floor) 3/123.0135.915.030.637.059.059.0132.018.040.0

### 1. Primary balance of the central government (floor) 3/123.0135.915.030.637.059.059.0132.018.040.0

### Quantitative performance criteria (floors and ceilings)
- 1. Primary balance of the central government (floor) 3/1
  - Values: 23.0 135.9 15.0 30.6 37.0 59.0 59.0 132.0 18.0 40.0
- 2. Overall balance of the public sector (floor) 3/
  - Values: -17.2 32.8 -39.2 -48.1 5.6 -36.9 -59.3 -44.3 -14.8 -25.0 -30.0
- 3. Net increase in the central government guaranteed debt (ceiling) 3/
  - Values: 0.0 -8.3 0.0 -2.5 0.0 0.0 0.0 0.0 0.0 0.0
- 4. Central government accumulation of domestic arrears (ceiling) 4/ 10/
  - Values: 0.0 0.0 0.0 -0.9 0.0 0.0 0.0 0.0 0.0 0.0
- 5. Central government accumulation of tax refund arrears (ceiling) 5/ 10/
  - Values: 0.0 -7.8 0.0 -8.4 0.0 0.0 0.0 0.0 0.0 0.0
- 6. Accumulation of external debt payment arrears (ceiling) 4/ 9/
  - Values: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Notes on definitions and reporting:
- 1/ Targets as defined in the Technical Memorandum of Understanding (TMU).
- 3/ Cumulative flows from April 1 through March 31.
- 4/ Includes debt payments, supplies and other committed spending as per contractual obligations; full definition in TMU.
- 5/ Includes tax refund arrears as stipulated by law.
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date.
- Adjusters: Floor of the central government primary balance adjusted for loan to Clarendon Alumina Production (CAP); floor for overall public sector balance adjusted for PetroJam performance (capped at US$35 million).

### Indicative targets
- 7. Tax revenues of the central government (floor) 3/
  - Values: 440.0 458.3 100.0 117.1 215.0 328.0 328.0 473.0 110.0 230.0
- 8. Change in the stock of public bodies non-guaranteed debt (ceiling) 11/
  - Values: 3.3 0.6 2.5 11.4 0.1 2.0 3.5 3.5 11.5 13.0 15.0
- 9. Central government spending on social programs (floor) 3/ 7/
  - Values: 24.3 27.8 6.1 8.9 11.2 18.3 18.3 26.6 6.4 11.9
- 10. Total loan value of all user funded PPPs (ceiling, percent of GDP) 3.
  - Values (percent of GDP): 3.0 0.7 3.0 0.9 3.0 3.0 3.0 3.0 3.0

Notes:
- 7/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes (defined in TMU).
- 11/ For end-Dec 2016 and end-Mar 2017, these are cumulative flows from October 1, 2016. For subsequent dates, these are cumulative flows from April 1, 2017.

### Monetary targets
- 11. Stock of non-borrowed net international reserves (floor) 6/ 8/
  - Values (in millions of U.S. dollars): 1,475 1,936 1,521 1,522 1,820 1,637 1,777 1,777 1,917 1,978 2,097
- 12. Monetary policy consultation clause (in percent)
  - Upper band: 9.0 9.0 8.5 9.0 8.5 7.5 7.5 7.5
  - Center inflation target: 5.5 4.1 5.5 4.4 5.0 5.5 5.0 5.0 5.0
  - Lower band: 2.0 2.0 1.5 2.0 1.5 2.5 2.5 2.5

Notes:
- 6/ In millions of U.S. dollars.
- 8/ Stock of BOJ NIR minus all foreign currency CDs to domestic residents; full definition in TMU.
- 9/ Continuous performance criterion.
- 10/ The accumulation is measured against the stock at end-March 2016, which is J$21.0 billion for domestic arrears and J$17.3 billion for tax arrears.

### Program exchange rates (End-August, 2016)
- Jamaican dollar to the US dollar 127.57
- Jamaican dollar to the SDR 178.07
- Jamaican dollar to the Euro 144.50
- Jamaican dollar to the Canadian dollar 98.73
- Jamaican dollar to the British pound 167.23
- 1/ Average daily selling rates at the end of August 2016

### CAP repayment schedule (Table 2)
- Cumulative repayment flows to central government from beginning of each fiscal year (US$ millions)
  - end-March 2017: -1.0
  - end-June 2017: 0.00
  - end-December 2017: 7.96
  - end-June 2018: 7.46
  - end-December 2018: 14.68
  - end-June 2019: 6.99

### Definitions and methodologies (TMU highlights)
- Fiscal year: April 1 to March 31.
- Central government primary balance: total revenues minus primary expenditure; primary expenditures recorded on a cash basis and include compensation payments, other recurrent expenditures and capital spending; government-funded PPPs treated as traditional public procurements.
- Revenues: recorded when funds are transferred to a government revenue account; includes grants; capital revenues exclude asset-sale proceeds from divestments.
- Primary expenditures settled with bonds or other non-cash liabilities: recorded above-the-line and affect the primary balance.
- Domestic arrears definition: payments to residents determined by contractual obligations unpaid 90 days after due date; accumulation measured relative to stock at end-March 2016 (J$21.0 billion).
- External debt definition: residency criterion; includes loans, suppliers’ credits, and leases (present value at inception excluding operation/repair/maintenance payments).

### Structural benchmarks (selected items and status)
- Property tax rates and bands using 2013 land valuations submitted to Cabinet by December 31, 2016 — Met.
- Operationalize Financial System Stability Committee by finalizing appointment of two external members by November 30, 2016 — Met.
- Consultation paper for the resolution framework issued for public comment by February 28, 2017 — Met.
- Establish financial inclusion council to implement umbrella strategy for 2016-20 by March 31, 2017 — Met.
- Multiple public sector staffing, wage, and governance measures (employee verification, compensation review, hiring/re-hiring rules, database of allowances) with target dates in March–September 2017 — Met.
- Legislative changes to direct specified earmarked revenues to consolidated fund submitted to Parliament by June 15, 2017 — Met.
- Revisions of the BOJ Act to enhance governance submitted to Parliament by October 31, 2018 — Proposed Modification.
- Capping total stock of domestic arrears for specified public bodies at J$6.4 billion during the program period — monitored monthly.

*Source: IMF staff report chapter and Technical Memorandum of Understanding as provided in the attached program documentation.*

### 22.      Definition of external arrears: External debt payment arrears for programme monitoring

### 22.      Definition of external arrears: External debt payment arrears for programme monitoring

### Definition of external arrears
- External debt payment arrears for programme monitoring purposes are defined as external debt obligations (principal and interest) falling due after March 31, 2017 that have not been paid, taking into account the grace periods specified in contractual agreements; and for the public bodies listed in paragraph 23, such obligations that have not been paid within 30 days after the contractual due date (taking into account any contractual grace periods).
- Under the definition of debt set out above, arrears, penalties and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt.
- Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.

### Coverage (paragraph 23)
- This performance criterion covers central government and the following 6 public bodies:
  - Airports Authority of Jamaica
  - Jamaica Ultimate Tyre Company
  - National Health Fund
  - Petrojam Limited
  - Petrojam Ethanol Limited
  - Port Authority of Jamaica
- This performance criterion does not cover:
  - (i) arrears on trade credits
  - (ii) arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or rescheduling agreement is being sought.

### Monitoring and reporting
- This performance criterion applies on a continuous basis.
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date (for specified fiscal/target reporting mentioned elsewhere).
- For BOJ NIR reporting: Data will be provided by the BOJ to the Fund with a lag of no more than 10 days past the test date.

---

### F. Ceiling on Central Government Accumulation of Tax Refund Arrears

### Definition and measurement
- Tax refund arrears are defined as obligations on tax refunds in accordance with tax legislation that remain unpaid 90 days after the due date.
- This accumulation is measured as the change in the stock of tax refund arrears relative to the stock at end-March 2016, which stood at J$17.3 billion.

### Reporting
- Data will be provided to the Fund with a lag of no more than six weeks after the test date.

---

### G. Floor on the Stock of Non-Borrowed Net International Reserves

### Definitions (paragraphs 27–29)
- Net international reserves (NIR) of the BOJ (NIR-BOJ) are defined as the U.S. dollar value of gross foreign assets of the BOJ minus gross foreign liabilities.
- Non-borrowed NIR is defined as NIR-BOJ minus all foreign currency liabilities issued by the BOJ and held by residents.
- Non-U.S. dollar denominated foreign assets and liabilities will be converted into U.S. dollar at the programme exchange rates.
- Gross foreign assets: defined consistently with BPM6 as readily available claims on nonresidents denominated in foreign convertible currencies; include monetary gold, SDR holdings, foreign currency cash, foreign currency securities, liquid balances abroad and the country’s reserve position at the Fund.
- Excluded from reserve assets: assets that are pledged, collateralized or otherwise encumbered; claims on residents; claims in foreign exchange arising from derivatives in foreign currency vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid assets.
- Gross foreign liabilities of the BOJ: include all foreign exchange liabilities to nonresidents (excluding liabilities to residents), including commitments to sell foreign exchange arising from derivatives and all credit outstanding from the Fund, but excluding credit transferred by the Fund into a Treasury account to meet the government’s financing needs directly.
- In deriving NIR, credit outstanding from the Fund is subtracted from foreign assets of the BOJ.
- GOJ foreign liabilities are excluded from gross foreign liabilities of the BOJ.

### Adjusters to non-borrowed NIR targets (paragraph 31)
- Non-borrowed NIR targets will be adjusted upward (downward) by the surplus (shortfall) in programme loan disbursements from multilateral institutions (the IBRD, IDB and CDB) and commercial loans guaranteed by multilateral sources, relative to the baseline projection reported in Table 4.
- Programme loan disbursements are defined as external loan disbursements (excluding project financing disbursements) from official creditors that are usable for the financing of the consolidated government.
- Non-borrowed NIR targets will also be adjusted upward (downward) by the surplus (shortfall) in disbursements of budget support grants relative to the baseline projection reported in Table 4.

### Table 4. External Program Disbursements (Baseline Projection) — cumulative flows from end-March 2016 (In millions of US$)
- External loans from multilateral sources
  - End-March 2017: 182
  - End-June 2017: 182
  - End-September 2017: 252
  - End-December 2017: 252
  - End-March 2018: 362
- Budget support grants
  - End-March 2017: 10.8
  - End-June 2017: 10.8
  - End-September 2017: 10.8
  - End-December 2017: 10.8
  - End-March 2018: 10.8
- Commercial loans guaranteed by multilateral sources
  - End-March 2017: 0.0
  - End-June 2017: 0.0
  - End-September 2017: 0.0
  - End-December 2017: 0.0
  - End-March 2018: 0.0

---

### H. Performance Criterion on the Introduction or Modification of Multiple Currency Practices

### Scope
- The performance criterion on the introduction or modification of multiple currency practices (MCP) will continue to exclude the ongoing implementation or modifications in 2018 of the multiple-price foreign exchange auction system, developed in line with Fund staff advice, that give rise to a MCP.

---

### II.   QUANTITATIVE INDICATIVE TARGETS: DEFINITION OF VARIABLES

### A. Cumulative Floor on Central Government Tax Revenues
- Definition: Tax revenues refer to revenues from tax collection. It excludes all revenues from asset sales, grants, bauxite levy and non-tax revenues.
- The programme will have a floor on central government tax revenues (indicative target).
- The revenue target is calculated as the cumulative flow from the beginning to the end of the fiscal year (April 1 to March 31).
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date.

### B. Ceiling on the Change in the Stock of Public Bodies’ Non-Guaranteed Debt
- Definitions:
  - Non-guaranteed debt of public bodies includes all consolidated domestic and external bonds and other forms of debt by all self-financed public bodies that is not guaranteed by the central government or any other public entity.
  - The target will be set in Jamaican dollars with foreign currency debt converted using the programme exchange rate.
  - The change in the stock of non-guaranteed debt will be measured “below the line” as debt issuance minus repayments on all non-guaranteed debt by public bodies.
- Recording convention: Debt issues are to be recorded at the moment the funds are credited to the account of the corresponding public body.
- Measurement: The stock of public bodies’ non-guaranteed debt will be measured net of cross-holdings of such debt between the public bodies.
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date.
- Adjusters:
  - The target will be adjusted downwards if the government assumes part of previously non-guaranteed debt or if an entity with non-guaranteed debt is subsequently divested/privatized.
  - The target will also be adjusted upward (downward) by an amount equivalent to the shortfall (excess) of PetroJam’s overall balance (relative to baseline projections in Table 3), with the value of the adjustment at the end of any quarter capped at US$35 million, converted at the programme exchange rates.

### C. Floor on Central Government Spending on Social Programmes
- Definition: Social spending is computed as the sum of central government spending on social protection programmes as articulated in the central government budget for a particular fiscal year.
- Social programmes comprise:
  - conditional cash transfers to children 0–18 years and the elderly;
  - youth employment programmes;
  - the poor relief programme for both indoor and outdoor poor;
  - the school feeding programme; and
  - the basic school subsidy.
- Capital expenditure programs to be included:
  - Youth employment programmes comprising on the job training, summer employment and employment internship programme.
  - Conditional cash transfers comprising children health grant, children education grants, tertiary level, pregnant and lactation grants, disabled adult grants, adult under 65 grants and adults over 65 grants.
  - Poor relief programme.
- Recurrent expenditure programs to be included:
  - School feeding programmes including operating costs;
  - Poor relief (both indoor and outdoor) including operating costs;
  - Golden Age Homes;
  - Children’s home, places of safety and foster care including operating cost;
  - Career Advancement Programme;
  - National Youth Service Programme.
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date.

### D. Ceiling on User-Funded PPPs
- Definition: User-funded PPPs are defined as concessions in which users are expected to be the main source of revenue.
- Exclusion: The loan value of a PPP may be excluded if the Office of the Auditor General has established that the PPP involves only minimal contingent liabilities (by demonstrating that the project has no debt guarantee, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government).
- Applicable GDP for this condition:
  - The applicable GDP is the projected nominal GDP for the ongoing fiscal year published in the Fiscal Policy Paper tabled in parliament ahead of the adoption of the FY17/18 budget.
  - For FY2017/18, the projected nominal GDP used as a reference is J$1,884 billion, as presented in Table 2H, Macroeconomic Framework, of the FY17/18 Fiscal Policy Paper.
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date.

---

### III.   MONETARY POLICY CONSULTATION CLAUSE

### Definitions and reporting
- Inflation is defined as the change over 12 months of the end-of-period headline consumer price index, as measured and published by the Statistical Institute of Jamaica (STATIN).
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date. Data from the last test date will be used until new data is submitted.

### Consultation trigger (paragraph 49)
- Breaching the inflation consultation band limits (as specified in the TMU, Table 5) at the end of each June/December test dates would trigger a consultation with the IMF’s Executive Board on the reasons for the deviation and the proposed policy response before further purchases could be requested under the SBA.
- The consultation will explain:
  - (i) the stance of monetary policy and whether the Fund-supported programme remains on track;
  - (ii) the reasons for deviations from the specified band, taking into account compensating factors; and
  - (iii) proposed remedial actions, as deemed necessary.

---

### IV.   CONDITIONALITY ON PUBLIC BODIES’ DOMESTIC ARREARS

### Structural benchmark and monitoring
- Under the structural benchmark on public bodies’ arrears, the total combined stock of domestic arrears of the following public bodies will be capped at J$6.4 billion during the programme period:
  - Clarendon Alumina Production (CAP)
  - National Water Commission (NWC)
  - Jamaica Urban Transit Company (JUTC)
  - Housing Agency of Jamaica (HAJ)
  - Urban Development Corporation (UDC)
  - National Road Operating and Constructing Company (NROCC)
  - National Health Fund (NHF)
- The domestic arrears will be monitored on a monthly basis.

### Definition of domestic arrears
- Domestic arrears are defined as payments to residents determined by contractual obligations that remain unpaid 90 days after the due date.
- The due date refers to the date on which domestic debt payments are due according to the relevant contractual agreement, taking into account any contractual grace periods.
- Public bodies’ domestic arrears include arrears on suppliers’ credits.
- Exclusions: Arrears on taxes due to the central government, including on PAYE and education tax, are excluded.

---

*Source: cr17329-jamaica - 22.      Definition of external arrears: External debt payment arrears for programme monitoring*

### 53.      To ensure adequate monitoring of economic variables and reforms, the authorities will

### cr17329-jamaica - 53.      To ensure adequate monitoring of economic variables and reforms, the authorities will

### A. Daily reporting requirements
- Net international reserves; nominal exchange rates; interest rates on BOJ repurchase agreements; total currency issued by the BOJ; deposits held by financial institutions at the BOJ; outstanding stock of foreign currency CDs to residents by maturity; required and excess reserves of the banking sector in local and foreign currency; total liquidity assistance to banks through normal BOJ operations, including overdrafts; overnight interest rates; GOJ bond yields.
- Disbursements from the Financial System Support Fund, by institutions.
- Aggregate liquidity assistance to institutions from the BOJ.
- Bank of Jamaica purchases and sales of foreign currency, by transaction type (surrenders, public sector entities facility and outright purchases or sales including interventions).
- Amounts offered, demanded and placed in Bank of Jamaica open market operations, including rates on offer for each tenor and amounts maturing for each tenor.
- Amounts offered, demanded and placed in government of Jamaica auctions and primary issues; including minimum, maximum and average bid rates.
- Daily foreign currency government of Jamaica debt payments (domestic and external).

### Inflation consultation band (Table 5)
- Mar. 2017–Dec. 2018 bands (as reported):
  - Upper band: 9.0 9.0 8.5 8.5 7.5 7.5 7.5 7.5
  - Center point: 5.5 5.5 5.0 5.0 5.0 5.0 5.0 5.0
  - Lower band: 2.0 2.0 1.5 1.5 2.5 2.5 2.5 2.5
- Table header: Table 5. Inflation Consultation Band 2017 2018

### B. Weekly reporting requirements
- Balance sheets of the core securities dealers (covering at least 70 percent of the market), including indicators of liquidity (net rollovers and rollover rate for repos and a 10-day maturity gap analysis), capital positions, details on sources of funding, including from external borrowing on margin and clarity on the status of loans (secured vs. unsecured). Weekly reports will be submitted within 10 days of the end of the period.
- Deposits in the banking system and total currency in circulation.

### C. Monthly reporting requirements
- Central government operations including monthly cash flow from the beginning to the end of the current fiscal year (and backward revisions as necessary), with a lag of no more than six weeks after the closing of each month.
- Public entities’ Statement A: consolidated and by institution for the self-financed public bodies defined in I.B with a lag of no more than six weeks after the closing of each month.
- Central government debt amortization and repayments (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans). Includes government direct, government guaranteed and total. In the case of issuance of government guaranteed debt, include the name of the guaranteed individual/institution. The reporting lag should not exceed six weeks after the closing of each month.
- Amortization and repayments of public bodies’ non-guaranteed debt for each of the Selected Public Bodies listed in I.B.
- Balances of the Consolidated Fund and main revenue accounts needed to determine the cash position of the government.
- Stock of central government domestic debt and domestic expenditure arrears.
- Stock of central government tax refund arrears.
- Central government spending on social protection as defined for the indicative target on social spending.
- Central government debt stock by currency, as at end month, including by (i) creditor (official, commercial domestic, commercial external; (ii) instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); and (iii) direct and guaranteed. The reporting lag should not exceed six weeks after the closing of each month.
- The maturity structure of Government debt (domestic and external). The reporting lag should not exceed six weeks after the closing of each month.
- Legal measures that affect the revenue of the central government (tax rates, import tariffs, exemptions, etc.).
- Balance sheet of the Bank of Jamaica within three weeks of month end.
- Liquidity assistance to institutions from the BOJ by institution.
- A summary of monetary accounts providing detailed information on the accounts of the Bank of Jamaica, commercial banks and the overall banking system. Including Bank of Jamaica outstanding open market operations by currency and maturity and a detailed decomposition on Bank of Jamaica and commercial bank net claims on the central government, and self-financed public bodies. This information should be received with a lag of no more than six weeks after the closing of each month.
- Profits of the Bank of Jamaica on a cash and accrual basis, including a detailed decomposition of cash profits and profits from foreign exchange operations with a lag of no more than three weeks from month end.
- Deposits in the banking system: current accounts, savings and time deposits within six weeks after month end.
- Average monthly interest rates on loans and deposits within two weeks of month end; weighted average deposit and loan rates within six weeks after month end.
- Financial statements of core securities dealers and insurance companies within six weeks of month end.
- The maturity profile of assets and liabilities of core securities dealers in buckets within six weeks of month end.
- Data on reserve liabilities items for NIR target purposes (Table 9) within three weeks after month end.
- A full set of monthly FSIs regularly calculated by the BOJ, including liquidity ratios, within eight weeks of month end.
- Monthly balance sheet data of deposit taking institutions, as reported to the BOJ, within four weeks of month end.
- Issuance of exempt distributions by financial and non-financial corporations, six weeks after month end.
- Imports and exports of goods, in US$ million within twelve weeks after month end.
- Tourism indicators within four weeks after month end.
- Remittances’ flows within four weeks after month end.
- Consumer price inflation, including by sub-components of the CPI index within four weeks after month end.
- The balance sheet of the PetroCaribe Development Fund with a lag of no more than six weeks after the closing of each month.
- Data on the total loans value of all new user-funded PPPs, specifying the PPPs identified by the Office of the Auditor General as involving only minimal contingent liabilities (including the absence of debt guarantees, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government).

### D. Quarterly reporting requirements
- Holdings of government bonds (J$-denominated and US$-denominated) by holder category. The reporting lag should not exceed six weeks after closing of each month (not applicable to external and non-financial institutional holdings of GOJ global bonds as this information is not available to GOJ).
- Use of the PetroCaribe Development Fund, including loan portfolio by debtor and allocation of the liquidity funds in reserve within six weeks after month end.
- The stock of self-financed public entities non-guaranteed debt.
- Summary balance of payments within four months after quarter end. Revised outturn for the preceding quarters and quarterly projections for the forthcoming year, with a lag of no more than one month following receipt of the outturn for the quarter.
- Gross domestic product growth by sector, in real and nominal terms, including revised outturn for the preceding quarters within three months after quarter end; and projections for the next four quarters, with a lag no more than one month following receipt of the outturn for the quarter.
- Updated set of macroeconomic assumptions and programme indicators for the preceding and forthcoming four quarters within four months of quarter end. Main indicators to be included are: real/nominal GDP, inflation, interest rates, exchange rates, foreign reserves (gross and net), money (base money and M3), credit to the private sector, open market operations and public sector financing (demand and identified financing).
- BOJ’s Quarterly Financial Stability Report.
- Quarterly income statement data of deposit taking institutions, as reported to the BOJ within eight weeks of the quarter end.
- Summary review of the securities dealer sector, within eight weeks of quarter end.
- Summary report of the insurance sector (based on current FSC quarterly report), within eight weeks of quarter end.
- Capital adequacy and profitability ratios (against regulatory minima) for DTIs and non-bank financial institutions within eight weeks of quarter end.
- FSC status report detailing compliance (and any remedial measures introduced to address any non-compliance) with the agreed guidelines for the operation of client holding accounts at the Jam Clear@ CSD and FSC independent verification of daily reconciliations using data provided.

### Statement by the Fund staff and authorities — key findings and recent data
- Jamaica’s poverty rate in 2015 was 21.2 percent, an increase relative to 2014 by 1.2 percentage points (based on the Jamaica Survey of Living Conditions).
- Rural poverty increased from 24.9 percent to 28.5 percent between 2014 and 2015; city and town poverty fell by 1½ percent from 2014 to 2015.
- The severe drought in 2014-15 contributed to a contraction in agricultural output by 0.6 percent over the two years and a contraction in agricultural employment by over 3 percent in 2015.
- Construction, business process outsourcing, and hotel industry expanded, facilitating an overall decline in unemployment and poverty in urban areas.

### Government responses and policy measures
- FY17/18 budget included an increase of nearly 50 percent in social spending for PATH and the school feeding program.
- PATH graduation program to allocate resources to the most needy families and provide training to facilitate exit from social assistance.
- Authorities recommend recomposition of government spending away from the wage and interest bill toward growth-enhancing capital spending, particularly to enhance agricultural resilience (e.g., improving irrigation), and health, education and social assistance spending.
- Public sector transformation actions: implementation of shared corporate service arrangements; legislation to direct earmarked revenue from three public bodies to the consolidated fund; by April 2018 will close, merge, reintegrate into the central government, or divest five public bodies.
- Wage negotiations: authorities will seek to rationalize compensation allowances, develop a new compensation policy and structure, engage unions and stakeholders, guided by a negotiation framework (April 2017) and a wage bill ceiling of 9 percent of GDP by 2018/19.
- Implementation of a new contributory pension scheme scheduled for April 2018.

### Fiscal outcomes and debt management
- Central government primary surplus surpassed the target in 2016/17 by 0.6 percent of GDP, and doubled the end-June performance criterion.
- Authorities executed liability management operations including re-opening of the 2028 and 2045 global bonds in August 2017 at record low yields.
- Public debt trajectory: on track to meet the fiscal rules’ ceiling of 60 percent of GDP by 2026.

### Monetary policy, financial sector, and institutional reforms
- BOJ adopted a medium-term inflation target of 4.0-6.0 percent.
- BOJ introduced the BOJ Foreign Exchange Intervention and Trading Tool (B-FXITT) in July 2017 to buy and sell foreign exchange.
- Authorities requested Board approval to retain the multiple-currency practice for a period of twelve months (first approved November 2016).
- Fund safeguards assessment update (February 2017) confirmed a strong BOJ framework and made recommendations to improve governance; Fund TA (July 2017) recommended more ambitious reforms to strengthen BOJ’s operational autonomy and governance.
- Authorities plan to table amendments to the BOJ Act by October 2018, including clarifying BOJ’s primary mandate of price stability, changes to governance arrangements, and arrangements for capitalization and paying dividends—supporting transition toward an inflation targeting regime within a flexible exchange rate system.
- Financial inclusion council established in March 2017.
- Authorities will submit a new resolution framework for financial institutions to Parliament by January 2019 and continue to strengthen the AML/CFT framework.
- Authorities will assess potential risks from relaxing pension funds investment restrictions.

### Growth-enhancing reforms and priorities
- Focus on removing roadblocks to business and public investment: amendments to the Public Procurement Act and Regulations; plan to accelerate divestment of state assets; streamlining development approval for land development projects; legislative and infrastructure measures to enhance citizen security and public safety.
- Authorities will accelerate efforts to enhance public safety, improve public sector efficiency, bolster resilience to shocks, boost inclusive growth, and reduce poverty.

### Program assessment and outlook
- All quantitative performance criteria (QPCs) for end-June 2017 and all structural benchmarks (SBs) up to September 2017 were met.
- Program indicators and macro stability: NIR healthy and less reliant on borrowed foreign exchange; inflation and the current account deficit at low single digits; financial system sound; business and consumer confidence high.
- Growth outlook: temporary setback from a 0.1 percent contraction in the June 2017 quarter due to adverse weather; economy projected to expand by 1.7 percent in fiscal year 2017/18 and to approach 3 percent over the medium term.
- Labor market: unemployment fell to 12.2 percent as at April 2017, the lowest rate in seven years; record high employment level as at April 2017.

*IMF staff report and associated authorities’ statements, October 23, 2017.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17329-jamaica.pdf_