## Jamaica: Fourth Review (Stand-By Arrangement) — Executive Summary and Selected Excerpts

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### Stable macroeconomic fundamentals and growth performance
- Unemployment at an almost 11-year low; poverty at a 9-year low; inflation is low; public debt on a downward trajectory; international reserves at historically high levels.
- Growth outcomes and projections:
  - Real GDP growth: 0.9 percent in FY2017/18.
  - Average real GDP growth in 2018H1: 1.8 percent (y/y), supported by mining (28.8 percent) and construction (2 percent).
  - Growth projected for FY2018/19: 1.4 percent.
  - Medium-term growth expected to rise to around 2 percent as capital expenditure increases and structural rigidities recede.
- Risks: lackluster growth may impede reform momentum and policy objectives.

### Focus of the review and program implementation
- Key discussion topics:
  - Supplementary budget for FY18/19 to deploy revenue buoyancy to reduce local-government spending arrears.
  - Overhaul of the public sector and sustainable reduction in the wage bill as a share of GDP.
  - Management of fiscal risks from public bodies; restoring inflation to the mid-point of the target range; FX market development; central bank modernization; strengthening financial sector oversight; advancing FSSA recommendations.
- Program implementation:
  - All quantitative performance criteria (QPCs) at end-June were met.
  - Supply-side measures broadly on track.
- Fund support:
  - MPCC triggered in June with inflation below the lower band.
  - Upon completion of the review an additional SDR 160.8 million would be made available, bringing total accessible credit to SDR 873.7 million.
  - Authorities treat the SBA as precautionary.

### Recent labor, poverty, and crime developments
- Labor and poverty:
  - Unemployment: 9.6 percent in January 2018 and 9.7 percent in April 2018.
  - Labour force participation reversed since October 2017 after 9 consecutive quarters of increase.
  - Poverty rate fell from 21 to 17 percent in 2016; rural areas account for half of the population.
- Crime:
  - Deceleration following a state of emergency in high-crime areas, but levels remain high; reducing crime is a top government priority within the SBA-supported program.

### Inflation, monetary policy, and MPCC
- BOJ policy changes:
  - Policy rate reductions cumulatively 175bps since July 2017; most recent cuts: 25bps in May and 50bps in June.
  - Overnight policy rate: reduced to 2.00 per cent on 27 June 2018.
- Inflation dynamics:
  - Inflation below the 4-6 percent target band since March 2018; 2.8 percent in June 2018 triggered the MPCC; headline CPI upticked to 3.9 percent in August.
  - Core inflation: 2–3 percent since March 2016; CPIAF annual change at June 2018 was 2.3 percent.
- Monetary transmission and credit:
  - No systematic evidence of transmission from policy rates to loan rates.
  - Private credit growth: 14.8 percent (y/y) in FY17/18; 16.8 percent in July 2018 (mainly consumer loans).
  - Domestic T-Bill yields fallen to below 2 percent; auctions typically oversubscribed.
- MPCC modifications proposed:
  - Current symmetric MPCC: outside of 5±1.5 percent in 2018, and 5±1 percent in 2019 triggers consultations.
  - Proposed staff consultation clause: BOJ consults with IMF staff if year-on-year inflation falls below 3.5 percent in 2018 and 4 percent in 2019 (test dates).
  - Board consultation thresholds proposed: December 2018 test date below 2 percent or above 6.5 percent; June 2019 test date outside 2.5 to 6 percent.

### Exchange rate, external position, and reserves
- Current account:
  - Expanded by 2.7 percent of GDP to 5.4 percent of GDP in FY2017/18 (higher global oil prices and one-off mining and security imports).
  - Expected to converge to around 3.5 percent of GDP over the medium-term.
- Exchange rate and reserves:
  - Since B-FXITT, bilateral J$/US$ exchange rate moved flexibly both directions; J$/US$ depreciated about 7 percent from end-May to end-August (largely reflecting a strong U.S. dollar).
  - BOJ sold US$86.5 million in July and August to counter excessive exchange rate volatility.
  - In June 2018 Jamaica’s de-facto exchange rate arrangement classified as “floating”, retroactively from September 2017.
  - Current FX reserves viewed as broadly adequate; reserves already above 100 percent of the ARA metric; gross reserves expected to reach 117 percent of the ARA metric by end of the SBA.

### Supplementary budget for FY18/19 (tabled September)
- Size and composition:
  - Supplementary budget of $17 billion (0.8 percent of GDP).
  - Envisages utilizing higher tax revenues, unused allocation from the Special Early Retirement Program, and transfers from public bodies to settle arrears owed to the power company by local authorities, additional capital expenditure, and higher contingencies for program expenditures.
- Fiscal stance:
  - Supplementary Budget consistent with achieving the 7 percent primary surplus in FY2018/19.
  - Supplementary Budget raised expenditure by approximately 1 percent of GDP (note: other excerpts indicate similar impact).

### Public-sector wage bill and compensation reform
- Wage settlement:
  - 4-year settlement reached with 80 percent of central government employees (double the usual 2-year agreement).
  - Annual salary increases for the four years from FY17/18: 5/2/4/5 percent.
- Fiscal metrics and timelines:
  - Wage bill for FY18/19 projected at 9.1 percent of GDP; negotiations with the police ongoing may increase risks.
  - Authorities expect to complete payroll data collection from all Ministries, Departments, and Agencies by October 2018; stakeholder consultations on compensation reform by March 2019; develop a standardized pay scale by September 2019.
- Reforms:
  - Outsourcing administrative activities being explored (may represent reclassification of spending rather than fiscal savings).
  - Staff and authorities agree on scope to streamline allowances to free resources for social assistance and capital spending.

### Public bodies, emerging fiscal risks, and contingent liabilities
- Public bodies reform:
  - Out of 190 public bodies, 14 actioned so far with little fiscal savings; additional 18 public bodies identified for action in the next 12 months.
- Specific entities and risks:
  - Windalco: temporary reprieve (until October 23) from U.S. sanctions on the Russian owner provided some scope for international bank financing; staff encouraged durable private sector solutions to avoid government financing.
  - Clarendon Alumina Production (CAP): GOJ-owned; identified with weak liquidity and solvency positions in November 2017 OAG review; operational efficiency improved; financial performance expected to improve.
  - Petrojam: financial position worsened with prolonged plant shut-down; first phase of a refinery upgrade further delayed; GOJ appointed new Board; administrative review expected to conclude by end-January 2019.
  - Full replacement of Export Free Zones with Special Economic Zones (SEZ) from January 1, 2019 poses revenue risks; SEZ Authority and tax and customs administrations committed to tightened oversight.

### Financial sector deepening, intermediation, and FSSA recommendations
- Private sector financing:
  - Scaling back of public sector borrowing not matched by crowding-in of private credit.
  - Financial intermediaries slow to reshape business models toward lending to the real economy; supply-side reforms continue to constrain crowding-in.
- Recommended steps to incentivize intermediation:
  - Develop primary and secondary debt markets and a liquid benchmark government yield curve.
  - Broaden role of securities dealers as market makers for corporate debt and equity (with IMF technical assistance).
  - Increase SME access via microinsurance, securitization of future receivables using land titling/legal frameworks.
  - BOJ to monitor credit reporting trends, broaden acceptable collateral, and address informational gaps.
- FSSA main recommendations (selected):
  - Increase supervisory resources; enhance data collection and technical skills; strengthen IT platform for supervisory data sharing (timelines I/NT/MT specified).
  - Provide greater delegation to the BOJ to enact legally enforceable rules; fully deploy risk-based supervision; implement consolidated supervision; implement Basel III capital/ liquidity requirements (NT/MT).
  - Introduce mismatch ratio for retail repos; enact binding regulations for asset-liability management and regular stress tests for general insurers; introduce a special resolution regime (legislation underway).
  - Timeline key: I = within one year; NT = 1–3 years; MT = 3–5 years.

### AML/CFT and correspondent banking
- Correspondent banking withdrawals remain contained.
- Need to strengthen AML/CFT regime in line with CFATF 2017 Mutual Evaluation recommendations.
- Work underway to develop and implement a risk-based supervisory framework for DTIs and cambios with IMF technical assistance.

### Data and statistics
- Ongoing work to strengthen quality and timeliness to meet Special Data Dissemination Standards Subscription.
- IMF technical assistance supports monetary statistics and external accounts improvements; BOJ aligning with 2016 Monetary and Financial Statistics Manual and Compilation Guide.
- Jamaica currently produces annual and quarterly GDP estimates by production and annual GDP estimates by expenditure; quarterly expenditure GDP figures expected to be routinely published starting in 2020.

### Program financing, debt service, and capacity to repay
- Program fully financed and capacity to repay the Fund is adequate.
- Under a downside scenario, a fully-drawn SBA implies peak debt service in 2023 of 18.9 percent of exports of goods and services (or 6.5 percent of GDP).
- Public debt on track to reach 60 percent of GDP by March 2026 (as stipulated in the FRL).
- Prospective drawings (3-year SBA): 873.70 SDR (total accessible credit) with 321.60 SDR noted elsewhere in the table.
- Amortization and debt-service schedules and outstanding stock metrics presented in SDRs and percent metrics (table values preserved in source).

### Quantitative performance criteria, targets, and TMU highlights
- Selected QPCs and indicators (values preserved as in source):
  - Primary balance of the central government (floor) cumulative flows: series includes 18.0 18.1 31.3 44.0 68.0 68.0 140.2 141.6 19.0 35.7.
  - Overall balance of the public sector (floor) series: 25.5 -25.0 -20.5 16.5 -39.2 -41.1 -41.1 -14.7 -14.7 -14.0 -25.0.
  - Tax revenues of the central government (floor) entries: 473.0 496.9 110.0 110.0 128.7 234.0 (comparative series: 360.0 360.0 516.0 516.0 115.0 242.0).
  - Stock of non-borrowed net international reserves (NIR) floor reported series: 2,409 2,075 2,073.5 ... 2,140 and targets in millions of U.S. dollars (programme TMU definitions apply).
- MPCC bands (Dec. 2018 / Jun. 2019):
  - Upper outer band: 6.5 / 6.0
  - Center point: 5.0 / 5.0
  - Inner band: 3.5 / 4.0
  - Lower outer band: 2.0 / 2.5
- TMU definitions and adjusters detailed: NIR definitions and adjusters; debt and arrears definitions; performance criterion coverage includes specified public bodies; reporting lags and measurement conventions specified (fiscal year April 1–March 31).

### Reporting requirements and transparency (high-frequency reporting)
- Daily reporting (A): net international reserves; nominal exchange rates; BOJ repo rates; currency issued; deposits at BOJ; foreign currency CDs to residents; required and excess reserves; BOJ FX purchases/sales; amounts in BOJ open market operations; GOJ auction data; daily foreign currency GOJ debt payments, and disbursements from the Financial System Support Fund.
- Weekly reporting (B): balance sheets of core securities dealers (covering at least 70 percent of the market); deposits and currency in circulation.
- Monthly reporting (C): central government operations; Public entities’ Statement A; central government debt amortization/repayments; stock of domestic debt and arrears; tax refund arrears; social protection spending; BOJ balance sheet within three weeks; monthly FSIs within eight weeks; tourism indicators within four weeks; CPI sub-components within four weeks.
- Quarterly reporting (D): holdings of government bonds by holder category; use of PetroCaribe Development Fund; stock of self-financed public entities’ non-guaranteed debt; summary balance of payments within four months; GDP growth by sector within three months; BOJ Quarterly Financial Stability Report; quarterly income statement data of DTIs within eight weeks.

### Staff appraisal, key policy advice, and approvals
- Staff appraisal:
  - Sustained reforms since 2013 delivered macroeconomic stability but growth remains weak.
  - Priority to steer structural reforms to facilitate private sector investment for faster and sustained growth.
- Policy advice highlights:
  - Place public-sector wage bill on a downward trajectory via compensation overhaul and allowance streamlining; shedding non-essential functions will reduce workforce size and free fiscal space.
  - Maintain accommodative monetary stance while restoring inflation to the mid-point of the 4–6 percent target and improve BOJ communications to anchor expectations.
  - Reserve FX intervention for smoothing excess volatility; accelerate FX market development, review net open position limits, and build FX market infrastructure.
  - Implement FSSA recommendations: intensify consolidated group supervision, enhance supervisory capacity, boost data collection and monitoring, develop SRR legislation, and reform securities dealer regulation (including phased mismatch ratio by March 2020).
- Approvals recommended:
  - Completion of the fourth review and monetary policy consultation under the SBA.
  - Approval of retention of the multiple currency practice (MCP) for the multiple-price FX auction for a period of twelve months.
  - Approval of proposed establishment and modification of performance criteria and proposed modification of the MPCC.

*Source: Executive Summary and selected excerpts from the IMF staff report "Jamaica: Fourth Review (Stand-By Arrangement)", cr18304-jamaicafourthreview.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Stable macroeconomic fundamentals and growth performance
- After nearly six years of economic reforms:
  - Unemployment at an almost 11-year low.
  - Poverty at a 9-year low.
  - Inflation is low.
  - Public debt is firmly on a downward trajectory.
  - International reserves at historically high levels.
- Growth remains lackluster and risks impeding reform momentum and the government’s policy objectives.
- Growth specifics:
  - Real GDP growth was 0.9 percent in FY2017/18.
  - Average real GDP growth in 2018H1 is estimated at 1.8 percent (y/y), supported by mining (28.8 percent) and construction (2 percent).
  - Growth for FY2018/19 is projected at 1.4 percent.
  - Medium-term growth expected to rise to around 2 percent as capital expenditure increases and structural rigidities recede.

### Focus of the review
- Discussions centered on:
  - A planned supplementary budget for FY18/19, including deploying some revenue buoyancy to reduce the stock of local-government spending arrears.
  - Next steps to overhaul the public sector, including sustainably shrinking the wage bill as a share of GDP.
  - Management of fiscal risks arising from various public bodies.
  - Restoring inflation to the mid-point of the target range.
  - Developing the FX market.
  - Institutional reforms to modernize the central bank.
  - Continued strengthening of financial sector oversight.
  - Advancing financial sector reforms in line with the recommendations in the accompanying FSSA.

### Program issues and Fund support
- Program implementation:
  - All quantitative performance criteria (QPCs) at end-June were met.
  - Supply-side measures broadly on track.
- Monetary Policy Consultation Clause (MPCC):
  - Triggered in June with inflation below the lower band.
  - Authorities consider the deviation temporary and are maintaining an accommodative stance, supported by a flexible, market-determined exchange rate.
  - Authorities requested amending the MPCC to reduce the lower band for Board consultation and to introduce a staff consultation clause to reflect recent inflation dynamics.
- Program modifications:
  - Proposed modifications to the QPCs for December 2018, and new QPCs for June 2019.
  - Upon completion of the review, an additional SDR 160.8 million would be made available, bringing total accessible credit to SDR 873.7 million.
  - The authorities continue to treat the SBA as precautionary.

### Recent developments in labor, poverty, and crime
- Labor and poverty:
  - Unemployment rate reached 9.6 percent in January 2018 and stood at 9.7 percent in April 2018.
  - Labor force participation, after 9 consecutive quarters of increase, reversed since October 2017.
  - Poverty rate fell from 21 to 17 percent in 2016, driven mostly by rural reductions.
  - Rural areas account for half of the population.
- Crime:
  - Deceleration in crime following a state of emergency in high-crime areas.
  - Crime levels remain high and are an important social and economic headwind.
  - Reducing crime is a top government priority within the SBA-supported program.

### Inflation and monetary policy
- Inflation dynamics:
  - BOJ policy rate reductions cumulatively 175bps since July 2017.
  - Inflation remained below the 4-6 percent target band since March 2018 and reached 2.8 percent in June 2018, triggering the MPCC.
  - Headline CPI upticked to 3.9 percent in August.
- Drivers of low inflation:
  - Persistently weak domestic demand dragging down core inflation (core inflation 2-3 percent since March 2016).
  - Structural weaknesses in the monetary transmission mechanism.
  - Currency appreciation in late-2017 and early-2018.
  - Decelerating food inflation following unwinding of higher agriculture prices from last year’s heavy rains and floods.
- Monetary stance and outcomes:
  - Short-term interest rates have fallen; most recently by 25bps in May and 50bps in June.
  - No systematic evidence of transmission from policy rates to loan rates.
  - Private credit growth: 14.8 percent (y/y) in FY17/18; accelerated to 16.8 percent in July 2018 (mainly consumer loans).
  - NPLs remain relatively low; loan loss provisions at prudent levels; banks well-capitalized.
  - Domestic T-Bill yields fallen to below 2 percent; auctions typically oversubscribed.
  - Jamaican international bonds trading at historically low yields; Fitch and Moody’s upgraded outlook to positive from stable.

### External position and exchange rate regime
- Current account:
  - Expanded by 2.7 percent of GDP to 5.4 percent of GDP in FY2017/18, due to higher global oil prices and one-off mining and security imports.
  - Expected to converge to around 3.5 percent of GDP over the medium-term.
- Exchange rate and reserves:
  - Since B-FXITT introduction, bilateral J$/US$ exchange rate has moved flexibly in both directions.
  - From end-May to end-August, J$/US$ depreciated by about 7 percent (largely reflecting a strong U.S. dollar).
  - BOJ sold US$86.5 million in July and August to help counter excessive exchange rate volatility.
  - In June 2018, Jamaica’s de-facto exchange rate arrangement was classified as “floating”, retroactively from September 2017.
  - On the basis of maintaining this de-facto floating classification, current FX reserves are viewed as broadly adequate.

### Risks
- External risks:
  - Further oil price increases could raise inflation and expand the current account deficit.
- Domestic risks:
  - Prolonged weak domestic demand could hamper program social and economic objectives.
  - Need for continued broad-based public and political support to sustain reforms, particularly:
    - Reducing public sector employment.
    - Managing emerging fiscal risks in some public bodies.
    - Passage of proposed amendments revising the BOJ Act to facilitate move to full-fledged inflation targeting.

### Program performance and structural reforms
- Fiscal and reserve outcomes:
  - Central government primary surplus exceeded target by J$13 billion or 0.7 percent of GDP (buoyant tax revenues: trade taxes, domestic SCT, taxes on interest).
  - Capital expenditure was about 13 percent above budget in June.
  - Non-borrowed reserves exceeded target by US$400 million, supported by robust tourism receipts.
- BOJ and structural reforms:
  - Amendments to the BOJ Act on track for legislative submission to Parliament in October 2018 (structural benchmark).
    - Reform will cement price stability as primary objective, provide legal basis for BOJ operational independence, and strengthen governance and accountability.
    - Government included financing to ensure BOJ meets prudent capital levels in FY18/19 budget and medium-term fiscal forecasts.
- Public sector compensation and financial sector reforms:
  - Progress in updating public sector compensation data; stakeholder consultation delayed due to prolonged wage negotiations.
  - Revisions to investment limits for pension and insurance companies delayed to account for FX limit changes and private equity/venture capital risks.
  - Legislative calendar delayed revisions to the Micro Credit Act and Cooperative Societies Act.
  - Study into bank competition delayed by multiple procurement resets.

*Source: Executive Summary of the Jamaica Fourth Review (Stand-By Arrangement), October 10, 2018.*

### 11.      A supplementary budget for FY18/19 was tabled in Parliament in September.

### cr18304-jamaicafourthreview - 11.      A supplementary budget for FY18/19 was tabled in Parliament in September.

### Supplementary budget and fiscal stance
- A supplementary budget of $17 billion (0.8 percent of GDP) was tabled in Parliament in September.
- The supplementary budget envisages utilizing:
  - higher tax revenues,
  - unused allocation from the Special Early Retirement Program,
  - transfers from public bodies,
  - to settle longstanding arrears owed to the power company by the local authorities, additional capital expenditure, and higher contingencies for program expenditures.

### Public-sector wage bill and compensation reform
- A renewed commitment is needed to sustainably reduce the public-sector wage bill.
- A 4-year wage settlement—double the duration of the usual 2-year agreement—has been reached with 80 percent of central government employees.
- Annual salary increases agreed for the four years from FY17/18: 5/2/4/5 percent.
- The wage bill for FY18/19 is projected to be 9.1 percent of GDP; risks remain that it may move higher as negotiations with the police are ongoing.
- Authorities are exploring outsourcing some administrative activities, which could reduce nominal wage spending but would likely represent a reclassification of spending (rather than fiscal savings).
- Authorities expect to:
  - complete collection of payroll data from all Ministries, Departments, and Agencies by October 2018,
  - complete stakeholder consultations on compensation reform by March 2019,
  - develop a standardized pay scale by September 2019.
- Staff and authorities agree on scope to streamline allowances; staff reiterated the importance of progressing reforms before the next wage negotiation round to free resources for social assistance and capital spending.

### Public bodies reform and fiscal savings
- Government is strengthening efforts to merge, close, or reintegrate public bodies.
- Out of 190 public bodies, only 14 have been actioned so far, with little fiscal savings.
- An additional 18 public bodies have been identified for action in the next 12 months.
- Staff stressed reforms should balance public service priorities and maximizing fiscal savings; reliance on government financing and public bodies’ workforce size should inform decisions.

### Emerging fiscal risks
- Temporary reprieve (until October 23) from U.S. sanctions on the Russian owner of Windalco has provided some scope for international banks to provide financing; staff encouraged durable private sector solutions to avoid government financing to preserve operations and jobs.
- Clarendon Alumina Production (CAP), owned by GOJ, identified as having weak liquidity and solvency positions in a November 2017 analytical review by the Auditor General; operational efficiency has improved with recent technical restorations and financial performance is expected to improve.
- Long-delayed upgrades to LNG-based power generation are now expected to begin in March 2019.
- Petrojam’s financial position worsened with a prolonged plant shut-down; plans for the first phase of a refinery upgrade are further delayed. GOJ appointed a new Board and is conducting an administrative review expected to conclude by end-January 2019.
- Full replacement of Export Free Zones with Special Economic Zones (SEZ) from January 1, 2019 poses revenue risks; SEZ Authority and tax and customs administrations committed to tightening oversight to avoid erosion of the tax base.

### Monetary policy credibility and BOJ stance
- Bank of Jamaica’s accommodative monetary stance remains appropriate, weighing prospects of some higher inflation from rising oil prices and recent currency depreciation; downward risks to the inflation path predominate from continued weak economic activity.
- Despite cuts in the overnight policy rate of 175bps since July 2017, inflation is projected at under 4 percent through end-2018.
- Inflation is forecast to approach the upper bound of the target band by June 2019—primarily because of the base effect and the return of seasonally higher prices—before falling back to the mid-point of the target range.
- Staff recommends BOJ maintain an accommodative policy stance while carefully monitoring risks.
- BOJ held the policy rate unchanged in August and is committed to ensuring inflation returns to the mid-point of the 4-6 percent target range.
- Staff stressed consistent policy signaling by BOJ is essential to anchor inflation expectations.
- Effective BOJ communications are essential for implementing inflation targeting; BOJ is developing a communication strategy and toolkit with IMF support and intends to adopt clearer signaling on policy trajectory and context.

### Measures to enhance monetary transmission
- Suggested measures, data dependent and consistent with accommodative stance, include:
  - lowering the J$ cash reserve requirement from 12 percent;
  - reducing liquid asset requirements below the current 26 percent, while beginning to develop a liquidity coverage ratio that conforms with international standards;
  - gradually phasing out high financial turnover taxes that impede intermediation (e.g., the 0.25 percent asset tax, stamp duty, and the 5 percent transfer tax), subject to fiscal affordability.
- IMF technical assistance and a pending banking competition study will inform ways to lower spreads between loans and deposits.
- BOJ exploring ways to lower deposit concentration across banks—including account portability.

### FX market, reserves, and external buffers
- Authorities remain committed to a flexible exchange rate regime, with FX intervention limited to episodes of excessive volatility and disorderly market conditions.
- From April to August, BOJ made market-based FX purchases of US$111 million to build non-borrowed reserves; surrender requirements have been lowered by 10 percentage points since October 2017.
- Program will target a modestly slower build up of non-borrowed reserves, with gross reserves expected to reach 117 percent of the ARA metric by the end of the SBA.
- Jamaica’s reserve holdings are already above 100 percent of the ARA metric.
- Staff recommended, with IMF technical assistance, improving monitoring and enforcement of group level net open position limits for authorized dealers and position limits for cambios, building capacity to monitor FX hedging activity and introduce related regulations, and advancing adoption of an FX market code of conduct.

### Private sector financing, financial intermediation, and reforms
- Scaling back of public sector borrowing has not been matched by crowding in of private credit.
- Financial intermediaries have been slow to reshape business models toward lending to the real economy; supply-side reforms continue to constrain private sector crowding in.
- Steps recommended to incentivize financial intermediation:
  - further develop primary and secondary debt markets, including a liquid benchmark government yield curve, better market infrastructure, and technical capacity;
  - with IMF technical assistance, broaden role of securities dealers as market makers for corporate debt and equity instruments to increase liquidity;
  - increase SME access by setting up microinsurance, utilizing existing land titling and legal frameworks to securitize future receivables to expand financial inclusion and intermediation;
  - BOJ to continue monitoring credit reporting trends, broaden acceptable collateral, and address informational gaps to reduce data fragmentation and inaccuracies.
- Financial System Stability Assessment (FSSA) recommendations include intensifying consolidated group supervision, enhancing supervisory capacity, and boosting data collection and monitoring.
- Specific supervisory and regulatory actions recommended:
  - develop consolidated risk-based supervision of financial conglomerates;
  - improve coordination between BOJ and FSC for group supervision and data collection of securities dealers’ OTC transactions;
  - develop policing for concentrated exposures, counterparty limits, and FX and liquidity risks, including transparent and mandatory trade reporting;
  - develop transparent criteria to identify Domestic-Systemically Important Banks and compute a capital surcharge reflective of systemic importance;
  - further develop the special resolution regime; draft legislation is underway to clarify responsibilities, creditor hierarchy, and resolution funding modalities, with consultations and a consolidated risk-based supervision pilot during 2019;
  - complete reform of the regulatory framework for securities dealers, including retail repo reforms and phase-in of the mismatch ratio by March 2020, revise large exposure regime, implement risk-based supervision for SDs, and upgrade data reporting.
- Re-examining investment limits for non-bank financial regulations: FSC submitted a proposal to marginally relax investment limits of pension funds (no change to FX limits); changes should be decided with BOJ, be gradual, and commensurate with enhanced data collection and FSC enforcement capacity.
- Need to improve governance arrangements for pension funds and risk management for nonbank financial institutions (asset managers and insurance companies).

### AML/CFT and correspondent banking relationships
- Withdrawal of correspondent banking relationships remains contained in Jamaica.
- Need to strengthen AML/CFT regime in line with CFATF 2017 Mutual Evaluation recommendations.
- Work is underway, including developing and implementing a risk-based supervisory framework for deposit-taking institutions and cambios, with IMF technical assistance.

### Data standards
- Ongoing work at the statistics agency to strengthen quality and timeliness to meet Special Data Dissemination Standards Subscription.
- IMF technical assistance supports improvements in monetary statistics and external accounts, in line with 2017 Safeguards Assessment recommendations.
- BOJ upgrading capacity and statistical methods to align with the 2016 Monetary and Financial Statistics Manual and Compilation Guide and coordinating with FSC to produce consistent data for other financial corporations.
- Jamaica currently produces annual and quarterly GDP estimates by production and annual GDP estimates by expenditure.
- Quarterly expenditure GDP figures are expected to be routinely published starting in 2020.

*International Monetary Fund staff report: cr18304-jamaicafourthreview - 11.      A supplementary budget for FY18/19 was tabled in Parliament in September.*

### 24.      The program is fully financed and the capacity to repay the Fund is adequate. The

### cr18304-jamaicafourthreview - 24.      The program is fully financed and the capacity to repay the Fund is adequate. The

### Program financing and debt service
- The program is fully financed and the capacity to repay the Fund is adequate.
- Under a downside scenario, a fully-drawn SBA would imply a peak debt service in 2023 of 18.9 percent of exports of goods and services (or 6.5 percent of GDP).
- Public debt is on track to reach 60 percent of GDP by March 2026 (as stipulated in the FRL).

### Modifications to the MPCC (Monetary Policy Consultation Clause)
- Current trigger: symmetrical MPCC is triggered if annual inflation outturns at the program test dates are outside of 5±1.5 percent in 2018, and 5±1 percent in 2019.
- Proposed modification introduces a staff consultation clause:
  - BOJ will consult with IMF staff on the outlook for inflation and the proposed policy response if year-on-year inflation at program test dates falls below 3.5 percent in 2018 and 4 percent in 2019 test dates (June).
  - For the December 2018 test date, Board consultation is proposed if inflation falls below 2 percent or above 6.5 percent.
  - For the June 2019 test date, Board consultation would be triggered if inflation falls outside of the 2.5 to 6 percent range.

### Program targets and quantitative performance criteria
- Modifications proposed to the December 2018 QPC on the central government guaranteed debt ceiling.
- New QPCs proposed for end-June 2019.
- Indicative targets proposed for end-September 2019.

### Staff appraisal — macroeconomic outcomes and challenges
- Sustained reforms since 2013 have delivered macroeconomic stability but not strong economic growth.
- Positive outcomes highlighted:
  - Inflation is low.
  - FX reserves are adequate.
  - Unemployment is falling.
  - Poverty has receded.
- Key challenge: weaker than expected growth indicates macroeconomic stability is necessary but not sufficient for solid growth and robust job creation.
- Priority: steer structural reforms to facilitate private sector investment as a path to faster and sustained economic growth.

### Public-sector wage bill and fiscal space
- The public-sector wage bill needs to be placed on a downward trajectory to create greater space for growth-enhancing spending.
- Achieving a sustained reduction in the wage bill will require:
  - Overhauling compensation to reward performance.
  - Exerting better control over compensation by streamlining the vast and inequitable allowance structure.
  - Prioritizing key government functions and shedding those that are not affordable or not needed.
- These measures will inevitably reduce the size of the workforce.
- Resultant fiscal space could be sizable and provide resources for security, social, and growth-enhancing capital spending.

### Emerging fiscal risks
- Durable private sector solutions are necessary for the mining and sugar industries.
- Financing pressures on the budget from corporate sector problems should be considered carefully, weighing implications for public finance, social and jobs considerations, and trade-offs versus other fiscal needs.
- The SEZ Authority and the tax and customs administrations should follow agreed oversight procedures to ascertain compliance with SEZ rules to prevent revenue leakage.

### Monetary policy and exchange rate framework
- An accommodative monetary stance, supported by a flexible exchange rate, is essential to achieve the medium-term inflation target.
- Although the recent fall in inflation was partly supply-side driven, the BOJ should continue to act proactively to restore inflation to the mid-point of the target range.
- Key policy guidance:
  - Central focus on inflation and improved communications to better anchor inflation expectations.
  - FX intervention should be reserved for smoothing excess volatility and not to counter healthy, market-determined two-way movements.
  - Accelerate FX market development, including introduction of a common FX trading platform, review of net open position limits, and bolstering internal technical capacity.

### Multiple-price FX auction (MCP) and temporary measure
- Staff supports the authorities’ request to approve retention of the MCP relating to the multiple price foreign currency auction for a period of twelve months from the date of the decision approving the retention—for non-BOP reasons (MEFP ¶8).
- Staff rationale for retention:
  - The measure is temporary.
  - It does not materially impede Jamaica’s BOP adjustment.
  - It does not harm the interests of other members.
  - It does not discriminate among members.

### Private sector investment and structural reforms
- Economic conditions are ripe for the private sector to step up productive investment.
- Since 2013, sound macroeconomic fundamentals and economic stability have been established.
- Private lending and investment to support the productive economy has lagged.
- To boost private investment policymakers should:
  - Remove obstacles to private investment in the real economy.
  - Support skills development.
  - Lower red tape.
  - Increase policy predictability.

### Financial sector strengthening
- Further strengthening the financial sector, in line with FSSA recommendations, is a top priority.
- Immediate attention needed to enhance:
  - Coordination.
  - Data collection.
  - Monitoring.
  - Technical capacity at both financial regulators.
- Additional steps:
  - Bolster consolidated and risk-based supervision.
  - Identify domestic-systemically important banks (with appropriate accompanying regulatory treatment).
  - Address impediments that constrain access to finance.

### Staff recommendations and approvals
- On the basis of strong program implementation and continued reform commitment, staff recommends approval of:
  - Completion of the fourth review and monetary policy consultation under the SBA.
  - Approval of the retention of the MCP.
  - Proposed establishment and modification of performance criteria.
  - Proposed modification of the MPCC.

*International Monetary Fund — Jamaica: Fourth Review (excerpt)*

### Box 1. Strengthening the Bank of Jamaica’s Monetary Policy Communications

### Box 1. Strengthening the Bank of Jamaica’s Monetary Policy Communications

### Progress in monetary policy framework and communications
- The Bank of Jamaica (BOJ) has made significant progress in strengthening its monetary policy framework.
- Exchange rate has been more flexible since the B-FXITT auctions were introduced.
- Interest rate corridor has narrowed to improve policy signaling.
- Modelling and forecasting has been upgraded.
- Information sharing has expanded.
- BOJ has strengthened communications around monetary and exchange rate policy:
  - holds quarterly press briefings;
  - issues press statements for policy decisions;
  - publishes monetary and inflation reports several times a year;
  - publishes a financial sector stability report each year.
- BOJ stepped up its communications during the introduction of the FX auctions via the B-FXITT.

### Policy context and importance of communication
- Draft legislation to amend the BOJ Act toward operational independence and full-fledged inflation targeting is underway.
- Clear and transparent communication will be even more essential as BOJ moves toward inflation targeting.
- Communication can be an effective monetary policy instrument.
- A large empirical literature indicates that stronger transparency and communication strategies are linked with greater policy predictability and better anchoring of inflation expectations (WHD April 2018 REO, Chapter 3).
- Transparency enhances accountability by enabling the public to better understand the central bank’s objectives and the factors that drive monetary policy decisions.
- While transparency at the BOJ has improved, international comparison suggests room for more development.

### Communication objectives as BOJ transitions to inflation targeting
- As BOJ transitions to inflation targeting, it could seek to further enhance financial literacy and understanding of financial markets such that inflation expectations can be anchored credibly, supporting the BOJ’s independence.
- Communication could include analyses of future policy intentions with the necessary caveats, and simplified reasons behind conclusions that can be understood by a wider audience.

### Recommended key elements of a BOJ communications strategy
- (i) explaining the benefits of achieving price stability;
- (ii) better tailoring communications to diverse audiences;
- (iii) using simpler and less technical language for greater reach;
- (iv) expanding the range of communications channels to include more broadcast and social media;
- (v) strengthening BOJ’s presence in the public debate, including by designating additional senior level spokespersons;
- (vi) explaining consistency of policy signals of various operational actions, to safeguard BOJ credibility.

### Support and next steps
- The BOJ has set on a path of significant reforms to improve the effectiveness of monetary policy.
- Transforming its approach to communication, with IMF technical assistance, will further support its policy effectiveness and credibly anchor inflation expectations.

*Source: Box text and accompanying notes from the IMF staff report "Box 1. Strengthening the Bank of Jamaica’s Monetary Policy Communications."*

### 1. Primary balance of the central government (floor) 3/132.0143.918.018.131.344.0

### cr18304-jamaicafourthreview - 1. Primary balance of the central government (floor) 3/132.0143.918.018.131.344.0

### Fiscal performance indicators (quantitative targets and outcomes)
- 1. Primary balance of the central government (floor) 3/132.0143.918.018.131.344.0
  - Series of values: 68.0 68.0 140.2 141.6 19.0 35.7
- 2. Overall balance of the public sector (floor) 3/-14.825.5
  - Series of values: -25.0 -20.5 16.5 -39.2 -41.1 -41.1 -14.7 -14.7 -14.0 -25.0
- 3. Net increase in the central government guaranteed debt (ceiling) 3/0.0
  - Series of values: -8.9 0.0 0.0 -8.4 0.0 0.0 -8.4 0.0 -8.4 0.0 0.0
- 4. Central government accumulation of domestic arrears (ceiling) 4/ 10/0.0-2.5 0.0 0.0-4.5 0.0
  - Series of values: 0.0 0.0 0.0 0.0 0.0 0.0
- 5. Central government accumulation of tax refund arrears (ceiling) 5/ 10/0.0-9.6
  - Series of values: 0.0 0.0 -14.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- 6. Accumulation of external debt payment arrears (ceiling) 4/ 9/0.0
  - Series of values: 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

### Indicative targets (revenues, spending, debt, PPPs)
- 7. Tax revenues of the central government (floor) 3/ 473.0 496.9 110.0 110.0 128.7 234.0
  - Comparative series: 360.0 360.0 516.0 516.0 115.0 242.0
- 8. Change in the stock of public bodies non-guaranteed debt (ceiling) 11/11.5
  - Series of values: 0.2 16.8 16.8 12.8 17.2 18.0 18.0 20.0 20.0 22.0 24.0
- 9. Central government spending on social programs (floor) 3/ 7/26.6
  - Series of values: 32.2 6.4 6.4 11.5 11.9 19.4 19.4 28.2 28.2 6.7 12.3
- 10. Total loan value of all user funded PPPs (ceiling, percent of GDP) 3.0 1.5
  - Series of values: 3.0 3.0 1.5 3.0 3.0 3.0 3.0 3.0 3.0 3.0

### Monetary targets and MPCC
- 11. Stock of non-borrowed net international reserves (floor) 6/ 8/1,917 ... 2,409 ... 2,075 2,073.5 24 2,140
  - Series of values (as presented): 2,200 2,200 2,200 2,200 2,250 2,300
  - Note: units are "In millions of U.S. dollars."
- 12. Monetary policy consultation clause (in percent) 12/
  - Outer band (upper): 7.5 6.5 6.5 6.5 6.5 6.0 6.0 6.0 6.0
  - Center inflation target: 5.0 4.0 5.0 2.8 5.0 5.0 5.0 5.0 5.0
  - Inner band (lower): 3.5 4.0 4.0 4.0
  - Outer band (lower): 2.5 3.5 3.5 3.5 3.5 2.0 4.0 2.5 2.5 2.5

- MPCC definitions and notes (as per 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.
  - 12/ The Monetary policy consultation clause bands consist of two types of thresholds.  The Inner band triggers a Staff consultation and an Outer band triggers a Board conusltation as detailed in the TMU.

### Indicators of Fund credit, projected debt service, and outstanding stock (SDRs and percent metrics)
- Prospective drawings (3-year SBA) 873.70 321.60
  - (in percent of quota) 228.18 83.99
- Amortization (multi-year series):
  - Amortization total: 22.38 64.80 83.68 93.12 610.37 679.38 136.42 28.32 9.44 0.00
  - Amortization (4-year EFF): 22.38 64.80 83.68 93.12 93.12 81.73 56.02 28.32 9.44 0.00
  - Amortization (3-year SBA) 1/ : 0.00 0.00 0.00 0.00 517.25 597.65 80.40 0.00 0.00 0.00
- Interest and service charges 1/: 7.02 31.25 32.45 30.70 25.42 12.60 2.60 0.62 0.14 0.00
- GRA surcharges 1/: 1.76 15.47 18.08 17.14 13.80 0.86 0.00 0.00 0.00 0.00
- SDR charges and assessments 1/: 0.26 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05 1.05
- Total debt service 1/: 29.66 112.42 135.27 141.22 652.31 694.33 140.08 30.00 10.63 1.05
  - (in percent of exports of G&S) 1.05 3.71 4.18 4.19 18.33 18.89 3.69 0.77 0.25 0.02
  - (in percent of GDP) 0.34 1.28 1.46 1.45 6.39 6.48 1.24 0.25 0.08 0.01
- Outstanding stock 1/: 1,383.93 1,640.73 1,557.04 1,463.92 853.55 174.18 37.76 9.44 0.00 0.00
  - (in percent of quota) 361.43 428.50 406.64 382.32 222.92 45.49 9.86 2.47 0.00 0.00
  - (in percent of GDP) 16.04 18.68 16.84 15.05 8.36 1.62 0.34 0.08 0.00 0.00

- Memorandum items:
  - Exports of goods and services (US$ millions): 4,202.50 4,514.96 4,826.61 5,030.65
  - GDP (US$ millions): 12,862.94 13,096.84 13,785.90 14,501.16 15,228.51 15,983.78 16,792.68 17,642.39 19,141.99 20,769.06
  - Debt service as percent of baseline exports: 0.92 3.36 3.91 3.95
  - Debt service as percent of baseline GDP: 0.29 1.05 1.20 1.19 5.24 5.31 1.02 0.21 0.07 0.01
  - Quota: 382.90 (consistent across years)

### FSSA main recommendations (selected items and timelines)
- Financial Stability and Resources
  - 1 Increase supervisory resources (All) I
  - 2 Enhance data collection and technical skills needed for risk-based supervision, including frequency, granularity, and quality, with a focus on exposures data for analysis (All) I
  - 3 Strengthen the IT platform for supervisory data sharing and regulatory collaboration, including sharing costs (All) I/NT
- Microprudential Oversight
  - 4 Provide greater delegation to the BoJ to enact legally enforceable rules and include the most important Standards of Sound Practices in the binding set of prudential rules (Government) I
  - 5 Fully deploy and implement risk-based supervision (BoJ, FSC) I
  - 6 Fully deploy and implement risk-based AML/CFT supervision for DTIs and Cambios (BoJ) NT
  - 7 Implement consolidated supervision and intensify cross-agency cooperation (BoJ, FSC) I
  - 8 Strengthen the regulatory framework by implementing Basel III capital adequacy requirements and liquidity requirements at the solo and group levels (BoJ) NT
  - 9 Intensify dialogue with the industry (BoJ, FSC) I
- Securities Dealers, Insurance, Macroprudential, Crisis Preparedness (selected)
  - 10 Complete the retail repo reforms through the staged introduction of the mismatch ratio (FSC) I/NT
  - 14 Enact binding regulations for asset-liability management and introduce regular stress tests for general insurers (Government, FSC) MT
  - 16 Develop a toolkit for macroprudential policy (BoJ) MT
  - 18 Introduce a special resolution regime (SRR) closely aligned with international best practice for resolving systemic financial institutions (Government) NT
  - Timeline key: I (immediate) = within one year; NT (near term) = 1–3 years; MT (medium term) = 3–5 years.

### Letter of Intent highlights and MPCC consultation on missed inflation target
- Date and signatories:
  - Kingston, Jamaica, October 4, 2018. Signed by Andrew Holness (Prime Minister), Nigel Clarke (Minister of Finance and the Public Service), Brian Wynter (Governor, Bank of Jamaica).
- Government characterization of progress:
  - "Our public debt is on a firm downward trajectory and, barring unforeseen shocks, will be at or below 60 percent of GDP by 2025/26 (as mandated by our Fiscal Responsibility Law)."
  - "The inflation outturn for June 2018 was 2.8 percent (y/y), below our target range."
  - Request to IMF Executive Board: "approve the retention of the multiple currency practice related to our multiple-price FX auction on the same grounds as was done on October 23, 2017."
  - Request: completion of the fourth review of the SBA and approval of modifications of (i) the PC for end-December-2018, and (ii) the MPCC consultation clause.
- Bank of Jamaica report on breach of inflation target (07 August 2018) — key findings:
  - The Minister set a continuous medium-term inflation target of 4.0 per cent to 6.0 per cent to be achieved and maintained by Bank of Jamaica from April 2018 onwards.
  - STATIN reported annual CPI change at June 2018 was 2.8 per cent, below the lower limit of the inflation consultation band, triggering the MPCC.
  - Inflation for April 2018 and May 2018: 3.2 per cent and 3.1 per cent; June 2018: 2.8 per cent.
  - Primary contributors to lower-than-target inflation at June 2018:
    - Stronger-than-anticipated reversal in agricultural prices in the March 2018 quarter.
    - Lower-than-forecasted imported inflation.
    - A reduction in the pass-through of oil prices to inflation.
    - Domestic demand conditions weaker than originally anticipated.
  - Bank of Jamaica projection and stance:
    - Projects inflation over September 2018 to December 2018 to remain close to 3.5 per cent (below the lower limit), rising to the midpoint of the target by June 2019 and remaining broadly at that level over the medium term.
    - Notes possibility that "stronger monetary policy action may be required in the near term" given persistent sluggishness in demand, specific constraints in monetary policy transmission, and risk of additional negative inflationary shocks.
  - Contextual factors affecting transmission:
    - Fiscal dominance, high and rising dollarization, limited competition in the banking sector, uneven excess liquidity among banks, underdeveloped interbank FX and money markets, and gaps in BOJ governance and legislative framework.

*Source: IMF staff report material from "cr18304-jamaicafourthreview - 1. Primary balance of the central government (floor) 3/132.0143.918.018.131.344.0" (extracted content).*

### 12. Reforms aimed at strengthening macro-financial stability dealt with issues of fiscal

### Reforms aimed at strengthening macro-financial stability

### Macro-financial reforms and fiscal outcomes
- Reforms addressed fiscal consolidation, debt sustainability, resilience of the financial sector, financial inclusion and reducing dollarization.
- Government overall debt ratio: 118.2 per cent of GDP at end FY2016/17 (from 147.0 per cent in FY2012/13).
- Reductions in the fiscal deficit over time were the main driver of the decline in the debt ratio.
- Reforms produced some demand compression but supported a significant reduction in fiscal dominance.
- Increased level and concentration of liquidity in the financial system occurred in the context of:
  - the GOJ’s programme of fiscal consolidation and deleveraging, and
  - the central bank’s programme of reserve accumulation.

### Central bank modernization, market procedures, and liquidity measures
- Completed/in-train initiatives to improve policy signaling included:
  - establishment by Bank of Jamaica of an interest rate corridor for private money market interest rates;
  - introduction of auctions for Bank of Jamaica’s interactions with the foreign exchange market;
  - lowering of FX surrender requirements;
  - phasing out of FX sale arrangements under the Public Sector Enterprise Facility (PSE).
- Legislative amendments to modernize the central bank (clarify objectives, improve governance and accountability, enhance financial and operational independence) were on track for tabling in Parliament by October 2018.
- Government defined a continuous medium-term inflation target of 4.0 per cent to 6.0 per cent for the Bank (defined in September 2017; effective April 2018).
- Bank liquidity assurance programme measures:
  - standing overnight lending facility and a two-week lending facility;
  - provision of shorter-term Jamaican dollar-denominated instruments to financial institutions in exchange for longer-dated domestic assets to address bond market liquidity;
  - improved coordination between the Ministry of Finance and the Public Service and the Bank via the Central Treasury Management System.
- Interest rate corridor details (as reported): initially set at 375 basis points at September 2014; narrowed to 200 basis points at June 2017; with overnight rate replacing 30-day rate in July 2017 the spread increased to 300 bps.

### Economic performance and labor market outcomes
- Real GDP growth:
  - FY2015/16: 1.0 per cent
  - FY2016/17: 1.4 per cent
  - FY2017/18: slightly less than 1.0 per cent (most recent estimate)
- Inflation:
  - End FY2016/17: 4.1 per cent (from 9.1 per cent in FY2012/13)
- Employment and unemployment:
  - Over three years to April 2018, employment grew by 88,800 (7.9 per cent).
  - Unemployment rate at April 2018: 9.7 per cent (a 3.5 percentage point reduction).
  - Labour force participation rate averaged 64.5 per cent.
- Financial conditions: lower inflation and auction-based FX interactions coincided with lower depreciation, increased volatility in the exchange rate, and generally downward-trending market interest rates amid high liquidity.

### Main assumptions underlying inflation projections
- Monetary policy affects inflation with a lag of between four and eight quarters; monetary policy is forward looking.
- Bank of Jamaica assessment frequency: eight times per calendar year; comprehensive macroeconomic forecast prepared on four occasions.
- Forecasts typically do not include assumptions for domestic or international supply shocks; such shocks are evaluated as risks and presented in fan charts.
- Relevant inflation projection for June 2018 and underpinning assumptions were finalized in the June 2017 quarter.
- Projections (at July 2017) and main assumptions:
  - FY2018/19 growth projected to accelerate to 2.9 per cent (from 1.9 per cent for FY2017/18).
  - Average growth over next three years projected at 2.5 per cent.
  - Government operations expected to remain restrictive with primary balances of 7.0 per cent of GDP over the medium term.
  - Exchange rate assumed to adjust over the medium term in line with inflation differentials with main trading partners.
  - International commodity prices (oil and non-oil) projected to trend upwards moderately during FY2018/19.
- Table 1: Medium-Term Inflation Forecast and Main Assumptions (at July 2017)
  - Inflation: FY2015/16 3.0; FY2016/17 4.1; FY2017/18 4.6; FY2018/19 5.0; FY2019/20 5.0; FY2019/21 5.0
  - GDP Growth: FY2015/16 1.0; FY2016/17 1.4; FY2017/18 1.9; FY2018/19 2.9; FY2019/20 2.3; FY2019/21 2.4
  - Treasury Bill Rate (180-day) (eop): FY2015/16 5.8; FY2016/17 6.3; FY2017/18 6.1; FY2018/19 6.1; FY2019/20 6.1; FY2019/21 6.1
  - Crude Oil (WTI): FY2015/16 37.96; FY2016/17 49.67; FY2017/18 48.71; FY2018/19 51.46; FY2019/20 52.70; FY2019/21 54.05
  - %Change (oil): FY2016/17 30.9; FY2017/18 -1.9; FY2018/19 5.6; FY2019/20 2.4; FY2019/21 2.6
  - US Inflation: FY2015/16 0.9; FY2016/17 2.4; FY2017/18 1.4; FY2018/19 1.6; FY2019/20 1.8; FY2019/21 2.0

### Bank of Jamaica monetary policy actions and rationale
- Since 2014 Bank of Jamaica adopted an accommodative stance in response to declining inflation and sluggish growth.
- Since June 2017, the Bank reduced the policy rate on six occasions. The overnight policy rate was reduced four times by 25 basis points each to 2.50 per cent at May 2018.
- Table 2: Bank of Jamaica’s Monetary Policy Decisions (2017 & 2018)
  - 09 February 2017: Policy Rate 5.00; Change 0.00
  - 04 April 2017: Policy Rate 4.75; Change -0.25
  - 01 July 2017: O/N CD 3.75; (Bank changed policy rate from 30-day to overnight on 01 July 2017)
  - 24 August 2017: O/N CD 3.50; Change -0.25
  - 22 November 2017: O/N CD 3.25; Change -0.25
  - 20 February 2018: O/N CD 2.75; Change -0.25
  - 27 March 2018: O/N CD 2.75; Change 0.00
  - 16 May 2018: O/N CD 2.50; Change -0.25
  - 27 June 2018: O/N CD 2.00; Change -0.50
- The repeated easing reflected forecasts pointing to inflation falling in the lower part of the 4.0 per cent to 6.0 per cent target.
- In June 2018 the Bank reduced the policy rate by 50 basis points to 2.00 per cent and changed communication tone. When adjusted for expected inflation, the real policy rate became very negative amid high liquidity.
- Objective of June 2018 easing: foster greater credit expansion and faster GDP growth to support inflation returning to the 4.0 per cent to 6.0 per cent target over the medium term.

### Why inflation breached the target (as of June 2018)
- Primary factors for lower-than-target inflation at June 2018:
  i. Stronger-than-anticipated food price reductions in the March and June 2018 quarters.
  ii. Lower-than-forecasted imported inflation associated with a strengthening currency and reduced pass-through of oil prices to inflation.
  iii. Weak domestic demand conditions.
- Specific observations:
  - Unprocessed food prices (STATIN’s Vegetable and Starchy Foods sub-division) fell by 9.4 per cent for the first half of the calendar year relative to December 2017; Bank had projected a 3.4 per cent decline for that sub-index at the December 2017 forecast round.
  - Six-month average of the bilateral (JMD/USD) end-of-month exchange rate appreciated by 2.0 per cent at May 2018 relative to May 2017.
  - JMD/USD exchange rate at end May 2018 appreciated on an annual point-to-point basis by 1.7 per cent, contrary to the Bank’s broad expectation for a depreciated nominal exchange rate over the year.
  - Average monthly crude oil price increases over the year to May 2018 accelerated to 3.0 per cent (compared with 0.5 per cent over the previous year to May 2017 and 0.1 per cent expected by the Bank).
  - Average monthly changes in the fuel charge in electricity rates (in US$) fell to 1.8 per cent over the year to May 2018 (compared with 6.3 per cent in the previous year), indicating reduced pass-through of international oil prices to domestic electricity rates.
  - Bank’s main measure of core inflation (CPIAF) remained firmly below 3.0 per cent since April 2016; at June 2018 CPIAF annual change was 2.3 per cent (2.4 per cent at June 2017).

### Outlook, projected path, and conditional monetary posture
- Bank projects inflation for Sept 2018 to Dec 2018 will remain close to 3.5 per cent, partly due to base effects of low CPI at June 2018.
- Inflation projected to rise above 5.0 per cent by June 2019 but subside to the lower half of the target band over the medium term.
- Projected path consistent with an average monthly inflation rate of 0.4 per cent (slightly higher than 0.3 per cent monthly average over the most recent eight quarters).
- Jamaica may trigger the MPCC at the December 2018 SBA review, since recent monetary policy adjustments will be largely ineffective over the short horizon.
- Lagged effects: recent rate cuts and any action at the next decision date (27 August 2018) will not affect inflation until the September 2019 quarter.

*https://www.imf.org/-/media/files/publications/cr/2018/cr18304-jamaicafourthreview.pdf*

### 31. In a context of an unchanged monetary policy over the forecast horizon, the inflation

### cr18304-jamaicafourthreview - 31. In a context of an unchanged monetary policy over the forecast horizon, the inflation

### Inflation outlook and primary drivers
- Inflation trajectory is driven primarily by:
  - (1) a normalization in domestic agricultural commodity prices
  - (2) higher imported inflation
  - (3) the effect of higher economic activity, given the accommodative monetary conditions induced by the central bank over the past year.
- Seasonal patterns and an outlook for an intensification of dry conditions during the September 2018 quarter imply agricultural supplies are expected to fall over the near term, relative to the June 2018 quarter, supporting higher vegetable and starchy food prices in the September and December 2018 quarters.
- Recent upturn in crude oil prices is expected to affect domestic energy prices:
  - Forecast for elevated international oil prices at around US$70 per barrel for the remainder of 2018 in the context of geopolitical tensions.
  - Implies an increase of approximately 30.0 per cent in oil prices for FY2018/19.
  - Followed by a normalization to an average of about US$64.00 per barrel in FY2019/20.
- Average GDP growth is projected to approximate 2.0 per cent over the next eight quarters, an acceleration relative to the 1.1 per cent realised over the last two years.
  - Much of this acceleration is related to the restart of a plant in the mining sector.
  - Abstracting from the effects of this plant, the Bank projects average GDP growth of 1.7 per cent over the period.

### Other assumptions underlying the medium-term inflation forecast
- Continued gradual recovery in the world economy; the US economy should continue to grow strongly over the next three years.
- International financial conditions are projected to tighten further as the US monetary authorities increase their policy rate.
- The Government of Jamaica’s fiscal stance is expected to remain restrictive.
- Risk considerations noted:
  - Given the risk for adverse weather shocks, there is a risk that unprocessed food prices could increase by more than is being anticipated.
  - The higher imported inflation is predicated on the projection for increases in oil price, offset by an assumed lower pass-through (relative to history) to domestic energy prices.

### Bank of Jamaica policy stance and implications
- The Bank has undertaken a number of policy adjustments to guide inflation, over time, back into the target band.
- The Bank’s analysis: factors responsible for shifting inflation below the target, though somewhat ameliorated, still persist.
- Constraints and risks to monetary transmission:
  - Uneven excess liquidity within the financial system remains a constraint to the effectiveness of the transmission mechanism.
  - Possibility that additional negative inflationary shocks may adversely affect inflation in the future.
- Core inflation considerations:
  - Low core inflation, symptomatic of weak domestic demand, will need to accelerate in the context of the pickup in economic activity to approximately 3.5 per cent, to be consistent with the midpoint of the target bands.
  - The average level of core since April 2016 is 2.5 per cent.
- With continued slow pace of economic expansion, notwithstanding the strong pace of job creation, stronger monetary policy action may be required in the near term.

### Memorandum of Economic and Financial Policies — key policy measures and updates
- Strategic focus:
  - Increase growth and resilience and raise the living standards of all Jamaicans, while maintaining public debt on a firm downward trajectory.
  - Securing citizens’ security and combatting crime are the government’s highest priorities.
- FY2018/19 Budget and execution:
  - Central government primary surplus exceeded budget by J$5 billion at end-July 2018 with tax receipts remaining buoyant.
  - Capital expenditure is over-performing, with significant ongoing infrastructure spending.
  - Supplementary budget tabled in parliament in September is consistent with achieving the 7 percent primary surplus in FY2018/19.
  - Tax revenue overperformance, combined with the unused allocation from the Special Early Retirement Programme and special distributions from public bodies will be used to address longstanding arrears and current payments due to the power company by local authorities for street lighting and increase growth-enhancing capital expenditure.
- Wage bill and public sector reform:
  - Government reached a 4-year—rather than the usual 2-year—wage settlement with 80 percent of central government employees and continues to work closely with the police and other bargaining units.
  - Plans to outsource some administrative activities in a few ministries to increase efficiency and lessen wage costs.
  - Developing a new public sector compensation framework to (1) transform complex salary scale to one that better rewards performance; and (2) streamline the vast and inequitable system of allowances.
  - Looking to upgrade technology to allow for a smaller public sector workforce.
  - Prioritizing essential government functions/services to free-up resources for social and capital spending.
  - Accelerating the merger, closure, or reintegration of 18 public bodies in the next twelve months.
- Modernizing the Central Bank:
  - On track to submit legislation to further modernize Bank of Jamaica’s monetary policy framework and make price stability the BOJ’s central mandate (end-October 2018 structural benchmark).
  - Reforms intended to improve BOJ governance and accountability structure and strengthen its balance sheet.
  - BOJ developing, with IMF technical assistance, a communication strategy and toolkit to support the shift to inflation targeting and ensure clarity and transparency in its policy messages.
  - BOJ remains committed to steering inflation towards the centre of its 4–6 percent target range.
  - Confidence that the combination of policy interest rate cuts and the unwinding of temporary supply-side factors will bring inflation to 5 percent by mid-2019.
  - BOJ actions on FX market development include:
    - Introducing a market trading platform integrated with payments and settlement systems.
    - Developing regulations for FX market hedging instruments and engaging with market participants on pricing and monitoring criteria.
    - Gradually reducing the surrender requirements.
    - Transitioning public enterprises into the market.
    - Upgrading monitoring capacity for FX Net Open Position limits and developing the prudential regime for the limits.
    - Investing in market intelligence to better calibrate FX market actions.
  - Commitment to exchange rate flexibility and limiting FX market sales to smoothing excess volatility and countering disorderly market conditions.
- Building financial resilience (end-of-programme intentions and measures):
  - Examine scope to reduce liquid asset requirements (from the current level of 26 percent) and develop a well-calibrated liquidity coverage ratio (LCR) in line with international norms.
  - Intend to lower the J$ cash reserve requirement (currently at 12 percent).
  - Examine ways to phase out certain financial turnover taxes in a revenue neutral way (including the asset tax, stamp duty, and transfer tax).
  - Develop the primary and secondary debt markets and build a liquid benchmark government yield curve.
  - Improve credit reporting and revise prudential standards on problem assets and provisioning requirements.

*IMF staff report content (cr18304-jamaicafourthreview).*

### 10. Based on the findings of the recent FSAP by the IMF, we will upgrade our oversight

### 10. Based on the findings of the recent FSAP by the IMF, we will upgrade our oversight capacity. Specifically, we will:

### Key supervisory and regulatory measures
- Improve our data collection on the interconnectedness of financial institutions.
- Strengthen risk-based and consolidated supervision.
- Develop and operationalize transparent criteria for identifying systemically important financial institutions so as to help contain systemic risk.
- Further clarify the responsibilities of different players and the hierarchy of claims under the resolution regime.
- Lay out the mechanisms for resolution funding, and work to improve our recovery planning, resolution plans, and resolvability assessments.
- Gradually relax the investment limits for non-bank financial institutions after improvements are made to data collection and regulatory enforcement and we are confident that risk management frameworks of non-bank financial institutions are sufficiently prepared for such changes.
- Introduce the mismatch ratio for retail repos and revise the large exposure regime to enhance resilience of security dealers to contagion.

### Related implementation milestones and operational actions (excerpted from the Policy Matrix)
- Commence risk-based consolidated supervision pilot for at least one Domestic-Systemically Important group by May-19; BOJ and the FSC to develop an information sharing platform to execute the pilot by Dec-18.
- BOJ to establish and begin staffing a unit of at least 8 persons to commence a risk-based consolidated supervision pilot (including recovery planning) by Dec-18.
- BOJ and FSC will jointly monitor the retail repo leverage ratio for securities dealers by Jan-19; and intermediate limits proposed in Dec-2017 for large exposure limits at the group level for all financial institutions by Apr-19.
- The BOJ and FSC will continue to assess readiness to lift the investment cap for CIS and SDs further, from their current level of 25 percent.
- The FSC to require all securities dealers to conduct regular stress tests and submit test results on a semi-annual basis, commencing end-June, 2017 (one stress test using the dealer’s audited financial statements); results to feed risk-based supervision.
- Submit legislation to Parliament for a Special Resolution Regime (crisis resolution) for financial institutions, including a modified insolvency regime, and funding modalities by Sep-19.
- Legislation to amend the Cooperative Societies Act (CSA), accompanied by legislative proposals for the prudential regulatory regime for credit unions, to be tabled in Parliament by Apr-18 (target delayed to Jun-19).
- Update Proposal for the Establishment of Compensation Schemes for non-DTIs by Jun-18 (target delayed to Dec-18).

### Prudential and market resilience enhancements
- Introduce mismatch ratio for retail repos to enhance resilience to contagion.
- Revise large exposure regime to enhance resilience of securities dealers.
- Phasing out: BOJ to begin phasing out Liquid Asset Requirement by Nov-18, with total phase-out to coincide with introduction of liquidity coverage ratio in line with FSSA recommendations.
- Enhance crisis resolution through clearer hierarchy of claims, resolution funding mechanisms, and improved recovery and resolvability planning.

### Capacity building, staffing, and data improvements
- Improve data collection on interconnectedness and on non-bank financial institutions before relaxing investment limits.
- Ensure adequate supervisory staffing to reduce systemic and operational risks and manage transitions in the financial system.
- Develop and operationalize transparent criteria for systemically important financial institutions to guide supervision and resolution planning.

*Source: cr18304-jamaicafourthreview (excerpt).*

### 1. Primary balance of the central government (floor) 3/132.0143.9

### 1. Primary balance of the central government (floor) 3/132.0143.9

### Quantitative performance criteria and targets (selected)
- Primary balance of the central government (cumulative flows from April 1 through March 31): 3/132.0143.9
- Reported periodic primary balance values (as presented): 18.0 18.1 31.3; 44.0 68.0 68.0; 140.2 141.6 19.0 35.7
- Overall balance of the public sector (floor) 3/-14.8 with reported periodic values: 25.5 -25.0 -20.5 16.5; -39.2 -41.1 -41.1; -14.7 -14.7 -14.0; -25.0
- Net increase in the central government guaranteed debt (ceiling) 3/0.0 with reported periodic values: -8.9 0.0; 0.0 -8.4 0.0; 0.0 -8.4 0.0 -8.4; 0.0 0.0
- Central government accumulation of domestic arrears (ceiling) 4/ 10/0.0 with periodic entries: -2.5; 0.0 0.0 -4.5; 0.0 0.0; 0.0 0.0 0.0; 0.0 0.0
- Central government accumulation of tax refund arrears (ceiling) 5/ 10/0.0 with periodic entries: -9.6 0.0 0.0 -14.1 0.0 0.0 0.0 0.0 0.0; 0.0 0.0
- Accumulation of external debt payment arrears (ceiling) 4/ 9/0.0 with repeated 0.0 values and occasional 0.0 0.0 0.0

### Indicative targets and fiscal composition
- Tax revenues of the central government (floor) 3/: 473.0 496.9 110.0; 110.0 128.7 234.0 360.0 360.0; 516.0 516.0 115.0 242.0
- Change in the stock of public bodies non-guaranteed debt (ceiling) 11/: 11.5 0.2; 16.8 16.8 12.8; 17.2 18.0 18.0 20.0; 20.0 22.0 24.0
- Central government spending on social programs (floor) 3/ 7/: 26.6 32.2; 6.4 6.4 11.5; 11.9 19.4 19.4; 28.2 28.2 6.7; 12.3
- Total loan value of all user funded PPPs (ceiling, percent of GDP): 3.0 1.5 3.0; 3.0 1.5 3.0; 3.0 3.0 3.0; 3.0 3.0; 3.0

### Monetary targets and consultation bands
- Stock of non-borrowed net international reserves (floor) 6/ 8/1,917 (in millions of U.S. dollars) with reported periodic stocks: 2,409; 2,075; 2,073.5; 2,484; 2,140; 2,200; 2,200; 2,200; 2,200; 2,250; 2,300
- Monetary policy consultation clause (in percent) 12/:
  - Outer band (upper): 7.5 6.5; 6.5 6.5 6.5; 6.0 6.0 6.0 6.0
  - Center inflation target: 5.0 4.0 5.0 2.8; 5.0 5.0 5.0; 5.0 5.0 5.0; 5.0
  - Inner band (lower): 3.5 4.0; 4.0 4.0
  - Outer band (lower): 2.5; 3.5 3.5 3.5 2.0 4.0 2.5 2.5 2.5

### Adjusters and definitions (from the TMU)
- Primary balance definition: total revenues minus primary expenditure; covers non-interest government activities as specified in the budget.
- Revenues recorded when funds are transferred to a government revenue account; includes grants; excludes capital revenues from asset sales from divestment operations.
- Primary expenditure recorded on a cash basis and includes compensation, other recurrent expenditures, and capital spending; government-funded PPPs treated as traditional public procurements.
- All primary expenditures directly settled with bonds or other non-cash liabilities recorded above-the-line and will affect the primary balance.
- Adjuster for loan to Clarendon Alumina Production (CAP): the floor of the central government primary balance (cumulative since the beginning of the fiscal year) will be adjusted upwards by an amount equivalent to the total shortfall of principal and interest repayments due (relative to Table 2), converted at programme exchange rates.
- Adjuster for loan to Petroleum Corporation of Jamaica: the floor will be adjusted upwards by an amount equivalent to the total imputed principal and shortfall in interest repayments due (relative to Table 3), converted at programme exchange rates.

### Public sector coverage and overall balance calculation
- Public sector (Specified Public Sector, SPS) consists of central government and self-financed public bodies not deemed “commercial” by the Office of the Auditor General (OAG); excludes the Bank of Jamaica (BOJ).
- The overall balance of public bodies is calculated from Statement A’s provided by the Public Enterprises Division of the MoFPS using: operational balance + capital account net of revenues (investment returns minus capital expenditure plus change in inventories) - dividends and corporate taxes transferred to government + net other transfers from government. For National Housing Trust and Housing Agency of Jamaica, capital account revenues will not be netted out and will be included among recurrent revenue.
- Floor for overall public sector balance will be adjusted by the shortfall (excess) of PetroJam’s overall balance relative to baseline projections, capped at US$35 million at the end of any quarter, converted at programme exchange rates.

### Exchange rates (programme 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

### Reporting and timelines
- Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date.
- Fiscal year definition: April 1 through March 31.
- Cumulative flows for certain targets measured from April 1; for end-Dec 2016 and end-Mar 2017 some flows are cumulative from October 1, 2016, as noted in the TMU.
- Domestic arrears measurement: change in stock relative to end-March 2016 stock of J$21.0 billion (domestic arrears) and J$17.3 billion (tax arrears).

*Source: cr18304-jamaicafourthreview (Attachment III. Technical Memorandum of Understanding and Table data).*

### 22.      Definition of debt: External debt is determined according to the residency criterion. The

### 22. Definition of debt: External debt is determined according to the residency criterion.

### Definition of debt
- “Debt” will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract.
- Primary forms of debt:
  - Loans: advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements).
  - Suppliers’ credits: contracts where the supplier permits the obligor to defer payments until sometime after the date on which the goods are delivered or services are provided.
  - Leases: arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property. For programme purposes, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.

### 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.
- For the public bodies listed in paragraph 24, obligations that have not been paid within 30 days after the contractual due date (taking into account any contractual grace periods) are arrears.
- Under the definition of debt 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 (performance criterion)
- Applies to 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
- Exclusions:
  - Arrears on trade credits.
  - Arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or rescheduling agreement is being sought.

### Monitoring
- This performance criterion applies on a continuous basis.

### Ceiling on Central Government Accumulation of Tax Refund Arrears
- Definition: Tax refund arrears are obligations on tax refunds in accordance with tax legislation that remain unpaid 90 days after the due date.
- Measurement: 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.

### Floor on the Stock of Non-Borrowed Net International Reserves (NIR)
- Definitions:
  - NIR-BOJ = U.S. dollar value of gross foreign assets of the BOJ minus gross foreign liabilities.
  - Non-borrowed NIR = 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 (BPM6 consistent) include:
  - BOJ’s holdings of monetary gold, SDR holdings, foreign currency cash, foreign currency securities, liquid balances abroad and the country’s reserve position at the Fund.
  - Exclusions: any 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 and 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.
- Reporting: Data will be provided by the BOJ to the Fund with a lag of no more than 10 days past the test date.

### Adjusters to non-borrowed NIR targets
- 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 5.
- 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.
- Targets will also be adjusted upward (downward) by the surplus (shortfall) in disbursements of budget support grants and loan disbursements to the central government that are purchased by or deposited at the BOJ, relative to the baseline projection reported in Table 5.

### Performance Criterion on Multiple Currency Practices (MCP)
- The performance criterion on the introduction or modification of MCP will continue to exclude the ongoing implementation or modifications in 2019 of the multiple-price foreign exchange auction system, developed in line with Fund staff advice, that give rise to a MCP.

### Quantitative Indicative Targets: Key variable definitions

A. Cumulative Floor on Central Government Tax Revenues
- Definition: Tax revenues refer to revenues from tax collection. Excludes all revenues from asset sales, grants, bauxite levy and non-tax revenues.
- Measurement: 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
- Definition: Non-guaranteed debt 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.
- Target will be set in Jamaican dollars with foreign currency debt converted using the programme exchange rate.
- Measurement: Change measured “below the line” as debt issuance minus repayments on all non-guaranteed debt by public bodies.
- Recording: Debt issues recorded when funds are credited to the account of the corresponding public body.
- Measurement: Stock measured net of cross-holdings among public bodies.
- Reporting: Data provided with a lag of no more than six weeks after the test date.
- Adjusters:
  - Downward adjustment if the government assumes part of previously non-guaranteed debt or if an entity with non-guaranteed debt is divested/privatized.
  - Upward (downward) adjustment equivalent to the shortfall (excess) of PetroJam’s overall balance (relative to baseline projections in Table 4), capped at US$35 million at the end of any quarter, converted at the programme exchange rates.

C. Floor on Central Government Spending on Social Programmes
- Definition: Social spending = sum of central government spending on social protection programmes as articulated in the central government budget for a particular fiscal year.
- Social programmes include: 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 to be included:
  - Youth employment programmes (on the job training, summer employment and employment internship programme).
  - Conditional cash transfers (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 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 provided with a lag of no more than six weeks after the test date.

D. Ceiling on User-Funded PPPs
- Definition: User-funded PPPs are 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 (demonstrating no debt guarantee, demand or price guarantees or termination clauses implying transfer of liabilities to the government).
- Applicable GDP for this condition: projected nominal GDP for the ongoing fiscal year published in the Fiscal Policy Paper tabled in parliament ahead of the adoption of the FY18/19 budget.
  - For FY2018/19, the projected nominal GDP used as a reference is J$2,018 billion, as presented in Table 2H, Macroeconomic Framework, of the FY18/19 Fiscal Policy Paper.
- Reporting: Data provided with a lag of no more than six weeks after the test date.

### Monetary Policy Consultation Clause
- Inflation definition: 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 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.
- Board consultation triggers:
  - December 2018 test date: if inflation falls below 2 percent or is above 6.5 percent.
  - June 2019 test date: if inflation falls below 2.5 percent or is above 6 percent.
- Consultation will cover:
  - (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.
- Staff consultation clause triggers:
  - BOJ will consult with IMF staff if inflation falls below 3.5 percent for the December 2018 test date or below 4 percent for the June 2019 test date.

- Inflation consultation bands (Dec. 2018 / Jun. 2019):
  - Upper outer band: 6.5 / 6.0
  - Center point: 5.0 / 5.0
  - Inner band: 3.5 / 4.0
  - Lower outer band: 2.0 / 2.5

### Conditionality on Public Bodies’ Domestic Arrears
- Structural benchmark: 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)
- Monitoring: Domestic arrears monitored on a monthly basis.
- Definition: Domestic arrears = payments to residents determined by contractual obligations that remain unpaid 90 days after the due date. 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.

*IMF Staff Report: Jamaica — Fourth Review (excerpts).*

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

### cr18304-jamaicafourthreview - 54.      To ensure adequate monitoring of economic variables and reforms, the authorities will

### Daily reporting (A)
- 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).

### Weekly reporting (B)
- 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.

### Monthly reporting (C)
- 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 six 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 NBR target purposes 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).

### Quarterly reporting (D)
- Holdings of government bonds (J$-denominated and US$-denominated) by holder category. The reporting lag should not exceed six weeks after the closing of each month (this would not be 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.

### Program performance and policy context — key findings and projections
- All quantitative performance criteria (QPC) met, and structural benchmarks remaining on track through the end-June 2018 review period.
- All 21 structural benchmarks met through end-June 2018.
- Primary and overall balances continue to out-perform targets.
- Near-doubling of spending on social programs relative to the end-June 2018 target.
- Stock of non-borrowed reserves comfortably surpassed the floor at end-June 2018.
- 12-month inflation rate at June 2018 fell to 2.8 percent, below the lower band of the SBA’s target range and triggered the MPCC.
- Inflation rose to 4.3 percent in September, within the authorities’ target range of 4-6 percent.
- BOJ expects inflation to be steered toward the mid-point of the target range by mid-2019.
- Jamaican economy grew by 0.9 percent in 2017/18.
- Authorities project expansion of around 2 percent in 2018/19 and over the medium term.
- Poverty remained high at 17 percent in 2016.
- GOJ aims for public debt to reach the legislated ceiling of 60 percent of GDP by March 2026.
- Supplementary Budget tabled in September raised expenditure by approximately 1 percent of GDP.

### Fiscal policy measures and fiscal risks
- Continued fiscal consolidation aimed at delivering public sector surpluses for the fifth consecutive year.
- Revenues outperformance underpinned by recent tax reforms, including a shift toward greater reliance on indirect taxes.
- Supplementary Budget increases allowed for upscaling public investment, accelerating payout of domestic arrears, and reducing public sector borrowing.
- GOJ’s contributory pension scheme implemented in April 2018 intended to ease long-run fiscal burden.
- Historic 4-year wage agreements signed with unions present an opportunity to accelerate public sector reforms; plans to streamline compensation allowances and develop a new compensation policy and structure.
- Rationalization of public bodies: an additional 18 public bodies identified for action within the next 12 months (closure, merger, or reintegration into central government).
- Fiscal risks monitored: Venezuela’s 49 percent stake in Petrojam and implications for upgrading of the refinery; ongoing review of the entity to improve governance and reduce fiscal exposure.
- Risks from the alumina industry (Windalco): reprieve from US sanctions extended until November 12 to allow review of corporate governance changes.

### Monetary policy and central bank modernization
- BOJ maintains an accommodative monetary stance consistent with price stability under a flexible exchange rate system.
- Downside risks to inflation in first half of the year led to relaxation of monetary policy; weak transmission mechanism limited effect on demand.
- Foreign exchange interventions limited to dealing with excess volatility and disorderly market conditions.
- Authorities requested Board’s approval for retention of the multiple currency practice for a period of twelve months (first approved in November 2016).
- A Bill tabled in Parliament on October 23 seeks to establish price stability as the principal mandate of the BOJ and enable a fully-fledged inflation-targeting framework by codifying operational independence, enhancing accountability, improving governance, and strengthening the balance sheet. Reform is informed by the 2017 Safeguard Assessments.
- GOJ commenced implementation of a medium-term financing plan to strengthen the BOJ’s balance sheet in the fiscal year.
- Authorities committed to maintaining the flexible exchange rate system and enhancing BOJ communication tools with Fund assistance.

### Growth, financial intermediation, and financial sector resilience
- Growth challenge: macroeconomic stability entrenched but growth anemic.
- Authorities increased spending on physical and security infrastructure; Supplementary Budget in October included sizeable increase to road works and crime fighting.
- Private sector investment remains lukewarm; constrained by small and medium-sized firms’ inability to access affordable credit.
- Policy considerations: reducing the liquid assets requirement of banks; developing the local capital market; rationalizing financial sector taxes while protecting GOJ revenue.
- Financial sector progress acknowledged, but the FSSA flagged areas for attention; decisions and actions will be informed by FSAP recommendations.
- Authorities committed to prioritizing legislative, regulatory, and supervisory measures despite capacity constraints.

### Institutional strengthening and disaster risk financing
- Plans to modernize the central bank and establish a fiscal council to enhance fiscal responsibility.
- Capacity building underway in key macro-financial agencies with Fund assistance.
- Development, with World Bank assistance, of an institutional framework to transition from ex-post to ex-ante resilience response mechanism.
- Authorities intend to complete a national natural disaster risk financing policy by June 2019.

*IMF staff and Jamaican authorities — Fourth Review Under the Stand-By Arrangement, November 5, 2018.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18304-jamaicafourthreview.pdf_