## 1jamea2022001 - 4.7 percent in 2021 and 4.3 percent in 2022. Downside risks to the outlook are

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### Outlook
- Real GDP grew by 5.8 percent y/y in 2021Q3 and is projected to have rebounded to 4.7 percent in 2021.
- Growth is projected to slow to 4.3 percent in 2022 and 1.8 percent in 2025.
- Real per capita GDP is expected to return to pre-crisis levels by 2024 (but will remain below the pre-pandemic trend for the five-year forecast horizon).
- Headline inflation is expected to rise to 8.5 percent y/y at end-2021 and then recede to 6.1 percent y/y at end-2022.
- Balance of risks to activity are tilted to the downside:
  - New Covid-19 waves, including omicron, could prolong disruption of tourism, trade and capital flows.
  - US monetary tightening could lead to pressure on the exchange rate and tighter financial conditions.
  - FATF grey listing could adversely affect cross border financial flows.
  - Natural disasters remain an ever-present risk.
- Upside risk: abatement of the pandemic in Jamaica’s main tourism markets could boost outcomes.

### COVID-19 shock and policy response
- GDP declined by 18.4 percent y/y in 2020Q2; tourism was hardest hit and dragged on transport, trading, and manufacturing.
- Authorities implemented a fiscal stimulus package of 3 percent of GDP during FY 2020/21 and FY 2021/22 to support jobs and protect vulnerable populations.
  - Fiscal measures included: medical equipment and training for healthcare workers (0.1 percent of GDP); use of contingency funds for Health care (0.1 percent of GDP); VAT tax cuts (0.7 percent of GDP); Covid allocation of Resources for Employees (CARE) (2.1 percent of GDP). Total Covid measure: 3.0 percent of GDP.
  - CARE program cost 2.10 percent of GDP, composed of: BEST (0.20 percent), SET (0.39 percent), COVID Small Business Grants (0.01 percent), COVID General Grant (0.01 percent), COVID Compassionate Grant (0.20 percent), PATH program - MLSS (0.08 percent), Other (1.22 percent).
- BOJ monetary measures in 2020:
  - Policy rate left at historic low of 0.5 percent.
  - Purchased Government of Jamaica bonds, redeemed BOJ securities early, undertook repo operations, removed limits and penalties on overnight borrowing.
  - Monetary base increased by 22 percent in 2020.
  - Reduced domestic and foreign currency cash reserve requirements; allowed exchange rate to adjust flexibly.
  - RFI disbursement of US$ 520 million added to international reserves.
- Financial sector support:
  - Development Bank of Jamaica rescheduled SME loans for up to three months and offered moratoria/payment holidays to BPO sector.
  - National Housing Trust reduced rates on new and existing mortgage loans.
  - Commercial banks provided loan rescheduling case-by-case.

### Inflation and monetary policy
- Inflation rose above the BOJ’s 4-6 percent target band in August 2021; inflation increased to 8.5 percent in October 2021.
- In response, the BOJ raised the policy rate by 200 basis points.
- Core inflation (excluding food and energy) has been increasing but was at rates below the target range in the first half of 2021.
- Food price inflation rebounded as global food prices and energy prices rose and tropical storms affected local crops.
- Jamaica: CPI Inflation Nov 20-Nov 21 (selected):
  - Food, restaurants, and accommodation services: 8.3 (Nov 20-Nov 21), 10.9 (Jan 20-Nov 21), Weight in CPI 42.4
  - Housing, water gas, electricity, other fuels, and transport: 10.5, 7.8, Weight in CPI 29.1
  - Other: 4.4, 4.1, Weight in CPI 28.5
  - Total: 7.8, 8.1, Weight in CPI 100.0
- Regression evidence on pass-through:
  - A one percentage point increase in global food price inflation boosts Jamaica’s inflation by 0.09 percent.
  - A one percentage point increase in oil prices boosts Jamaica’s inflation by 0.04 percentage points.
  - Inflation forecasts assume the pass-through has halved since the introduction of inflation targeting.
- Staff analysis: an increase in real policy rates by 100 basis points reduces inflation by 0.4 percentage points after 1 year.
- Projections and guidance:
  - On current projections of global food and energy prices, inflation should return to the target band by end-2022, but continued upward surprises could de-anchor expectations.
  - There is a case for a continued path of raising the policy rate toward neutral to anchor inflation expectations and bring inflation well within the target range by end-2022.

### Fiscal position, public debt, and medium-term strategy
- Public debt at end-FY 2020/21 was 108 percent of GDP.
- The Fiscal Responsibility Law target: reduce debt to 60 percent of GDP by FY2027/28.
- Authorities target a fiscal surplus of 0.3 percent of GDP for FY2021/22 and FY2022-24 to FY2024/25.
- Achieving the 60 percent debt target by 2027/28 would require fiscal surpluses of around 2½ percent in the outer years.
- Staff suggested a surplus of 1 percent of GDP from FY2023/24 onward would smooth the path to achieving the debt target.
- Declining interest payments, higher tax revenues, and a reduction in the wage bill are expected to provide space to increase spending on education, infrastructure and enhance resilience to natural disasters while still meeting the medium-term debt goal.
- An independent Fiscal Council will assess Government policy commitments and consistency with the Fiscal Responsibility Law; law to establish the Council has been passed.
- Criteria for suspension of the fiscal rule are stringent: independent verification by the auditor general that the fiscal impact exceeds 1.5 percent of GDP and approval by parliament.

### Fiscal needs, revenues, and expenditure projections
- Infrastructure, crime reduction, health, and education identified as priority fiscal needs.
- Natural disaster resilience: contingent resources of up to 4 percent of GDP from various insurance/contingent instruments:
  - contingent credit line USD285 million (2 percent of GDP) with the IADB;
  - government contingency fund capital 0.2 percent of GDP;
  - CRIFF coverage up to USD82 million for tropical cyclones;
  - catastrophe bond US$185 million with payout between 30 and 100 percent of proceeds (0.4-1.3 percent of GDP).
  - Annual premium payments to CCRIF about 0.05 percent of GDP.
- Scope to mobilize additional revenues by reducing VAT tax cuts: unwinding VAT tax cuts would generate additional revenue of 0.7 percent of GDP.
- 2021 government report: tax expenditures fell to 2 percent of GDP in 2019 (from 9 percent in 2008); discretionary tax waivers amount to less than 0.01 percent of GDP.
- Additional tax administration measures recommended: adopt enforcement measures on non-compliant taxpayers; update the tax registry; address low on-time filing and payment rates.

- Baseline Fiscal Scenario (In percent of GDP) — selected series:
  - Total Revenue and grants: 30.5 (FY2021/22), 29.1 (FY2022/23), 28.6 (FY2023/24), 28.3 (FY2024/25), 28.1 (FY2025/26), 27.6 (FY2026/27), 27.2 (FY2027/28).
  - Tax revenue (incl incentives): 26.0, 26.4, 26.1, 25.9, 25.7, 25.6, 25.4.
  - Non tax-revenues: 4.0, 2.5, 2.4, 2.2, 2.2, 1.8, 1.8.
  - Total expenditure: 30.2, 28.8, 28.3, 28.0, 25.7, 25.2, 24.8.
  - Primary Spending: 24.6, 23.7, 23.7, 23.7, 22.0, 22.0, 22.3.
  - Wage bill: 10.7, 10.3, 10.5, 10.7, 10.9, 10.8, 10.8.
  - Programs (goods and services, transfers): 11.6, 10.9, 10.5, 9.9, 8.1, 8.4, 8.4.
  - Capital spending: 2.3, 2.5, 2.7, 3.1, 3.0, 2.8, 2.8.
  - Interest spending: 5.7, 5.1, 4.6, 4.3, 3.7, 3.2, 2.5.
  - Overall balance: 0.3, 0.3, 0.3, 0.3, 2.4, 2.4, 2.4.
  - Primary balance: 5.9, 5.4, 5.0, 4.6, 6.1, 5.6, 4.9.
  - Public debt: 91.6, 84.7, 78.4, 75.4, 66.7, 63.3, 59.7.
- Alternative Fiscal Scenario (In percent of GDP) — selected series:
  - Total Revenue and grants: 30.5, 29.1, 29.3, 29.0, 28.8, 28.3, 27.9.
  - Tax revenue (incl incentives): 26.0, 26.4, 26.7, 26.6, 26.5, 26.3, 26.1.
  - Total expenditure: 30.2, 28.8, 28.3, 28.0, 27.3, 26.6, 26.0.
  - Primary Spending: 24.6, 23.7, 23.7, 23.7, 23.7, 23.5, 23.5.
  - Programs (goods and services, transfers): 11.6, 10.9, 10.5, 9.9, 9.8, 9.9, 9.9.
  - Interest spending: 5.7, 5.1, 4.6, 4.3, 3.6, 3.1, 2.5.
  - Overall balance: 0.3, 0.3, 1.0, 1.0, 1.5, 1.7, 1.9.
  - Primary balance: 5.9, 5.4, 5.7, 5.3, 5.2, 4.9, 4.4.
  - Public debt: 91.6, 84.7, 77.7, 77.7, 74.0, 66.2, 59.3.

### Fiscal space and public sector reform
- Reducing public debt to 60 percent of GDP by 2027/28 would reduce interest payments by 3 percentage points of GDP.
- Public sector wage reform aims to simplify wage structure, reduce allowances, reward performance, and reduce wage gap with private sector (public sector wages are 47 percent of private sector wages), but reform is likely to raise the wage bill.
- Staff’s fiscal projections do not account for the new wage structure.
- Need to reassess government roles and increase spending effectiveness to facilitate reduction in size of public workforce and offset costs of new wage structure.

### Debt sustainability, DSA findings, and stress tests
- Jamaica’s public debt is sustainable.
- Debt-to-GDP ratio increased to 108 percent of GDP in FY 2020/21.
- FRL debt target: 60 percent of GDP by FY2027/28 (with modest two-year delay from original FY2025/26 target).
- Baseline macro-fiscal assumptions:
  - Real GDP growth projected to recover from -10 percent in 2020 to 4.7 percent in 2021 as tourism rebounds to near 70 percent of pre-crisis levels.
  - Inflation expected to recede to 5 percent over the medium-term.
  - Fiscal balance expected to be around 0.3 percent of GDP in the near term.
  - Interest rates assumed to increase by 200 basis points in FY 2022/23.
- Stress test outcomes and vulnerabilities:
  - Standard stress tests project public debt outcomes ranging between 76 and 94 percent of GDP by FY2025/26 depending on shock scenario.
  - In a combined macro fiscal shock, debt would initially increase to about 112 percent of GDP then decline to 93.4 percent in FY 2025/26.
  - Near-term public debt deviations from baseline could be 5.6 to 11.9 percent of GDP in FY2022/23 under standard stress tests.
  - External debt: 61 percent of GDP at end of FY 2020/21; 98 percent of external debt denominated in US dollars.
  - Rollover risks: maturity profile 13 percent medium term (1-5 years) and 87 percent long-term (over 5 years).

### External position and exchange rate
- External position in 2020 broadly in line with fundamentals; current account deficit in 2020 was 0.8 percent of GDP (adjusted), well below CA norm of -7.6 percent of GDP, suggesting exchange rate undervaluation of 15 percent.
- NIIP deterioration: from -132 percent of GDP in 2010 to -1846 percent in 2020 (also cited elsewhere as -176.5 or -176 to -1846 percent in different tables).
- Exports of goods and services stagnated; remittances sharply increased and boosted import consumption.
- SDR allocation and reserves:
  - SDR allocation US$520 million in August 2021 boosted reserves.
  - At end-2021, gross reserves expected to be 8.7 months of imports of goods and services and 141.8 percent of the ARA metric.
  - Authorities reported SDR allocation boosted reserves to US$4.7 billion in mid-November, representing 143.8 percent of the ARA.
- Real exchange rate:
  - REER has remained stable; depreciated by 2.7 percent in 2020.
  - CA and iREER models suggest REER gaps of around -15 percent.

### Financial stability, sector metrics, and measures
- Financial sector remained well capitalized and liquid during the pandemic.
  - At end-2020, Deposit Taking Institutions (DTI) CAR 14.4 percent (regulatory minimum 10 percent) and NPL ratio less than 3 percent.
  - Deposits grew by almost 17 percent in 2020 (FX deposits grew by 18.4 percent, domestic accounts by 15.8 percent).
  - DTIs account for about 47 percent of financial sector assets.
- Selected sector indicators (As of end-2020):
  - Deposit Taking Institutions: ROA 1.3, ROE 9.4, NPL 2.8, CAR 14.4.
  - Securities Dealers: ROA 1.8, ROE 11.6, NPL 2.4, CAR 22.3.
  - Life Insurance Companies: ROA 3.4, ROE 10.6, CAR 214.6.
  - General Insurance Companies: ROA 0.7, ROE 5.2, CAR 281.1.
  - Credit Unions: ROA 1.6, ROE 8.5, NPL 4.2.
- Most temporary financial sector support measures have been phased out.
  - At end Jun-2021, JM $27.6 billion (or less than 3% of total loans) remained under moratorium.
  - In August 2021, only 1.9 percent of gross loans (JS 21.3 billion) remained under moratorium.
- Supervisory and resolution priorities:
  - Strengthen consolidated supervision of complex financial conglomerates; FSC drafting amendment to facilitate consolidated supervision of NDTIs groups.
  - Adopt legislation for the special resolution regime (SRR) for orderly resolution of distressed financial institutions; process in its fifth year.

### AML/CFT, FATF action plan, and national risk assessment
- January 2021 review: Jamaica had 13 out of 40 partially compliant technical compliance ratings; low or moderate levels of effectiveness for 10 out of 11 effectiveness outcomes.
- Recommendations include: include all financial institutions and DNFBPs in AML/CFT regime; ensure beneficial ownership information available; increase use of financial intelligence ML investigations and prosecutions; implement risk-based supervision of NPO sector.
- Authorities adopted a national risk assessment to help design policies and are implementing remaining action items to exit FATF grey list.
- Jamaica committed to implement the International Standard for Automatic Exchange of Financial Account Information in Tax Matters in 2022.

### Central Bank Digital Currency (CBDC)
- In August 2021, BoJ launched a CBDC pilot.
- CBDC characteristics:
  - Digital form of legal tender (not a crypto-currency).
  - Two-tiered distribution via DTIs and authorized payment service providers through digital wallets, solely for domestic use.
  - Similar to DCash (ECCB pilot) and the Bahamas’ Sand Dollar.
- Authorities expected nation-wide rollout after legislation passed (expected before end-March 2022).
- BoJ aims for CBDC to promote digitalization, financial inclusion, increase payment safety and efficiency, and lower costs of processing welfare payments.

### Structural constraints, productivity, and policy priorities
- Long-run declines: labor productivity, capital per worker, return on investment, and total factor productivity.
- Contributing factors to low growth:
  - Decline of traditional exports; low human capital; high crime; weak infrastructure; competition from countries with FTAs with the United States and other large economies.
- Policy recommendations:
  - Strengthen education and training; upgrade infrastructure; leverage digitalization; shift toward renewable energy; enhance governance and reduce corruption vulnerabilities; simplify business procedures; increase SME access to finance; remove barriers to free trade.
- Energy target: By 2030, 30 percent of energy should be generated from solar, wind, and hydropower energy, up from about 10 percent currently; shift to occur through private sector investment.

### Social impact and safety nets
- Poverty increased from 19.3 percent in 2017 to 23 percent in 2020 (World Bank estimates).
- Unemployment: increased from 7.3 percent in 2020Q1 to 12.6 percent in Q3 2020; declined to 8.5 percent in 2021Q3 (labor underutilization likely higher).
- PATH conditional cash transfer program:
  - Transferred to the Ministry of Labor and Social Security; targeting strengthened.
  - Continues to support vulnerable groups through cash transfers, post-secondary and tertiary education grants, and on-the-job training.
  - Annual budget around 1 percent of GDP.

### Risk Assessment Matrix — selected risks and policy responses
- External Risks:
  - Unexpected shifts in the Covid-19 pandemic — Likelihood: High (local outbreaks); Medium (global resurgence). Impact: Medium. Policy response: Extend pandemic relief measures while designing/communicating medium-term fiscal plan.
  - De-anchoring of U.S. inflation expectations — Likelihood: Medium. Impact: Medium. Policy response: Provide fiscal support within sustainable medium-term plan; intensify surveillance of financial institutions.
  - Rising oil prices amid volatility — Likelihood: Medium. Impact: Medium. Policy response: Accelerate transition to local renewable energy sources.
- Structural/Domestic Risks:
  - Faster pandemic containment — Likelihood: Medium. Impact: Medium. Policy response: End pandemic relief measures, continue supporting recovery; rebuild fiscal buffers.
  - Higher frequency/severity of natural disasters related to Climate Change — Likelihood: Medium. Impact: High. Policy response: Invest in resilient infrastructure; develop self-insurance and ex-ante mitigation.
  - Cyber-attacks — Likelihood: Medium. Impact: Low. Policy response: Upgrade risk management capacity; strengthen cyber security.
  - Financial sector weakness due to pandemic-triggered large losses — Likelihood: Medium. Impact: Medium. Policy response: Formalize crisis management plans; support asset recovery and regulate contagion channels.

### Staff appraisal and recommended priorities
- Pre-pandemic progress: fiscal deficit and public debt reduced sharply; inflation and current account deficit declined; institutional reforms (FRL, inflation targeting, exchange rate flexibility, BOJ independence).
- Near-term priorities:
  - Restart debt reduction and rebuild buffers as pandemic recedes; government goal to reduce debt to 60 percent of GDP by FY2027/28 remains appropriate.
  - Reprioritize expenditure and increase revenue to provide resources for infrastructure, growth-enhancing expenditures, and disaster resilience.
  - Contain wage bill and reassess government roles to avoid crowding out other expenditures.
  - Monetary policy: a further tightening may be needed to anchor inflation expectations and bring inflation within the target range by end-2022.
- Financial sector priorities:
  - Strengthen supervision of financial conglomerates via adoption of remaining legislative framework for group-wide supervision and improved data gathering and analytics of inter-institution linkages and cross-border exposures.
  - Adopt legislation for the special resolution regime for orderly resolution of distressed financial institutions.
  - Swiftly implement the FATF Action Plan to strengthen the AML/CFT regime and support timely exit from the FATF grey list.
- Suggested monitoring: next Article IV consultation on standard 12-month cycle.

*International Monetary Fund — Jamaica: Selected excerpts from mission report (January 25, 2022).*

### 4.7 percent in 2021 and 4.3 percent in 2022. Downside risks to the outlook are

### 1jamea2022001 - 4.7 percent in 2021 and 4.3 percent in 2022. Downside risks to the outlook are

### Outlook
- Real GDP grew by 5.8 percent y/y in 2021Q3 and is projected to have rebounded to 4.7 percent in 2021.
- Growth is projected to slow to 4.3 percent in 2022 and 1.8 percent in 2025.
- Real per capita GDP is expected to return to pre-crisis levels by 2024 (but will remain below the pre-pandemic trend for the five-year forecast horizon).
- Headline inflation is expected to rise to 8.5 percent y/y at end-2021 and then recede to 6.1 percent y/y at end-2022.
- Balance of risks to activity are tilted to the downside:
  - New Covid-19 waves, including omicron, could prolong disruption of tourism, trade and capital flows.
  - US monetary tightening could lead to pressure on the exchange rate and tighter financial conditions.
  - FATF grey listing could adversely affect cross border financial flows.
  - Natural disasters remain an ever-present risk.
- Upside risk: abatement of the pandemic in Jamaica’s main tourism markets could boost outcomes.

### COVID-19 shock and policy response
- GDP declined by 18.4 percent y/y in 2020Q2; tourism was hardest hit and dragged on transport, trading, and manufacturing.
- Authorities implemented a fiscal stimulus package of 3 percent of GDP during FY 2020/21 and FY 2021/22 to support jobs and protect vulnerable populations.
  - Fiscal measures included: medical equipment and training for healthcare workers (0.1 percent of GDP); use of contingency funds for Health care (0.1 percent of GDP); VAT tax cuts (0.7 percent of GDP); Covid allocation of Resources for Employees (CARE) (2.1 percent of GDP). Total Covid measure: 3.0 percent of GDP.
  - CARE program (COVID Allocation of Resources for Employees) cost 2.10 percent of GDP, composed of: BEST (0.20 percent), SET (0.39 percent), COVID Small Business Grants (0.01 percent), COVID General Grant (0.01 percent), COVID Compassionate Grant (0.20 percent), PATH program - MLSS (0.08 percent), Other (1.22 percent).
- BOJ monetary measures in 2020:
  - Policy rate left at historic low of 0.5 percent.
  - Purchased Government of Jamaica bonds, redeemed BOJ securities early, undertook repo operations, removed limits and penalties on overnight borrowing.
  - Monetary base increased by 22 percent in 2020.
  - Reduced domestic and foreign currency cash reserve requirements; allowed exchange rate to adjust flexibly.
  - RFI disbursement of US$ 520 million added to international reserves.
- Financial sector support:
  - Development Bank of Jamaica rescheduled SME loans for up to three months and offered moratoria/payment holidays to BPO sector.
  - National Housing Trust reduced rates on new and existing mortgage loans.
  - Commercial banks provided loan rescheduling case-by-case.

### Inflation and monetary policy
- Inflation rose above the BOJ’s 4-6 percent target band in August 2021; inflation increased to 8.5 percent in October 2021.
- In response, the BOJ raised the policy rate by 200 basis points.
- Core inflation (excluding food and energy) has been increasing but was at rates below the target range in the first half of 2021.
- Food price inflation rebounded as global food prices and energy prices rose and tropical storms affected local crops.
- Jamaica: CPI Inflation Nov 20-Nov 21 shows:
  - Food, restaurants, and accommodation services: 8.3 (Nov 20-Nov 21), 10.9 (Jan 20-Nov 21), Weight in CPI 42.4
  - Housing, water gas, electricity, other fuels, and transport: 10.5, 7.8, Weight in CPI 29.1
  - Other: 4.4, 4.1, Weight in CPI 28.5
  - Total: 7.8, 8.1, Weight in CPI 100.0
- Forecast risks to inflation are to the upside due to global food and energy price developments; regression evidence cited:
  - A one percentage point increase in global food price inflation boosts Jamaica’s inflation by 0.09 percent.
  - A one percentage point increase in oil prices boosts Jamaica’s inflation by 0.04 percentage points.
  - Inflation forecasts assume the pass-through has halved since the introduction of inflation targeting.

### Fiscal position, public debt, and medium-term strategy
- Public debt at end-FY 2020/21 was 108 percent of GDP.
- The Fiscal Responsibility Law target: reduce debt to 60 percent of GDP by FY2027/28.
- The authorities are targeting a fiscal surplus of 0.3 percent of GDP for FY2021/22 and FY2022-24 to FY2024/25, in line with the FRL.
- Achieving the 60 percent debt target by 2027/28 would require fiscal surpluses of around 2½ percent in the outer years.
- Staff suggested a surplus of 1 percent of GDP from FY2023/24 onward would smooth the path to achieving the debt target and avoid a more abrupt adjustment later.
- Declining interest payments, higher tax revenues, and a reduction in the wage bill are expected to provide space to:
  - Increase spending on education, infrastructure and enhance resilience to natural disasters while still meeting the medium-term debt goal.
- An independent Fiscal Council will assess Government policy commitments and consistency with the Fiscal Responsibility Law; law to establish the Council has been passed.
- Criteria for suspension of the fiscal rule are stringent and include independent verification by the auditor general that the fiscal impact exceeds 1.5 percent of GDP and approval by parliament.

### Structural constraints and policy priorities to boost growth
- Long-run declines observed in: labor productivity, capital per worker, return on investment, and total factor productivity.
- Factors contributing to low growth:
  - Decline of traditional exports.
  - Low human capital.
  - High crime.
  - Weak infrastructure.
  - Competition from countries with FTAs with the United States and other large economies.
- Policy priorities recommended:
  - Strengthen education and training.
  - Upgrade infrastructure.
  - Leverage digitalization.
  - Shift toward renewable energy.
  - Enhance governance and reduce vulnerabilities to corruption.
  - Simplify business procedures.
  - Increase SME access to finance.
  - Further remove barriers to free trade.

### Social impact and safety nets
- Poverty increased from 19.3 percent in 2017 to 23 percent in 2020 (World Bank estimates).
- Unemployment increased from 7.3 percent in 2020Q1 to 12.6 percent in Q3 2020; declined to 8.5 percent in 2021Q3 (labor underutilization likely higher).
- PATH conditional cash transfer program:
  - Transferred to the Ministry of Labor and Social Security.
  - Targeting strengthened.
  - Continues to support vulnerable groups through cash transfers, post-secondary and tertiary education grants, and on-the-job training.
  - Annual budget around 1 percent of GDP.

*International Monetary Fund — Jamaica: Selected excerpts from mission report (January 25, 2022).*

### 21.      More fiscal resources are needed for infrastructure, crime reduction, health, and

### 21.      More fiscal resources are needed for infrastructure, crime reduction, health, and education.

### Fiscal needs and priorities
- Infrastructure needs are significant and better infrastructure would help boost private sector growth.
- To reduce the high crime rate (which deters economic activity and investment) more spending is needed on law enforcement, community responses, and other crime prevention measures.
- The number of hospital beds and doctors per person is relatively low, indicating health sector resource gaps.
- Improvements of PFM controls are needed, particularly related to budget execution and financial reporting and fiscal transparency related to extensive earmarking and extrabudgetary funds, which could also create additional fiscal resources.

### Natural disaster resilience and climate change adaptation
- Natural disaster insurance of various forms provides contingent resources of up to 4 percent of GDP.
- Current protection elements:
  - a contingent credit line of USD285 million (2 percent of GDP) with the IADB;
  - a government contingency fund for natural disasters with capital of 0.2 percent of GDP;
  - CRIFF coverage of up to USD82 million for tropical cyclones;
  - a recently issued catastrophe bond for US$185 million whereby, in the event of a hurricane of certain severity, the World Bank will pay out between 30 and 100 percent of the proceeds (0.4-1.3 percent of GDP).
- Annual premium payments to CCRIF are about 0.05 percent of GDP.

### Revenue mobilization constraints and options
- Scope to mobilize additional revenues by reducing tax exemptions and discretionary tax waivers is limited.
  - A 2021 government report estimates that tax expenditures have fallen to 2 percent of GDP in 2019 (from 9 percent in 2008), with tourism, mining, and food items accounting for two thirds of tax expenditures.
  - Discretionary tax waivers are only used for charitable causes and amount to less than 0.01 percent of GDP.
- Unwinding of the VAT tax cuts implemented during the Covid-19 pandemic would help generate additional revenue of 0.7 percent of GDP.
- Additional tax administration measures recommended:
  - adopt enforcement measures on non-compliant taxpayers;
  - update the tax registry;
  - address the low on-time filing and payment rates.

### Fiscal policy stance and projections (FY2021/22–FY2027/28)
- Baseline Fiscal Scenario (In percent of GDP) — selected series:
  - Total Revenue and grants: 30.5 (FY2021/22), 29.1 (FY2022/23), 28.6 (FY2023/24), 28.3 (FY2024/25), 28.1 (FY2025/26), 27.6 (FY2026/27), 27.2 (FY2027/28).
  - Tax revenue (incl incentives): 26.0, 26.4, 26.1, 25.9, 25.7, 25.6, 25.4.
  - Non tax-revenues: 4.0, 2.5, 2.4, 2.2, 2.2, 1.8, 1.8.
  - Total expenditure: 30.2, 28.8, 28.3, 28.0, 25.7, 25.2, 24.8.
  - Primary Spending: 24.6, 23.7, 23.7, 23.7, 22.0, 22.0, 22.3.
  - Wage bill: 10.7, 10.3, 10.5, 10.7, 10.9, 10.8, 10.8.
  - Programs (goods and services, transfers): 11.6, 10.9, 10.5, 9.9, 8.1, 8.4, 8.4.
  - Capital spending: 2.3, 2.5, 2.7, 3.1, 3.0, 2.8, 2.8.
  - Interest spending: 5.7, 5.1, 4.6, 4.3, 3.7, 3.2, 2.5.
  - Overall balance: 0.3, 0.3, 0.3, 0.3, 2.4, 2.4, 2.4.
  - Primary balance: 5.9, 5.4, 5.0, 4.6, 6.1, 5.6, 4.9.
  - Public debt: 91.6, 84.7, 78.4, 75.4, 66.7, 63.3, 59.7.
- Alternative Fiscal Scenario (In percent of GDP) — selected series:
  - Total Revenue and grants: 30.5, 29.1, 29.3, 29.0, 28.8, 28.3, 27.9.
  - Tax revenue (incl incentives): 26.0, 26.4, 26.7, 26.6, 26.5, 26.3, 26.1.
  - Total expenditure: 30.2, 28.8, 28.3, 28.0, 27.3, 26.6, 26.0.
  - Primary Spending: 24.6, 23.7, 23.7, 23.7, 23.7, 23.5, 23.5.
  - Programs (goods and services, transfers): 11.6, 10.9, 10.5, 9.9, 9.8, 9.9, 9.9.
  - Interest spending: 5.7, 5.1, 4.6, 4.3, 3.6, 3.1, 2.5.
  - Overall balance: 0.3, 0.3, 1.0, 1.0, 1.5, 1.7, 1.9.
  - Primary balance: 5.9, 5.4, 5.7, 5.3, 5.2, 4.9, 4.4.
  - Public debt: 91.6, 84.7, 77.7, 77.7, 74.0, 66.2, 59.3.

### Fiscal space from debt reduction and expenditure efficiency
- Reducing public debt to 60 percent of GDP by 2027/28 would reduce interest payments by 3 percentage points of GDP, creating room for other expenditure. The decline in interest payments reflects both lower debt and the maturing of high interest-rate bonds from the debt exchange operations of 2010 and 2013.
- There is scope to make existing expenditure more effective. Spending on primary and secondary education is in line with other countries in Latin America and the Caribbean, but education test scores and the number of years of schooling are relatively low.

### Public sector wage reform and workforce implications
- A new public sector wage structure aims to:
  - simplify the current wage structure;
  - sharply reduce the large number of allowances;
  - create a standardized and equitable pay structure focusing on rewarding performance and retaining skilled employees;
  - reduce the large wage gap with the private sector (public sector wages are 47 percent of private sector wages), though the magnitude and pace of reduction have not been decided.
- The reform is likely to raise the already high wage bill.
- There is a need to reassess roles and responsibilities of government; combined with steps to increase spending effectiveness, this would facilitate a reduction in the size of the public workforce and could partially offset costs of the new wage structure.
- Staff’s fiscal projections do not account for the new wage structure.

### Medium-term public debt sustainability (Box 1)
- Probability of debt stabilization:
  - A debt-GDP fan chart finds a 99 percent likelihood Jamaica’s public debt will either stabilize or fall over the next 5 years.
  - There are uncertainties around the baseline projection largely reflecting sensitivity to lower growth outcomes.
  - Jamaica’s strong track record and prudent debt management strategy mitigate potential risks.
- Rollover risks:
  - Jamaica has a high share of external debt (60 percent) making it susceptible to foreign exchange shocks.
  - Recent favorable market conditions, debt buybacks and lengthening maturities mean GFNs will remain relatively low over the medium-term.
  - Under a stress scenario, banks and non-banks would need to increase their exposures to meet sovereign financing needs; this risk is mitigated by the current moderate level of banking sector exposure to the public sector.
- Staff assesses that Jamaica’s public GFN risks over the medium-term are contained.

### Authorities’ views on fiscal strategy
- Authorities are strongly committed to meet the debt target of 60 percent of GDP by 2027/28 and are confident current surplus targets are sufficient.
- Fiscal outturns had overperformed relative to targets and authorities expected overperformance to continue.
- Several divestment projects at advanced stages would have proceeds used to pay down debt.
- Authorities did not intend to roll back the VAT rate cuts.
- On the new wage structure, authorities noted it was long overdue, aimed at attracting and retaining qualified staff, and would be spread out over several years; reforms would focus on efficiency gains rather than direct reductions in public sector employment.

### Monetary and exchange rate policy — key findings
- Monetary policy had been very accommodative for an extended period; BOJ policy rates were reduced to a historic low of 0.5 percent (well below the estimated neutral rate of about 4 percent in nominal terms).
- Rising inflation led the MPC to increase the policy rate by 100 basis points in October, and 50 basis points in both November and December 2021.
- Projections and policy guidance:
  - On current projections of global food and energy prices, inflation should return to the target band by end-2022, but continued upward surprises could de-anchor expectations.
  - There is a case for a continued path of raising the policy rate toward neutral to anchor inflation expectations and bring inflation well within the target range by end-2022.
  - Staff analysis suggests an increase in real policy rates by 100 basis points reduces inflation by 0.4 percentage points after 1 year.
- Data and operational improvements suggested:
  - BOJ should begin collecting information on inflation expectations over a 2-3 year horizon (currently only 1-year ahead expectations are available).
  - To increase market transparency and reduce its footprint, in 2020 the BOJ implemented the first phase of a Foreign Exchange Trading Platform; deposit-taking institutions and cambios can now place orders and execute trades.
- Reserve coverage:
  - The US$520 million SDR allocation in August 2021 boosted reserve coverage.
  - At end-2021, gross reserves are expected to be 8.7 months of imports of goods and services and 141.8 percent of the ARA metric.

### External position and exchange rate
- The external position in 2020 was broadly in line with fundamentals; the current account deficit in 2020 was 0.8 percent of GDP (adjusted), well below the current account norm of a deficit of 7.6 percent of GDP, suggesting an exchange rate undervaluation of 15 percent.
- Net International Investment Position deteriorated from -132 percent of GDP in 2010 to -1846 percent in 2020.
- Exports of goods and services have stagnated; remittances sharply increased and boosted import consumption.
- Authorities view:
  - Real exchange rate broadly in line with fundamentals.
  - To reduce NIIP to 70 percent of GDP (from 177 percent of GDP at end-2020), a current account balance of at most 2.2 percent of GDP would be needed—only slightly higher than their estimate of the underlying deficit of 0.9 percent of GDP.
  - SDR allocation boosted reserves to US$4.7 billion in mid-November, representing 143.8 percent of the ARA; no use of the SDR allocation for government liability management was considered given legal limits on central bank lending to the government.

### Financial stability and sector metrics
- Financial sector remained well capitalized and liquid during the pandemic.
  - At end-2020, Deposit Taking Institutions (DTI) had a Capital Adequacy Rate of 14.4 percent (regulatory minimum is 10 percent) and an NPL ratio of less than 3 percent.
  - Deposits grew by almost 17 percent in 2020 (FX deposits grew by 18.4 percent, domestic accounts by 15.8 percent).
  - The DTIs account for about 47 percent of the financial sector assets.
- Selected sector indicators (As of end-2020):
  - Deposit Taking Institutions: ROA 1.3, ROE 9.4, NPL 2.8, CAR 14.4.
  - Securities Dealers: ROA 1.8, ROE 11.6, NPL 2.4, CAR 22.3.
  - Life Insurance Companies: ROA 3.4, ROE 10.6, NPL n/a, CAR 214.6.
  - General Insurance Companies: ROA 0.7, ROE 5.2, NPL n/a, CAR 281.1.
  - Credit Unions: ROA 1.6, ROE 8.5, NPL 4.2, CAR n/a.
- Note: Bank balance sheets benefited from regulatory forbearance, BOJ liquidity support, and rapid deposit growth; the longer-term impact of COVID on corporate balance sheets and banking sector credit risks remains uncertain.

_Source: Jamaican authorities and staff projections._

### 44.      Most temporary support measures (see Appendix V) for the financial sector have been

### 1jamea2022001 - 44.      Most temporary support measures (see Appendix V) for the financial sector have been

### Financial-sector support, asset quality, and systemic risk
- Most temporary support measures for the financial sector have been phased out.
- The stock of loans under moratoria has been progressively phased out and regular classifications resumed.
- NPLs moved up only slightly and remain under 3 percent of total loans after regular classification practices resumed in May 2021.
- In August 2021, only 1.9 percent of gross loans (JS 21.3 billion) remained under moratorium.
- The BOJ’s financial stability systemic vulnerability index increased marginally between end-2019 and end-2020.
- End-2020 BOJ stress tests indicated:
  - DTIs were broadly resilient to (combinations of) plausible tail events.
  - Securities dealers were sensitive to interest rate shocks.
  - Insurers were sensitive to interest rate and currency appreciation shocks.
  - Neither securities dealers nor insurers appeared to pose a systemic financial stability risk due to the strength of their balance sheets and availability of capital and liquidity buffers.

### Supervision, resolution framework, and legislative priorities
- The supervision of financial conglomerates needs to be strengthened:
  - The sector is dominated by complex financial conglomerates operating in multiple jurisdictions with different oversight practices.
  - Cross-border and financial subsector linkages are concentrated in a few entities.
  - Risks arise from concentrated ownership, related party and large group exposures, and off-balance sheet positions.
  - Direct and indirect exposures could be a source of contagion even with separation between bank and nonbank group members.
- The FSC is drafting an amendment to facilitate consolidated supervision of NDTIs groups and has established a joint working group with the BoJ working group on consolidated supervision.
- Strong efforts are needed to finalize adoption of the remaining legislative framework for group-wide supervision and continue advancement with data gathering and analytics, particularly of inter-institution linkages and cross-border exposures.
- Legislation for the special resolution regime (SRR) for orderly resolution of distressed financial institutions needs to be adopted; the process to adopt the SRR is in its fifth year.
- Authorities noted consolidated supervision is advancing via a pilot project for consolidated supervision of a single financial holding company; they expect legislation to advance and expect SRR adoption soon.

### AML/CFT, FATF action plan, and national risk assessment
- Swift implementation of the action plan agreed with the FATF is needed to exit the FATF grey list and avoid potential disruptions to Correspondent Banking Relationship.
- January 2021 review of Jamaica’s FATF compliance concluded:
  - Jamaica had made progress since the 2017 evaluation but still had 13 (out of 40) partially compliant ratings for technical compliance.
  - Low or moderate levels of effectiveness were found for 10 out of 11 effectiveness outcomes.
- FATF recommendations for Jamaica included:
  - Including all financial institutions and designated non-financial businesses and professions in the AML/CFT regime and ensuring adequate, risk-based supervision.
  - Taking measures to prevent legal persons and arrangements from being misused for criminal purposes, and ensuring that basic and beneficial ownership information is available on a timely basis.
  - Increasing the use of financial intelligence ML investigations and prosecutions.
  - Implementing a risk-based approach for supervision of the NPO sector to prevent abuse for TF purposes.
- The recently adopted national risk assessment (prepared to satisfy a key action item in the FATF Action Plan) should help design adequate policies.
- Authorities are developing a risk-based supervisory framework for deposit-taking institutions, cambios and remittance companies.
- Jamaica has committed to implement the International Standard for Automatic Exchange of Financial Account Information in Tax Matters in 2022 to identify tax evasion and increase tax compliance.
- Authorities are working to complete remaining action items of the FATF Action Plan, aiming to fully comply on the partially compliant recommendations and remain compliant on already compliant recommendations, and to implement policy recommendations and administrative measures identified in the 2021 National Risk Assessment.

### Central Bank Digital Currency (CBDC)
- In August 2021, the BoJ launched a Central Bank Digital Currency (CBDC) pilot as part of its financial inclusion strategy.
- Characteristics of the BoJ CBDC:
  - CBDC is a digital form of legal tender (not a crypto-currency).
  - Two-tiered system where CBDC is distributed through DTIs and authorized payment service providers via digital wallets to customers solely for domestic use.
  - Similar to DCash (ECCB pilot) and the Bahamas’ Sand Dollar.
- Authorities expected to roll out the CBDC nation-wide after necessary legislation for CBDC usage had been passed (expected before end-March 2022).
- The BoJ hopes the CBDC will:
  - Promote digitalization and financial inclusion.
  - Increase payment safety and efficiency.
  - Lower costs of processing welfare payments.
- The BoJ noted competencies for tracking payments and existing legislation will address AML/CFT risks.

### Productivity constraints and policy recommendations
- Labor productivity has steadily declined; both TFP and capital stock per worker have fallen. GDP per capita has not fallen commensurately due to an increase in the employment to population ratio.
- Low productivity growth may be partly due to weak export performance; traditional exports (minerals, agriculture, textiles) have declined while tourism receipts increased only partially offsetting losses.
- Several structural constraints identified:
  - High rates of crime; overall costs for Jamaica estimated at 4 percent of GDP.
  - Low levels of human capital: low years of schooling, low test scores, significant emigration of university graduates.
  - Weak infrastructure, particularly logistics and energy; Jamaica’s electricity costs are the fourth highest in the world; infrastructure assessed weaker than average in LAC in the World Bank Logistics Performance Indicator.
  - Cumbersome business procedures (cross-border trade, paying taxes); limited access to finance for SMEs.
  - Strong competition from CAFTA-DR and NAFTA countries; high import tariffs (average MFN tariff is 22 percent), especially on agricultural products.
- Government policy recommendations to support new industries and ease constraints:
  - Reduce crime through a broad-based strategy focusing on dismantling violent criminal gangs, keeping the young in the education system, and providing attractive employment opportunities upon graduation.
  - Improve education and training: increase school attendance, skills training for youth, early childhood education, expand school meals program, improve rural transportation, invest in teacher quality and ICT.
  - Improve infrastructure, particularly logistics and energy: rehabilitate transportation infrastructure (roads, rail, traffic), invest in energy to reduce production and transmission costs and losses, improve reliability, and advance transition to renewables.
  - Reduce business costs and lower barriers to international trade: streamline customs procedures (higher reliance on risk-based inspection), gradually reduce import tariffs and charges, and improve access to finance for SMEs.
  - Within CARICOM, promote lower regional barriers to trade with other regions, including through free trade agreements.
  - Strengthen governance of fiscal and financial sector institutions: reduce discretionary tax exemptions, enhance financial sector supervision (including of complex conglomerates) to boost transparency and level the playing field for private sector development including SMEs.
- Authorities’ views:
  - Agreed on need to boost productivity and exports; attributed low productivity growth to tourism and construction being low value-added.
  - Hope SEZs will contribute to diversification; SEZ strategy focuses on infrastructure, training, and facilitating business procedures rather than solely tax incentives.
  - High crime, low human capital, high energy costs, weak infrastructure, and loss of preferential access were seen as primary constraints.
  - Government aims to shift away from fossil-based fuels towards renewable energy: By 2030, 30 percent of energy should be generated from solar, wind, and hydropower energy, up from about 10 percent currently; shift to occur through private sector investment to reduce high energy costs.

### Staff appraisal and near-term macro priorities
- Pre-pandemic progress: fiscal deficit and public debt reduced sharply; inflation and current account deficit declined; institutional reforms included a Fiscal Responsibility Law, inflation targeting, greater exchange rate flexibility, strengthened oversight, and Central Bank independence.
- Once the pandemic recedes, Jamaica should restart debt reduction and rebuild buffers given high susceptibility to shocks; the government’s goal to reduce debt to 60 percent of GDP by 2027/28 remains appropriate.
- Near-term: reprioritizing expenditure and increasing revenue could provide additional resources for infrastructure, growth-enhancing expenditures, and natural disaster resilience.
- Medium-term: decline in interest payments from debt reduction and lower financing costs will free up resources.
- Containing the wage bill would help avoid crowding out other expenditures; reassessment of government roles and improving public service efficiency could facilitate a reduction in the size of the public workforce.
- Monetary policy: a further tightening may be needed to anchor inflation expectations and bring inflation within the target range by end-2022.
- The authorities requested temporary approval of the new multiple currency practice; staff supports the request given stated conditions.
- Recommended priorities:
  - Remove supply-side constraints to growth (education, infrastructure, energy transition, crime reduction, lower trade barriers).
  - Strengthen supervision of financial conglomerates via adoption of remaining legislative framework for group-wide supervision and improved data gathering and analytics of inter-institution linkages and cross-border exposures.
  - Adopt legislation for the special resolution regime for orderly resolution of distressed financial institutions.
  - Swiftly implement the FATF Action Plan to strengthen the AML/CFT regime and support timely exit from the FATF grey list.
- It is recommended that the next Article IV consultation takes place on the standard 12-months cycle.

*Source: JAMAICA — INTERNATIONAL MONETARY FUND*

### Box 2. History of Macroeconomic Instability

### Box 2. History of Macroeconomic Instability

### Post-independence expansion and unequal gains (1962–early 1970s)
- GDP grew strongly in the decade following independence in 1962, driven by foreign direct investment in mining, sugar, and manufacturing.
- Benefits were unevenly distributed; unemployment and inequality rose.

### Expansion of government role and fiscal deterioration (1972–1978)
- A government that came to power in 1972 sharply expanded social and economic programs and the government’s involvement in the economy.
- Government spending rose from 23 percent of GDP in 1972 to 45 percent of GDP in 1978.
- The fiscal deficit rose to 15 percent of GDP.
- The rise in fiscal deficits was compounded by external shocks, including the 1973-74 oil shock and a softening of aluminum prices.
- Declining private sector confidence led to a sharp drop in private investment, and capital began to flee the country.
- Growing fiscal deficits were financed with central bank and external loans.

### Market-oriented reversal and debt dynamics (1980s–mid-1990s)
- A government that came to power in 1980 changed course and implemented more market-oriented policies.
- The government cut public expenditure and sharply devalued the exchange rate to reduce balance of payments deficits.
- With much of the public debt fx-denominated, this led to a sharp increase in public debt, reaching 150 percent of GDP.
- As the economy started growing again and deficits were contained, the debt ratio started to fall thereafter, to 84 percent in 1995.

### Financial liberalization, banking crisis, and fiscal costs (1990s–2009)
- During the 1980s the financial sector had been liberalized without adequate strengthening of the regulatory and supervisory framework.
- The result was a boom in private sector credit and the emergence of new large financial conglomerates, including banks and life insurance companies.
- From 1991 onwards (when inflation reached 80 percent), monetary policy was tightened, and real interest rates rose sharply.
- Real estate prices fell, creating problems for life insurance companies heavily invested in the sector and for associated banks.
- In 1996, a banking crisis ensued.
- A blanket deposit guarantee helped restore stability but added almost 40 percent of GDP to the debt.
- High interest rates and rising debt then led to a renewed vicious cycle, with interest payments peaking at 17 percent of GDP in 2009.

*Source: IMF country report content.*

### Annex I. Progress on 2018 Article IV Policy Recommendations

### Annex I. Progress on 2018 Article IV Policy Recommendations

### Growth agenda
- Objective: Improve social outcomes and foster inclusive growth by addressing structural bottlenecks and enabling private sector led growth.
- Status: Ongoing.
- Actions:
  - Increased allocations to prevent crime, enhance information network and mobility for security units.
  - Additional resources allocated for youth education, training and development and women’s programs to address deficiencies in social outcomes.

### Fiscal sector
- Recommendations and status:
  - Maintain a tight fiscal stance to preserve debt sustainability.
    - Action: The fiscal rule was suspended for one year in FY 2020/21 because of the pandemic. The FY 2021/22 budget maintains tight fiscal discipline and debt is on a downward trajectory.
  - Reduce the wage bill and reprioritize spending toward growth-enhancing projects.
    - Status: Ongoing. Reevaluation of non-wage benefits would be part of the planned overhaul of the compensation structure that the Government aims to put in place by FY21/22, before the next round of wage negotiations.
  - Improve public sector efficiency through divestments and addressing duplication and inefficiencies in government functions.
    - Status: Ongoing. Several public bodies have been closed, merged, and reintegrated into central government; earmarked revenues from several entities have been directed into the Consolidated Fund.

### Monetary and Financial sector
- Recommendations and status:
  - Formalize the current inflation targeting regime; monetary policy to be guided by price stability; strengthen BOJ’s governance and operational autonomy.
    - Action: The revised BOJ independence Act was passed in April 2021. The reforms include clarifying BOJ’s primary objective to be price stability. The new act strengthens BOJ’s institutional independence and accountability, putting in place an effective Board with decision-making structure, and restores autonomy to the central bank.
  - Maintain exchange rate flexibility.
    - Status: The BOJ continues to shrink its role in FX markets. Exchange rate flexibility continues, with FX intervention limited to periods of excessive volatility.
  - Preserve financial sector stability to promote growth.
    - Status: Ongoing. Prudential and supervisory improvements are being enhanced for systemic stability with MCM TA. Changes to investment limits for non-banks is being considered to safeguard financial stability with MCM TA, along with the introduction of a Special Resolution Regime for financial institutions.
  - Address weaknesses in AML/CFT framework.
    - Status: Work is ongoing with TA from LEG/MCM.

*Italic source attribution: Annex I. Progress on 2018 Article IV Policy Recommendations (excerpt).*

---

### Annex II. Risk Assessment Matrix — Key Risks, Likelihoods, Impacts, and Policy Responses

### External Risks
- Unexpected shifts in the Covid-19 pandemic
  - Scenarios: Uncontrolled Covid-19 local outbreaks (↓); Global resurgence of pandemic (↓).
  - Likelihood: High (for local outbreaks); Medium (for global resurgence).
  - Impact if realized: Medium. Weaker growth and lower fiscal expenses.
  - Policy response:
    - Extend pandemic relief measures while designing/communicating a medium-term plan to preserve fiscal sustainability.
    - Extend current pandemic relief measures while designing and communicating a medium-term plan to preserve fiscal sustainability.
- De-anchoring of U.S. inflation expectations leading to rise in global risk premia (↓)
  - Likelihood: Medium.
  - Impact if realized: Medium. Financing difficulties for government, firms/households, erode banks’ capital.
  - Policy response: Provide fiscal support to affected sectors within a sustainable medium-term fiscal plan. Intensify surveillance of financial institutions.
- Rising oil prices amid bouts of volatility (↓)
  - Likelihood: Medium.
  - Impact if realized: Medium.
  - Policy response: Accelerate transition to local renewable energy sources.

### Structural/Domestic Risks
- Faster pandemic containment (↑)
  - Likelihood: Medium.
  - Impact if realized: Medium. Higher growth and lower fiscal expenses.
  - Policy response: End pandemic relief measures, continue supporting recovery; eventually rebuild fiscal buffers.
- Higher frequency and severity of natural disasters related to Climate Change (↓)
  - Likelihood: Medium.
  - Impact if realized: High. Severe damage to infrastructure and agriculture.
  - Policy response: Invest in resilient infrastructure. Leverage private sector solutions linking agriculture with tourism and manufacturing sectors. Develop self-insurance and ex-ante mitigation strategies.
- Cyber-attacks (↓) on critical infrastructure, institutions, and financial systems
  - Likelihood: Medium.
  - Impact if realized: Low. Relatively low dependence on cybernetics.
  - Policy response: Upgrade risk management capacity in financial institutions and infrastructure (payments and settlement system); Strengthen cyber security measures.
- Financial sector weakness (↓) due to pandemic-triggered large losses
  - Likelihood: Medium.
  - Impact if realized: Medium.
  - Policy response: Formalize crisis management plans and undertake reforms to support asset recovery. Ensure financial sector linkages and channels of contagion during market stress episodes are both well understood and regulated.

*Italic source attribution: Risk Assessment Matrix (excerpt).*

---

### Annex III. External Sector Assessment — Findings and Policy Responses

### Overall assessment and context
- Overall Assessment: In 2020, Jamaica’s external position was in line with the level consistent with fundamentals and desirable policy settings.
- Key metrics and findings:
  - Current account deficit in 2020: 0.8 percent of GDP (noting BOJ estimates elsewhere that the current account deficit declined from 2.3 percent of GDP in 2019 to 0.1 percent in 2020).
  - Current account norm: around 7.6 percent of GDP.
  - Suggested exchange rate undervaluation: 15 percent (from CA model) and REER gap estimates of -15 percent and -15.8 percent in model outputs; iREER model estimate of 16 percent (appreciation needed).
  - Net International Investment Position (NIIP): deteriorated from -120 percent of GDP in 2010 to -176 percent (also cited as -178 in places) in 2020.
  - The current level of the real exchange rate would keep the NIIP sustainable according to the External Sustainability Approach.
- Covid-19 effects:
  - Sizable contraction in tourism; import compression and increase in remittances more than offset impact on current account and contributed to accumulation of gross international reserves.
  - Covid-19 adjustor: -2.3 percent of GDP (reflecting pandemic-related changes).
  - Adding a cyclical adjustor leads to an adjusted CA of -3.4 percent of GDP, higher than the CA norm of -7.6 percent of GDP.
- Drivers of past improvements in current account:
  - Increase in remittances and a recent decline in interest payments and oil prices; exports contracted as a share of GDP.

### Foreign assets and liabilities
- Background and composition:
  - NIIP: reported as -176.5 (2020, % GDP) in tabular figures.
  - Gross Assets: 72.1 (% GDP).
  - Debt Assets: 97.6 (% GDP).
  - Gross Liabilities: -248.6 (% GDP).
  - On the liability side in 2020: FDI was the largest liability, followed by portfolio investment and other investment.
  - On the asset side in 2020: reserve assets were the largest asset category, followed by portfolio and other investment.
  - External debt increase after late 1990s, then reversal mid-2010s due to fiscal consolidation. Most of external debt by end-2020 consisted of government long-term bonds (55 percent of external debt). Loans to the private sector were also a major component.
- Assessment:
  - NIIP projected to decline in the future given projected reduction in government external debt and low current account deficits.
  - Under the External Sustainability approach and current baseline (constant real exchange rates), NIIP would not deteriorate further in net present value terms and is assessed to be sustainable.

### Current account detail
- Background numbers:
  - BOJ estimates: current account deficit declined from 2.3 percent of GDP in 2019 to 0.1 percent in 2020.
  - Improvement despite tourism-related decline in service exports (12.1 percentage points of GDP) because of declines in imports (10.5 percentage points) and higher remittances (5.5 percentage points). Reduction in international fuel prices contributed to import decline.
- Model estimates for 2020 (in percent of GDP):
  - CA-Actual: -0.1
  - Cyclical contributions (from model): (-)1.1
  - COVID-19 adjustor: 1/-2.3 (additional cyclical adjustment accounting for pandemic impacts including oil trade balances (-1.9 percent of GDP), tourism (2.9 percent of GDP), remittances (-2.3 percent of GDP))
  - Adjusted CA: -3.4
  - CA Norm (from model): 2/-7.6
  - Adjusted CA Norm: -7.6
  - CA Gap: 4.2 / 4.4 (table shows CA Gap4.24.4)
  - Relative policy gap: 3.5
  - Elasticity: -0.28
  - REER Gap (in percent): -15.1 and -15.8
- Assessment:
  - External position substantially stronger than level consistent with medium-term fundamentals per CA and iREER models.
  - Current account deficit in line with the norm would be difficult to finance and would worsen the NIIP.
  - High CA norm partly due to large outward migration and remittances: EBA-Lite notes 40 percent share of population living abroad raises the norm for CA deficit by 5 percent of GDP.

### Real exchange rate
- Background: REER has remained stable in recent years and depreciated by 2.7 percent in 2020.
- Assessment: Real exchange rate stable; REER norm has increased per iREER model, driven by an increasing dependency ratio expecting to lead to appreciation of REER.

### Capital and financial accounts; FX intervention and reserves
- Background: Capital inflows have declined in recent years. Portfolio and direct investment are major sources of external financing.
- FX intervention and reserves:
  - BOJ has accumulated foreign reserves in recent years by selling only part of its surrender receipts through its PSE facility and FX sales.
  - Reserves in recent years fluctuated between 5 and 6 months of imports of goods and services, exceeding the typical benchmark of 3 months of imports.
  - Recent increase in this ratio up to 8 months of imports, mainly due to Covid-19 related import compression.
- Assessment: Lower reliance on external borrowing improves external sustainability outlook; direct investment relatively low as share of GDP and should be strengthened to promote export and economic development.

*Italic source attribution: Annex III. External Sector Assessment (excerpt).*

---

### Annex IV. Debt Sustainability Analysis — Key Findings and Scenarios

### Overall conclusion
- Jamaica’s public debt is sustainable.

### Key numbers and trajectory
- Debt-to-GDP ratio increased to 108 percent of GDP in FY 2020/21 due to the pandemic, sharp contraction of GDP, and a weak currency.
- Fiscal Responsibility Law debt target: 60 percent of GDP by FY2027/28 (authorities committed to bringing public debt below 60 percent of GDP by FY2027/28, with a modest two-year delay from original FY2025/26 target).
- Prior to pandemic:
  - Public debt fell from 114 percent of GDP in FY 2016/17 to 94.3 percent in FY 2019/20.
  - Primary surplus declined to 3.5 percent of GDP in FY 2020/21 (from 7.1 percent in FY 2019/20).
- Baseline macro-fiscal assumptions and projections:
  - Real GDP growth projected to recover from -10 percent in 2020 to 4.7 percent in 2021 as tourism rebounds to near 70 percent of pre-crisis levels.
  - Inflation expected to recede to 5 percent over the medium-term.
  - Fiscal balance expected to be around 0.3 percent of GDP in the near term, in line with the FRL.
  - Over the medium-term, fiscal balances projected to rise to 1.5-2 percent of GDP to bring debt down to 60 percent of GDP by FY 2027/28.
  - Interest rates are assumed to increase by 200 basis points in FY 2022/23.
  - Interest payments projected to fall in line with retiring of maturing bonds.
  - Publicly guaranteed debt: 2.5 percent of GDP at end-2020, expected to decline as percent of GDP through 2026.
  - External debt projections assume projected increases in the current account deficit of around 2.5 percent of GDP over the medium term and planned disbursements of project loans.

### Vulnerabilities and stress test outcomes
- Susceptibility to macro-fiscal shocks:
  - Standard stress tests project public debt outcomes ranging between 76 and 94 percent of GDP by FY2025/26 depending on shock scenario.
  - In the near term, public debt could deviate from baseline by 5.6 to 11.9 percent of GDP in FY2022/23 under standard stress tests, with larger impacts under foreign exchange shock, contingent liabilities shock, and combined macro shock.
  - Fan charts: upper quartile points to debt of 74 percent of GDP by FY2025/26 (noting context that other figures present ranges to FY2025/26).
- Near-term gross financing needs and external debt composition:
  - External debt: 61 percent of GDP at end of FY 2020/21.
  - External debt predominantly owed to private creditors: 58 percent.
  - Currency composition: 98 percent denominated in US dollars.
  - Maturity profile: 13 percent medium term (1-5 years) and 87 percent long-term (over 5 years).
  - Rollover risks contained; gross financing needs over medium-term modest.
  - MAC DSA heatmap: low liquidity risks with gross financing needs-to-GDP ratio staying below 15 percent threshold across standard stress tests.
  - Debt-profile vulnerabilities tool: Jamaica’s FX-denominated debt in percent of total public debt exceeds the 75th percentile of peers (61 percent) by a small margin; other key indicators do not flag high-risk signals for now.
- Downside scenario (combined macro fiscal shock):
  - Debt would initially increase to about 112 percent of GDP in the near term and then decline to 93.4 percent in FY 2025/26.
  - Gross financing needs would increase to 16 percent of GDP over the near term and then decline and stay below the GFN benchmark of 15 percent.

### Policy implications highlighted
- Continued fiscal consolidation to resume as the pandemic wanes to meet FRL targets.
- Proactive steps to reduce near-term gross financing needs noted.
- Debt dynamics remain vulnerable to COVID-19 uncertainties, natural disasters, and potential contingent liabilities from public bodies.
- Potential upsides from asset divestments are noted but not included in the baseline.

*Italic source attribution: Annex IV. Debt Sustainability Analysis (excerpt).*

### 6.      The authorities have been proactive in their debt management strategy to mitigate

### 6.      The authorities have been proactive in their debt management strategy to mitigate 

### Debt management actions and strategy
- In 2019, the Government of Jamaica conducted buybacks of outstanding global bonds coming due in 2022, 2025, and 2028, totaling around US$1 billion.
- These buybacks together with new bond issuances through the reopening of the global bond coming due in 2045 led to substantial maturity extension.
- As part of their medium- term debt strategy, the authorities plan to continue to conduct opportunistic liability management operations (LMOs) to further mitigate costs and risks in public debt portfolio.
- The public debt risk profile would also benefit from plans to reduce reliance on FX-denominated borrowing, while further developing the local currency bond market over the medium term.

### Debt sustainability assessment — headline finding
- Jamaica’s debt is assessed to be sustainable.
- The projected debt trajectory remains vulnerable to the high degree of uncertainty from the size and duration of the COVID-19 shock and the associated risks to growth, interest rates, exchange rate and fiscal revenues.
- The strong policy track record, together with the authorities’ commitment to meet the medium-term debt target sooner should growth overperform, and prudent debt management mitigate potential risks.

### Key DSA baseline indicators and projections (figures preserved as presented)
- Nominal gross public debt (percent of GDP) by year: 2018 114.7; 2019 94.4; 2020 94.3; 2021 108.1; 2022 91.6; 2023 84.7; 2024 78.4; 2025 75.4; 2026 66.7; 202? 63.3 (as shown in table).
- Public gross financing needs (percent of GDP) by year: 2018 13.1; 2019 5.3; 2020 7.1; 2021 11.1; 2022 6.5; 2023 7.4; 2024 5.5; 2025 10.8; 2026 4.6; 202? 4.2 (as shown in table).
- Real GDP growth (in percent) by year: 2018 0.1; 2019 1.9; 2020 -0.1; 2021 -11.1; 2022 8.2; 2023 3.5; 2024 2.5; 2025 2.1; 2026 1.9; 202? 1.7.
- Inflation (GDP deflator, in percent) by year: 2018 7.3; 2019 4.4; 2020 3.4; 2021 4.9; 2022 8.2; 2023 6.3; 2024 5.5; 2025 5.1; 2026 5.0; 202? 5.0.
- Nominal GDP growth (in percent) by year: 2018 7.4; 2019 6.5; 2020 3.3; 2021 -6.8; 2022 17.1; 2023 10.0; 2024 8.2; 2025 7.3; 2026 7.0; 202? 6.8.
- Effective interest rate (in percent) by year: 2018 8.8; 2019 6.7; 2020 6.8; 2021 6.7; 2022 6.6; 2023 6.6; 2024 6.7; 2025 6.8; 2026 7.1; 202? 7.0.
- Change in gross public sector debt (percent of GDP) by year: 2018 -1.0; 2019 -6.8; 2020 -0.1; 2021 13.8; 2022 -16.5; 2023 -6.9; 2024 -6.3; 2025 -3.0; 2026 -8.7; 202? -3.4; cumulative -27.5.
- Identified debt-creating flows (percent of GDP) by year: 2018 -3.1; 2019 -13.2; 2020 -1.4; 2021 9.9; 2022 -15.8; 2023 -9.3; 2024 -6.7; 2025 -5.5; 2026 -6.3; 202? -5.5; cumulative -33.7.
- Primary deficit (percent of GDP) by year: 2018 -6.4; 2019 -7.5; 2020 -7.1; 2021 -3.5; 2022 -5.9; 2023 -5.4; 2024 -4.9; 2025 -4.6; 2026 -6.1; 202? -5.6; cumulative -30.5.
- Primary (noninterest) revenue and grants (percent of GDP) cumulative: 27.1; 30.6; 30.6; 29.1; 30.5; 29.1; 28.6; 28.3; 28.1; 27.6; cumulative 173.8.
- Primary (noninterest) expenditure (percent of GDP) cumulative: 20.7; 23.2; 23.5; 25.6; 24.6; 23.7; 23.7; 23.7; 22.0; 22.0; cumulative 143.3.
- Automatic debt dynamics (percent of GDP) by year: 3.4; 0.4; 7.1; 13.6; -9.6; -2.9; -1.1; -0.4; 0.0; 0.1; cumulative -0.4.
- Interest rate/growth differential (percent of GDP) by year: 1.5; 0.2; 3.6; 13.6; -9.6; -2.9; -1.1; -0.4; 0.0; 0.1; cumulative -0.4.
- Real interest rate (percent) by year: 1.6; 2.0; 3.5; 2.3; -2.1; 0.1; 0.8; 1.1; 1.4; 1.2; cumulative 3.6.
- Real GDP growth contribution (percent) by year: -0.2; -1.8; 0.1; 11.3; -7.5; -2.9; -2.0; -1.5; -1.3; -1.1; cumulative -4.0.
- Exchange rate depreciation contribution (percent of GDP) by year: 2.0; 0.2; 3.5; ... (table indicates continued detail as available).
- Other identified debt-creating flows (percent of GDP) by year: -0.2; -6.1; -1.4; -0.3; -0.2; -1.0; -0.6; -0.5; -0.2; 0.0; cumulative -2.8.
- Compensatory flows from PCDF (percent of GDP) by year: -0.2; -4.9; -2.3; -0.3; -0.2; -1.0; -0.6; -0.5; -0.2; 0.0; cumulative -2.8.
- Contingent liabilities (percent of GDP): 0.0 for all years shown.
- Bank Recapitalization (percent of GDP) by year: 0.0; -1.2; 0.9; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0; 0.0.
- Residual, including asset changes (percent of GDP) by year: 2.1; 6.3; 1.3; 4.0; -0.7; 2.4; 0.4; 2.5; -2.4; 2.1; cumulative 6.1.
- Note: For FY2020/21 includes asset sales as announced in GOJ's 2020/21 Budget.

### DSA alternative scenarios and underlying assumptions (selected)
- Baseline scenario underlying assumptions (in percent):
  - Real GDP growth: 2020 -11.1; 2021 8.2; 2022 3.5; 2023 2.5; 2024 2.1; 2025 1.9.
  - Inflation: 4.9; 8.2; 6.3; 5.5; 5.1; 5.0.
  - Primary Balance: 3.5; 5.9; 5.4; 4.9; 4.6; 6.1.
  - Effective interest rate: 6.7; 6.6; 6.6; 6.7; 6.8; 7.1.
- Historical scenario assumptions (in percent):
  - Real GDP growth: 2020 -11.1; 2021 0.6; 2022 0.6; 2023 0.6; 2024 0.6; 2025 0.6.
  - Inflation: same series as baseline.
  - Primary Balance: 3.5; 6.6; 6.6; 6.6; 6.6; 6.6.
  - Effective interest rate: 6.7; 6.4; 6.4; 6.7; 6.7; 7.1.
- Constant Primary Balance scenario assumptions (in percent):
  - Real GDP growth and inflation same as baseline.
  - Primary Balance held at 3.5 each year.
  - Effective interest rate: 6.7; 6.4; 6.3; 6.5; 6.5; 6.8.

### Stress tests and risk assessment — summary of scenarios
- Stress tests considered include:
  - Primary Balance Shock
  - Real GDP Growth Shock
  - Real Interest Rate Shock
  - Real Exchange Rate Shock
  - Combined Shock
  - Contingent Liability Shock
- Example scenario parameter highlights (as presented):
  - Real GDP growth under Real GDP Growth Shock: 2020 -11.1; 2021 7.3; 2022 2.6; 2023 2.0; 2024 2.0; 2025 2.0.
  - Effective interest rate under Real Interest Rate Shock: 6.7; 7.0; 6.3; 6.5; 6.5; 6.8 (table entries).
  - Real Exchange Rate Shock shows inflation spike in 2021 to 12.7 (from 8.2 baseline) in one scenario.
  - Combined Shock and Contingent Liability Shock parameterizations are shown with adjusted real GDP growth, inflation, primary balance, and effective interest rate series in the figures.
- Graphical stress-test outputs indicate trajectories of gross nominal public debt (in percent of GDP and in percent of revenue) and public gross financing needs (in percent of GDP) under baseline and shocks for 2020–2025.

### Risk assessment indicators (excerpted)
- EMBIG (bp) referenced as 491 bp in chart notes.
- External Financing Requirement and other market/debt-profile indicators are presented relative to benchmark thresholds (benchmarks cited: 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt).
- Public Debt Held by Non-Residents indicated as 41% (in figure notes).

### Policy implications and planned actions (from text)
- Continue opportunistic liability management operations (LMOs) to mitigate costs and risks.
- Reduce reliance on FX-denominated borrowing.
- Further develop the local currency bond market over the medium term.
- Maintain strong policy implementation to meet medium-term debt target sooner if growth overperforms.

*Source: IMF staff (as presented in the DSA figures and text).*

### Annex V. Policy Measures to Counter Impact of COVID-19 on

### Annex V. Policy Measures to Counter Impact of COVID-19 on Financial Sector

### A. Bank of Jamaica — Monetary Policy and Liquidity Measures
- Accommodative stance—policy rate (PR) @0.5%.
- Direct sale of US$344 million to public and other approved entities.
- Sales of US$292 million to authorized dealers and cambios via flash auctions through the Bank of Jamaica’s FX Intervention Trading Tool; re-sale of these funds allowed at a specified spread.
- Set up an intermediation facility to help eligible participants avoid counterparty risk present in peer-to-peer lending.
- Facility to repurchase of GOJ and early redemption of BOJ instruments injected JM$51.1 billion.
- Occasional Term Repurchase Operation to provide credit for six-months against an expanded pool of securities used as collateral injected JN$11 billion.
- PR raised in the face of inflationary pressures (current status: PR raised).
- One-time measures noted for certain interventions; Bank augments US$ liquidity based on market conditions to maintain orderly market conditions (remains in place and available).
- All repos via the intermediation facility have been repaid.

Liquidity Support to Core Funding Markets
- Reduction of FX cash reserve requirement for DTIs by 2% (to 13%) from mid-May 2020 injected US$70 million. (One-time measure; FX CRR remains at 13%.)
- BoJ FX Swap Arrangement injected US$167 million. (Repaid @end 2020.)
- FX repurchase ops to financial institutions injected US$137 million in May 2020. (Repaid by March 2021.)
- Unlimited and penalty free DTIs borrowing via the overnight repurchase facility. (Remains in place.)
- Reactivated 2015 Emergency Liquidity Facility. (Remains in place.)

Measures to Maintain the Flow of Credit
- Increased limit on the FX net open positions (FX NOP) of FX dealers by 5.0 percentage points (to 25% of regulatory capital), injected US$1.0 billion. In July 2020, FX NOP limits adjusted to ST & LT limits of 25% and 15%, respectively; they remain at these levels.
- Cut of local cash reserve requirement to 5 from 7 % from mid-May 2020 injected JM$14 billion. (One time measure; remains at 5 percent.)
- In May 2020, at BoJ request financial holding companies and DTIs limited dividend distributions to preserve capital. In December, DTIs agreed not to declare or pay any dividend until June 2021 excepting payments to shareholders with 1% or less of stock. Payments to large shareholders resumed in April 2021.

Problem Assets and Debt Restructuring
- DTIs, encouraged by BoJ, used loan moratoria, payment holidays and changes in loan covenants; DTIs extended moratoriums for 3-6 months.
- Loans under moratoria were not classified as NPLs.
- At end Jun-2021, JM $27.6 billion (or less than 3% of total loans) represented loans that remained under moratorium.
- The overall stock of loans that have benefitted from these arrangements has been on the decline since end-2020, contracting at an average monthly rate of 13%.
- Granting of moratoria stopped in May 2021.

Financing Support to Business
- Designation of CUs as FIs for financial stability purposes under the Bank of Jamaica Act and establishing a repurchase facility JM$4 billion to provide liquidity support from July to December 2020. (Expired @end-2020.)

### B. Financial Services Commission — Regulatory and Supervisory Measures
Surveillance and Reporting
- Frequency of reporting of liquidity pressures for insurance companies and securities dealers (SD) increased.
- SD required to file daily and weekly liquidity positions and cash flow activities including collective investment schemes (CIS) and on balance sheet obligations. (Ongoing for SDs.)
- Insurance companies submit quarterly reports unless under enhanced monitoring.

Prudential Requirements and Forbearance
- Exercised regulatory forbearance regarding:
  - investment and funding limits for CISs;
  - large exposures above the transitional limit of 95% reviewed on a case-by-case basis;
  - suspended the implementation of the retail mismatch ratio;
  - relaxed the requirement to present an action plan for breaches of the early warning limits for the Capital to Risk Weighted Assets ratio of 14 per cent required by law.
- Required insurance companies and securities dealers to notify the FSC 10 days before any dividend payments and granted extensions for the submission of routine periodic statutory filings.
- Ongoing with exceptions and amendments:
  - Large exposure transitional limit lowered to 55%;
  - Forbearance for Capital to risk weighted assets expired September 30, 2021.
- Insurance companies were allowed to apply for regulatory forbearance related to investment opportunities and possible breaches in their Minimum Capital Test. Two ICs applied and received approval. Extension requests must be submitted in writing and appropriately justified.

Business Continuity and Stress Testing
- Insurance companies, pension administrators and investment managers required to submit business continuity plans (BCPs) and the SDs a liquidity recovery plan for the FSC review and revision thereafter.
- The Insurance Division requested BCPs in early 2020; companies have been implementing those plans. The FSC has been monitoring their performance and conducted stress testing of their balance sheets; the entities tested appear resilient to the plausible risks.

Communication and Pension Measures
- Issued guidance, tips and notices including via social media and directly to industry and provided guidance on the purchase of annuities for pension plans of members retiring during the pandemic.
- Maintained open communication with stakeholders and tracked pandemic impacts:
  - (i) Consultation with pension stakeholders on proposed legislative amendments to alleviate financial burden due to COVID-19; from these consultations, the Pensions (Superannuation Funds and Retirement Schemes) (Repeal and Replacement) Bill now includes proposals to ease financial obligations for members and sponsors of pension plans related to the payment of contributions. (Completed for Item (i).)
  - (ii) A special advisory group of the FSC and pension stakeholders established for collaboration and dialogue to respond effectively to challenges from the pandemic. (On-going for item (ii).)

### Key Macroeconomic and Institutional Indicators (selected from staff report)
- Membership Status: Joined: February 21, 1963, Article VIII.
- Quota: 382.90 SDR Million (100.00% Quota).
- Fund holdings of currency: 1007.12 SDR Million (263.02%).
- Reserve tranche position: 27.35 SDR Million (7.14%).
- Net cumulative SDR allocation: 628.64 SDR Million (100.00%).
- Holdings: 487.49 SDR Million (77.55%).
- Outstanding Purchases and Loans — Extended Arrangements: 268.62 SDR Million (70.15% of quota).
- Latest RFI: RFI May 15, 2020 — Date Drawn May 19, 2020 — Amount Approved 382.90 SDR Million — Amount Drawn 382.90 SDR Million.
- Overdue Obligations and Projected Payments to Fund (SDR Millions; based on existing use of resources and present holdings of SDRs):
  - Principal forthcoming: 2022: 93.12  2023: 177.45  2024: 247.47  2025: 124.05  2026: 9.44
  - Charges/Interest forthcoming: 2022: 6.87  2023: 5.79  2024: 3.40  2025: 0.92  2026: 0.19
  - Total forthcoming: 2022: 100.00  2023: 183.25  2024: 250.86  2025: 124.96  2026: 9.63

Exchange Rate and External Sector
- Jamaica’s de facto and de jure exchange rate arrangements are floating.
- On January 10, 2022 the Jamaican dollar was trading at around J$154.53 to the U.S. dollar.
- Jamaica maintains a multiple currency practice due to the absence of a mechanism to prevent exchange rate deviations by more than 2 percent for resale of foreign exchange auction funds.

Recent Pandemic and Economic Developments (staff statement as of January 31 / January 2022)
- Latest Covid-19 wave has peaked; as of January 31, the 7-day moving average of new cases was down 62 percent from the peak on January 17.
- Vaccination: as of January 31, about 25 percent of the population has received at least one vaccine dose while 21 percent of the population is fully vaccinated.
- International flight arrivals recovered to 87 percent of pre-crisis levels in Q4; up from 75 percent in Q3.
- Tourism stopover visitors in November were 3.08 times as high as in November 2020 and have now rebounded to 75 percent of pre-crisis levels.
- Inflation: In December, the CPI index was 7.3 percent higher than a year earlier (compared with a peak of 8.5 percent in October) and below the projections in the staff report. 12-month ahead inflation expectations increased from 8.2 percent in October to 8.9 percent in November. No indicators exist of inflation expectations beyond twelve months ahead.
- Fiscal: A second supplementary budget for FY 2021/22 was approved by parliament including additional spending for public-sector wages (0.4 percent of GDP) and higher interest payments (0.2 percent of GDP). Additional spending will be financed through higher-than-expected revenues (0.5 percent of GDP). The overall fiscal position is expected to remain in line with the fiscal responsibility law.
- Fund credit outstanding will reach about 5.5 percent of GDP or 18.7 percent of exports by end FY2021/2022.

### IMF Technical Assistance and Data Issues (selected)
- The BOJ Act was amended towards the end of 2020, giving significant autonomy to the central bank and further strengthened governance arrangements.
- Data provision: broadly adequate for surveillance but with shortcomings.
- CPI weights based on 2004/2005 HES; 2020/21 HES underway to derive expenditure weights for rebased CPI.
- BOJ does not yet compile and report data for the Other Financial Corporations sector; BOJ does not currently report Financial Soundness Indicators (FSIs) to the Fund for dissemination on the Fund’s website.
- Balance of payments: BOJ reports quarterly BOP and IIP in BPM6 format; shortcomings remain for direct investment data and coverage of nonfinancial sector; external debt data does not include intercompany debt.

*Annex V. Policy Measures to Counter Impact of COVID-19 on Financial Sector — Jamaica Staff Report (as provided).*

### Introduction

### Introduction

### Authorities' views and mission engagement
- Authorities thanked Mr. Bas Bakker and his team for the Article IV mission and engaged in constructive and candid discussions.
- Authorities broadly agree with staff’s assessment of the economy and risks, including concerns about above-target inflation.
- The government responded to the pandemic with significant support consistent with Jamaica’s Fiscal Responsibility Law (FRL).
- Authorities are strongly committed to reducing debt to 60 percent of GDP by FY2027/28.

### Recent developments, economic outlook, and risks
- GDP developments:
  - GDP contracted by 10 percent in 2020 (-11% in FY20/21), mainly due to the shock to tourism and related industries from travel restrictions.
  - GDP is estimated to have grown by 4.7 percent in 2021 and is projected to grow at 4.3 percent in 2022.
- Pandemic response and recovery:
  - Fiscal support financed additional spending on medical supplies and health care workers and the COVID Allocation of Resources for Employees (CARE) program.
  - CARE provided direct transfers to employees, grants to businesses, and social assistance payments.
  - Other fiscal measures included a cut to the General Consumption Tax and temporary tax credits for small and medium-sized businesses.
  - Government “tourist corridors” facilitated a safe reopening; by late 2021 tourism indicators recovered 75 percent or more of pre-pandemic levels.
  - Construction and other sectors have been recovering strongly, but resurgent COVID-19 waves and low vaccination rates slowed full reopening.
- Vaccination and health targets:
  - As of late January, over a quarter of the population received one dose and a fifth have had two doses.
  - Health authorities target vaccinating 65 percent of the population by March 2022.
- External balances and remittances:
  - Record remittance inflows and low import demand strengthened the external balance despite reduced tourism; the current account was close to balance in 2020 and 2021.
- Inflation and monetary response:
  - Inflation reached a peak of 8.5 percent in October and declined to 7.3 percent subsequently.
  - The central bank raised the monetary policy rate by 200 basis points in response.
- Risks and uncertainty:
  - Authorities and staff view downside risks to growth as prevalent, especially pandemic-related risks.
  - The Omicron variant led to a renewed spike in infections and some extended restrictions; infections appear to have peaked but monitoring continues.

### Fiscal policy priorities
- Pandemic fiscal package:
  - The pandemic fiscal package amounted to about 3 percent of GDP, spread over FY20/21 and FY21/22.
  - About 2.5 percent of GDP was disbursed in FY20/21; in FY21/22 support became more targeted at 0.5 percent of GDP.
- Fiscal outcomes and FRL:
  - The FRL allowed suspension of FRL rules for one year; the fiscal balance moved from 0.9 to -3.1 percent of GDP in FY20/21.
  - Authorities have begun the required adjustment by targeting fiscal surpluses of 0.3 percent of GDP per year over four fiscal years, from 21/22 through 24/25.
- FY21/22 revenue and spending developments:
  - Recent data show revenues higher than expected in FY21/22, allowing funding for public-sector wages (0.4 percent of GDP) and higher interest payments (0.2 percent of GDP) due to increased domestic borrowing costs and adverse exchange rate movements.
  - The overall fiscal position is expected to remain in line with the FRL.
- Debt reduction strategy and risks:
  - Authorities fully agree further fiscal consolidation is needed to reduce debt and aim for 60 percent of GDP by FY27/28.
  - They expect to overperform fiscal surplus targets as before the pandemic; larger primary surpluses will be required in later years.
  - Some debt repayment can be funded by several divestment projects nearing completion; favorable debt maturity profiles and completion of infrastructure projects will create fiscal space.
  - Staff indicate Jamaica’s debt is sustainable under the baseline scenario but identify important vulnerabilities and recommend a smoother, more front-loaded fiscal consolidation, while acknowledging that slower near-term adjustment could support growth given high uncertainty.
- Public sector wage reform:
  - Public sector wage gaps exceed more than 45 percent in some sectors relative to the private sector.
  - Implementation of reforms will be effective as of April 2022; reductions in the wage gap may span possibly three fiscal years and negotiations are ongoing.
  - Authorities acknowledge these reforms will increase the government’s wage bill as a share of GDP but consider the additional expenditures fiscally prudent and sustainable.

### Monetary and financial sector policies
- Bank of Jamaica (BoJ) actions:
  - BoJ provided accommodative monetary policy and liquidity injections during the pandemic; allowed exchange rate flexibility to absorb shocks.
  - Since October, BoJ has been removing monetary accommodation and increased the policy rate by 200 basis points to bring inflation back to the target range of 4 to 6 percent and contain inflation expectations.
  - Authorities agree further monetary tightening may be needed and have signaled this view publicly.
- Financial stability and buffers:
  - Record-high foreign reserves (including the SDR allocation) provide a buffer.
  - Emergency financial sector measures have been wound down; loan moratoria were phased out gradually, avoiding a sharp increase in NPLs.
  - Financial system indicators show the system has remained resilient and is well-capitalized and liquid.
  - Authorities and staff assess systemic financial risks as limited and contained, though uncertainty is elevated amid rising interest rates and elevated inflation.
- Financial sector oversight and reform priorities:
  - Complexity, concentration, and connectedness of the financial sector pose contagion risks.
  - Substantial work is underway to improve oversight of financial conglomerates: a pilot project on consolidated supervision and working groups to improve regulator cooperation.
  - Legislation to include non-deposit taking institutions in consolidation supervision has been drafted; authorities prioritize special resolution regime legislation and expect adoption soon despite legislative capacity constraints.
- AML/CFT and digital currency:
  - Further strengthening of the AML/CFT framework is ongoing; authorities have made substantial progress implementing the Action Plan agreed with FATF.
  - The 2021 National Risk Assessment (NRA) was adopted and authorities committed to implement its recommendations.
  - BoJ completed a pilot of a central bank digital currency (CBDC) at the end of December; a national rollout is planned for the first quarter of 2022.
  - The CBDC is designed to support financial inclusion and digitalization and to be compliant with AML/CFT requirements; it is issued on a wholesale basis to regulated financial institutions and payment services providers who are Wallet Providers, who in turn offer CBDC wallets to customers.

### Structural and governance reforms
- Governance improvements:
  - The Amended Bank of Jamaica Act came into effect in April 2021, giving BoJ significant autonomy with a priority on inflation control.
  - An Independent Fiscal Council was approved by Parliament to strengthen fiscal framework and promote sound fiscal management.
- Structural reform focus:
  - Authorities and staff agree on structural factors contributing to low productivity growth and the need for policy attention beyond macroeconomic stability reforms.
  - To address high energy costs, the government aims to triple the share of energy generated by green energy sources to 30 percent by 2030.

### Concluding remarks
- Jamaica continues to benefit from IMF technical support and policy advice; prior program reforms strengthened macroeconomic policy frameworks and facilitated building buffers.
- Authorities are working within fiscal rules to support the recovery while containing inflation and managing risks.
- Authorities are confident they can meet fiscal and debt reduction goals while progressing on financial and structural reforms, including public sector compensation improvements.
- Recent fiscal and monetary policy governance reforms will facilitate maintaining Jamaica’s financial and economic stability.

*Source: Introduction (1jamea2022001).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1jamea2022001.pdf_