## 1jamea2019001 ## Source details **Canonical URL:** [1jamea2019001](https://www.imf.org/-/media/files/publications/cr/2019/1jamea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1jamea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1jamea2019001.pdf.json) --- ### Executive summary — context and program status - The authorities are preparing their exit from Fund financial support; the Stand-By Arrangement ends later this year (mission discussions took place in Jamaica, February 25–March 8, 2019). - Upon completion of this review, total credit available to Jamaica under the precautionary SBA would be SDR 1,034.5 million. - All quantitative performance criteria and indicative targets for end-December 2018 and the structural benchmark to table in Parliament the proposed amendments to the Bank of Jamaica Act were met. - Modifications proposed: changes to the definition of external arrears and non-borrowed net international reserves are proposed since escrowed funds cannot be settled due to international and/or bilateral sanctions; staff proposes to remove the adjustor for the Petrojam loan. - Date of document: March 27, 2019. ### Macroeconomic outcomes and recent developments - Growth and activity: - The economy has expanded for the past 15 quarters. - Real GDP grew by 1.8 percent (y/y) in Q3 2018. - On a rolling four-quarter basis, growth averaged 1.7 percent (y/y)—the highest level since 2008. - Increases in agriculture and mining are expected to support 1.5 percent growth in FY18/19 and FY19/20. - Over the medium-term, growth is expected to rise to 2.4 percent. - Labor market: - Unemployment: 8.4 percent (July 2018); 8.7 percent (October 2018). - Labor force participation declining partly as more youth (14–30 years) seek education and training. - Inflation and monetary policy: - Inflation: 2.4 percent (y/y) in December 2018 and 2.4 percent (y/y) in February 2019. - Core inflation around 2.3 percent. - BOJ target range: 4–6 percent. - BOJ cut the overnight policy rate by a cumulative 225 bps since July 2017 to 1.5 percent. - BOJ reduced the cash reserve ratio from 12 to 9 percent of J$ deposits effective March 1. - Financial conditions and credit: - Private credit growth: 13.3 percent (December 2018) from 16.2 percent (September 2018). - NPLs remain low; average loan loss provisioning was 116 percent at December 2018. - Proposals to increase investment limits for pension funds from 0 to 5 percent to invest in private equity. - External sector and markets: - Gross reserves about 115 percent of the Fund’s ARA metric. - FY18/19 current account deficit projected around 2.5 percent of GDP; FY19/20 and medium-term around 3 percent of GDP. - Since FX auctions began in June 2017, BOJ’s FX sales have on average halved. - Fitch upgraded Jamaica’s credit rating to B+ in January 2019 and raised the country rating ceiling to BB-. - Sovereign bond yields trading at historic lows. ### Program implementation, fiscal outcomes, and structural reforms - Fiscal outcomes: - Central government primary surplus exceeded the target by J$40 billion (2 percent of GDP) due to buoyant tax revenues. - Public debt expected to fall below 100 percent of GDP in FY18/19 for the first time since FY2000/01. - End-December 2018 QPCs and indicative targets: All met. Selected outcomes (Adjusted end-December PCs / PCs / Actual / Difference / Status): - Primary balance of the central government (floor): 68.0 / 68.0 / 107.7 / 39.8 / Met - Overall balance of the public sector (floor): -41.1 / -36.6 / 29.7 / 66.3 / Met - Net increase in the central government guaranteed debt (ceiling): -8.4 / -8.4 / -11.1 / 2.7 / Met - Central government accumulation of domestic arrears (ceiling): 0.0 / 0.0 / -5.2 / 5.2 / Met - Central government accumulation of tax refund arrears (ceiling): 0.0 / 0.0 / -12.4 / 12.4 / Met - Accumulation of external debt payment arrears (ceiling): 0.0 / 0.0 / 0.0 / 0.0 / Met - Tax revenues of the central government (floor): 360.0 / 360.0 / 388.7 / 28.7 / Met - Change in the stock of public bodies non-guaranteed debt (ceiling): 18.0 / 18.0 / 15.2 / 2.8 / Met - Central government spending on social programs (floor): 19.4 / 19.4 / 28.3 / 8.9 / Met - Total loan value of all user funded PPPs (ceiling, percent of GDP): 3.0 / 3.0 / 1.6 / 0.0 / Met - Stock of non-borrowed net international reserves (floor): 2,200 / 2,200 / 2,521 / 321 / Met - Structural reforms and bottlenecks: - Structural benchmark to table proposed amendments to the BOJ Act by October 2018 was met. - Progress on tabling the Microcredit Act; delays in bank competition review and public sector wage reform; special resolution regime legislation delayed but expected submission to Parliament by September. ### Focus of the review and policy adjustments - Main discussion items: - (i) Reduce the primary surplus target for FY19/20 by ½ percent of GDP to 6.5 percent. - (ii) Strengthen governance and public financial management of public bodies. - (iii) Improve monetary and FX market operations. - (iv) Develop the domestic debt market. - (v) Improve financial sector resilience and increase access to financing. ### Risks and vulnerabilities - Fiscal risks: - Uncertainty related to the future of Petrojam creates fiscal risks. - Crime and governance: - Escalation in crime could further curtail private investment and growth. - State of emergency introduced in January 2018 helped reduce murders by 20 percent in 2018; retraction in January 2019 with bipartisan discussions to build on Plan Secure Jamaica. - External and macro-financial risks: - Weaker world growth and tighter global financial conditions are downside risks. - Lower oil prices could improve Jamaica’s external position; a slowdown in the U.S. would weaken tourist inflows. - Domestic mining risks: lifting of US sanctions on Windalco’s parent UC Rusal benefits mining; potential disruptions at Alpart could reduce growth. - Weather swings remain a risk for agriculture. ### Fiscal priorities, FY19/20 budget, and tax measures - FY19/20 budget lowers the primary surplus target from 7 to 6.5 percent of GDP. - Major tax and threshold changes and fiscal cost (J$; percent of GDP): - Reduce transfer tax on property from 5 to 2 percent: J$3,431; 0.16% GDP - Reduce stamp duties: J$6,650; 0.31% GDP - Eliminate Asset Tax on non-financial corporations: J$1,840; 0.09% GDP - Eliminate Minimum Business Tax: J$1,093; 0.05% GDP - Increase GCT threshold to J$10 million: J$731; 0.03% GDP - Increase threshold of estate tax for deceased persons from J$100,000 to J$10 million: J$287; 0.01% GDP - Total: J$14,032; 0.65% GDP - Selected growth-enhancing expenditure items (J$; percent of GDP): - Security Spending: J$7,584; 0.37% GDP - Acquisition of equipment: J$5,446; 0.26% GDP - Improvement of correctional facilities: J$225; 0.01% GDP - Construction/renovation of police stations and barracks: J$1,913; 0.09% GDP - Infrastructure: J$1,700; 0.08% GDP - Cornwall Regional Hospital: J$1,000; 0.05% GDP - Rural Water Supply Systems: J$700; 0.03% GDP - Social Protection: J$4,000; 0.19% GDP - PATH Cash Grants: J$808; 0.04% GDP - PATH (school feeding, transportation, exam fees): J$727; 0.04% GDP - Citizen Security and Justice Programme: J$300; 0.01% GDP - Poverty Reduction Programme, Basic Needs Trust Fund, Shelters for victims of domestic violence: J$885; 0.04% GDP - Grand Total: J$13,284; 0.65% GDP ### Governance weaknesses and planned actions - Shortcomings: - Serious shortcomings in governance of public bodies, PFM, and the AML/CFT framework. - Petrojam audit found multiple deficiencies in governance, procurement, management of capital investment, and employment practices. - Over 3,000 commercial bank accounts with substantial government funds (around 2 percent of GDP) outside the TSA; 2,000 accounts are university, college, and school accounts. - Planned measures: - Ensure newly created Integrity Commission is properly staffed and empowered. - Introduce regular reporting and monitoring of commercial bank accounts; migrate and close 632 (20 percent) commercial bank accounts with government cash balances into an account held at the BOJ by September 2019. - Pass regulations for transparent and competency-based corporate board appointment processes for public bodies; ensure board continuity and regular board performance evaluations. - Accelerate streamlining of the existing 162 public bodies; authorities committed to take action on 18 public bodies by September 2019. - Finalize amendments to the Proceeds of Crime Act by the end of the FATF observation period in October 2019. ### Monetary policy, FX operations, and market development - Monetary policy recommendations: - Further monetary loosening warranted to bring inflation back to the mid-point of the BOJ’s target band; inflation remains stubbornly low and risks are stacked to the downside. - Additional rate cuts should be considered in conjunction with other policy levers and carefully assess incoming information (especially oil prices and global financial conditions). - BOJ communication improvements to stress commitment to inflation mandate and establish clear channels for external stakeholders, especially the FX market. - Operational refinements to improve transmission: - Phase out the regulatory liquid asset requirement (LAR); introduce a liquidity coverage ratio for banks. - Introduce monthly averaging in reserve requirement application. - Standard deposit facility preferable to issuing overnight CDs to banks. - FX market footprint: - Limit FX sales operations to flash auctions in severe dislocations; phase out direct FX sales to public enterprises; consider lowering surrender requirement on FX transactions. - If reserve accumulation is needed, plan small and regular FX buy auctions and communicate transparently. - Strengthen BOJ regulations, monitoring, and enforcement of FX net open position limits for banks and cambios; work on trading platform, market conduct guidelines, and regulations for use of FX derivatives. - Debt and capital market development: - Improve coordination between GOJ and BOJ on issuances to support primary dealers’ market making. - Reinforce liability management and gather market intelligence. - Establish a trading platform to help price discovery and boost liquidity and secondary market trading in GOJ securities. - Increase ratings activity for new corporate issuances. ### Financial stability, supervision, and market reforms - Prudential and supervisory reforms: - Develop a risk-based consolidated supervision framework for financial conglomerates; improve coordination and data sharing between BOJ and FSC. - Accelerate development of comprehensive legislation for the Special Resolution Regime (SRR) for submission to Parliament by September 2019. - Develop firm and group-level recovery planning coordinated with consolidated supervision pilot. - Strengthen AML/CFT regime; require beneficial ownership information of legal persons be accessible. - Introduce a liquidity coverage ratio for banks. - Market development sequencing (Box 2): - Short-term: Increase issuance of short-dated securities via coordinated BOJ/MOF strategy. - Medium-term: Transition from LAR to LCR; gradually refinance FX debt to J$ debt; launch an electronic trading platform. - Structural: Review primary dealer (PD) system and issue shorter-tenor marketable securities to recapitalize BOJ and enhance open market operations. ### Data, reporting, and statistical needs - Need to boost STATIN resources to meet Special Data Dissemination Standards Subscription requirements. - Recent large and repeated revisions in historical trade data call for better collection and coordination among Jamaica Customs Agency, STATIN, and the BOJ. - BOJ should continue upgrading capacity and coordinate with FSC to produce consistent data for other financial corporations. - Routine publication of quarterly expenditure GDP figures expected in 2020. ### Program adjustments, financing, and technical modifications - Program financing and debt service: - The program is fully financed and Jamaica’s capacity to repay the Fund is adequate. - Under a downside scenario with a fully drawn SBA, debt service would peak in 2023 at 19 percent of exports of goods and services (6.5 percent of GDP). - If undrawn, debt service would peak at 3 percent of exports (1 percent of GDP). - Technical modifications proposed: - Modify the definition of non-borrowed net international reserves and external arrears to account for funds deposited into escrow that cannot be settled due to international and/or bilateral sanctions. - Remove the adjustor for the Petrojam loan, since the government’s loan to Petrojam was not executed. ### Staff appraisal — assessments and recommendations - Achievements: - After performance under two successive Fund arrangements since May 2013, Jamaica’s public debt is projected to fall below 100 percent of GDP in FY18/19. - Unemployment at an all-time low; inflation low albeit below BOJ target range; FX reserves comfortable; growth slowly rising. - All QPCs, indicative targets, and the structural benchmark for tabling BOJ Act amendments were met. - Policy recommendations and priorities: - FY19/20 budget provides boost to growth and social support without compromising the medium-term public debt anchor. - Immediate governance actions: empower the Integrity Commission; pass regulations for transparent board appointments; migrate funds from commercial bank accounts to the TSA and close those accounts; reduce the number of public bodies. - Further monetary loosening to restore inflation to the midpoint of the 4–6 percent target range, with careful assessment of incoming data and continued reduction of BOJ FX market footprint. ### Debt Sustainability Analysis — baseline, shocks, and policy implications - Baseline and outlook: - Public debt projected to decline under baseline, meeting the Fiscal Responsibility Law target of below 60 percent of GDP by FY25/26. - Baseline macro assumptions: medium-term growth to reach 2.4 percent; inflation at midpoint of 4-6 percent target; domestic interest rates gradually rise. - Primary balance path: FY2019/20 primary surplus lowered from 7 to 6.5 percent of GDP; primary balance assumed 6.5 percent from FY2020/21 to FY2023/24 and 6 percent beyond. - Stress tests and scenarios (selected results): - Growth shock: 1½ percentage points lower real GDP growth in next two years → public debt would decline to only 87 percent of GDP by FY21/22, 5 percentage points above baseline; primary balance deteriorates by 0.4 and 0.8 percentage points of GDP in these two years. - Fiscal slippage: primary surplus of 5¾ percent of GDP over next two years → debt about 84 percent of GDP by FY21/22, 2 percentage points higher than baseline. - FX shock: one-off real depreciation of 25 percent → debt would surge to 105 percent of GDP in a year (12 percentage points higher than baseline). - Interest rate shock: premium surge by 330 basis points for new debt → debt profile slightly worse by 2 percentage points of GDP by 2023; effective interest cost rises by about 20 basis points. - Contingent liability shock: one-off government support of 3 percent of GDP → debt decline to 86 percent of GDP by FY21/22 (4 percentage points higher than baseline). - External debt composition and recommendation: - FX-denominated debt accounts for over 60 percent of total public debt in FY18/19. - Recommendation: proactively shift financing toward domestic currency to alleviate FX risks and develop domestic bond market (GOJ plans to issue J$56bn in FY19/20). ### Technical Memorandum of Understanding (TMU): definitions, targets, and reporting - Selected QPCs, indicative targets, and monetary targets (selected data strings and figures preserved): - Primary balance of the central government (floor) data string: 868.068.0107.7141.619.035.7 - Tax revenues of the central government (floor) data string: 234.0258.5360.0360.0388.7516.0115.0242.0 - Change in stock of public bodies non-guaranteed debt (ceiling) data string: 17.29.418.018.015.220.022.024.0 - Central government spending on social programs (floor) data string: 11.920.119.419.428.328.26.712.3 - Total loan value of all user funded PPPs (ceiling, percent of GDP) data string: 3.01.73.03.01.63.03.03.0 - Stock of non-borrowed NIR (floor), in millions of U.S. dollars: 2,140 2,461 2,200 2,200 2,521 2,200 2,250 2,300 - Monetary policy consultation clause bands (in percent): Outer band (upper): 6.5 6.5 6.0 6.0 6.0; Center inflation target: 5.0 4.3 5.0 2.4 5.0 5.0 5.0; Inner band (lower): 3.5 4.0 4.0 4.0; Outer band (lower): 3.5 2.0 2.5 2.5 2.5 - TMU operational definitions and reporting lags for key variables (selected): - Fiscal year: April 1 through March 31. - Primary balance: total revenues minus primary expenditure (cash basis); reporting lag no more than six weeks after test date. - External arrears definition amended to exclude obligations paid into escrow that cannot be settled due to international and/or bilateral sanctions. - Non-borrowed NIR definition: NIR-BOJ minus all foreign currency liabilities issued by the BOJ and held by residents; funds deposited into escrow to meet contractual obligations that cannot be settled due to sanctions will not count towards NIR. - Monitoring frequencies: daily, weekly, monthly, and quarterly specified reporting requirements with stated reporting lags (examples preserved in source). ### Key recommendations (verbatim style and priorities) - Governance and PFM: - Empower the Integrity Commission and ensure it is properly staffed. - Codify Cabinet-approved policies into regulations to strengthen legal authority. - Migrate government-related commercial bank accounts to the TSA; in the interim actively monitor these accounts and close redundant accounts. - Publish audited financial statements in line with international accounting standards. - Reduce the number and size of public bodies; ensure transparent, competency-based board appointments and regular board performance evaluations. - Monetary and FX policy: - Continue BOJ communication improvements; consider further rate cuts while assessing incoming data. - Phase out LAR and introduce LCR; introduce monthly averaging of reserve requirements; prefer standard deposit facility over overnight CDs. - Limit FX sales to flash auctions; phase out direct FX sales to public enterprises; plan small and regular FX buy auctions if accumulating reserves. - Financial sector and market development: - Improve BOJ-FSC coordination on consolidated supervision, SRR legislation, and AML/CFT deficiencies. - Increase issuance of short-dated securities; develop electronic trading platform; review PD system; refinance FX debt gradually to J$ debt. - Introduce liquidity coverage ratio and strengthen consolidated, risk-based supervision. - Debt management and sustainability: - Maintain sustained fiscal consolidation and preserve the downward debt trajectory. - Reduce reliance on foreign currency-denominated borrowings and deepen the domestic bond market. *International Monetary Fund — Jamaica: Executive Summary, Technical Memorandum of Understanding, Annexes and Boxes (content unit: 1jamea2019001).* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and program status - The authorities are preparing their exit from Fund financial support; the Stand-By Arrangement ends later this year (mission discussions took place in Jamaica, February 25–March 8, 2019). - Upon completion of this review, total credit available to Jamaica under the precautionary SBA would be SDR 1,034.5 million. - All quantitative performance criteria and indicative targets for end-December 2018 and the structural benchmark to table in Parliament the proposed amendments to the Bank of Jamaica Act were met. - Modifications proposed: changes to the definition of external arrears and non-borrowed net international reserves are proposed since escrowed funds cannot be settled due to international and/or bilateral sanctions; staff proposes to remove the adjustor for the Petrojam loan. - Approved by Nigel Chalk (WHD) and Nathan Porter (SPR). Mission team: U. Ramakrishnan (head), J. Danforth, K. Youssef (all WHD), R. Lam (FAD), N. Suryakumar (MCM), R. Mano (SPR), C. Lonkeng (Resident Representative). A. Veras, A. Robinson, S. Spencer and C. Ritchie (all WHD) supported the mission. Mr. Williams (OED) joined the discussions. - Date of document: March 27, 2019. ### Macroeconomic outcomes and recent developments - Expansion and growth - The economy has expanded for the past 15 quarters. - Real GDP grew by 1.8 percent (y/y) in Q3 2018. - On a rolling four-quarter basis, growth averaged 1.7 percent (y/y)—the highest level since 2008. - Increases in agriculture and mining are expected to support 1.5 percent growth in FY18/19 and FY19/20. - Over the medium-term, growth is expected to rise to 2.4 percent, supported by higher public and private investment and improved productivity. - Labor market - The July 2018 unemployment rate hit a 50-year low at 8.4 percent; October recorded a slight uptick to 8.7 percent. - Labor force participation is declining in part as more youth (14–30 years) are seeking education and training. - Inflation and monetary policy - Inflation was 2.4 percent (y/y) in December 2018 and remained at 2.4 percent (y/y) in February 2019. - Core inflation is broadly flat at around 2.3 percent. - The BOJ’s target range is 4–6 percent. - The BOJ cut the overnight policy rate by a cumulative 225 bps since July 2017 to 1.5 percent. - The BOJ reduced the cash reserve ratio from 12 to 9 percent of J$ deposits effective March 1. - Headline inflation below the inner band of the Monetary Policy Consultation Clause triggered staff consultation (TMU ¶ 49). - Financial conditions and credit - Private credit growth decelerated to 13.3 percent in December 2018, compared to 16.2 percent in September 2018. - NPLs remain low; banks are well-capitalized. - Average loan loss provisioning was 116 percent at December 2018. - Proposals to increase investment limits for pension funds from 0 to 5 percent to invest in private equity are expected to improve access to financing. - Policy rate reductions are mostly passing through to consumer loans, mortgages, and already well-financed corporates, but not strongly to SMEs; system-wide loan-to-deposit rate spreads remain high. - External sector and markets - Gross reserves are now at about 115 percent of the Fund’s ARA metric. - The FY18/19 current account deficit is projected to be around 2.5 percent of GDP. - The current account deficit in FY19/20 and over the medium-term is expected to be around 3 percent of GDP. - FX market deepening: since beginning FX auctions (BFXITT) in June 2017, the BOJ’s FX sales have on average halved. - Jamaican equities outperformed all others globally in 2018. - In January 2019, Fitch upgraded Jamaica’s credit rating to B+, and raised the country rating ceiling to BB-. - Sovereign bond yields are trading at historic lows and continue to outperform other emerging markets. ### Program implementation, fiscal outcomes, and structural reforms - Fiscal performance - Buoyant tax revenues resulted in the central government primary surplus exceeding the target by J$40 billion (2 percent of GDP), even as the government boosted spending on road construction. - Public debt is expected to fall below 100 percent of GDP in FY18/19 for the first time since FY2000/01. - Quantitative performance criteria and targets (end-December 2018) - All end-December quantitative performance criteria (QPCs) and indicative targets were met. - Selected outcomes (Adjusted end-December PCs / PCs / Actual / Difference): - Primary balance of the central government (floor): 68.0 / 68.0 / 107.7 / 39.8 / Met - Overall balance of the public sector (floor): -41.1 / -36.6 / 29.7 / 66.3 / Met - Net increase in the central government guaranteed debt (ceiling): -8.4 / -8.4 / -11.1 / 2.7 / Met - Central government accumulation of domestic arrears (ceiling): 0.0 / 0.0 / -5.2 / 5.2 / Met - Central government accumulation of tax refund arrears (ceiling): 0.0 / 0.0 / -12.4 / 12.4 / Met - Accumulation of external debt payment arrears (ceiling): 0.0 / 0.0 / 0.0 / 0.0 / Met - Tax revenues of the central government (floor): 360.0 / 360.0 / 388.7 / 28.7 / Met - Change in the stock of public bodies non-guaranteed debt (ceiling): 18.0 / 18.0 / 15.2 / 2.8 / Met - Central government spending on social programs (floor): 19.4 / 19.4 / 28.3 / 8.9 / Met - Total loan value of all user funded PPPs (ceiling, percent of GDP): 3.0 / 3.0 / 1.6 / 0.0 / Met - Stock of non-borrowed net international reserves (floor): 2,200 / 2,200 / 2,521 / 321 / Met - Structural reforms and bottlenecks - Structural reforms are broadly on track, albeit with some delays in public sector transformation. - The structural benchmark to table proposed amendments to the BOJ Act by October 2018 was met. - Progress noted on tabling the Microcredit Act to support financial inclusion. - Delays: review of bank competition significantly delayed by procurement resets; delays in public sector wage reform due to data constraints and stakeholder consultations; special resolution regime legislation delayed but expected submission to Parliament by September. ### Focus of the review and policy adjustments - Main discussion items: - (i) A reduction in the primary surplus target for FY19/20 by ½ percent of GDP to 6.5 percent to accommodate well-defined priority spending (on security, infrastructure, and social policies) and to phase out a range of distortionary taxes. - (ii) Strengthening governance and public financial management of public bodies. - (iii) Improving monetary and FX market operations. - (iv) Developing the domestic debt market. - (v) Improving financial sector resilience and increasing access to financing. ### Risks and vulnerabilities - Fiscal risks - Uncertainty related to the future of Petrojam creates fiscal risks. - Crime and governance - An escalation in crime could further curtail private investment and growth. - Addressing crime and governance are high priorities; the state of emergency introduced in January 2018 helped reduce murders by 20 percent in 2018. Following retraction of the state of emergencies in January 2019, bipartisan discussions are expected to build on the existing Plan Secure Jamaica. - Shortcomings in governance of public bodies highlighted by the Auditor General’s report on the state-owned refinery (Annex I). - External and macro-financial risks - Weaker world growth and tighter global financial conditions represent important downside risks. - Lower oil prices could improve Jamaica’s external position; a slowdown in the U.S. would weaken tourist inflows; tighter global financial conditions could reduce foreign capital availability. - Domestic risks in mining: lifting of US sanctions on Windalco’s parent UC Rusal benefits mining, but potential disruptions at Alpart could reduce growth. - Weather swings remain a risk for agriculture. *International Monetary Fund — Jamaica: Executive Summary (March 27, 2019).* ### 12. Monetary policy consultation clause (in percent) 12/ ### 12. Monetary policy consultation clause (in percent) 12/ ### Monetary policy consultation clause — thresholds and observations - Outer band (upper): 6.5 - Center inflation target: 5.0 Met - Inner band (lower): 3.5 2.4 - -1.1 Not Met - Outer band (lower): 2.0 - Note: 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 consultation as detailed in the TMU. ### Fiscal priorities to support growth and social assistance — summary findings - Continued revenue overperformance supported a second supplementary budget for FY18/19. - Spending was increased by 0.6 percent of GDP, with the bulk of J$10.5 billion allocated to settling local government arrears, paying tax refunds, and improving roads. - Four-year wage settlements have been reached with 96 percent of central government employees; the 9 percent of GDP wage bill target is projected to be reached in FY18/19 in line with the Fiscal Responsibility Law. - Under the revised baseline, the debt-to-GDP ratio is still expected to reach 60 percent of GDP by FY2025/26 as stipulated in the Fiscal Responsibility Law. ### FY19/20 budget — key elements and tax measures - The FY19/20 budget lowers the primary surplus target from 7 to 6.5 percent of GDP. - Major tax and threshold changes and their fiscal cost: - Reduce transfer tax on property from 5 to 2 percent: J$3,431; 0.16% GDP - Reduce stamp duties: J$6,650; 0.31% GDP - Eliminate Asset Tax on non-financial corporations: J$1,840; 0.09% GDP - Eliminate Minimum Business Tax: J$1,093; 0.05% GDP - Increase GCT threshold to J$10 million: J$731; 0.03% GDP - Increase threshold of estate tax for deceased persons from J$100,000 to J$10 million: J$287; 0.01% GDP - Total: J$14,032; 0.65% GDP - Objectives of the tax measures: lower cost of doing business, stimulate economic activity, reduce informality, allow tax administration focus on higher-risk taxpayers. ### Selected expenditure items for growth-enhancing reforms - Security Spending: J$7,584; 0.37% GDP - Acquisition of equipment: J$5,446; 0.26% GDP - Improvement of correctional facilities: J$225; 0.01% GDP - Construction/renovation of police stations and barracks: J$1,913; 0.09% GDP - Infrastructure: J$1,700; 0.08% GDP - Cornwall Regional Hospital: J$1,000; 0.05% GDP - Rural Water Supply Systems: J$700; 0.03% GDP - Social Protection: J$4,000; 0.19% GDP - PATH Cash Grants: J$808; 0.04% GDP - PATH (school feeding, transportation, exam fees): J$727; 0.04% GDP - Citizen Security and Justice Programme: J$300; 0.01% GDP - Poverty Reduction Programme, Basic Needs Trust Fund, Shelters for victims of domestic violence: J$885; 0.04% GDP - Grand Total: J$13,284; 0.65% GDP ### Governance — key weaknesses and planned actions - Shortcomings identified: - Serious shortcomings in governance of public bodies, public financial management (PFM), and the AML/CFT framework. - Audit findings: Petrojam audit found multiple deficiencies in governance, procurement, management of capital investment, and employment practices. - Problems identified in Dunn’s River Falls and the Students’ Loan Bureau (entire Board recently replaced). - Over 3,000 commercial bank accounts with substantial government funds (around 2 percent of GDP) outside the treasury single account (TSA); 2,000 accounts are university, college, and school accounts. - Planned measures: - Ensure newly created Integrity Commission is properly staffed and empowered to investigate, prosecute, and monitor government contracts. - Introduce regular reporting and monitoring of commercial bank accounts of ministries, departments, and agencies; migrate and close 632 (20 percent) commercial bank accounts with government cash balances into an account held at the BOJ by September 2019. - Pass regulations for transparent and competency-based corporate board appointment process for public bodies; ensure board continuity for large/commercial public entities; regular board performance evaluations. - Accelerate streamlining of the existing 162 public bodies by merging/closing/reintegrating/privatizing; authorities committed to taking action on 18 public bodies by September 2019. - Finalize amendments to the Proceeds of Crime Act by the end of the FATF observation period in October 2019. ### Completing the transition to inflation targeting and monetary policy recommendations - BOJ communication: - BOJ’s advances in communication should continue, stressing commitment to inflation mandate and establishing clear channels among policy and operational units for external stakeholders, especially the FX market. - Monetary stance and actions: - Further monetary loosening is warranted to bring inflation back to the mid-point of the BOJ’s target band; inflation remains stubbornly low and risks are stacked to the downside. - BOJ reduced reserve requirement on J$ deposits from 12 to 9 percent to provide accommodation. - Additional rate cuts should be considered in conjunction with other policy levers and carefully assess incoming information (especially oil prices and global financial conditions). - Operational refinements to improve transmission: - Phase out the regulatory liquid asset requirement (LAR) that leads banks to hold high amounts of short-duration public securities; introduce a liquidity coverage ratio for banks. - Introduce monthly averaging in the application of reserve requirements. - Standard deposit facility is preferable to issuing overnight CDs to banks. - FX market footprint: - Limit FX sales operations to flash auctions in severe dislocations; phase out direct FX sales to public enterprises; consider lowering surrender requirement on FX transactions. - If reserve accumulation is needed, plan small and regular FX buy auctions and communicate transparently. - Strengthen BOJ regulations, monitoring, and enforcement of FX net open position limits for banks and cambios; work on trading platform, market conduct guidelines, and regulations for use of FX derivatives. ### Financial stability and market development - Market development priorities: - Improve coordination between GOJ and BOJ on issuances to support primary dealers’ market making. - Reinforce liability management by gathering market intelligence and aligning issuances with supply and demand. - Establish a trading platform to help price discovery and boost liquidity and secondary market trading in GOJ securities. - Increased ratings activity for new corporate issuances to support a deeper domestic debt market. - Prudential and supervisory reforms: - Develop a risk-based consolidated supervision framework for financial conglomerates; improve coordination and data sharing between BOJ and Financial Services Commission (FSC). - Accelerate development of comprehensive legislation for the Special Resolution Regime (SRR) for submission to Parliament by September 2019, including administrative resolution regime, specialized insolvency framework, and funding modalities. - Develop firm and group-level recovery planning coordinated with consolidated risk-based supervision pilot. - Strengthen AML/CFT regime; require beneficial ownership information of legal persons be accessible. - Swiftly introduce a liquidity coverage ratio for banks. ### Data issues - Need to boost STATIN resources to meet Special Data Dissemination Standards Subscription requirements. - Recent large and repeated revisions in historical trade data call for better collection and coordination among Jamaica Customs Agency, STATIN, and the BOJ. - BOJ should continue upgrading capacity and coordinate with FSC to produce consistent data for other financial corporations. - Routine publication of quarterly expenditure GDP figures expected in 2020 to further support policymaking. ### Program issues and modifications - Program financing and debt service: - The program is fully financed and Jamaica’s capacity to repay the Fund is adequate. - Under a downside scenario with a fully drawn SBA, debt service would peak in 2023 at 19 percent of exports of goods and services (6.5 percent of GDP). - If undrawn, debt service would peak at 3 percent of exports (1 percent of GDP). - Safeguards and statistical procedures: - Proposed amendments to the BOJ Act submitted to Parliament; scope to accelerate strengthening internal audit reporting practices. - BOJ developing formalized procedures for compiling monetary data with Fund technical assistance to ensure alignment with Monetary and Financial Statistics Manual methodology. - Technical modifications proposed: - Staff proposes to modify the definition of non-borrowed net international reserves and external arrears to account for funds deposited into escrow to meet contractual debt obligations that cannot be settled due to international and/or bilateral sanctions. - Staff proposes to remove the adjustor for the Petrojam loan, since the government’s loan to Petrojam was not executed. ### Staff appraisal — assessments and recommendations - Achievements: - After performance under two successive Fund arrangements since May 2013, Jamaica’s public debt is projected to fall below 100 percent of GDP in FY18/19 for the first time since FY2000/01. - Unemployment is at an all-time low, inflation is low albeit below BOJ target range, FX reserves are comfortable, and growth is slowly rising. - Program implementation remains steadfast; all QPCs, indicative targets, and the structural benchmark for tabling amendments to the BOJ Act in Parliament by end-October were met. - Policy recommendations and priorities: - Achieving higher growth calls for action by public and private sectors; FY19/20 budget provides boost to growth and social support without compromising the medium-term public debt anchor. - Public sector governance shortcomings should be immediately addressed by: empowering the Integrity Commission; passing regulations for transparent board appointments; migrating funds from commercial bank accounts to the TSA and closing those accounts; reducing the number of public bodies. - Further monetary loosening is needed to restore inflation to the midpoint of the 4–6 percent target range; BOJ should carefully assess all incoming data when considering further policy loosening and continue to reduce its FX market footprint and assess reserve requirement adjustments. *JAMAICA — INTERNATIONAL MONETARY FUND* ### 33. Strengthening coordination between the BOJ and FSC and increasing capacity in both ### 33. Strengthening coordination between the BOJ and FSC and increasing capacity in both ### Financial sector coordination and supervision - Strengthening coordination between the BOJ and FSC and increasing capacity in both institutions is paramount to maintain financial sector stability. - Risk-based supervision of financial conglomerates requires the methodical collection, sharing, and monitoring of data and lending standards. - Joint work among the regulators will be required to draft legislation for the special resolution regime and to address AML/CFT deficiencies. ### Institutional reform and fiscal sustainability - An ongoing commitment to strengthen domestic institutions is needed as Jamaica prepares to exit from the Fund financial arrangement later this year. - Priority institutional steps: - Laying the groundwork for the Fiscal Council. - Amendments to the BOJ Act for its operational autonomy. - A disaster resilience policy framework. - Public sector and fiscal measures to support sustainability: - Overhauling the public sector compensation structure by streamlining allowances and making it performance-based. - Prioritizing and reducing government functions and size. - Upgrading public bodies’ governance. ### Program support, review, and technical adjustments - Based on the program performance and the authorities’ policy commitments, staff supports the authorities’ request to complete the fifth review under the SBA. - Staff also supports the authorities’ request to modify the definitions of the QPCs on external arrears and non-borrowed net international reserves. ### Box 1 — Closing Jamaica’s Infrastructure Gap: key findings and indicators - Central Government capital expenditures have been relatively low in Jamaica over the past 3 decades, reflecting limited fiscal space, a large non-discretionary spending envelope, and structural deficiencies in the public investment process. - Going forward, continued reduction in public debt, savings on the wage bill, and an improved procurement process and budget execution should help close the country’s gap in resilient infrastructure. - Historical and recent trends: - Capital expenditure in Jamaica has fallen as a share of GDP after reaching double digits in the 1970s and 1980s. - Despite tripling over the last 3 years, infrastructure spending remains low at about one percent of GDP. - Only up to a third of the public investment envelope has been allocated to infrastructure. - Natural disasters have put additional strains on the already low capital stock, constraining Jamaica’s growth potential. - Budget execution and recent performance: - Public investment has historically taken a disproportionate hit in budget execution due to optimistic revenue projections and high non-discretionary recurrent expenditure (including wages and interest payments). - In the last three years, the GOJ has made notable progress to boost capital expenditures. - With revenue consistently over-performing budget projections, more resources have become available to fund infrastructure. - Through end-January 2019, public investment exceeded the original budget target by over 10 percent, supported by major infrastructure projects before the expiration of the associated external financing. - The recently adopted budget for FY19/20 includes increased allocation for investment in national security and infrastructure. - Institutional and procedural improvements: - The recent amendments to the Procurement Act (2018) are expected to improve the implementation of projects. - Continued strategic public investment planning through the Public Investment Management System (PIMS) should further prioritize projects across GOJ’s entities and limit discretion over their execution once budgeted and approved. - Long-run considerations: - The potential increase in the frequency of natural disasters puts an extra premium on building and maintaining resilient infrastructure. - Such investments will become increasingly possible as public debt continues to trend down and Jamaica fundamentally transforms its public sector to channel resources towards growth-enhancing spending. *Source: 1jamea2019001 - 33. Strengthening coordination between the BOJ and FSC and increasing capacity in both* ### Box 2. Public Debt Securities Market Development ### Box 2. Public Debt Securities Market Development ### Key inefficiencies in the domestic currency government securities market - Demand for liquid government securities remains elevated among financial institutions (FIs), with over-subscription in both T-bills and longer-dated securities and hoarding by larger FIs to meet high liquid asset requirements (23 percent of deposits after the recent 3 percent reduction in CRR) and regulatory collateral needs. - Elevated demand, combined with a scarcity of shorter-dated securities, is depressing the shorter end of the yield curve, at times below the policy rate, adversely impacting effective functioning of the interbank and secondary markets. - Primary market activity remains subdued amid inefficiencies, reduced supply and weak participation by the primary dealers (PDs). - Limited secondary market trading is affecting the development of a debt market. ### Recommended reforms and sequencing - Short-term: - Increase issuance of short-dated securities via a coordinated BOJ/MOF strategy to satiate the demand for liquid assets. - Medium-term: - Transition from a liquid asset ratio (LAR) to the liquidity coverage ratio (LCR) will alleviate the elevated demand for liquid assets in the medium-term. - Gradually refinance FX debt to J$ debt to help develop the benchmark yield curve and deepen the secondary market. - Enhance the BOJ’s and MOF’s capacity for gathering market intelligence and launch an electronic trading platform to help improve secondary market trading and transparency. - Structural / institutional: - Review the design and implementation of the PD system—such as establishing a PD Advisory Group chaired by MOF with BOJ as a technical advisor—and refine the PDs’ agreement pertaining to obligations and privileges. - Issue marketable securities of shorter-tenor by the GOJ to recapitalize the BOJ and allow the BOJ to use these in open market operations and/or securities lending operations to enhance secondary market liquidity. ### Market indicators and referenced charts - Holdings and demand: - Chart referenced: "Holdings of GoJ Securities and Demand (Holding in percent of total, Demand in times oversubscribed, Dec. 18)" showing T-Bill holdings and Longer-Dated Securities holdings across FI types (Commercial Banks, Building Societies, Merchant Banks, Finance Houses, BOJ, Insurance Cos., Pension Funds, Other) and auction subscription (RHS). - Yield curve and interest rates: - Chart referenced: "Yield Curve and Interest Rates (In percent)" with series for Yield Curve (Oct 2018), Yield Curve (Dec 2018), Yield Curve (Jan 2019), and Bank Lending Rate (Wtd Avg., RHS). - Chart source attribution in the box: "Source: BoJ" *Source: BoJ* ### 1. Primary balance of the central government (floor) 3/44.073. ### 1jamea2019001 - 1. Primary balance of the central government (floor) 3/44.073. ### Quantitative performance criteria and indicative targets (selected items) - 1. Primary balance of the central government (floor) - Data string: 868.068.0107.7141.619.035.7 - 2. Overall balance of the public sector (floor) - Data string: 3/-39.225. 8-41.1-36.629.7-14.7-14.0-25.0 - 3. Net increase in the central government guaranteed debt (ceiling) - Data string: 3/0.0-10.1-8.4-8.4-11.1-8.40.00.0 - 4. Central government accumulation of domestic arrears (ceiling) - Data string: 4/ 10/0.0-4.90.00.0-5.20.00.00.0 - 5. Central government accumulation of tax refund arrears (ceiling) - Data string: 5/ 10/0.0-13.10.00.0-12.40.00.00.0 - 6. Accumulation of external debt payment arrears (ceiling) - Data string: 4/ 9/0.00.00.00.00.00.00.00.0 ### Indicative targets (selected items) - 7. Tax revenues of the central government (floor) 3/ - Data string: 234.0258.5360.0360.0388.7516.0115.0242.0 - 8. Change in the stock of public bodies non-guaranteed debt (ceiling) 11/ - Data string: 17.29.418.018.015.220.022.024.0 - 9. Central government spending on social programs (floor) 3/ 7/ - Data string: 11.920.119.419.428.328.26.712.3 - 10. Total loan value of all user funded PPPs (ceiling, percent of GDP) - Data string: 3.01.73.03.01.63.03.03.0 ### Monetary targets - 11. Stock of non-borrowed net international reserves (floor) 6/ 8/ - Data: 2,140 2,461 2,200 2,200 2,521 2,200 2,250 2,300 (in millions of U.S. dollars) - 12. Monetary policy consultation clause (in percent) 12/ - Outer band (upper): 6.56.56.06.06.0 - Center inflation target: 5.04.35.02.45.05.05.0 - Inner band (lower): 3.54.04.04.0 - Outer band (lower): 3.52.02.52.52.5 ### Technical and definitional notes (as presented) - 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$17.3 billion for tax arrears. - 11/ For end-Dec 2016 and end-Mar 2017, these are cumulative flows from October 1, 2016. For subsequent dates, these are cumulative flows from April 1, 2017. - 12/ The Monetary policy consultation clause bands consist of two types of thresholds. The Inner band triggers a Staff consultation and an Outer band triggers a Board conusltation as detailed in the TMU. ### Indicators of Fund Credit (selected figures) - Prospective drawings (3-year SBA): 1,195.30 (in millions of SDRs) - (in percent of quota): 312.17 - Amortization series (selected): 64.8083.6893.12371.85679.38374.9528.329.440.00 - Interest and service charges series (selected): 25.9534.7232.8430.0117.974.490.670.150.00 - GRA surcharges series (selected): 8.8518.0816.3416.454.480.000.000.000.00 - SDR charges and assessments: 0.981.311.311.311.311.311.311.311.31 - Total debt service series (selected): 100.59137.80143.62419.62703.13380.7530.3010.901.31 - (in percent of exports of G&S) series (selected): 3.324.264.2611.7919.1310.030.770.260.03 - (in percent of GDP) series (selected): 1.151.491.484.116.563.380.260.080.01 - Outstanding stock (selected): 1,640.731,557.041,463.921,092.08412.7037.769.440.000.00 - (in percent of quota) series (selected): 428.50406.64382.32285.21107.789.862.470.000.00 - (in percent of GDP) series (selected): 18.6816.8415.0510.693.850.340.080.000.00 - Memorandum items (selected): - Exports of goods and services (US$ millions): 4,514.964,826.615,030.65 - GDP (US$ millions): 13,096.8413,785.9014,501.1615,228.5115,983.7816,792.6817,642.3919,141.9920,769.06 - Debt service as percent of baseline exports: 2.683.533.55 - Debt service as percent of baseline GDP: 0.941.231.233.435.512.850.220.070.01 - Quota: 382.90382.90382.90382.90382.90382.90382.90382.90382.90 ### Key fiscal and governance findings (Annex I: Enhancing Transparency and Governance) - Governance and corruption context - “Weak governance and corruption can severely hamper economic growth.” - Jamaica underperforms on several corruption-correlated fiscal measures; AML/CFT framework needs improvement. - Jamaica stands about equal to its emerging-market peers on the Corruption Perception Index, does better on public engagement in external audits, and falls short on transparency—procurement and PFM controls particularly problematic. - In 2016, Jamaica was placed under the enhanced follow-up process for significant deficiencies in the technical compliance and effectiveness of its AML/CFT framework, including applying enhanced due-diligence on a risk basis for Politically Exposed Persons (PEPs). - Actions taken by the Government of Jamaica (GOJ) - Establishing the Integrity Commission with investigative and prosecutorial powers. - Finalizing the legislative framework underpinning the Major Organized Crime and Anti-Corruption Agency (MOCA). - Implementing a Competency Profile Instrument for Boards of Public Bodies. - Implementing the Board Performance Evaluation Instrument. - Developing Policy Guidelines for Nomination, Selection and Appointment of Boards of Public Bodies. - Identified governance weaknesses and examples - Audit of Petrojam found deficiencies in procurement, management of capital investment projects, and recruitment; “will increase the risk of corrupt acts and further erode Petrojam’s profitability, which has declined over the last three years.” - Audit of Dunn’s River Falls found “significant and long-term fraud-control failures, financial mismanagement, insufficient processes and gaps in information technology controls” resulting in losses of $500,000 to $1 million per year. - Entire Board of the Students’ Loan Bureau replaced due to governance and management concerns. - Public bodies performance metric - Average return on assets of selected non-financial public bodies: -0.9 percent in FY17/18 compared to a global average of about 1.9 percent. - Public Financial Management and controls issues - Lack of published audited financial statements; central government budget execution reports are published monthly but are not audited and do not provide a full picture. - Over 3,000 commercial bank accounts reside outside the treasury single account (TSA), with substantial government funds (around 2 percent of GDP) in them. - Over 2,000 of these accounts are university, college, and school accounts allowed to remain outside the TSA under current legal framework; oversight is weak and there is comingling of government and donor funds. - AML/CFT findings - CFATF fourth-round MER (2016) placed Jamaica under enhanced follow-up for deficiencies in targeted financial sanctions for terrorism, vulnerabilities in the non-profit organization sector, low effectiveness in encouraging non-bank financial institutions to apply AML/CFT measures, disclosure of beneficial ownership, and investigating/prosecuting money laundering. - BOJ drafted revised AML/CFT Guidance Notes; planned legislative changes to POCA and TPA to address risk-based customer due diligence, unexplained wealth orders, and beneficial ownership—specific amendments yet to be reviewed by legal experts. ### Recommendations (selected and verbatim where presented) - Governance and corporate governance recommendations - Codify Cabinet-approved policies into regulations to strengthen legal authority. - Consider enhancing governance framework in line with OECD guidelines and past IMF TA recommendations on public bodies. Immediate actions could include: - Depoliticizing the board appointment process by relying on transparent, competency-based criteria that utilize the Competency Profile Instrument. - Reducing wholesale turnover of board membership during a change in government (requiring filling more than 2,000 board positions) by retaining a certain portion of the board, post-transition. - Creating governance sub-committees at the board to monitor and review governance arrangements especially in public bodies where this has proven to be an issue. - Minimizing vacancies by establishing and populating a database of possible pre-screened candidates to draw on when board openings arise. - Creating an online portal for an anonymous whistle blowing program for submission of tips and establishment of rewards for information that directly leads to results (e.g., the return of stolen or other misappropriated funds). - Public Financial Management recommendations - Publish audited financial statements on a timely basis in line with international accounting standards, including all revenues, expenses, assets and liabilities. - Eventually migrate all government-related commercial bank accounts to the TSA in the BOJ. - In the interim, actively monitor these accounts, including through adoption of IFMIS; monitoring and migration should be led by the Accountant General’s Department (AGD). - Specific recommendations by type of entity: - MDAs/Public bodies supported by the Consolidated Fund: Submit monthly bank reconciliation statements to the AGD; Create TSA sub-accounts for MDAs at the BOJ and begin migrating funds; Close redundant commercial bank accounts. - Universities, Colleges and Schools: Keep separate ledger accounts for budget and non-budget funds and provide quarterly reports on the balances in the budgetary fund ledgers to AGD; Bring schools into the CTMS system facilitating direct transfers between AGD and suppliers; Remove government funds from schools’ commercial bank accounts. - AML/CFT recommendations - Amend the POCA to: - Permit a risk-based approach to the application of AML/CFT measures. - Clearly identify the relevant supervisory authorities to apply risk-based approach to supervisory efforts. - Mandate regulated businesses to undertake risk-based assessments. - Undertake a National Risk Assessment. - Encourage the BOJ and FSC to implement consolidated supervision while continuing to develop and implement a risk-based approach to AML/CFT supervision. - Increase staff at the Integrity Commission quickly so it can properly execute its investigative and prosecutorial functions. - Operationalize the accessibility of beneficial ownership of all legal persons in Jamaica by law enforcement officials. *Source: Table 11 and Annex I from the IMF Jamaica report (content unit: 1jamea2019001 - 1. Primary balance of the central government (floor) 3/44.073.).* ### Annex II. Debt Sustainability Analysis ### Annex II. Debt Sustainability Analysis ### A. Public Debt Sustainability Analysis — baseline and outlook - Public debt projected to decline under baseline, meeting the Fiscal Responsibility Law target of below 60 percent of GDP by FY25/26. - Public debt expected to be below 100 percent of GDP in FY18/19 for the first time since early 2000s. - Sovereign credit rating upgrade noted: Fitch Ratings from B to B+. - Baseline macroeconomic assumptions: - Medium-term growth to reach 2.4 percent. - Inflation at the midpoint of the central bank target range of 4-6 percent. - Domestic interest rates to gradually rise in line with the inflation targeting regime. - Primary balance path: - Sustained primary surplus of 7 percent of GDP over the last few years. - FY2019/20 primary surplus lowered from 7 to 6.5 percent of GDP (a ½ percent of GDP relaxation). - Note: Primary balance assumed to be 6.5 percent from FY2020/21 to FY2023/24, and 6 percent beyond that. ### A. Public Debt Sustainability Analysis — stress tests and scenario findings - Growth shock: - Scenario: 1½ percentage points lower real GDP growth in next two years (one standard deviation of growth over past 10 years). - Result: Public debt would decline to only 87 percent of GDP by FY21/22, 5 percentage points above the baseline projection. - Primary balance would deteriorate by 0.4 and 0.8 percentage points of GDP in these two years, respectively. - Fiscal slippage: - Scenario: Lower primary surplus of 5¾ percent of GDP (about ¾ percentage points lower than baseline) over next two years. - Result: Public debt would remain about 84 percent of GDP by FY21/22, 2 percentage points of GDP higher than the baseline projection. - Exchange rate (FX) shock: - Scenario: One-off real depreciation of 25 percent. - Result: Public debt would surge to 105 percent of GDP in a year (12 percentage points of GDP higher than the baseline projection). - Interest rate shock: - Scenario: Interest rate premium surge by 330 basis points for new debt. - Result: Debt profile would slightly deteriorate by 2 percentage points of GDP by 2023 and effective interest cost on outstanding debt would rise by about 20 basis points. - Rationale for modest impact: Fixed-rate instruments account for about 85 percent of total outstanding debt; variable-rate instruments carry lower coupon rates than average effective interest cost. - Contingent liabilities from public bodies: - Scenario: One-off government support through higher public spending of 3 percent of GDP to resolve public-body challenges. - Result: Debt would decline to 86 percent of GDP by FY21/22 (4 percentage points higher than the baseline level). - Combined macro-fiscal shock: - A combined shock with growth slowdown, subdued inflation, and exchange rate depreciation would significantly affect debt dynamics. - Fiscal sustainability also vulnerable to natural disaster risks. - Risk distribution: - Based on joint historical distribution of real GDP growth, interest rate, nominal exchange rate, and primary balance, there is a 25 percent probability that public debt would exceed 78 percent of GDP by FY23/24 (9 percentage points of GDP higher than the baseline projection). ### B. External Debt Sustainability Analysis and composition - FX exposure: - FX-denominated debt accounts for over 60 percent of total public debt in FY18/19. - External debt estimated at about 61 percent of GDP in FY18/19, about 8 percentage points of GDP lower than the peak in FY16/17. - Recent financing composition: - Since mid-2017, Jamaica has not tapped international capital markets and has gradually shifted debt composition toward domestic currency denominated debt. - Recommendation from DSA: - Proactive debt management to gradually shift financing sources toward domestic currency will help alleviate foreign exchange risks. ### C. Policy implications, mitigation measures, and government actions - Maintain sustained fiscal consolidation to preserve the downward debt trajectory and primary balance targets. - Reduce reliance on foreign currency-denominated borrowings to lower exchange rate risk. - Develop and deepen domestic bond market: - Government plans to reopen or issue new domestic currency denominated bonds amounting to J$56bn for FY19/20 at various maturities to meet demand for government assets. - Medium-term debt-management scope to shift toward short-dated domestic currency denominated securities given strong investor demand and modest share of short-term debt in total outstanding debt. - Strengthen governance and fiscal oversight of public bodies to limit contingent liabilities (examples noted: Jamaica Urban Transit Co. Ltd (JUTC) losses; Petrojam capacity upgrade delays and related government support risks). - Preserve policy credibility and investor confidence to avoid spikes in sovereign yields and potential loss of market access. *Source: Annex II. Debt Sustainability Analysis (from 1jamea2019001).* ### 6. We have submitted to Parliament legislation to further modernize Bank of Jamaica’s ### 6. We have submitted to Parliament legislation to further modernize Bank of Jamaica’s ### Modernizing the Bank of Jamaica (BOJ) and monetary policy framework - Submitted to Parliament 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 aim to improve the BOJ’s governance and accountability structure and strengthen its balance sheet. ### BOJ communication and inflation outlook - The BOJ has developed (with IMF technical assistance) and published a communication strategy to support the shift to inflation targeting and ensure clarity and transparency in its policy messages. - The BOJ has started sensitizing the public on this major shift, using innovative approaches to central bank communication tailored to the Jamaican context. - Inflation status and projection: - Inflation has remained below target for most of the fiscal year. - The BOJ remains committed to steering inflation towards the centre of the 4–6 percent target range. - Projection: combination of data-dependent policy interest rate cuts, the unwinding of temporary supply-side factors in agriculture, and ongoing measures to improve monetary policy transmission will bring inflation to 5 percent by the first half of 2020. ### FX market, debt and capital market development - FX market development objectives and measures: - (1) Strengthen infrastructure by introducing a market trading platform integrated with payments and settlement systems. - (2) Develop regulations for FX market hedging instruments, and engage with market participants to develop criteria for pricing and monitoring. - (3) Phase public enterprises into the market. - (4) Phase out surrender requirements. - (5) Upgrade monitoring and enforcement capacity for FX Net Open Position limits and develop the prudential regime for the limits. - (6) Strengthen market intelligence to better understand market dynamics and calibrate FX market sales consistent with limiting them to episodes of disorderly market conditions. - Debt and capital markets objectives and measures (in conjunction with the GOJ): - (1) Improve coordination on issuances between the GOJ and BOJ. - (2) Bolster market surveillance and debt management operations. - (3) Establish a trading platform to foster price discovery and improve liquidity and secondary market trading in GOJ securities. - Policy Matrix timing and implementation notes related to FX and markets: - Introduce a mechanism such as a FX market trading platform by March 2019 (Sep-19 entry). Target delayed to December 2019. - Integrate trading platform with e-Gate and payments/settlement systems by July 2019; issue regulations in September 2019 for exclusive platform trading by end-2019. (Dates cited in policy matrix.) - Complete consultation on benchmarks and pricing for FX forward contracts by March 2019; draft regulations for FX hedging activities and reporting by June 2019. (June-19 On track.) ### Further strengthening the financial sector and inclusion - Liquidity and reserve measures: - Examining scope to further reduce the J$ liquid asset requirement (from the current level of 23 percent) and advancing calibration and transition to a liquidity coverage ratio (LCR) aligned with international norms. - Lowered the J$ cash reserve requirement from 12 to 9 percent and with it the overall J$ liquid asset requirement; further reductions over time as deemed necessary. - Prudential, supervisory and resolution measures: - Improve credit reporting and revise prudential standards on problem assets and provisioning requirements. - Enhancing data collection on interconnectedness of financial institutions and strengthening risk-based and consolidated supervision. - Develop transparent criteria for identifying systemically important financial institutions and start operationalizing those criteria by March 2020. - Submit the special resolution regime for financial institutions to Parliament in September 2019, including enabling provisions for resolution funding. - Strengthen the AML/CFT regime, in line with recommendations from the CFATF 2017 Mutual Evaluation, through close coordination between the financial regulators and the Financial Investigation Division of the Finance Ministry. - Propose to raise the investment limits for pension funds from 0 to 5 percent to allow investment in private equity; expected to support innovation, opportunity and growth. - Supervision, staffing and market conduct: - BOJ to establish and begin staffing a unit of at least 8 persons to commence a risk-based consolidated supervision pilot of a systemically important group by December 2018. (Dec-18 Target met.) - Commence risk-based consolidated supervision pilot for at least one Domestic-Systemically Important group by May 2019. (May-19 On track.) - BOJ and FSC to jointly monitor the retail repo mismatch ratio for securities dealers by January 2019; intermediate limits for large exposure at group level monitoring delayed to December 2020. - FSC to require all securities dealers to conduct regular stress tests and submit results on a semi-annual basis, commencing end-June 2017. Continuous; Ongoing. - Assess readiness to lift the investment cap for CIS and SDs from their current level of 25 percent. Continuous; Ongoing. - Financial inclusion and governance initiatives: - Table a Micro Credit Act in Parliament. (May-18 Target met by the revised date of February 2019.) - Review the Credit Reporting Act to encourage increased participation of data providers in the credit reporting system; Cabinet review delayed to July 2019. - Legislation to amend the Cooperative Societies Act and prudential regime for credit unions to be tabled in Parliament by April 2018 (revised date Jun-19). Target on track for revised date of June 2019. - Update Proposal for the Establishment of Compensation Schemes for non-DTIs by June 2018. (Jun-18 Target met with delay.) ### Selected policy matrix highlights and implementation status (selected entries) - BOJ Act revisions: Submit revisions to Parliament to enhance governance and independence — Oct-18. Yes (modified) Target met. - Communication: Bank of Jamaica to publish and implement its monetary policy communication strategy — Mid-Nov-18. Target met. - International reserves: Steadily phase-out surrender requirements and borrowed reserves; by end of programme, achieve at least 100 percent of ARA metrics and increase the proportion of non-borrowed reserves in NIR through market-based FX purchases — Dec-19. On track. - Liquid Asset Requirement: BOJ to begin phasing out Liquid Asset Requirement by November 2018, and plan total phase-out to coincide with introduction of LCR — Nov-18. Target met with delay in March 2019. - Debt market development: - Continue issuing domestic debt securities via competitive auctions. Continuous. Ongoing. - Expand issuance of T-bills and pursue dematerialization; roll-out of upgraded central securities depository by June 2018. (Jun-18 Target met by revised date of October 2018.) - Revise collateral policy for liquidity provision via amendments to the BOJ Act to permit more granular treatment of GOJ securities — Oct-18. Target met. - Public sector and structural reforms referenced alongside financial measures include capping public bodies’ domestic arrears at J$6.4 billion during the programme period for specified entities (Monthly monitoring). *Canonical source: https://www.imf.org/-/media/files/publications/cr/2019/1jamea2019001.pdf* ### 1. Primary balance of the central government (floor) 3/44.073.868.068.0107.7141.619.035.7 ### 1jamea2019001 - 1. Primary balance of the central government (floor) 3/44.073.868.068.0107.7141.619.035.7 ### Quantitative performance criteria (summary of targets and ceilings) - Primary balance of the central government (floor) 3/4 - 4.0 73.8 68.0 68.0 107.7 141.6 19.0 35.7 - Overall balance of the public sector (floor) 3/ - -39.2 25.8 -41.1 -36.6 29.7 -14.7 -14.0 -25.0 - Net increase in the central government guaranteed debt (ceiling) 3/ - 0.0 -10.1 -8.4 -8.4 -11.1 -8.4 0.0 0.0 - Central government accumulation of domestic arrears (ceiling) 4/ 10/ - 0.0 -4.9 0.0 0.0 -5.2 0.0 0.0 0.0 - Central government accumulation of tax refund arrears (ceiling) 5/ 10/ - 0.0 -13.1 0.0 0.0 -12.4 0.0 0.0 0.0 - Accumulation of external debt payment arrears (ceiling) 4/ 9/ - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ### Indicative targets (fiscal and public-sector indicators) - Tax revenues of the central government (floor) 3/ - 234.0 258.5 360.0 360.0 388.7 516.0 115.0 242.0 - Change in the stock of public bodies non-guaranteed debt (ceiling) 11/ - 17.2 9.4 18.0 18.0 15.2 20.0 22.0 24.0 - Central government spending on social programs (floor) 3/ 7/ - 11.9 20.1 19.4 19.4 28.3 28.2 6.7 12.3 - Total loan value of all user funded PPPs (ceiling, percent of GDP) 3. - 0.0 1.7 3.0 3.0 1.6 3.0 3.0 3.0 ### Monetary targets and consultation clause - Stock of non-borrowed net international reserves (floor) 6/ 8/ - 2,140 2,461 2,200 2,200 2,521 2,200 2,250 2,300 (In millions of U.S. dollars) - Monetary policy consultation clause (in percent) 12/ - Outer band (upper): 6.5 6.5 6.0 6.0 6.0 - Center inflation target: 5.0 4.3 5.0 2.4 5.0 5.0 5.0 - Inner band (lower): 3.5 4.0 4.0 4.0 - Outer band (lower): 3.5 2.0 2.5 2.5 2.5 ### Key operational definitions and reporting rules from the TMU - Central government and fiscal year - Central government: institutions covered under the state budget, including public bodies financed through the Consolidated Fund. - Fiscal year: April 1 through March 31. - Primary balance of the central government - Defined as total revenues minus primary expenditure (non-interest government activities as specified in the budget). - Revenues recorded when funds are transferred to a government revenue account; includes grants but excludes capital revenues from asset sales arising from divestment. - Primary expenditure recorded on a cash basis and includes compensation payments, other recurrent expenditures, and capital spending; government-funded PPPs treated as traditional public procurements. - All primary expenditures directly settled with bonds or any other non-cash liability recorded above-the-line and financed with debt issuance. - Reporting lag: data provided to the Fund with a lag of no more than six weeks after the test date. - Adjuster: floor adjusted upwards by the shortfall of principal and interest repayments from Clarendon Alumina Production (CAP) relative to Table 2, converted at programme exchange rates. - Overall balance of the public sector - Public sector = Specified Public Sector (SPS) under the Fiscal Responsibility Law: central government plus self-financed public bodies not deemed “commercial” by the OAG; excludes Bank of Jamaica (BOJ). - Overall balance of public bodies calculated from Statement A’s provided by the Public Enterprises Division, using operational balance + capital account net of revenues - dividends and corporate taxes transferred to government + net other transfers from government (special treatment for National Housing Trust and Housing Agency of Jamaica). - Reporting lag: data provided to the Fund with a lag of no more than six weeks after the test date. - Adjuster: floor adjusted by Petrojam’s overall balance shortfall (relative to baseline in Table 3), capped at US$35 million at quarter-ends, converted at programme exchange rates. - Net increase in central government guaranteed debt - Calculated as issuance minus repayments of central government guaranteed debt, in billions of Jamaican dollars; includes domestic and external bonds, loans and all other debt; foreign currency debt converted at programme exchange rate. - Central government guaranteed debt excludes loans from the PetroCaribe Development Fund due to consolidation. - Adjuster: if guarantees are called, the stock is adjusted downwards to preserve the performance criteria. - Central government accumulation of domestic arrears - Domestic arrears: payments to residents determined by contractual obligations unpaid 90 days after the due date; includes arrears on domestic central government direct debt, suppliers, and all recurrent and capital commitments. - Accumulation measured relative to stock at end-December 2018, which stood at J$15.8 billion. - Reporting lag: data provided to the Fund with a lag of no more than six weeks after the test date. - External debt payment arrears and definition of debt - External debt determined by residency criterion. - “Debt” defined as current, not contingent, liabilities created under contractual arrangements requiring future payments in assets or services. Principal types: loans, suppliers’ credits, and leases (present value at lease inception excluding operation, repair, or maintenance payments). ### Program exchange rates (end-August, 2016) - Jamaican dollar to the US dollar: 127.57 - Jamaican dollar to the SDR: 178.07 - Jamaican dollar to the Euro: 144.50 - Jamaican dollar to the Canadian dollar: 98.73 - Jamaican dollar to the British pound: 167.23 ### CAP repayment schedule (Table 2 notes) - Cumulative repayment flows to central government from beginning of each fiscal year (US$ millions) - end-June 2018: 7.46 - end-December 2018: 14.68 - end-June 2019: 6.99 - Note: CAP made a prepayment in March 2018. ### Structural benchmarks and implementation status (selected items) - Key completed actions (with timing and status "Met"): - Complete new property tax rates and bands using 2013 land valuations — December 31, 2016 — Met - Operationalize Financial System Stability Committee by appointing two external members — November 30, 2016 — Met - Issue consultation paper for resolution framework — February 28, 2017 — Met - Establish financial inclusion council to implement umbrella financial inclusion strategy 2016-20 — March 31, 2017 — Met - Institute mechanisms to ensure compliance with Securities (Retail Repurchase Agreement) Regulations — May 30, 2017 — Met - Submit crisis resolution framework proposal to Cabinet — July 31, 2017 — Met - Submit to Cabinet a proposal for revising the BoJ Act in line with IMF recommendations — August 31, 2017 — Met - Submit revisions of the BOJ Act to Parliament to improve governance and independence — October 31, 2018 — Met - Build comprehensive database of allowances paid across ministries (pilot and completion timeline) — March 31, 2017 — Met - Complete employee verification exercise across central government entities — March 31, 2017 — Met - Creation and application of rules for Post Operations Committee employment decisions — March 31, 2017 — Met - Submit public sector wage negotiation framework to Cabinet — April 30, 2017 — Met - Institute rehiring prohibition for early retirement participants for at least 5 years — May 30, 2017 — Met - Submit legislative changes to direct earmarked revenues to consolidated fund — June 15, 2017 — Met - Submit time-bound plan to reintegrate eligible public bodies into central government — July 31, 2017 — Met - Submit plan to revise performance-based merit increases — September 30, 2017 — Met - Close specified public bodies and reintegrate Children’s Registry into Child Development Agency — October 31, 2017 — Met - Finalize operational merger of HEART/NTA, Jamaica Foundation for Lifelong Learning, and National Youth Service — October 31, 2017 — Met - Monthly cap on total stock of domestic arrears of specified public bodies at J$6.4 billion during program period (monitored monthly). *Source: Jamaica — Technical Memorandum of Understanding and Table 3: Quantitative Performance Criteria (extracted from the provided content).* ### 22. Definition of external arrears: External debt payment arrears for programme monitoring ### 22. Definition of external arrears: External debt payment arrears for programme monitoring purposes ### 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 23, such obligations that have not been paid within 30 days after the contractual due date (taking into account any contractual grace periods) constitute arrears. - Under the definition of debt set out above, arrears, penalties and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. - Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. - Any debt obligation which the central government and the public bodies listed in paragraph 23 cannot pay or settle based on their contractual terms due to international and/or bilateral sanctions and which have been paid into escrow by the contractual due date, taking into account any contractual grace period, will not give rise to arrears for the purposes of this performance criterion. ### Coverage (paragraph 23) - This performance criterion covers central government and the following 6 public bodies (subset of self-financed public bodies defined in Section I.B): - Airports Authority of Jamaica - Jamaica Ultimate Tyre Company - National Health Fund - Petrojam Limited - Petrojam Ethanol Limited - Port Authority of Jamaica - Exclusions: - (i) arrears on trade credits - (ii) arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or rescheduling agreement is being sought. ### Monitoring and timing - This performance criterion applies on a continuous basis. ### Tax refund arrears (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-December 2018, which stood at J$5 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: - Net international reserves (NIR) of the BOJ (NIR-BOJ) = U.S. dollar value of gross foreign assets of the BOJ minus gross foreign liabilities. - Funds deposited into escrow to meet any contractual debt obligations that cannot be settled due to international and/or bilateral sanctions will not count towards net international reserves. - 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 (consistent with BPM6) 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. - Excluded: assets pledged, collateralized or encumbered; claims on residents; claims in foreign exchange arising from derivatives 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 for non-borrowed NIR targets (paragraph 31) - The non-borrowed NIR targets will be adjusted upward (downward) by the surplus (shortfall) in: - Programme loan disbursements from multilateral institutions (the IBRD, IDB and CDB) and commercial loans guaranteed by multilateral sources, relative to the baseline projection reported in Table 4. - Programme loan disbursements are defined as external loan disbursements (excluding project financing disbursements) from official creditors that are usable for the financing of the consolidated government. - 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 4. ### Performance criterion on Multiple Currency Practices (MCP) - The performance criterion on the introduction or modification of multiple currency practices 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: Definitions of variables - Cumulative Floor on Central Government Tax Revenues: - Definition: Tax revenues refer to revenues from tax collection. It excludes all revenues from asset sales, grants, bauxite levy and non-tax revenues. - The revenue target is calculated as the cumulative flow from the beginning to the end of the fiscal year (April 1 to March 31). - Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date. - Table 4. External Program Disbursements (Baseline Projection) — Cumulative flows from end-March 2016 (In millions of US$): - External loans from multilateral sources: - End-March 2019: 357 - End-June 2019: 412 - End-September 2019: 482 - Budget support grants: - End-March 2019: 19.7 - End-June 2019: 19.7 - End-September 2019: 19.7 - Commercial loans guaranteed by multilateral sources: - End-March 2019: 0.0 - End-June 2019: 0.0 - End-September 2019: 0.0 ### Ceiling on the Change in the Stock of Public Bodies’ Non-Guaranteed Debt - Definitions: - Non-guaranteed debt of public bodies includes all consolidated domestic and external bonds and other forms of debt by all self-financed public bodies that is not guaranteed by the central government or any other public entity. - The target will be set in Jamaican dollars with foreign currency debt converted using the programme exchange rate. - The change in the stock of non-guaranteed debt will be measured “below the line” as debt issuance minus repayments on all non-guaranteed debt by public bodies. - Recording and measurement: - Debt issues are to be recorded at the moment the funds are credited to the account of the corresponding public body. - The stock will be measured net of cross-holdings of such debt between the public bodies. - Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date. - Adjusters: - Target adjusted downwards if the government assumes part of previously non-guaranteed debt or if an entity with non-guaranteed debt is subsequently divested/privatized. - Target adjusted upward (downward) by an amount equivalent to the shortfall (excess) of Petrojam’s overall balance (relative to baseline projections in Table 3), with the value of the adjustment at the end of any quarter capped at US$35 million, converted at the programme exchange rates. ### 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 the 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 programmes to be included: - Youth employment programmes comprising on the job training, summer employment and employment internship programme. - Conditional cash transfers comprising children health grant, children education grants, tertiary level, pregnant and lactation grants, disabled adult grants, adult under 65 grants and adults over 65 grants. - Poor relief programme. - Recurrent expenditure programmes to be included: - School feeding programmes including operating costs. - Poor relief (both indoor and outdoor) including operating costs. - Golden Age Homes. - Children’s home, places of safety and foster care including operating cost. - Career Advancement Programme. - National Youth Service Programme. - Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date. ### Ceiling on User-Funded PPPs - Definition: User-funded PPPs are concessions in which users are expected to be the main source of revenue. - Exclusion: For the purpose of this condition, 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 that could imply a transfer of liabilities to the government). - Reference GDP for FY2019/20: - For FY2019/20, the projected nominal GDP used as a reference is J$2,156 billion, as presented in Table 3K, Macroeconomic Framework, of the FY19/20 Fiscal Policy Paper. - Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date. ### Monetary Policy Consultation Clause (Inflation) - Definition: Inflation = change over 12 months of the end-of-period headline consumer price index, as measured and published by the Statistical Institute of Jamaica (STATIN). - Reporting: Data will be provided to the Fund with a lag of no more than six weeks after the test date. Data from the last test date will be used until new data is submitted. - Consultation triggers for June 2019 test date: - Consultation with IMF Board triggered if inflation falls below 2.5 percent or is above 6 percent. - A staff consultation clause whereby the BOJ will consult with IMF staff on the outlook for inflation and the proposed policy response will be triggered if inflation falls below 4 percent for the June 2019 test date. - Consultation content: Explanation of (i) the stance of monetary policy and whether the Fund-supported programme remains on track; (ii) reasons for deviations from the specified band, taking into account compensating factors; and (iii) proposed remedial actions, as deemed necessary. - Table 5. Inflation Consultation Band (June 2019): - Upper band: 6.0 - Center point: 5.0 - Inner band: 4.0 - Lower outer band: 2.5 ### Conditionality on Public Bodies’ Domestic Arrears - Structural benchmark cap: - Total combined stock of domestic arrears of selected public bodies will be capped at J$6.4 billion during the programme period. - Selected public bodies: Clarendon Alumina Production (CAP), National Water Commission (NWC), Jamaica Urban Transit Company (JUTC), Housing Agency of Jamaica (HAJ), Urban Development Corporation (UDC), the National Road Operating and Constructing Company (NROCC), and the National Health Fund (NHF). - Domestic arrears will be monitored on a monthly basis. - Definition: Domestic arrears are payments to residents determined by contractual obligations that remain unpaid 90 days after the due date. Due date refers to the contractual due date, taking into account any contractual grace periods. Public bodies’ domestic arrears include arrears on suppliers’ credits. - Exclusion: Arrears on taxes due to the central government, including on PAYE and education tax, are excluded. ### Information requirements (selected highlights) - Daily: 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; total liquidity assistance to banks through BOJ operations; overnight interest rates; GOJ bond yields; disbursements from the Financial System Support Fund by institution; aggregate liquidity assistance to institutions; BOJ purchases and sales of foreign currency by transaction type; amounts offered, demanded and placed in BOJ open market operations; amounts offered, demanded and placed in GOJ auctions and primary issues; daily foreign currency GOJ debt payments (domestic and external). - Weekly: Balance sheets of core securities dealers (covering at least 70 percent of the market) including indicators of liquidity, capital positions, details on sources of funding; weekly reports within 10 days of period end; deposits in the banking system and total currency in circulation. - Monthly (selected items, reporting lags specified): - Central government operations including monthly cash flow from the beginning to the end of the current fiscal year, lag no more than six weeks after month close. - Public entities’ Statement A: consolidated and by institution for self-financed public bodies, lag no more than six weeks after month close. - Central government debt amortization and repayments (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans) including government direct, government guaranteed and total; reporting lag no more than six weeks after month close. - Amortization and repayments of public bodies’ non-guaranteed debt for each Selected Public Body. - Balances of the Consolidated Fund and main revenue accounts. - Stock of central government domestic debt and domestic expenditure arrears. - Stock of central government tax refund arrears. - Central government spending on social protection as defined. - Central government debt stock by currency and by creditor/instrument/direct vs guaranteed, reporting lag no more than six weeks after month close. - Maturity structure of Government debt (domestic and external), reporting lag no more than six weeks after month close. - Balance sheet of the Bank of Jamaica within three weeks of month end. - Profits of the Bank of Jamaica on a cash and accrual basis within three weeks from month end. - Data on reserve liabilities items for NBR target purposes within three weeks after month end. - A full set of monthly FSIs regularly calculated by the BOJ, including liquidity ratios, within eight weeks of month end. - Monthly balance sheet data of deposit taking institutions as reported to the BOJ, within four weeks of month end. - Imports and exports of goods, in US$ 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 CPI sub-components within four weeks after month end. - Data on the total loans value of all new user-funded PPPs, specifying PPPs identified by the Office of the Auditor General as involving only minimal contingent liabilities. - Quarterly (selected items and reporting lags): - Holdings of government bonds by holder category, lag no more than six weeks after month close (not applicable to external and non-financial institutional holdings of GOJ global bonds). - Use of the PetroCaribe Development Fund, including loan portfolio by debtor and allocation of 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. - Gross domestic product growth by sector in real and nominal terms within three months after quarter end. - Updated macroeconomic assumptions and programme indicators for preceding and forthcoming four quarters within four months of quarter end. - BOJ’s Quarterly Financial Stability Report. - Quarterly income statement data of deposit taking institutions within eight weeks of quarter end. - Summary review of securities dealer sector within eight weeks of quarter end. - Summary report of the insurance sector within eight weeks of quarter end. - Capital adequacy and profitability ratios for DTIs and non-bank financial institutions within eight weeks of quarter end. - FSC status report detailing compliance with agreed guidelines for operation of client holding accounts at the Jam Clear@ CSD and FSC independent verification of daily reconciliations. *Source: 1jamea2019001 - 22. Definition of external arrears: External debt payment arrears for programme monitoring* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1jamea2019001.pdf_