## _cr13126

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### Extended arrangement and program objectives
- Request: four-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 615.38 million (225 percent of quota) with a first purchase equal to 50 percent of quota.
- Program horizon: 2013/14 through 2016/17 (48 months).
- Main objectives:
  - Avert immediate crisis risks and create conditions for sustained growth through significant improvements in the fiscal and debt positions and in competitiveness.
  - Main pillars: structural reforms to boost growth and employment; actions to improve price and non-price competitiveness; upfront fiscal adjustment supported by extensive fiscal reforms; debt reduction including a debt exchange; improved social protection programs with a floor on social spending.

### Macroeconomic outlook and key projections
- Growth:
  - Projected to remain subdued in the first two program years; rise to more than 2½ percent annually in the medium term as reforms materialize.
  - Key supportive sectors: logistics, agriculture and agro-processing, information and communications technology (ICT).
- Inflation and reserves:
  - Inflation estimated at 7¼ percent on average in FY 2012/13; projected to be kept to single-digit levels and reduced further towards the end of the program.
  - Net international reserves fell to below US$0.9 billion (compared to US$1.9 billion at end-2011); reserves envisaged to recover gradually and maintain import coverage at more than 12 weeks, rising to 15 weeks by end of the program period.
- Fiscal and debt targets:
  - Central government primary surplus target: 7½ percent of GDP annually beginning in FY 2013/14.
  - Program projects public debt reduction to about 125 percent of GDP by the end of the program and to 100 percent of GDP by end-March 2020; government committed to identify additional measures as needed to put public debt on a path to 96 percent of GDP by end-March 2020.
  - FY 2012/13 outturns: central government primary surplus of 5.2 percent of GDP; public debt at almost 150 percent of GDP.
- External sector:
  - Current account deficit remained very large at around 12 percent of GDP in FY 2012/13.
  - Program envisages a sharp correction in the current account broadly matching the fiscal improvement; export growth to peak in 2015/16.
- Selected medium-term fiscal and debt projections (from tables):
  - Public debt (percent of GDP): 147.0 (2012/13), 142.5 (2013/14), 136.7 (2014/15), 131.7 (2015/16), 126.5 (2016/17), 117.6 (2017/18), 109.7 (2018/19), 101.9 (2019/20).
  - Budgetary revenue (percent of GDP): 25.7 (2012/13), 27.1 (2013/14), 26.9 (2014/15), 27.0 (2015/16) … 27.0 (2019/20).
  - Interest payments (percent of GDP): 9.9 (2012/13), 7.8 (2013/14), 7.6 (2014/15), 7.0 (2015/16), 6.3 (2016/17), 5.4 (2017/18), 4.9 (2018/19), 4.5 (2019/20).

### Fiscal consolidation package and measures
- Upfront measures:
  - Prior action: multiyear wage agreement limiting nominal wage increases to an annual average of not more than 5 percent (prior action); expected reduction in wage spending in FY 2013/14: 0.4 percentage points of GDP; expected reduction by end of program period: 2 percentage points of GDP.
  - New tax package expected to generate 1.6 percent of GDP in revenues for the central government; full-year effect of tax package introduced during FY 2012/13 expected to boost revenues in FY 2013/14 by about 0.5 percentage points.
- Text Table 1 — Central government contributions to FY2013/14 (Percent of GDP) (values preserved):
  - Primary balance in 2012/13: 5.2
  - Adjustments including one off revenue items: -0.8
  - Change in 2013/14 revenues: 1.9
  - Remaining impacts of 2012/13 revenue measures: 0.5
  - New revenue measures in 2013/14: 1.6
  - The impact of the debt restructuring on taxes on interest: -0.3
  - Change in grants: 0.5
  - Change in primary expenditures: 0.8
  - One off expenditure items in 2012/13: 0.0
  - Reduction in wages: 0.4
  - Expenditure reduction measures: 0.2
  - Reduction in transfers via property taxes: 0.2
  - Primary balance in 2013/14: 7.5
- Expenditure measures:
  - Draft 2013/14 expenditure budget proposes expenditure reductions of about 0.8 percent of GDP.
  - Transfers to local governments curtailed: 0.2 percent of GDP.
  - Efficiency gains (medical supplies tracking, higher cost recovery by subsidized agencies, restructuring early retirement): about 0.2 percent of GDP.
  - Staff emphasis: avoid reductions in capital expenditure to the extent possible.
- Public bodies:
  - Program projects public bodies' finances to be in balance throughout program period.
  - Expiration of Road Maintenance Fund special infrastructure program will contain expenditure by about 0.6 percent of GDP.
  - Text Table 1 — Public bodies (Percent of GDP):
    - Overall balance in 2012/13: -0.4
    - Conversion of employer's contribution to the NHT: -0.8
    - Reduction in the capital programs of Road Maintenance Fund: 0.6
    - Revenue enhancement measures: 0.4
    - Adjustments including one off expenditure items: 0.2
    - Overall balance of public entities in 2013/14: 0.0

### Revenue administration, tax reform, and waivers
- Revenue administration priorities (immediate/prioritized reforms):
  - Fill key management positions at Tax Administration Jamaica (TAJ).
  - Amend legislation to provide tax officials access to third-party information (structural benchmark).
  - Increase resources of the Large Taxpayer Office to 120 staff members by June 30, 2013 (structural benchmark).
  - Implement a debt write-off policy for tax and customs duties arrears (implemented in March 2013).
  - Publish names of delinquent taxpayers (implemented).
  - Approve TAJ as a semi-autonomous revenue agency (implemented in March 2013).
- Tax waivers and incentives:
  - Prior action: discretionary tax waivers greatly curtailed.
    - Strict monthly caps on remaining discretionary tax waivers: less than 0.1 percent of GDP (annualized), monitored as a continuous structural benchmark.
    - Tax waivers for charities maintained at 0.2 percent of GDP (annualized).
  - Government committed: not to approve new waivers or renew any waiver category or other tax incentive and not to amend existing legislation to generate further tax expenditures until an Omnibus Tax Incentive Law comes into effect by end-2013.
  - Fundamental tax reform planned in first year of program aiming to reduce overall tax expenditures from more than 6 percent of GDP in 2010/11 to no more than 2½ percent of GDP by end-2015/16; reform to be effective by start of FY 2014/15 (structural benchmark).

### Debt overhang, debt exchange (NDX), and additional debt reduction measures
- Public debt context:
  - Public debt in 2012/13: 147.0 percent of GDP (DSA Table 2 entries).
  - Staff estimated maximum sustainable level of debt within approximate 75–95 percent of GDP range.
- Debt reduction breakdown to 2020 (Text Table 2, percent of GDP):
  - Public debt in 2012/13: 147.0
  - Fiscal consolidation and growth: -36.4
  - Domestic debt exchange: -8.6
  - Debt swaps and guarantees: -2.0
  - Other measures: -4.0
  - Public debt in 2020: 96.0
- National Debt Exchange (NDX):
  - Launched February 12, 2013; targeted local currency (fixed, variable and CPI-indexed) and locally-issued U.S. dollar-denominated bonds amounting to approximately J$876bn, or 64 percent of GDP.
  - Exchange excluded bonds issued in foreign jurisdictions or held by nonresidents.
  - Participation: 97 percent participation by original closing date February 21; 99 percent participation after extension and a small second phase in March 2013.
  - Projected savings: about 8.6 percent of GDP by 2020 (prior action).
  - Coupon reductions and maturity extensions by bond type (summary):
    - Variable Rate: Coupons reduced by 0.75–1.125 percentage points; Maturity extended by 3 to 8 years; callable at 3 to 5 years in most cases.
    - Fixed Rate: Coupons reduced by 1.0–5.0 percentage points; Maturity extended by 3 to 10 years, non-callable.
    - Locally Issued USD: Coupons reduced by 1.5 to 2 percentage points; Maturity extended by 4 to 7 years, non-callable.
    - CPI-indexed: Coupons reduced by 1.0 percentage point; Maturity extended by 3 years, non-callable.
    - FRAN specifics: opening principal of J$0.80 with a 10 percent coupon, accreting to J$1 over 15 years; offered largely to State Owned Enterprises (SOEs).
- Additional measures:
  - Authorities identified options for debt swaps and reduced domestic debt guarantees expected to reduce public debt by about 2 percent of GDP during the first program year (combination of asset sales and debt-asset swaps ~1 percent of GDP; withdrawal of guarantees ~1 percent of GDP); preliminary valuation of assets by end-June 2013 and action plan by September 2013.
  - Any additional measures identified later to be implemented by end-February 2015.
- DSA baseline and role of additional measures:
  - Combination of fiscal targets and envisaged growth path alone would lower debt to about 111 percent of GDP by 2020; additional direct debt-reduction actions considered imperative to reach 96 percent of GDP by 2020.

### Financial sector vulnerabilities, safeguards, and stress testing
- Key vulnerabilities and exposures:
  - Financial sector holds close to 40–50 percent of public debt; banks’ holdings of government securities were close to 12 percent of GDP (about 20 percent of their total assets); securities dealers’ assets fully concentrated in government securities equivalent to about 22 percent of GDP and 64 percent of their total assets (in some sections assets equivalent to 35 percent of GDP noted).
  - Banks’ non-performing loans (NPLs): stabilized at 6½ percent of total loans (from 9 percent a year ago); provisioning improved to around 96 percent of NPLs.
- Financial Sector Support Fund (FSSF):
  - Established to provide liquidity support and possibly recapitalization to participating financial institutions.
  - Authorities envisage expanding the fund from US$650 million to US$760 million following the first disbursement under the proposed arrangement.
  - Eligibility: licensed deposit-taking institutions, securities dealers and insurance companies that tender at least 97 percent of their holdings of eligible assets in the debt exchange.
- Stress test assumptions (Bank of Jamaica, Box 2):
  - I. Non-parallel shift in domestic yield curve: interest rates rise by 5.5 percentage points at short end (<1 year) and by 1 percentage point at 30 years.
  - II. Net interest losses maintained over a six-month window.
  - III. Further depreciation in exchange rate.
  - IV. 15 percent loss of deposits for DTIs and of repo creditors for SDs.
  - V. One third of past due loans (less than 90 days overdue) migrating to nonperforming loans (>90 days).
- Stress test results:
  - Banking sector (DTIs) robust to direct impact of the exchange and second-round effects.
  - Securities dealers sector vulnerable in an adverse scenario due to interest rate and liquidity risks.
  - A portion of the general insurance sector could breach regulatory capital minima.
- Regulatory and structural reforms:
  - Structural benchmarks include enactment of the Omnibus Banking Act, amendments to the FSC Act and BOJ Act to strengthen supervision, and measures to phase out the “retail repo” business model and develop Collective Investment Schemes (CIS) frameworks.
  - Risk weighting on domestic currency GoJ debt remains 0 percent (consistent with Basel) though authorities had previously raised weighting on foreign currency GoJ debt from 0 to 100 percent under the prior program.

### Program conditionality, monitoring, and safeguards
- Prior actions and structural benchmarks:
  - Prior actions met include: cessation/curtailment of discretionary waivers (with specified exceptions and caps); concluding a multi-year wage agreement limiting nominal wage increases; approval by parliament of the Public Debt Law; completion of the domestic debt exchange consistent with reduction in public debt-to-GDP by at least 8.5 percent by 2020.
  - Selected structural benchmarks and timings (examples preserved):
    - Table a budget in line with program commitments by April 30, 2013.
    - Introduce a 5-year PSIP beginning FY2013/14 by April 30, 2013.
    - Present conceptual proposal for fiscal rule by August 31, 2013; adopt legally binding fiscal rule by March 31, 2014.
    - Amendments to Revenue Administration Act (access to third-party information, mandatory e-filing) by June 30, 2013.
    - Establish Central Collateral Registry by December 31, 2013.
    - Implement CIS regulatory framework by December 31, 2013.
    - Enact Omnibus Banking Law by March 31, 2014.
- Quantitative performance criteria (selected, in billions of Jamaican dollars, cumulative flows April 1–March 31 unless noted):
  - Primary balance of the central government (floor): 39.1; 70.3; 14.0; 38.2; 61.6; 111.5 (entries as provided).
  - Tax Revenues (floor): 225.0; 322.2; 73.3; 150.7; 231.9; 360.5.
  - Overall balance of the public sector (floor): -52.1; -70.0; -14.3; -21.6; -30.7; -6.7.
  - Central government direct debt (ceiling): 1558.7; 150.1; 13.9; 21.4; 27.5; 8.6.
  - Social spending (floor) (Indicative target): …; 18.2; 4.1; 8.3; 14.4; 20.1.
- Technical Memorandum of Understanding (TMU) specifics:
  - Program exchange rates (as of January 31, 2013): J$94.14 = US$1; J$144.92 = SDR 1; J$126.72 = €1; J$93.73 = CND$1; J$149.22 = £1.
  - Detailed definitions and reporting lags for primary balance, overall public sector balance, ceilings on central government direct and guaranteed debt, domestic arrears, external arrears, BOJ NIR floor, and other variables.
  - Extensive daily, weekly, monthly, quarterly, and annual information requirements specified (examples include daily NIR and FX operations, weekly balance sheets of core securities dealers, monthly central government operations and debt stock by creditor and currency, quarterly BOP and FSIs, etc.).

### Program financing, access, and schedule
- IMF financing and access:
  - EFF amount requested: SDR 615.38 million (225 percent of quota).
  - First disbursement: 50 percent of quota (May 1, 2013 — SDR 137.75 million listed in schedule).
  - Schedule of reviews and purchases (selected):
    - May 1, 2013 — 137.75 millions of SDR — 50 percent of quota — Approval of Arrangement.
    - September 20, 2013 — 19.97 millions of SDR — 7 percent of quota — First Review and end-June 2013 performance criteria.
    - December 20, 2013 — 19.97 millions of SDR — 7 percent of quota — Second Review and end-September 2013 performance criteria.
    - March 20, 2014 — 45.95 millions of SDR — 17 percent of quota — Third Review and end-December 2013 performance criteria.
    - June 20, 2014 — 45.95 millions of SDR — 17 percent of quota — Fourth Review and end-March 2014 performance criteria.
    - Total programme purchases listed: 753.13 millions of SDR; 275.4 percent of quota (schedule continues through March 20, 2017 as listed).
- External financing assurances and projections:
  - Regular external program financing from multilateral institutions envisaged to amount to US$1 billion over the program period, of which $344 million would be provided in 2013/14.
  - Jamaica expected to receive bilateral budget grants, including from the European Union, and to continue drawing financing from the PetroCaribe facility.
  - First disbursement to support increasing the FSSF to US$760 million and one-off direct Fund financing for the budget of SDR 58 million (about US$90 million).
  - Remaining financing needs expected to be filled mostly through domestic financial market borrowing.
- Repayment capacity:
  - Under the baseline projection, Jamaica’s capacity to repay is good; Jamaica has never had arrears to the Fund and prioritizes meeting its financial obligations.

### Risks, safeguards assessment, and staff appraisal
- Risks to program implementation (selected):
  - High downside risks: delayed growth recovery; financial sector vulnerabilities (especially securities dealers and retail repo exposure); delays or partial policy implementation; natural disasters; dependence of tourism on external demand; exposure to oil price shocks; risks to PetroCaribe financing.
  - Policy slippage risk elevated by absence of immediate financing constraints following the debt exchange.
  - Even with full implementation, debt-to-GDP could remain near maximum sustainable levels, making slippage consequences severe.
- Safeguards assessment:
  - June 2010 safeguards assessment of the Bank of Jamaica (BOJ) to be updated before the first review.
  - 2010 findings: adequate external audit and financial reporting frameworks; BOJ legal structure required strengthening to increase operational independence; areas for improvement in Internal Audit Division; concerns about governance and oversight. Amendments to the BOJ Act still pending.
- Staff appraisal highlights:
  - Programme is aggressive and frontloaded, focusing on sustained high primary fiscal surpluses, structural reforms to improve competitiveness and productivity, and catalytic investments.
  - Staff finds the 7.5 percent of GDP primary surplus target challenging but essential for debt sustainability.
  - Full implementation combined with mobilization of external support makes objectives realistically achievable, though risks remain high.
  - Staff welcomes commitments on public enterprise programming, debt reduction targets, and social protection floors.

*Source: IMF Executive Summary and staff report excerpts from content unit _cr13126 (April 17, 2013 and accompanying MEFP/TMU excerpts).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Extended arrangement and request
- The Jamaican authorities have requested a four-year Extended Arrangement in an amount of SDR 615.38 million (225 percent of quota) with a first purchase equal to 50 percent of quota.

### Background and recent developments
- During most of the past three decades, Jamaica has suffered from very low growth, high public debt, and serious social challenges, driven by adverse cycles: low growth → high fiscal deficits → borrowing → financial repression and crowding out → unsustainable debt ratios → reduced growth and fiscal space → undermined competitiveness.
- A 27-month Stand-By Arrangement approved in February 2010 soon went off-track; the third review in January 2011 was the last completed review. The 2010 program started with a debt exchange (the JDX) but targeted fiscal consolidation failed to materialize.
- The 2011 Article IV Consultation (completed May 2012) advocated strong and upfront fiscal adjustment and greater exchange rate flexibility to boost competitiveness.
- During 2012/13 the authorities tightened fiscal policy: the FY 2012/13 budget aimed to raise the central government’s primary surplus to 6 percent of GDP (from 3.2 percent in the previous year); a tax package with a full-year effect estimated at 1.6 percent of GDP was enacted; the Fiscal Responsibility Framework (FRF) was strengthened, including a sanctions regime for unbudgeted spending.
- Economic outcomes and social indicators (FY 2012/13 and related):
  - GDP: economy is estimated to have contracted by 0.2 percent in FY 2012/13.
  - Unemployment: increased from 12 percent at end-October 2010 to 13.7 percent at end-October 2012.
  - Inflation: estimated at 7¼ percent on average in FY 2012/13.
  - External position: current account deficit estimated to have remained very large at around 12 percent of GDP.
  - International Reserves (NIR): fell to below US$0.9 billion (compared to US$1.9 billion at end-2011).
  - Fiscal: staff preliminary estimate central government primary surplus for 2012/13 at 5 ¼ percent of GDP (below the 6 percent target).
  - Public debt: at almost 150 percent of GDP.
  - Maturities/liquidity: large amounts of domestic debt scheduled to mature in 2013 (US$1.3 billion in February).
  - Financial sector: banks’ non-performing loans (NPLs) stabilized at 6½ percent of total loans (from 9 percent a year ago); provisioning improved to around 96 percent of NPLs. Banks’ holdings of government securities were close to 12 percent of GDP (about 20 percent of their total assets). Securities dealers’ assets are fully concentrated in government securities, equivalent to about 22 percent of GDP and 64 percent of their total assets.

### Main elements of the program
- Program horizon: four-year economic program for 2013/14 through 2016/17.
- Program objectives: avert immediate crisis risks and create conditions for sustained growth through significant improvements in the fiscal and debt positions and in competitiveness.
- Main pillars:
  - Structural reforms to boost growth and employment.
  - Actions to improve price and non-price competitiveness.
  - Upfront fiscal adjustment, supported by extensive fiscal reforms.
  - Debt reduction, including a debt exchange, to place public debt on a sustainable path while protecting financial system stability.
  - Improved social protection programs, including a floor on social spending to safeguard this spending category.
- Frontloaded reform agenda:
  - Strengthen public financial management.
  - Introduce a fiscal rule.
  - Reform the tax system.
  - Improve the business climate.
  - Move towards inflation targeting.
  - Reform the securities dealers sector.
- Social protection: measures to ensure adequate social spending and a strengthened social safety net to alleviate possible adverse impacts of fiscal adjustment on the most vulnerable.
- Program design features to enhance credibility:
  - Prior action on multiyear wage agreement and an upfront new tax package to underpin immediate fiscal effort (about 2½ percent of GDP).
  - Concentration of critical structural reforms in the first year.
  - Implementation of a debt exchange to reduce the debt burden.
- Staff supports the authorities’ request for Fund support.

### Macroeconomic framework and projections
- Growth:
  - Projected to remain subdued in the first two program years as fiscal contraction dampens demand and confidence recovers gradually.
  - Growth projected to rise to more than 2½ percent annually in the medium term as reform benefits materialize.
  - Growth prospects supported by potential in logistics, agriculture and agro-processing, and information and communications technology (ICT); investment recovery via foreign investors, PPPs, retained earnings, and redirection of domestic savings to private sector.
- Inflation: projected to be kept to single-digit levels and reduced further towards the end of the program with improvements in the monetary policy framework.
- Fiscal and debt trajectory:
  - Program targets: annual central government primary surplus of 7½ percent of GDP and balanced budget for public entities throughout the program period.
  - FY 2012/13 outturns: central government primary surplus of 5.2 percent and overall deficit of public entities of 0.4 percent of GDP.
  - Public sector balance improvement: targeted improvement of almost 4.8 percent of GDP in 2013/14 (of which, 1.3 percentage points from lower interest costs), following a projected 1.2 percent of GDP improvement in 2012/13.
  - Public debt path: combination of fiscal adjustment and measures to lower the public debt burden would reduce public debt to about 125 percent of GDP by the end of the program and to 100 percent of GDP by end-March 2020.
  - Government commitment: based on a review at end of the first program year, to identify and implement any additional debt reduction measures needed to put public debt on a path to 96 percent of GDP by end-March 2020.
- External sector:
  - Program envisages a sharp correction in the current account balance broadly matching the fiscal improvement.
  - Improvement in competitiveness critical to switch from domestic demand to net exports.
  - In first two program years, reduction in current account deficit dampened by recovery in investment reflecting FDI pipeline and new investments in ICT and mining; export growth would peak in 2015/16.
  - Reserves: envisaged to recover gradually and maintain import coverage at more than 12 weeks, rising to 15 weeks by the end of the program period.
- Risks:
  - Downside risks significant: delayed growth recovery, financial sector vulnerabilities, delays/partial policy implementation, natural disasters.
  - External vulnerabilities: dependence of tourism on recovery in the United States, Canada, and the United Kingdom; exposure to oil price shocks and weather-related natural disasters.
  - Upside risks: faster-than-projected decline in energy prices; more rapid global recovery.

### Restoring public debt sustainability and strengthening public finances
- Fiscal policy approach:
  - Upfront and sustained fiscal tightening seen as critical.
  - Program targets central government primary surplus of 7½ percent of GDP and balanced budgets for public entities throughout the program.
  - Credibility measures:
    - Frontloading structural reforms and entrenching fiscal discipline over the medium term given past slippages (e.g., 2010 SBA failures).
    - Structural benchmark: submission of a budget in line with agreed targets.
    - Contingency measures identified (increases in fees and charges for government services) to be implemented if needed.
    - Multiyear wage agreement to reduce the wage bill over time.
    - Expected growth recovery to create fiscal room for higher social and capital spending and lower tax rates in later years.
  - First-year structural reforms to entrench fiscal discipline:
    - Strengthening fiscal institutions.
    - Improving public financial management.
    - Implementing tax policy reforms.
    - Adopting a binding fiscal rule.
  - Subsequent reforms: public sector rationalization and pension reform.
  - Collaboration with other International Financial Institutions will be essential.

### Financial sector stability considerations
- Financial sector broadly sound on headline indicators but with excessive exposure to public debt posing a serious weakness.
- Key vulnerabilities reiterated:
  - Banks’ NPLs at 6½ percent; provisioning around 96 percent of NPLs.
  - Banks’ government securities close to 12 percent of GDP (about 20 percent of total assets).
  - Securities dealers’ assets fully concentrated in government securities: about 22 percent of GDP and 64 percent of their total assets.
- Debt exchange designed to reduce public debt while protecting financial system stability (details and stress testing results discussed in Boxes 1 and 2 in the full report).

### Program implementation and safeguards
- Emphasis on frontloaded policy actions, institutional change, and safeguards to reduce policy uncertainty and prevent return to unsustainable debt levels.
- Prior actions, structural benchmarks, and contingency measures underpin program credibility.
- Program financing, schedule of reviews and purchases, and structural program conditionalities are detailed in the full report.

*Source: IMF Executive Summary, April 17, 2013.*

### 14. The authorities have identified specific upfront fiscal measures to achieve a central

### 14. The authorities have identified specific upfront fiscal measures to achieve a central

### Fiscal consolidation package and targets
- Central government primary surplus target: 7½ of GDP starting in FY 2013/14.
- Measures to achieve target combine revenue-enhancing and expenditure-reduction measures (Text table 1; MEFP ¶20).

Revenues
- New tax package expected to generate 1.6 percent of GDP in revenues for the central government.
- Full-year effect of the tax package introduced during FY 2012/13 will boost revenues in FY 2013/14 by about 0.5 percentage points.
- Measures include broadening the tax base, equalizing rates, and ad hoc increases in rates and fees.
- Tax package measures were announced in a supplementary budget in February 2013 to allow for a full-fiscal year effect.

Expenditure
- Draft 2013/14 expenditure budget proposes specific expenditure reductions of about 0.8 percent of GDP.
- Multiyear wage agreement caps nominal wage increases to an annual average of not more than 5 percent (prior action).
  - Expected reduction in wage spending in FY 2013/14: 0.4 percentage points of GDP.
  - Expected reduction in wage spending by end of program period: 2 percentage points of GDP.
- Transfers to local governments curtailed: 0.2 percent of GDP.
- Efficiency gains (medical supplies tracking, higher cost recovery by subsidized agencies, restructuring early retirement) expected to generate about 0.2 percent of GDP.
- Staff emphasis: avoid reductions in capital expenditure to the extent possible.

Text Table 1: Contribution to Fiscal Improvements in FY2013/14 (Percent of GDP) — Central government
- Primary balance in 2012/13: 5.2
- Adjustments including one off revenue items: -0.8
- Change in 2013/14 revenues: 1.9
- Remaining impacts of 2012/13 revenue measures: 0.5
- New revenue measures in 2013/14: 1.6
- The impact of the debt restructuring on taxes on interest: -0.3
- Change in grants: 0.5
- Change in primary expenditures: 0.8
- One off expenditure items in 2012/13: 0.0
- Reduction in wages: 0.4
- Expenditure reduction measures: 0.2
- Reduction in transfers via property taxes: 0.2
- Primary balance in 2013/14: 7.5

### Public enterprises and transparency
- Program projects public bodies' finances to be in balance throughout program period.
- Expiration of a special infrastructure program of the Road Maintenance Fund will contain expenditure by about 0.6 percent of GDP.
- National Housing Trust (NHT): cost savings from reductions in administrative expenses and measures to improve compliance; subsidized mortgages and housing for lowest-income households will not be reduced.
- Government to mandate completion of audited annual reports of public bodies within 6 months of the end of the fiscal year.
- Text Table 1 — Public bodies (Percent of GDP)
  - Overall balance in 2012/13: -0.4
  - Conversion of employer's contribution to the NHT: -0.8
  - Reduction in the capital programs of Road Maintenance Fund: 0.6
  - Revenue enhancement measures: 0.4
  - Adjustments including one off expenditure items: 0.2
  - Overall balance of public entities in 2013/14: 0.0

### Staff assessment of measures
- Staff assesses measures as sufficient to deliver anticipated budgetary savings and improve the primary balance to 7½ percent of GDP (Text table 1), with a small margin for setbacks.
- Calculation excludes savings from prior action on tax waiver reform, which provides a small buffer.
- Staff preference: more emphasis on expanding the tax base rather than higher tax rates; measures to be revisited in forthcoming tax reform.

### Revenue administration reforms (MEFP ¶33)
Immediate steps and prioritized reforms:
- Fill key management positions at Tax Administration Jamaica (TAJ).
- Amend legislation to provide tax officials access to third-party information.
- Increase resources of the Large Taxpayer Office.
- Implement a debt write-off policy for tax and customs duties arrears.
- Publish names of delinquent taxpayers.
- Approve TAJ as a semi-autonomous revenue agency.
- First two reforms are structural benchmarks; latter three were intended as structural benchmarks and were implemented in March 2013.
- Additional implemented measures (from staff-level understandings): initiate a Central Treasury Management System (MEFP ¶32), formulate an action plan for tax reform (MEFP ¶34), improve balance of payments statistics (MEFP ¶42).

### Binding fiscal rule and budget framework (MEFP ¶30)
- Authorities agreed to design and adopt a legally binding fiscal rule to ensure sustainable fiscal balance.
- Preliminary technical assistance from FAD provided.
- Authorities plan to present a first proposal to staff by end-August 2013 (structural benchmark).
- Rule to be adopted and incorporated in annual budgets starting with FY 2014/15 (structural benchmark).
- Annual budget to be guided by the new fiscal rule, expected to imply a pace of debt reduction at least as ambitious as current program projections.
- Aim to strengthen budget framework via a structured multi-year budgeting process.

### Tax reform and tax waivers (MEFP ¶34)
- Prior action: granting of discretionary tax waivers greatly curtailed.
  - Strict monthly caps on remaining discretionary tax waivers: less than 0.1 percent of GDP (annualized), monitored as a continuous structural benchmark.
  - Tax waivers for charities maintained at 0.2 percent of GDP (annualized).
  - Government committed to not approve new waivers or renew any waiver category or other tax incentive and not amend existing legislation to generate further tax expenditures until an Omnibus Tax Incentive Law comes into effect by end-2013.
- Fundamental tax reform planned in first year of program (MEFP ¶34):
  - Modernize taxes on income and property, customs tariffs, and social security contributions.
  - Reduce overall tax expenditures from more than 6 percent of GDP in 2010/11 to no more than 2½ percent of GDP by the end of 2015/16.
  - Reform to be effective by the start of FY 2014/15 (structural benchmark).
  - Action plan prepared in consultation with IDB and Fund staff.
  - Interim measures: statutory process for tax treatment of charities by end-June 2013; broader Charities Act to be tabled by end-September 2013 (structural benchmark).

### Public sector rationalization and PPPs
- Public sector rationalization to be completed over program period (MEFP ¶35 & 37) with net hiring freeze and pension reform to sustain wage bill moderation.
- Public Sector Master Rationalization Plan: improve oversight, introduce shared corporate services, reallocation/merger/abolition/privatization of units, outsourcing services.
- PPP Policy approved (November 2012) aims: ensure value for money, transfer risk optimally, support fiscal consolidation (MEFP ¶14).
- PPPs expected in health, logistics and transport, agriculture, and information and communication technology.
- Technical assistance on project appraisal and integration sought from multilateral development partners.
- Staff cautioned PPPs should not entail new financial obligations and risks; program may need to address PPP fiscal aspects, including through fiscal rule design.

### Public financial management (PFM) agenda and public investment
- Authorities committed to develop a fiscal management reform action plan incorporating 2013 PEFA findings by end-May 2013, and seek development partner support.
- Introduce a five-year public investment program in 2013/14 budget (structural benchmark) to strengthen planning and scrutiny of capital spending.
- Central Treasury Management System ready for use by end-March 2013 in four ministries.

### Debt overhang, targets, and direct debt reduction
- Program envisages sharp overall reduction in public debt to 96 percent of GDP by 2020.
- Combination of fiscal targets and envisaged growth path alone would lower debt to about 111 percent of GDP by 2020; additional direct debt-reduction actions considered imperative.
- Text Table 2: A Breakdown of the Decline in Public Debt by 2020 (In percent of GDP)
  - Public debt in 2012/13: 147.0
  - Fiscal consolidation and growth: -36.4
  - Domestic debt exchange: -8.6
  - Debt swaps and guarantees: -2.0
  - Other measures: -4.0
  - Public debt in 2020: 96.0
- Note: ‘debt swaps and guarantees’ and ‘other measures’ not included in baseline projections as not yet implemented.
- Staff estimated maximum sustainable level of debt within approximate 75–95 percent of GDP range; program design to achieve 96 percent public debt ratio by end-March 2020, with further reduction thereafter.

### Financial sector safeguards and stress testing
- Financial Sector Support Fund (FSSF) established to provide liquidity support and possibly recapitalization support to financial institutions participating in NDX (including securities dealers and insurance companies) — similar to fund established in 2010 restructuring (MEFP ¶24).
- Authorities envisage expanding the fund from US$650 million to US$760 million following the first disbursement under the proposed arrangement.
- Stress tests conducted by Bank of Jamaica (BOJ) to assess impact of debt exchange on financial system stability (Box 2).
  - Stress test scope: deposit-taking institutions (DTIs), securities dealers (SDs), and insurance companies.
  - Stress assumptions:
    I. Non-parallel shift in domestic yield curve: interest rates rise by 5.5 percentage points at short end (<1 year) and by 1 percentage point at 30 years (intermediate rises between).
    II. Net interest losses from yield curve shift maintained over a six-month window.
    III. Further depreciation in exchange rate.
    IV. 15 percent loss of deposits for DTIs and of repo creditors for SDs.
    V. One third of past due loans (less than 90 days overdue) migrating to nonperforming loans (greater than 90 days past due).
  - Results:
    - Banking sector (DTIs) robust to direct impact of the exchange and second-round effects.
    - Securities dealers sector vulnerable in an adverse scenario due to interest rate and liquidity risks.
    - A portion of the general insurance sector could breach regulatory capital minima.
- FSSF was established as contingency; the 2010 FSSF was not accessed.

*Source: IMF staff report excerpt (chapter 14).*

### 26. The authorities have identified options for debt swaps and reduced domestic debt

### 26. The authorities have identified options for debt swaps and reduced domestic debt

### Debt-reduction measures identified and timetable
- The authorities have identified options for debt swaps and reduced domestic debt guarantees expected to be implemented during the first program year to reduce public debt by about 2 percent of GDP (MEFP ¶26).
- The combination of asset sales and debt-asset swaps based on land and buildings should amount to close to 1 percent of GDP.
- The government expects to complete a preliminary valuation of these assets by end-June 2013, and complete an action plan by September 2013 for implementing the operations.
- The withdrawal of guarantees issued to underwrite private domestic loans to public entities would also be equivalent to 1 percent of GDP.
- Any additional debt reduction measures identified later would be implemented by end-February 2015.

### Medium-term debt target, review, and possible additional measures
- Program’s debt target: 96 percent of GDP by end-March 2020.
- The authorities committed to review the medium-term debt outlook by May 2014 and identify further measures needed to achieve the 96 percent of GDP debt target (MEFP ¶27).
- Possible further measures include:
  - Further asset sales or swaps;
  - Other debt reduction measures, potentially including exceptional assistance from bilateral and multilateral development partners;
  - Exploring options for debt relief with the Paris Club.

### Debt sustainability and vulnerabilities
- Debt sustainability analysis confirms the importance of supplementary measures in securing a sufficient reduction in debt and highlights remaining risks (Appendix II).
- External debt sustainability is vulnerable to:
  - Large swings in real exchange rates;
  - Large swings in interest rates;
  - A worsening of the current account balance (for example, from a change in the terms of the PetroCaribe arrangement);
  - Shortfalls in non-debt creating flows.
- Public debt sustainability is highly vulnerable to:
  - Slippages in the primary balance;
  - Lower growth;
  - Higher interest rates.

### Debt management and reporting commitments
- The authorities committed to improving debt management (MEFP ¶28).
- A debt law consolidating various debt-related legislations was approved by parliament in November 2012 (prior action).
- The government intends to:
  - Ensure greater use of auctions for debt placements over the program period;
  - Expand regular reporting on public debt to include PetroCaribe debt and domestic guarantees.

### Financial sector stability risks related to government debt holdings
- Large holdings of government securities by highly-interconnected financial institutions increase vulnerability to shocks.
- Immediate risk stems from the combined impact of the debt exchange and possible second-round effects under an adverse macroeconomic scenario.
- Securities dealer sector risk:
  - Rapid growth in the last decade based primarily on the “retail repo” product.
  - “Retail repo” products finance long-term, large-denomination government bonds with short-term, small denomination retail investments; legal title remains with securities dealers.
  - Risks (concentration, interest rate, liquidity) of holding government bonds remain on securities dealers’ balance sheets without matching capital and liquidity.
- Size and interconnectedness risk:
  - Securities dealer sector assets equivalent to 35 percent of GDP heighten the risk of spillovers.
- Regulatory note:
  - Risk weighting on domestic currency GoJ debt remains 0 percent (consistent with Basel) though this does not reflect the risks; the authorities raised the weighting on foreign currency GoJ debt from 0 to 100 percent under the previous Fund-supported program.

### Program measures to strengthen financial supervision and reform the securities dealer sector
- Structural benchmarks under the program (MEFP ¶44 and 47) include measures to improve financial sector supervision:
  - Enactment of the Omnibus Banking Act to:
    - Establish a new structure for holding companies of financial conglomerates;
    - Subject such entities to consolidated supervision by the central bank;
    - Harmonize prudential standards across deposit-taking institutions;
    - Strengthen central bank corrective action and resolution powers;
    - Reinforce central bank operational independence for supervision.
  - Amendments to the Financial Services Commission (FSC) Act to tighten FSC enforcement powers against non-banks.
  - Amendments to the Bank of Jamaica Act to vest the central bank with responsibility and power to conduct macro-prudential oversight.
  - Strengthening powers and operational capacity of the central bank and the FSC to deal with unlawful financial organizations (such as Ponzi schemes).
- Securities dealer sector reform objectives (MEFP ¶45):
  - Achieve an orderly phase-out of the “retail repo” business model in the medium term.
  - Encourage securities dealers to pursue alternative business models likely to pose less risk to financial stability (e.g., collective investment schemes, “CIS”).
  - Reform tax laws to remove double taxation for CIS.
  - Eliminate certain Companies Act requirements that pose administrative burdens to CIS.
  - Commit to a timetable to fully lift the cap on investments in foreign securities by the CIS (currently 5 percent of total assets) by end-2016.
  - Establish legal and regulatory framework for the FSC to supervise CIS.
  - Tighten liquidity and other prudential standards for securities dealers that engage in retail repos.
  - Develop a legal and regulatory framework for “retail repos” distinct from traditional repos to better protect retail client interests.

### Monetary policy and exchange rate regime
- Monetary policy focus:
  - Maintain single-digit inflation in the context of a flexible exchange rate regime.
  - BOJ will continue using the interest rate on its 30-day certificate of deposit as the main instrument in the near term and adjust it according to the Bank’s assessment of risks to the inflation target.
  - Monetary policy must consider the impact on the weakened financial system.
- Exchange rate stance:
  - Flexible exchange rate regime central to macroeconomic policy and structural agenda.
  - Recent nominal exchange rate depreciation has been useful for reversing part of the real exchange rate overvaluation (see Appendix I).
  - Interventions may be needed at times to avoid disorderly short-run movements.
  - Program contains clear reserve targets to safeguard reserve coverage adequacy.
  - Structural reforms are expected to help restore external competitiveness alongside exchange rate flexibility.
- Transition toward inflation targeting:
  - BOJ will gradually put in place requirements for a full-fledged inflation targeting regime (FFIT).
  - Near-to medium-term strategy includes strengthening BOJ governance, enhancing independence, ensuring a solid financial structure (MEFP ¶43).
  - BOJ to introduce measures to develop and improve foreign exchange market efficiency, enhance communication strategy, and improve data collection and monitoring capabilities.

### Growth and social protection agenda
- Growth strategy integrates time-bound fiscal consolidation with structural reforms to reduce impediments to growth and facilitate strategic investments.
- Key impediments to growth: high public debt, low factor productivity, weak competitiveness, high energy costs, bureaucratic business processes, high crime, inadequate legal enforcement.
- Initial phase reforms to improve efficiency include:
  - Improve business climate:
    - Increase access to credit through a secured transactions framework (structural benchmark);
    - Reduce transaction costs of commercial dispute resolution;
    - Streamline business registration processes;
    - Modernize insolvency framework;
    - Utilize electronic platforms to enhance cross-border transactions (MEFP ¶12);
    - Strengthen the MSME sector (MEFP ¶13).
  - Labor market reforms to enhance flexibility and address skills mismatch:
    - Establish flexible work arrangements;
    - Enhance social protection to reduce impact of high separation costs;
    - Implement ongoing and new training and certification programs (MEFP ¶15).
  - Public sector efficiency:
    - Public sector rationalization to reduce bureaucracy;
    - Fiscal reforms to address high cost of paying taxes;
    - Enhancements to the court system.
  - Energy policy to progressively lower cost of energy by achieving fuel-source diversification, facilitating energy conservation, and promoting liberalization in delivery (MEFP ¶17).
- Strategic projects envisaged:
  - Establish Jamaica as a logistics hub (port, cargo, maritime facilities, economic zones) — design phase well-advanced.
  - Develop the micro, small, and medium-enterprise sector.
  - Create nine Agro Parks in labor-intensive agricultural sector to establish an agricultural supply chain.
  - Projects to increase resilience of rural communities vulnerable to climate change and natural hazards.
- Social protection priorities:
  - Improve training and certification for labor market participants;
  - Enhance benefits and improve targeting effectiveness under PATH;
  - Implement welfare-to-work exit strategies for vulnerable households (MEFP ¶38).
- Reforms to improve efficiency and effectiveness of social spending (MEFP ¶39–40):
  - Education: rebalance student-teacher ratios, restructure scholarship programs, institute greater cost recovery at tertiary level.
  - Health: reduce duplication, increase cost-sharing with third-party payers while protecting the poor; strengthen billing to maximize revenue from private insurance; address inefficiencies in drugs procurement.

### Program design, financing, and risks
- IMF arrangement request:
  - 48-month extended arrangement under the Extended Fund Facility (EFF) in the amount of SDR 615.38 million (225 percent of quota).
  - Use of four-year arrangement appropriate given structural external imbalances and extensive structural reform needs.
  - Arrangement subject to quarterly reviews; after the first program year, a shift to half-yearly reviews would be considered conditional on strong reform implementation during the first program year.
- Frontloaded access and initial disbursement:
  - Access partly frontloaded to help buttress financial stability and include moderate Fund financing for the budget in 2013.
  - First disbursement will amount to 50 percent of quota, consistent with increasing the FSSF to US$760 million upon approval of the arrangement, as well as one-off direct Fund financing for the budget of SDR 58 million (about US$90 million).
- Monitoring and conditionality:
  - Program monitored by quarterly quantitative performance criteria (PCs) and extensive structural conditionality.
  - New PC limiting the overall deficit of the wider public sector; indicative target on tax revenues; floor on targeted social spending.
  - Strong prior actions provide up-front assurances on program implementation.
- External financing assurances and projections:
  - Regular external program financing from multilateral institutions envisaged to amount to US$1 billion over the program period, of which $344 million would be provided in 2013/14.
  - Jamaica expected to receive bilateral budget grants, including from the European Union, and to continue drawing financing from the PetroCaribe facility.
  - Canada pledged additional technical and bilateral assistance.
  - Remaining financing needs to be filled mostly through domestic financial market borrowing.
- Repayment capacity:
  - Under the baseline projection, Jamaica’s capacity to repay is good.
  - Jamaica has never had arrears to the Fund and prioritizes meeting its financial obligations.

*Source: IMF staff report text in content unit _cr13126 - 26. The authorities have identified options for debt swaps and reduced domestic debt*

### 46. The June 2010 safeguards assessment of the Bank of Jamaica carried out with respect

### _cr13126 - 46. The June 2010 safeguards assessment of the Bank of Jamaica carried out with respect

### Safeguards assessment update
- The June 2010 safeguards assessment of the Bank of Jamaica (BOJ), carried out with respect to Jamaica's previous Stand-By Arrangement, will be updated before the first review of the proposed arrangement.
- The 2010 assessment findings:
  - Adequate external audit and financial reporting frameworks.
  - The BOJ’s legal structure required strengthening to increase its operational independence and autonomy.
  - Areas for improvement within the Internal Audit Division.
  - Concerns about the effectiveness of the bank’s governance and oversight.
- The BOJ concurred with the recommendations and has made good progress on implementation through amendments to the BOJ Act are still pending.

### Risks to program implementation
- The program entails significant downside risks:
  - With a sustained fiscal effort required, the risks of policy slippage are high. The primary surplus targets in the authorities’ program are high by international standards, and their achievement is by no means assured.
  - The absence of immediate financing constraints owing to the debt exchange may elevate the risk of policy slippage.
  - A three-decade history of adjustment without visible and lasting progress means a high degree of social and political consensus will be needed to sustain fiscal adjustment over the medium to long term.
  - Implementation delays or partial implementation of structural reforms, including requisite legislation, pose major risks given capacity constraints and social and political costs.
  - Even with full implementation, the debt-to-GDP ratio at the end of the period would remain near the maximum sustainable levels, making adverse repercussions of policy or implementation slippage potentially very severe; building buffers will be important as a contingency.
  - Jamaica faces serious challenges to financial sector stability—from the debt exchange—should adverse scenarios unfold, although the establishment of the FSSF should help contain financial risk for participating institutions.
  - Large fiscal consolidation could adversely affect near-term growth prospects and may be exacerbated by Jamaica’s high vulnerability to external economic shocks, shifts in market confidence, and natural disasters.
  - Risks to PetroCaribe financing could endanger envisaged external financing, possibly requiring curtailment of projects based on this financing source.
- Upside scenario:
  - Resolute implementation of structural reforms (including strengthening the fiscal responsibility framework and tax reform) and material progress on strategic projects could boost confidence and increase domestic and foreign investment in foreign exchange-earning activities, helping reduce the debt-to-GDP ratio quicker than projected.

### Staff appraisal: macroeconomic context and program design
- Historical diagnosis:
  - Over the last three decades, Jamaica experienced very low economic growth and repeated macroeconomic instability driven by unsustainable debt burden, competitiveness problems, a weak business climate, and lack of policy credibility.
- Program objectives and structure:
  - The authorities’ program seeks to address long-standing structural imbalances via an aggressive front-loaded and comprehensive reform agenda.
  - Program focuses:
    - Sustain higher primary fiscal surpluses to underpin debt sustainability and a stable macroeconomic environment.
    - Structural reforms to strengthen external competitiveness and productivity, considering remaining real exchange rate overvaluation.
    - Catalytic and strategic investments to boost growth prospects.
    - Enhanced social protection for the most vulnerable to promote social cohesion.
  - The authorities’ target of a 7.5 percent of GDP primary surplus for each year of the program period is challenging but deemed essential to underpin debt sustainability.
  - Staff notes the first-year revenue measures are less reform-oriented than desirable but welcomes the government’s action plan for comprehensive tax reform and commitment to formulate an action plan for public expenditure management reform with development partners.
  - Staff commends programming efficiency and accountability in the public enterprise sector, leading to a zero budget balance starting in FY 2013/14, and welcomes proposed divestment plans.
  - Government commitment to ensure public debt is on a path to 96 percent of GDP by end-March 2020 is welcomed.

### Fiscal measures, public sector reforms, and monitoring
- Key fiscal and public sector reform priorities:
  - Agreement with public sector unions for wage restraint over the first two years is central to reducing the wage bill to 9 percent of GDP by 2015/16; public sector wage moderation must be maintained over the medium term.
  - Broad public sector rationalization urgently needed to achieve permanent savings, including:
    - Rationalization of public sector size.
    - Pension reform.
    - Institutional capacity building to enhance efficiency.
  - Critical reforms to entrench consolidation:
    - Establishment of a legally binding fiscal rule.
    - Comprehensive tax policy and revenue administration reforms to enhance revenue.
    - Rationalization of the incentives framework and elimination of discretionary waivers to reduce revenue erosion.
    - A well-articulated 5-year public sector investment program to reflect national priorities.
  - Close monitoring of possible fiscal costs and contingencies associated with PPPs and other public sector projects to ensure they do not undermine financial sustainability.

### Monetary policy, financial sector, and structural reforms
- Monetary and exchange rate policy:
  - Ongoing exchange rate flexibility will be needed to achieve reserves targets and support competitiveness.
  - The BOJ intends to continue conducting monetary policy within a flexible exchange rate regime; limited intervention may be appropriate to avoid disorderly short-run movements.
  - Key priorities: safeguard adequacy of reserve coverage and price competitiveness.
  - Staff encourages steps to strengthen BOJ governance through enhanced independence and to improve foreign exchange market operations for better information discovery and volatility management.
- Financial sector safeguards:
  - Financial sector vulnerabilities need close monitoring despite careful debt exchange design.
  - The FSSF should help smooth financing difficulties; steps are in train to further protect “retail repo” clients.
  - The retail repo business model will need to be replaced over time; staff supports a legal and regulatory framework conducive for Collective Investment Schemes (CIS).
  - Authorities committed to a timetable for raising the cap on investments in foreign securities.
  - Completion of regulatory reforms is needed to mitigate risks inherent in Jamaica’s interconnected financial system.
- Growth agenda and social protection:
  - Achieving higher and sustained growth is pivotal to long-term macroeconomic stability and increased welfare.
  - Growth agenda integrates time-bound fiscal consolidation with structural reforms to reduce impediments to growth and facilitate strategic investments.
  - Implementation contingent on reforms to improve efficiency: access to credit, reducing bureaucracy, improving the business environment, and enhancing labor market flexibility.
  - Adequate social spending, improved social safety net, and employment growth are program priorities:
    - Targeted reforms to improve efficiency and effectiveness of social spending while protecting the most vulnerable.
    - Efforts to improve training and certification for labor market participants, enhance benefits and targeting under PATH, and implement welfare-to-work exit strategies.
    - Plans to rebalance student-teacher ratios within and between schools and achieve greater cost containment in the health sector while ensuring protection of the poor.

### Program prospects and conditionalities
- Overall assessment:
  - While risks to the program are high, full implementation combined with mobilization of necessary external support makes the objectives realistically achievable.
  - High risks include delayed growth recovery, financial sector vulnerabilities, external shocks, delays/partial implementation of policies, and natural disasters that could derail external and public debt sustainability.
  - Prior actions, a frontloaded reform agenda, and collaboration with development partners should help contain some risks.
  - Social and political consensus on a concerted national reform effort will be important to contain risks.

*Excerpt from STAFF APPRAISAL, JAMAICA — INTERNATIONAL MONETARY FUND.*

### 57. In view of Jamaica’s balance of payments needs and the comprehensive package of

### _cr13126 - 57. In view of Jamaica’s balance of payments needs and the comprehensive package of

### IMF program support and request
- Staff supports the authorities’ request for a four-year extended arrangement under the Extended Fund Facility in the amount of 225 percent of quota.

### Recent economic developments and external sector
- After expanding by 1.5 percent in 2011, the economy is estimated to have contracted in 2012.
- Tourism and remittances have performed relatively well until recently.
- Unemployment and poverty levels remain high.
- Core inflation continues to decline.
- The current account balance is expected to slightly improve in 2012/13 owing to lower demand for imports.
- International reserves are falling against the backdrop of exchange rate depreciation.

### Fiscal developments and outlook
- The fiscal position will strengthen in 2012/13 owing to higher revenues and strict wage cost control.
- Gross financing needs will decline in 2012/13, due partly to lower debt service cost.
- Selected fiscal figures (percent of GDP, Table 1 / Table 3):
  - Budgetary revenue: 26.4 (2010/11), 25.5 (2011/12), 25.7 (2012/13), 27.1 (2013/14), 26.9 (2014/15), 27.0 (2015/16), 27.0 (2016/17), 27.0 (2017/18), 27.1 (2018/19), 27.0 (2019/20)
  - Tax revenue: 23.5 (2010/11), 23.1 (2011/12), 24.0 (2012/13), 24.3 (2013/14), 24.3 (2014/15), 24.4 (2015/16), 24.5 (2016/17), 24.5 (2017/18), 24.6 (2018/19), 24.6 (2019/20)
  - Budgetary expenditure: 32.6 (2010/11), 31.9 (2011/12), 30.4 (2012/13), 27.4 (2013/14), 27.4 (2014/15), 26.4 (2015/16), 25.8 (2016/17), 25.5 (2017/18), 25.0 (2018/19), 24.5 (2019/20)
  - Primary expenditure: 21.8 (2010/11), 22.4 (2011/12), 20.5 (2012/13), 19.6 (2013/14), 19.3 (2014/15), 19.5 (2015/16), 19.5 (2016/17), 20.0 (2017/18), 20.1 (2018/19), 20.0 (2019/20)
  - Wage bill: 10.7 (2010/11), 11.0 (2011/12), 10.9 (2012/13), 10.5 (2013/14), 9.7 (2014/15), 9.0 (2015/16), 8.9 (2016/17), 8.8 (2017/18), 8.7 (2018/19), 8.6 (2019/20)
  - Interest payments: 10.8 (2010/11), 9.6 (2011/12), 9.9 (2012/13), 7.8 (2013/14), 7.6 (2014/15), 7.0 (2015/16), 6.3 (2016/17), 5.4 (2017/18), 4.9 (2018/19), 4.5 (2019/20)
  - Budget balance: -6.2 (2010/11), -6.4 (2011/12), -4.7 (2012/13), -0.4 (2013/14), -0.1 (2014/15), 0.5 (2015/16), 1.2 (2016/17), 1.6 (2017/18), 2.1 (2018/19), 2.5 (2019/20)
  - Public debt (percent of GDP): 140.8 (2010/11), 141.5 (2011/12), 147.0 (2012/13), 142.5 (2013/14), 136.7 (2014/15), 131.7 (2015/16), 126.5 (2016/17), 117.6 (2017/18), 109.7 (2018/19), 101.9 (2019/20)

### Financial sector developments
- Deposits are picking up and credit to the private sector is growing fast, but remains low compared to credit to the public sector.
- Private sector credit and deposit growth (percent, y/y) show a pickup, while private sector credit relative to GDP continues to be low by regional standards.
- Interest rates remain high despite the decline in the central bank policy rate.
- The financial sector holds 40 percent of public debt, with government securities representing a multiple of the capital base.

### Public debt structure and risks
- Total Public Debt, December 2012 (percent of total public debt and US$ amounts):
  - Government (Domestic) 54% US$10.7b
  - Government (External) 30% US$6.0b
  - Government guaranteed 9% US$1.8b
  - Petrocaribe 7% US$1.3b
- Central Government (CG) External Debt, December 2012 (percent of CG external debt):
  - Multilateral 33% US$2.3b
  - IMF 12% US$0.9b
  - Bonds 43% US$2.9b
  - Bilateral OECD 5% US$0.3b
  - Bilateral Non-OECD 4% US$0.2b
  - Commercial banks 3% US$0.2b
  - Other 0.2% US$0.02b
- Interest rate characteristics (2012/13):
  - Interest Rates of CG External Debt (percent): 2.9, 2.2, 2.3, 4.2, 10.9, 2.5 (as presented)
  - Interest Rates of CG Domestic Debt (percent): 12.3, 8.6, 11.9, 6.8, 1.0, 10.0 (as presented)
- Debt maturity: External debt has longer maturity than domestic debt.
- Risks noted: interest rate risks are significant; external debt instruments carry the highest interest rates; fixed-rate instruments of domestic debt also carry high rates.
- More than half of public debt is domestic and consists of a wide range of instruments; bonds constitute a significant share of external debt.

### Key balance of payments and reserves figures (Table 5)
- Current account (US$ millions): -1,248 (2010/11), -2,076 (2011/12), -1,730 (2012/13), -1,549 (2013/14), -1,386 (2014/15), -1,103 (2015/16), -977 (2016/17)
- Trade balance (US$ millions): -3,537 (2010/11), -4,242 (2011/12), -4,089 (2012/13)
- Exports (f.o.b., US$ millions): 1,418 (2010/11), 1,687 (2011/12), 1,720 (2012/13)
- Imports (f.o.b., US$ millions): 4,956 (2010/11), 5,929 (2011/12), 5,809 (2012/13)
- Net international reserves (US$ millions): 2,592 (2010/11), 1,796 (2011/12), 855 (2012/13), 1,217 (2013/14), 1,432 (2014/15), 1,547 (2015/16), 1,653 (2016/17)
- Gross international reserves (US$ millions): 3,435 (2010/11), 2,639 (2011/12), 1,698 (2012/13), 1,944 (2013/14), 1,996 (2014/15), 2,239 (2015/16), 2,521 (2016/17)

### Monetary and central bank positions (Tables 6–7)
- Bank of Jamaica net international reserves (end-of-period, J$ billions): 228 (2010/11), 158 (2011/12), 85 (2012/13), 134 (2013/14), 174 (2014/15), 206 (2015/16), 235 (2016/17)
- Base money (end-of-period, J$ billions): 79 (2010/11), 84 (2011/12), 87 (2012/13), 96 (2013/14), 107 (2014/15), 119 (2015/16), 132 (2016/17)
- Monetary aggregates (Table 7, end-of-period stocks, J$ billions):
  - Net foreign assets: 217 (2010/11), 165 (2011/12), 86 (2012/13), 136 (2013/14), 173 (2014/15), 200 (2015/16), 229 (2016/17)
  - Liabilities to private sector (M3): 333 (2010/11), 350 (2011/12), 370 (2012/13), 409 (2013/14), 456 (2014/15), 507 (2015/16), 563 (2016/17)
  - Money supply (M2): 226 (2010/11), 236 (2011/12), 251 (2012/13), 277 (2013/14), 309 (2014/15), 343 (2015/16), 381 (2016/17)

*Source: IMF staff report text and tables as provided.*

### 1. Cabinet to adopt a decision to:

### 1. Cabinet to adopt a decision to:

### Cabinet decisions on discretionary waivers and tax incentives
- 1.a. Cease the granting of discretionary waivers, excluding:
  - (i) those granted to charitable organizations and for charitable purposes;
  - (ii) those required to satisfy the GoJ’s already existing contractual or legal obligations; and
  - (iii) waivers up to a ‘de minimis’ cap of J$10 million per month (for any that are not covered by the exceptions under (i) or specifically exempted in the Technical Memorandum of Understanding (TMU).
- 1.b. Cap total discretionary waivers, excluding those for charitable organizations and for charitable purposes at J$80 million per month. Waivers for charitable organizations and for charitable purposes will be capped at J$250 million on a monthy basis.
- 1.c. Not approve any new waivers or renew any waiver category (unless required under existing legislation) or other tax incentive and not to amend existing legislation to generate further tax expenditures until the Omnibus Incentive Law has come into effect.
- Implementation status: Met

### Public sector wages
- Conclude a multi year agreement with major unions (representing at least 70 percent of government workers) limiting nominal wage increases to zero for 2012/13 (and limiting merit increases to no more than 2.5 percent), and an annual average (including merit increases) of no more than 5 percent in the two subsequent years.
- Implementation status: Met

### Public debt management
- 3. Approval by parliament of the Public Debt Law, which consolidates various debt related acts and helps strengthen debt management.
  - Implementation status: Met
- 4. Government to complete a debt exchange for domestic government bonds consistent with a reduction in the public debt-to-GDP ratio by 2020 equivalent to at least 8.5 percent of GDP.
  - Implementation status: Met

### Structural benchmarks (selected institutional fiscal reforms, tax reform, tax administration, financial sector)
- Institutional fiscal reforms:
  - 1. Government to table in parliament a budget in line with program commitments. Timing: April 30, 2013
  - 2. Government to introduce a 5-year public sector investment program (PSIP), beginning with FY2013/14, to be updated on an annual basis. Timing: April 30, 2013
  - 3.a. Government to present to Fund staff a conceptual proposal for the design of a fiscal rule. Timing: August 31, 2013
  - 3.b. Adoption of a legally binding fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets starting with the 2014/15 budget. Timing: March 31, 2014
  - 4. Government to finalize a review of public sector employment and remuneration that serves to inform policy reform. Timing: March 31, 2014
  - 5. Government to finalize the divestment of CAP or implement an asset lease agreeement. Timing: December 31, 2013
- Tax Reform:
  - 6. Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as described in paragraph 34 of the MEFP. Timing: Continuous
  - 7. Parliament to adopt amendments to the relevant tax acts to harmonize the tax treatment for charities across tax types and remove ministerial discretion to grant waivers for charities and charitable purposes as described in paragraph 34 of the MEFP. Timing: May 31, 2013
  - 8.a. Government to table a Charities Bill in the House of Representatives, guided by TA provided by the IDB and in consultation with Fund staff. Timing: September 30, 2013
  - 8.b. Government to cease the granting of waivers to charities other than under the Charities Bill. Timing: November 30, 2013
  - 9.a. Government to table Omnibus Tax Incentive Act in the House of Representatives, guided by TA provided by the IDB and in consultation with Fund staff, to eliminate ministerial discretionary powers to grant or validate any tax relief, and put in place a transparent regime for limited tax incentives. Timing: September 30, 2013
  - 9.b. Government to cease the granting of tax incentives under the regime prior to the Omnibus Tax Incentive Act and of any discretionary tax waivers. Timing: December 31, 2013
  - 10. Broader tax reform to become effective, including the modernization of taxes, with limited exemptions, and lower tax rates (MEFP paragraph 34). Timing: March 31, 2014
- Tax Administration:
  - 11. Parliament to adopt amendments to the Revenue Administration Act to (i) provide access to third-party information, to enhance compliance management, and (ii) empower the TAJ to require mandatory e-filing for groups of taxpayers and/or types of taxes. Timing: June 30, 2013
  - 12. Government to increase the professional staff of Large Taxpayer Office (LTO) to 120 staff members. Timing: June 30, 2013
- Financial sector:
  - 13. Government to Establish and Operate a Central Collateral Registry. Timing: December 31, 2013
  - 14. Government to implement a legal and regulatory framework conducive to Collective Investment Schemes (MEFP Paragraph 45) in consultation with Fund staff. Timing: December 31, 2013
  - 15. Government to implement legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010. Timing: March 31, 2014
  - 16. Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework (MEFP Paragraph 46) in consultation with Fund staff. Timing: March 31, 2014
  - 17. Enact Omnibus Banking Law consistent with Fund Staff advice to facilitate effective supervision of the financial sector. Timing: March 31, 2014

### Quantitative performance criteria (selected figures, in billions of Jamaican dollars)
- Fiscal targets (Cumulative flows from April 1 through March 31 unless noted):
  - 1. Primary balance of the central government (floor): 39.1; 70.3; 14.0; 38.2; 61.6; 111.5
  - 2. Tax Revenues (floor): 225.0; 322.2; 73.3; 150.7; 231.9; 360.5
  - 3. Overall balance of the public sector (floor): -52.1; -70.0; -14.3; -21.6; -30.7; -6.7
  - 4. Central government direct debt (ceiling): 1558.7; 150.1; 13.9; 21.4; 27.5; 8.6
  - 5. Central government guaranteed debt (ceiling): 166.7; 6.0; 9.0; 8.4; 8.4; 8.3
  - 6. Central government accumulation of domestic arrears (ceiling): n.a.; 0.0; 0.0; 0.0; 0.0; 0.0
  - 7. Central government accumulation of tax refund arrears (ceiling): n.a.; 0.0; 0.0; 0.0; 0.0; 0.0
  - 8. Consolidated government accumulation of external debt payment arrears (ceiling) (in millions of U.S. dollars): ...; 0.0; 0.0; 0.0; 0.0; 0.0
  - 9. Social spending (floor) (Indicative target): ...; 18.2; 4.1; 8.3; 14.4; 20.1
- Monetary targets:
  - 10. Cumulative change in net international reserves (floor) (Cumulative change from end-December 2012): 1115.3; -260.7; -209.0; -242.3; -220.5; 96.3
  - 11. Cummulative change in net domestic assets (ceiling): -7.3; 13.8; 10.8; 16.2; 26.4; -10.7
- Notes:
  - 1/ Targets as defined in the Technical Memorandum of Understanding.
  - 2/ Preliminary estimates except for the floor on the cumulative change in net international reserves and for the ceiling on cumulative change in net domestic assets.
  - 3/ Cumulative flows from April 1 through March 31.
  - 4/ Excludes government guaranteed debt. The central government direct debt excludes IMF credits.
  - 5/ Includes debt payments, supplies and other committed spending as per contractual obligations.
  - 6/ Includes tax refund arrears as stipulated by law.
  - 7/ In millions of U.S. dollars.
  - 8/ Indicative target.
  - 9/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes.
  - 10/ Cumulative change from end-December 2012.
  - 11/ Continuous performance criterion.

### Indicators of Fund credit, 2013-27 (selected figures, in millions of SDRs unless otherwise specified)
- Prospective drawings (4-year EFF): 176.69; 183.80; 113.28; 113.28; 28.33; ..............................
- (in percent of quota): 64.6067.2041.4241.4210.36..............................
- Projected Debt Service to the Fund based on Existing and Prospective Drawings — Amortization (selected): 175.28; 266.91; 95.63; 3.99; 11.40; 37.11; 64.80; 83.68; 100.20; 102.56; 91.17; 65.46; 37.76; 18.88; 2.36
- Interest and service charges (selected): 5.69; 6.40; 5.26; 6.04; 6.68; 6.49; 6.01; 5.26; 4.29; 3.19; 2.07; 1.17; 0.53; 0.17; 0.01
- SDR charges and assessments (each year): 0.04; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05; 0.05
- Total debt service (selected): 181.01; 273.36; 100.94; 10.08; 18.13; 43.65; 70.86; 88.99; 104.55; 105.80; 93.29; 66.68; 38.35; 19.11; 2.43
  - (in percent of exports of G&S): 6.22; 8.99; 3.12; 0.30; 0.52; 1.22; 1.94
  - (in percent of GDP): 1.95; 2.93; 1.07; 0.10; 0.18; 0.41; 0.64; 0.76; 0.86; 0.83; 0.69; 0.47; 0.26; 0.12; 0.01
- Projected level of credit outstanding based on existing and prospective drawings — Outstanding stock (selected): 543.22; 460.10; 477.76; 587.05; 603.98; 566.88; 502.08; 418.39; 318.19; 215.63; 124.46; 59.00; 21.24; 2.36; 0.00
  - (in percent of quota): 198.62; 168.23; 174.68; 214.64; 220.83; 207.27; 183.58; 152.98; 116.34; 78.84; 45.51; 21.57; 7.77; 0.86; 0.00
  - (in percent of GDP): 5.84; 4.94; 5.07; 6.07; 5.99; 5.36; 4.54; 3.59; 2.61; 1.68; 0.93; 0.42; 0.14; 0.02; 0.00
- Memorandum items:
  - Exports of goods and services (US$ millions): 4,526.05; 4,730.41; 5,030.50; 5,164.75; 5,429.19; 5,562.44; 5,689.87
  - US$/SDR exchange rate: 1.56
  - Quota: 273.50 (each year listed)

### Schedule of Reviews and Purchases (selected)
- May 1, 2013 — 137.75 millions of SDR — 50 percent of quota — Approval of Arrangement
- September 20, 2013 — 19.97 millions of SDR — 7 percent of quota — First Review and end-June 2013 performance criteria
- December 20, 2013 — 19.97 millions of SDR — 7 percent of quota — Second Review and end-September 2013 performance criteria
- March 20, 2014 — 45.95 millions of SDR — 17 percent of quota — Third Review and end-December 2013 performance criteria
- June 20, 2014 — 45.95 millions of SDR — 17 percent of quota — Fourth Review and end-March 2014 performance criteria
- (Subsequent reviews and purchases continue through March 20, 2017 as listed)
- Total: 753.13 millions of SDR; 275.4 percent of quota
- Note: Apart from periodic performance criteria, conditions also include continuous performance criteria.

### Exchange rate assessment — key findings
- Jamaica’s external competitiveness has continued to deteriorate partly due to long periods of appreciating real exchange rate.
- Negative correlation between the REER and the export market share underscores the importance of the exchange rate in restoring competitiveness and promoting growth.
- Current account deficits have remained high; combination of falling exports and fiscal imbalances has resulted in persistently high current account deficits.
- Net foreign liabilities: over 120 percent of GDP at end-2011, compared with 60–70 percent of GDP level typically associated with higher probability of external distress.
- CGER methodologies suggest overvaluation in the range 9–22 percent, but recent real depreciation (about 5 percent since the last observation in 2012) and policy initiatives have started to improve competitiveness.
- Specific CGER results:
  - Macro-Balance approach (MB): overvaluation of about 8.8 percent. Norm current account balance estimated as -6.0 percent of GDP against the underlying balance of -7.4 percent of GDP, elasticity -0.16.
  - External Sustainability (ES) approach: overvaluation of about 11.3 percent using stabilizing net IIP of 90 percent of GDP and underlying current account balance of -7.4 percent.
  - Equilibrium Real Effective Exchange Rate (ERER) approach: overvaluation of about 22 percent (21.9 percent) over long run equilibrium, not accounting for recent 5 percent real depreciation.
  - Average overvaluation reported: 14.0 percent

### External and public debt sustainability — summary and assumptions
- DSA indicates Jamaica’s high external debt is on a sustainable path under the program but remains vulnerable to large movements in exchange and interest rates.
- Full implementation of the program can place public and publicly guaranteed debt on a downward and sustainable path, conditional on:
  - strong fiscal adjustment (primary surplus above 7 percent of GDP and sustained over the medium term), and
  - a comprehensive debt restructuring.
- Envisaged further debt reduction through support by development partners, debt swaps, and reduced debt guarantees would be important; these additional measures are not factored into the DSA baseline.
- Key macroeconomic assumptions:
  - Real GDP growth: recover in 2013/14 to 0.8 percent and thereafter increases to about 2.5 percent by 2016/17.
  - Inflation: projected to peak at 10.5 percent by FY 2013/14, thereafter falling and stabilizing around 8 percent over the medium term.
  - Current account balance: projected to improve from a deficit of -14.1 percent of GDP in FY 2011/12 to stabilize around 6.5 percent of GDP over the medium term.
  - Exports of goods and services (percent of GDP): increase from 11.8 percent in FY 2012/13 to about 13.6 percent over the medium term.
  - Imports: projected to decline from about 40 percent of GDP in FY 2012/13 to about 38 percent in FY 2016/17.
  - Fiscal adjustment: primary surplus expected to rise from about 3.2 percent in FY 2011/12 to about 7.5 percent in 2013/14 and remain at that level over the medium term.
- Debt exchange:
  - Government launched a national debt exchange (NDX) for domestic debt, expected to result in a savings of about 8.6 percent of GDP by end-March 2020; savings factored into the DSA baseline.
  - Additional measures to reduce external debt (debt swaps, reduced guarantees) are being pursued but not included in baseline projections.
- Fund program financing:
  - Jamaica would make purchases totaling SDR615.4 million (this is 225 percent of Jamaica’s quota).
  - Phasing of the program indicated in Table 11.

*Source: IMF staff report content from the supplied PDF excerpt.*

### 4.2 percent, non-debt creating inflows of 2.7 percent, and nominal interest rate of 3.5 percent, the

### _cr13126 - 4.2 percent, non-debt creating inflows of 2.7 percent, and nominal interest rate of 3.5 percent, the

### External debt sustainability: baseline path and projections
- Baseline assumptions include: real GDP growth of 4.2 percent, net non-debt creating inflows of 2.7 percent, and nominal interest rate of 3.5 percent.
- Under the baseline, the external debt-to-GDP ratio:
  - peaks at 67.5 percent in 2013/14,
  - averages 66 percent over the medium term to 2016/17,
  - is 65.0 percent in 2012/13 and projected 66.2 percent in 2016/17 (DSA Table 1 entries).
- Baseline identified external debt-creating flows (selected years): 4.2, 12.2, 8.4, 0.7, 8.9, 9.7, 5.7, 3.8, 2.3, 2.4 (as listed in DSA Table 1 for the projection period).
- Gross external financing need (selected): in billions of US dollars: 2.3, 2.8, 3.0, 1.3, 1.5, 2.8, 2.4, 1.9, 2.1, 1.9, 1.7; in percent of GDP: 18.9, 21.5, 22.6, 10.2, 11.0, 19.0, 16.2, 13.0, 14.8, 12.7, 11.5.

### External debt: stress test results and sensitivities
- Historical-trend scenario: leaving key variables at historical trends leaves external debt at 65 percent by 2016/17.
- One-off shocks and permanent shocks (impacts on external debt-to-GDP by 2016/17 relative to baseline):
  - One-off 30 percent real exchange rate depreciation shock → increases debt-to-GDP by 32 percentage points above baseline by 2016/17.
  - Permanent 150 basis points increase in interest rate (above baseline) → increases debt-to-GDP by about 4.5 percentage points by 2016/17.
  - Permanent ½ standard deviation shock to the current account → increases debt-to-GDP by 9.2 percentage points by 2016/17.
  - Shortfalls in non-debt creating flows (FDI shock similar to FY 2009/10 experience) → increase external debt above baseline by about 6.4 percentage points by 2016/17.
  - Combined shock (half magnitude of shocks to interest rate, non-debt creating flows, and the current account balance; excluding real depreciation shock) → increases debt-to-GDP by 15.6 percentage points above baseline by 2016/17.

### Public debt sustainability: baseline, projections, and key risks
- Public debt status and composition:
  - Public debt reached 148.2 percent of GDP at end-2012.
  - More than half of total public debt is domestic debt.
  - Financial institutions hold close to 50 percent of total domestic debt.
  - Less than 15 percent of total debt is held by nonresidents.
  - Close to half of domestic debt is linked to foreign currency.
- Baseline public debt trajectory:
  - With strong fiscal adjustment, savings from the NDX debt exchange, and increasing primary surpluses and growth, the public debt-to-GDP ratio falls to about 124.4 percent by FY 2016/17.
  - DSA Table 2 baseline public sector debt: 147.0 in 2012/13; projected 126.5 in 2016/17 (public sector debt-to-GDP entries).
- Fiscal adjustment sensitivity (stress tests on public debt-to-GDP by 2016/17):
  - No fiscal adjustment (key variables at historical averages) → debt ratio stabilizes around 149 percent over projected period.
  - Permanent primary balance set to zero → increases debt-to-GDP to 156.2 percent by 2016/17.
  - Primary balance maintained at 2011/12 level of 3.7 percent of GDP → debt-to-GDP at 141 percent by 2016/17.
  - Permanent shock reducing growth to zero over the projection period → increases debt-to-GDP by 6 percentage points above baseline by FY 2016/17.
- Other macro and contingent shocks (public debt impacts by 2016/17):
  - One-off 30 percent real exchange rate depreciation → debt-to-GDP at 148.3 percent by 2016/17.
  - One-off 15 percent increase in contingent liabilities → debt-to-GDP at 137 percent by 2016/17.
  - Permanent 200 basis points interest rate shock (above baseline) → debt-to-GDP at 140.8 percent by FY 2016/17.
  - Combined shock (permanent shock of half magnitude to interest rate, growth, and primary balance; excluding exchange rate and contingent liability shock) → debt-to-GDP at 151.7 percent by 2016/17.

### Key macroeconomic assumptions underlying the baseline (selected series and values as presented)
- Real GDP growth (percent, selected): historical and projected series show values including 3.1, 0.8, -1.7, -2.6, -0.6, 0.9, 0.7, 1.9, -0.2, 0.8, 1.4, 1.8, 2.2 (as listed in the Key Macroeconomic Assumptions table).
- GDP deflator in US dollars (change in percent): 4.6, 6.3, 4.1, -4.8, 12.2, 4.9, 5.6, 7.0, -0.4, -1.8, -1.2, -0.7, 0.5.
- Nominal external interest rate (percent): 8.1, 8.4, 7.7, 7.3, 5.6, 4.7, 7.2, 1.2, 4.8, 4.2, 3.9, 3.6, 3.5.
- Net non-debt creating capital inflows (percent of GDP): -6.6, -11.0, -5.2, -3.2, -1.3, -1.3, -2.3, -4.5, -4.8, -4.1, -2.7.
- Baseline non-interest current account balances (percent of GDP): 6.1, 14.6, 14.8, 3.6, 5.6, 11.0, 8.7, 7.9, 6.9, 5.2, 4.2 (table formatting preserved as presented).

### Public-sector fiscal dynamics (selected figures from DSA Table 2)
- Baseline public sector debt (percent of GDP): 117.1 (2006/07), 114.6 (2007/08), 125.6 (2008/09), 139.4 (2009/10), 140.8 (2010/11), 141.5 (2011/12), 147.0 (2012/13), 142.5 (2013/14), 136.7 (2014/15), 131.7 (2015/16), 126.5 (2016/17).
- Government debt (percent of GDP): 106.8 (2006/07) through 103.5 (2016/17) as listed.
- Of which: foreign-currency denominated government debt (percent of GDP): 52.7, 48.0, 56.3, 60.9, 63.2, 60.9, 64.0, 63.0, 62.5, 63.1, 63.2.
- Primary deficit (percent of GDP, historical/projections): -6.4, -7.8, -4.9, -6.1, -4.6, -3.2, -5.2, -6.6, -7.5, -7.5, -7.5.
- Revenue and grants (percent of GDP): 26.1, 27.6, 27.0, 27.1, 26.4, 25.5, 25.7, 27.1, 26.9, 27.0, 27.0.
- Gross financing need (percent of GDP): 27.2, 14.5, 17.6, 26.3, 14.8, 16.5, 11.5, 7.5, 3.9, 8.2, 1.8; in billions of U.S. dollars (selected): 3.3, 1.9, 2.4, 3.3, 2.1, 2.4.

### Policy context and program commitments (from Letter of Intent and MEFP excerpts)
- Government objectives:
  - Progressive increase in real GDP and per capita income growth through investment in agriculture, tourism, shipping, logistics, and business process outsourcing.
  - Fiscal consolidation is essential for macroeconomic stability.
  - Reforms to strengthen financial system oversight and improve access to credit.
  - Social protection initiatives to maintain social cohesion and support vulnerable populations.
- Request to the Fund:
  - Government requests a 48-month arrangement under the Extended Fund Facility (EFF) equivalent to SDR 615.38 million or 225 percent of quota.
  - Request that equivalent of SDR 58 million (US$90 million) as part of first purchase be used to help meet government financing needs directly.
- Commitments:
  - Government will consult with the Fund on adoption of measures and provide relevant information for programme reviews.
  - Government will observe standard performance criteria (exchange restrictions, multiple currency practices, bilateral payment agreements inconsistent with Article VIII, import restrictions for balance of payments reasons).

*Source: IMF staff report content provided in the supplied document excerpts.*

### 1.      Jamaica faces severe economic challenges. Since the mid-1990s, real GDP growth

### 1.      Jamaica faces severe economic challenges. Since the mid-1990s, real GDP growth

### Economic challenges and recent performance
- Real GDP growth averaged less than 1 percent a year since the mid-1990s.
- Persistent outcomes: sustained high unemployment and large-scale emigration of labor.
- Public debt: reached 137 percent of GDP at the end of 2011, and is currently approaching 150 percent of GDP.
- Interest payments account for approximately 37 percent of government revenues.
- FY 2011/12 outcomes:
  - Central government primary surplus: 3.2 percent of GDP (budgeted 5.2 percent of GDP).
  - Public sector fiscal deficit: 6.4 percent of GDP.
  - Public debt at end FY 2011/12: 142 percent of GDP.
- 2011–2012 macro indicators:
  - Real GDP expanded by 1.5 percent in 2011; slowed in 2012.
  - Unemployment reached 13.75 percent by October (2012).
  - Inflation increased to 8 percent in December (year-on-year comparison with 2011).
  - External current account widened to 14.1 percent of GDP in FY 2011/12.
  - Net international reserves fell to under US$0.9 billion at end-March 2013.
- Root causes identified: high public debt, recurring financial market instability, high debt service obligations, large refinancing needs, costly risk premiums, crowding out of private investment, exposure to shifts in market sentiment.

### Programme objectives and strategy
- Programme coverage: through FY 2016/17 (through March 2017).
- Underpinning premise: fiscal and debt sustainability are necessary for macroeconomic stability and growth.
- Growth agenda drivers:
  - Time bound fiscal consolidation, with fiscal and monetary reforms to create a stable macroeconomic environment supportive of long-term foreign and domestic investment.
  - Time bound structural reforms to strengthen external competitiveness and factor productivity.
  - Catalytic and strategic private/public investments.
  - Social stability.
- Social safety net: measures to preserve and broaden social programmes, with emphasis on well-targeted, far-reaching support to protect the poor and share adjustment burdens across society.

### Medium-term macroeconomic framework (fiscal and debt targets)
- Fiscal objectives legislated under the Fiscal Responsibility Framework (FRF) to be achieved by end of FY 2015/16:
  - Central government budget consistent with an overall fiscal balance of 0 per cent of GDP.
  - A debt/GDP ratio of no more than 100 per cent by FY 2015/16.
    - Note: current projections under the programme suggest the target will not be achieved.
    - Footnote: this debt target excludes domestic public sector guarantees and PetroCaribe debt; including those elements would make debt about 15 percentage points larger.
  - A ratio of wages/GDP for the central government of no more than 9 percent of GDP.
- Long-run objective: reduce government debt ratios to around 60 per cent of GDP.
- Growth target: raise real GDP growth to at least 2 percent by FY 2016/17, with significant upside potential from investment and structural reforms.
- Inflation and reserves projections:
  - Inflation estimated at 8.75 percent (end of period) for FY 2012/13; projected to fall to around 8 percent by 2016/17.
  - Current account: estimated to have narrowed to 12 per cent of GDP in FY 2012/13; projected to decline to more sustainable levels by FY 2015/16.
  - Reserves projected to rise to adequate levels as balance of payments improves.

### Growth strategy and structural reforms
- Key impediments to growth identified: high public debt (142 percent of GDP as of end 2011/12), low factor productivity and competitiveness, high energy cost, bureaucratic business processes, high crime, inadequate legal enforcement.
- Collaboration proposed among IMF, World Bank, and Inter-American Development Bank (IDB) for capacity building and implementation of structural reforms.

Enhancing the Business Environment — specific initiatives and benchmarks:
- Establish a Secured Transactions Framework to include movable property as collateral:
  - Submit a Secured Obligations Bill to the Legislative Committee of Cabinet (March 2013).
  - Table the Secured Obligations Bill in Parliament (August 2013).
  - Establish and operate the Central Collateral Registry (Structural Benchmark, December 2013).
- Increase civil jurisdiction of lower courts from J$250,000 to J$1,000,000 to reduce case flow in the Commercial Division of the Supreme Court.
- Table an Insolvency Act in Parliament (December 2013).
- Streamline business registration via a multi-purpose registration instrument (“business registration superform” and associated IT platform) (December 2013).
- Establish a Port Community System (PCS):
  - Select preferred bidder and commence final negotiations (August 2013).
  - Phased roll-out starting March 2014, complete implementation by end-2015/16.
- Implement Mobile Money initiative to expand financial services access for underserved MSMEs.

Enhancing Access to Credit and Private Sector Project Finance:
- Double available MSME financing by 2016/17 relative to 2013/14, wholesaled through the Development Bank of Jamaica.
- Increase business development support via the Jamaica Business Development Corporation (JBDC).
- Establish a venture capital framework for incubation (end-2014).
- Implement a divestment/strategic investment framework, including a public-private-partnership policy.

Public-Private Partnerships (PPPs):
- PPP Policy passed (approved by Parliament in November 2012) establishing principles, criteria, institutional framework and processes.
- Two new operating units formed: Privatisation and PPP Unit within the Development Bank of Jamaica; PPP Node within the Ministry of Finance and Planning.
- Governance: Strategy Committee and Privatisation/PPP Committee of the Cabinet.
- Technical assistance and training financed by multilateral development partners.

Labour market interventions and reform — initiatives and timing:
- Review of labour legislation; enhance social protection to reduce separation costs; align training with manpower needs.
- Specific commitments:
  - Establish flexible work arrangements by end of FY 2013/14.
  - Establish HEART workforce colleges and three TVET Institutes by end FY 2013/14, with quality assurance by CCCJ.
  - Implement ongoing and new training and certification programmes in sectors: transportation, logistics, manufacturing, ICT, tourism.
- On-going and new training initiatives highlighted:
  - Logistics hub training in maritime, aviation, and logistics.
  - Customized curriculum and recruitment services for BPO sector (partnership with JAMPRO).
  - Customized training to expand craft products for Tourism (partnership with TPDCo).
  - New initiatives:
    - Small Ruminants Husbandry training (beginning September 2013).
    - Renewable Energy and Efficiency Technology Programme (beginning January 2014).

Public sector rationalization and fiscal reforms:
- Reduction in bureaucracy through public sector rationalization combined with tax policy and tax and customs administration reforms intended to increase government efficiency and support commerce and growth.

Strategic investments and sector priorities
- Target sectors: logistics, shipping, tourism, agriculture, business process outsourcing (BPO).
- Specific strategic objectives and milestones:
  - Establish Jamaica as a logistics hub: phased roll-out targeted to be completed by 2015, including development of Caymanas Economic Zone, expansion and privatisation of Kingston Container Terminal, privatisation/upgrading of Norman Manley International Airport.
  - Prepare a Logistics Master Plan by middle of FY 2013/14 to integrate project elements including Commodity Port, Dry Dock, and Vernamfield air cargo/passenger facility.
- Energy sector initiatives:
  - Diversify energy sources from oil to gas based and renewables.
    - Note: construction and commissioning by the Jamaica Public Service Company (JPS) of a 360 Megawatt Combined Cycle plant by 2015 remains a centerpiece.
    - JPS All Island Electricity Licence amended to establish a 25MW ceiling for renewable energy generation capacity to be installed and sold to the JPS grid without competitive tendering (previously 15MW).
    - OUR issued a Request for Proposals for 115MW of generation from Renewable Energy (bid period extended to June 2013).
  - Increase efficiency in public spaces and promote conservation in private sector via public education, technical assistance, and increased access to specialized credit for energy efficiency investments.
    - IDB-financed Energy Efficiency and Conservation Programme slated for completion in 2015.
    - Development Bank of Jamaica pilot and financing initiatives for renewable energy and efficiency (including a J$100 million fund for residential energy loans).
  - Promote liberalization in delivery through distributed generation networks and Net Billing regulation; May 2012 licenses issued for first eleven participants.
  - Regulatory and legislative reforms: Electric Power Sector Policy and Modernization of the Electric Lighting Act (policy framework by September 2013); Natural Gas Regulatory Framework (draft Natural Gas Act, Regulations and Policy by March 2014).
- Climate change adaptation and agricultural resilience:
  - Strengthen resilience to natural disasters via Climate Change Adaptation and Disaster Risk Reduction initiatives and targeted public infrastructure projects with explicit incorporation in annual budgets.
  - Establish nine Agro Parks to stabilise agricultural supply chains, deepen inter-industry linkages, increase import substitution, and activate rural land and labour; funded partly by the European Union.
    - Three of the nine Agro parks (Amity Hall, Ebony Park and Plantain Garden) have already started productive activity.
    - Milestones:
      - Finalize discussions with IDB on reallocating funds toward park establishment by end May 2013.
      - Commence productive activity at four more parks by end FY 2013/14.
      - Establish all nine parks by end FY 2014/15.
  - Support resilience through four environmental-related projects:
    - Climate Change Adaptation and Disaster Risk Reduction Project: restore some 2000–2500 meters of Negril shoreline and build agricultural sector resilience.
    - EPA Capacity Building Project: build export-supporting infrastructure and facilities for export competitiveness and food security.
    - Climate Data and Information Management Project: improve climate information for planning; benefits include improved early warning, planning for agro parks, and increased awareness of climate change impacts.
    - Institutional, Mainstreaming and Sectoral Adaptation Project: incorporate climate change into development plans for Rio Bueno and Rio Minho basins (options: Water Harvesting & Management; Sustainable Land Management; Agriculture Risk Management).
  - Renew community infrastructures and promote entrepreneurial development for job creation.

### Macroeconomic programme — outlook and policy priorities
- Fiscal sustainability is central to the macro programme.
- Key macro projections and policy expectations:
  - Raise growth to at least 2 percent by FY 2016/17.
  - Inflation: 8.75 percent (end of period) for FY 2012/13; fall to around 8 percent by 2016/17 with effective monetary policy.
  - Current account: estimated 12 per cent of GDP deficit in FY 2012/13; projected to decline by FY 2015/16 as fiscal consolidation and competitiveness improvements take effect.
  - Reserves: projected to rise to adequate levels as balance of payments improves.

*International Monetary Fund — Jamaica programme document (content unit as supplied).*

### 18.      The government is committed to improving the overall public sector deficit from

### _cr13126 - 18.      The government is committed to improving the overall public sector deficit from

### Fiscal targets and macro-fiscal framework
- Target improvement of the overall public sector deficit from 4.3 percent of GDP in FY 2012/13 to a surplus slightly above 1 percent of GDP by FY 2016/17.  
- Central government primary surplus path: rise from 5.2 percent of GDP in 2012/13 to 7.5 percent in 2013/14 and in subsequent years during the programme period.  
- Public bodies deficit projected to be balanced by FY 2013/14 and remain balanced in subsequent programme years.  
- Passage of the FY 2013/14 budget consistent with the programme is a structural benchmark (April 2013).

### Revenue and spending measures implemented in FY 2012/13
- Revenue-enhancing measures implemented for FY 2012/13 amount to approximately 1.6 percent of GDP (annualized).  
- Complementary reduction in expenditure equivalent to 1.4 percent of GDP.  
- June 2012 revenue package: a 1.0 percentage point reduction in the GCT rate combined with widening the GCT base; projected intake for FY 2012/13 from this package amounts to about 1.2 percent of GDP (due to later start of budget presentation).

### Measures to reach FY 2013/14 fiscal objectives
- Government committed to further measures in the FY 2013/14 budget to achieve a central government primary surplus of 7.5 percent of GDP and to balance public bodies.  
- Text Table 1 changes (tabled in Parliament in February 2013) estimate a positive revenue impact of J$27.3 billion. Specific measures and yields (J$ billion):  
  - Apply a customs administration fee (CAF) on all imports except for charitable organizations and the bauxite sector: 1.2  
  - Amendment to the fee structure and gross profit tax of betting, gaming, and lottery sector: 1.5  
  - Increase property tax rates and improve compliance: 3.4  
  - Include the special telephone call tax (TCT) as part of the GCT base: 1.3  
  - Include all fees and taxes paid at the port as part of the GCT base: 1.5  
  - Increase the tax on dividend to 15 percent: 0.8  
  - Impose a surtax of 5 percent on large unregulated companies: 1.2  
  - Telecom providers to account for GCT on the face value of prepaid vouchers/airtime: 0.2  
  - Increase the Education tax rate by 0.5 percentage points for employers and 0.25 percentage points for employees: 2.8  
  - Increase Stamp duty and transfer tax rates (properties) from 3 and 4 percent to 4 and 5 percent, respectively: 2.0  
  - Financial support from the National Housing Trust (NHT) for fiscal consolidation over the period April 1 2013 through March 31, 2017: 11.4  
  - Total: 27.3

### Central government expenditure-side changes
- Central government capital spending will increase marginally to 3.0 percent of GDP.  
- Recurrent non-debt spending to be lowered by at least 0.4 percent of GDP reflecting the wage agreement and efficiency gains (tracking of medical supplies, introduction of health cards, better management of pharmacies, among other measures).  
- Central government primary surplus enhanced by provision of financial support from the NHT (change supported by legislation); adverse impact on public bodies offset by higher fees and spending adjustments.

### Public bodies: expenditure rationalization and caps
- Road Maintenance Fund to reduce spending by J$9 billion, largely owing to completion of the Jamaica Development Infrastructure Programme.  
- PetroCaribe Development Fund to curtail grants to the Central Government by J$1 billion.  
- Petrojam expects savings of J$4 billion on trade credits.  
- Capital expenditures by public bodies to be rationalized; current expenditures capped in real terms for public entities.  
- National Housing Trust (NHT): capital expenditure contained at $29.0 billion (a reduction of $5.0 billion from a previously planned $34.0 billion); cost savings from cuts in administrative expenses, increased compliance, reductions in current arrears.  
- National Water Commission capital expenditure contained to $10.0 billion (a reduction of $5.0 billion from a previously planned $15.0 billion).  
- Port Authority of Jamaica capital expenditure contained to $1.9 billion representing an $8.0 billion reduction on previous plans (via a public private partnership project).

### Wages, civil service, and public sector reform
- No-increase agreement signed for FYs 2010/11 and 2011/12; compensation agreement concluded for FYs 2012/13 through 2014/15 consistent with lowering the wage bill to 9 percent of GDP by 2015/16.  
- Prior action agreement with major unions (representing 81 percent of government workers): (i) foregoing wage increases for FY 2012/13 (performance increments limited to no more than 2.5 percent); (ii) limiting the sum of wage increases and performance increments to an annual average of no more than 5.0 percent for FY 2013/14–FY 2014/15.  
- Interim annual wage-bill targets: 10.6 percent of GDP in 2013/14 and 9.7 percent of GDP for 2014/15.  
- Commitment to comprehensive public sector reform to enhance efficiency and support durable containment of the wage bill; prohibition on undertaking any new reclassification exercises during the programme period that may result in additional wage or salary costs or impact an entire occupational grouping.  
- Civil service reductions: permanent removal of 3,000 posts from the Civil Service in September 2012 and elimination of an additional 3,000 posts in the wider public sector in early 2013; an additional 1,000 positions becoming vacant by end-2013 will not be filled. No net hiring by the government in any year during the programme period.

### Social spending and safeguards
- Expenditure rationalisation in social spending to focus on enhanced targeting and efficiency without impairing, and possibly improving, social services.  
- Programme includes a floor on social spending (indicative target) defined as a minimum annual expenditure on specified social protection initiatives and programmes funded by GOJ resources only. Covered programmes include: conditional cash transfers to children 0–18 years and the elderly; youth employment programme (On the job training; Summer Employment; Employment Internship programmes under the Citizens Security & Justice Programme (CSJP)); the poor relief programme for indoor and outdoor poor; the school feeding programme and the basic school subsidy; basic education including early childhood, primary and secondary education; assistance for persons with disabilities; and targeted components of primary health care.  
- The floor will be quantified at a level equivalent to the FY 2012/13 budget allocations, in real terms.

### Capital expenditure planning and contingency measures
- Introduction of a 5-year public sector investment programme (PSIP) beginning with FY 2013/14, to be updated annually (structural benchmark, April 2013). All capital investments by central government and all State-owned Enterprises will be governed by the PSIP.  
- Investments selected according to efficiency criteria and growth and equity goals; subject to transparent procurement; financing cleared by the Debt Management Branch. Each annual programme included in the fiscal budget approved by Parliament with a report on alignment of capital investments in the previous fiscal year.  
- Contingency measures identified to help safeguard attainment of the budget target for 2013/14, which could include increases in fees and charges for government services; implementation enacted in consultation with Fund staff if monthly budget reviews indicate the target is at significant risk.

### Public bodies reporting and monitoring
- Sector overall balance projected to be in balance by end FY 2013/14 and remain in balance for all programme years.  
- Annual reports (including audited statements) for public bodies to be completed within six months of the end of the FY: by end-2014 for self-financing public bodies and by September 2015 for all other public bodies.  
- Monitoring strengthened by (1) enforcing a time limit for submission of public bodies’ financial statements to the Auditor General; and (2) bolstering capacity within the Auditor General’s office for more in-depth and frequent reviews.

### Public debt management strategy and targets
- Commitment to sharply reducing public debt driven by a strong fiscal programme generating large primary surpluses, complemented by debt restructuring, improved debt management practices and support from official external partners.  
- Programme assumes total contribution of measures will deliver a debt ratio of not more than 96 percent of GDP by end-March 2020.  
- Reporting on public debt expanded to include domestically guaranteed debt and PetroCaribe debt.

### Debt exchange and investor engagement
- Government launched a debt exchange on February 12, 2013 with a settlement date of February 22, 2013 and a second phase in March 2013.  
- Objectives: exchange existing debt for new instruments with lower coupons and longer maturities; explicitly targeted at achieving a reduction of the public debt-to-GDP ratio by at least 8.5 percent by 2020. Completion of the debt exchange consistent with this reduction was set as a prior action. The exchange was successful in achieving the targeted reduction in the public debt-to-GDP ratio by at least 8.5 percent of GDP by 2020.  
- A mix of fixed and variable interest rate instruments were offered to maintain a range of benchmark securities along the yield curve.

### Financial sector contingency planning and Financial Sector Support Fund (FSSF)
- Contingency planning framework in place with the Financial Regulatory Council (FRC) (an interagency policy level group chaired by the BOJ) taking lead on coordination and communications.  
- Multilateral funds will be devoted to re-establishing a Financial Sector Support Fund (FSSF) in the amount of approximately US$760 million to provide temporary assistance to solvent financial institutions; fund established by the government and administered by the BOJ as in 2010.  
- Eligibility: licensed deposit taking institutions, securities dealers and insurance companies that tender at least 97 percent of their holdings of eligible assets in the debt exchange.  
- FRC will authorize access to the FSSF informed by assessment and recommendation of the FRC; the FRC will use the existing technical working group (TWG), chaired by BOJ staff, to assess applications.  
- Disbursement of liquidity secured by eligible collateral (GOJ instruments excluding Old Notes subject to the offer). Institutions required to repay liquidity support as quickly as possible; higher penalty rates apply if advances not repaid within agreed period and punitive interest rate after six months at the latest.  
- Supervisory framework: escalation of supervisory response (inspections, intensive monitoring, intervention) if stock of liquidity accessed reaches certain levels; recapitalization support requires agreed recapitalization and operational restructuring plans, stringent viability assessment (stress tests, independent asset quality review), restrictions on dividend payments and other measures. Authorities will consult with the Fund once 50 percent of the FSSF resources have been disbursed.

### Additional debt-reduction measures
- Debt-asset swaps and guarantee reductions: government committed to debt-asset swaps (based on land, buildings, etc.) by at least 1 percent of GDP over the programme period; preliminary valuation to be completed by end-June 2013; legal/administrative processes elaborated and action plan developed by September 2013; specific operations executed before end-2013/14.  
- Withdrawal of guarantees issued to underwrite private domestic loans to public entities equivalent to at least 1 percent of GDP; modalities and legal requirements to be established and operations executed before end-2013/14.  
- With policies above, public debt projected to decline to less than 100 percent of GDP by March 2020.  
- By end-May 2014, authorities will collaborate with Fund staff to assess remaining efforts needed to reduce public debt to the end-March 2020 target of 96 percent of GDP, or less. If necessary, government will identify further measures (e.g., further asset sales or swaps and/or other debt reduction measures), possibly including exceptional assistance by development partners; government has approached the Paris Club to explore options for debt relief. Implementation of these measures to be completed no later than end-February 2015.

*Source: _cr13126 - 18.      The government is committed to improving the overall public sector deficit from*

### 28.      The government will further strengthen its debt management strategy. The

### _cr13126 - 28.      The government will further strengthen its debt management strategy.

### Debt management
- Efficiency of the Debt Management Branch will be strengthened through increased staffing of the middle office, skills training and effecting improvements to securities operations, including greater use of auctions for debt placements over the programme period.
- Approval by Parliament of the Public Debt Law, aimed at consolidating various debt related acts, was attained in November 2012 as a prior action and will contribute to strengthening debt management.

### Structural fiscal reforms — overview
- Programme prioritizes structural fiscal reforms to entrench fiscal discipline and bolster transparency, and to sustain and deepen gains over the medium term.

### Public Financial Management
- Fiscal rules will be strengthened to bolster credibility and predictability of sustained fiscal consolidation.
- Improvements to the fiscal responsibility framework (FRF) were introduced in the context of the 2012/13 budget, including codification of sanctions for off-budget spending.
- Government commits to design and adopt a legally binding fiscal rule to take effect with the FY 2014/15 budget (structural benchmark).
- A first, conceptual proposal for the design of this rule will be presented to Fund staff by end-August 2013 (structural benchmark).
- Technical assistance has been requested from FAD for the design of the rule.
- Government aims to strengthen the implementation of a structured multiyear budgeting process within the programme period.
- Minister will table a half-yearly report in December on the performance of the economy as required under the FRF; PAAC will consider and report, and will report to Parliament no later than March 1 of each year.
- Government will take stock of assessments including the February 2013 PEFA report and develop an action plan for financial management reform by end-May 2013; action plan to cover public procurement; budget preparation, execution, and reporting (integration of presentation and discussion of estimates of expenditure and revenue measures consistent with the medium-term budget framework and five-year investment programme); and completion of the Central Treasury Management System (CTMS).
- CTMS, with a single treasury account at the Bank of Jamaica, was tested and fully operational for the Ministries of Finance, Education, and Transport and Works, and the Accountant General’s Department as of end-March 2013 (intended in the staff-level understandings to be set as a structural benchmark, and already implemented).
- CTMS for the remaining Ministries, Departments, and Agencies will be operational by March 2014.

### Tax Reform and Tax Administration
- Prioritized upfront reforms to strengthen tax administration:
  - Appointment, by end-April 2013, of a regular Commissioner General of the Tax Administration Jamaica (after appointment of an Acting Chief Executive Officer in September 2012).
  - Parliamentary approval of legislation to establish Tax Administration Jamaica as a semi-autonomous authority, realized in March 2013 (intended as a structural benchmark, already implemented).
  - Parliamentary approval of legislation for introduction of a write-off policy for tax and customs duties arrears inclusive of interest, penalty and surcharge consistent with FAD advice, realized in March 2013 (intended as a structural benchmark, already implemented).
  - Fast-tracking parliamentary approval of amendments to the Revenue Administration Act to (i) provide access to third-party information and (ii) empower TAJ to require mandatory e-filing for groups of taxpayers and/or types of taxes (structural benchmark, June 2013). Parliamentary approval anticipated prior to the parliamentary summer recess during FY 2013/14.
  - Publication, without delay, of delinquent tax payers and traders upon the initiation of court action (intended as a structural benchmark, already implemented).
  - Increase resources of the Large Taxpayer Office (LTO) by June 2013 to 120 staff members (structural benchmark); responsibility of managing domestic excises moved to the LTO at end of February 2013.
  - Improve risk management in the context of SEMCAR by end-2013/14 and formulate a plan with specific targets and timelines for expanding filing according to taxpayer types.
  - Expand automated waiver system to fully track tax waivers.
  - Measures to encourage payment of tax obligations through financial institutions; government will negotiate with financial institutions to reduce their transaction fees towards international standards for receiving tax payments directly or through the e-payment system.
  - Jamaica Customs Department transforming to an Executive Agency (EA) within the Ministry of Finance by the end of FY 2013/14.
- Key tax policy reforms:
  - Commitment to a comprehensive tax policy reform to significantly cut back tax incentives, exemptions and zero rates to broaden the tax base, simplify the tax system, reduce economic distortions and allow for a phased reduction in tax rates.
  - GOJ commits to adopting a decision (as a prior action) and ensuring (under a continuous structural benchmark) that:
    - Discretionary waivers, excluding those granted to charitable organizations and for charitable purposes, will no longer be granted except when required to satisfy the GoJ’s contractual or other legal obligations (exceptions spelled out in the TMU).
    - Any new discretionary waivers not covered by exceptions and for which a statutory solution cannot be put in place in time may be granted only up to a de minimis cap of J$10 million per month.
    - Total discretionary waivers, excluding those to charitable organizations, will be capped at J$80 million per month.
    - Waivers to charitable organizations and for charitable purposes will be capped at J$250 million on a monthly basis (cap equivalent to the average of the last three years).
    - No new or renewed waiver category or other tax incentive will be approved (unless required under existing legislation) and no amendment to existing legislation which could generate further tax expenditures will be undertaken until passage and coming into effect of the new Omnibus Incentive Law.
  - Amend tax acts to harmonize tax treatment for charities across tax types by end-May 2013 (structural benchmark); amendments to be guided by TA from IDB and in consultation with Fund staff; subsequent Charities Bill to be tabled in the House of Representatives by September 2013 (structural benchmark); charitable organizations to apply for eligibility under the Charities Bill as of end-November 2013, after which they will no longer be eligible for exemptions granted under the tax acts (structural benchmark).
  - An action plan for tax reform was prepared in consultation with IDB and IMF staff in March 2013 (intended as a structural benchmark, already implemented).
  - Omnibus Tax Incentive Act to be tabled in Parliament by September 2013 (structural benchmark); as of end-December 2013 (structural benchmark) GOJ will no longer consider new applications under existing tax incentive regimes; after December 31, 2013 new applicants will only be considered under the Omnibus regime.
  - First draft of Omnibus legislation to be shared with IMF staff by July 2013.
  - Broader tax reform to become effective with start of the FY 2014/15 (structural benchmark) to include legislation to (i) modernize income tax, property tax, customs tariffs and social security contributions; (ii) greatly reduce tax and tariff exemptions in all major taxes (except for a limited range of specific goods and services); (iii) remove zero rating (except for exports in the case of the GCT); and (iv) establish an initial prudent reduction in tax rates.
  - Further phased reduction of statutory rates on GCT, SCT, and taxes on international trade to be considered later depending on revenue performance.
  - Tax reform aim: reduce overall tax expenditures from more than 6 percent of GDP in recent years to no more than 2.5 percent of projected GDP by the end of 2015/16 (excluding any possible changes in the measurement of GDP). Achievement to be reviewed in consultation with IMF and IDB staff.

### Public Sector Reform
- Government adopted timetable for Public Sector Master Rationalisation Plan to improve financial oversight of public agencies and public bodies, introduce shared corporate services, reallocate/merge/abolish/divest/privatize units, and outsource services.
- Shared Corporate Services:
  - Consultants engaged to produce a Strategic Implementation Strategy by April 2013.
  - Implementation to commence with establishment of a 6-month pilot programme by June 2013; approval of roll-out plan by early 2014; full implementation across ministries during 2014/15.
  - Pilot contingent on procurement and implementation of an Enterprise HR System; request for proposals being prepared by Fiscal Services Limited.
- Strategic Human Resources Management Section of the Office of the Cabinet to be fully staffed by September 2013.
- Web-based Employee Census System (E-Census) application to be used to update census data through 2012 by July 2013 and expand MDAs’ use by end-2013/14.
- Examination of funded public bodies for suitability to transform into Executive Agencies during FY 2013/14; future programme conditionality guided by results.
- Review of public sector employment and remuneration to be initiated and completed by March 2014 (structural benchmark) with technical assistance; aim to maintain the wage bill within 9 percent of GDP.
- Pension reform for central government:
  - Reform aims to be actuarially sound and contain pension costs; committed to reducing government’s pension costs over medium and long term and not increase them during any programme year compared with a no-reform scenario.
  - Initial reforms include gradual increase in retirement age to 65 years and a contribution rate of 5 per cent by new employees.
  - Forthcoming White Paper (end-March 2013) will cover accrual rate, commutation rules, possible pension indexation, and other aspects.
  - Legislative amendments expected to be submitted by end FY 2013/14.
  - Timetable for implementation of the new system by FY 2015/16 will be formulated.
- Rationalisation of public bodies:
  - Divest Clarendon Alumina Production Ltd or implement an asset lease agreement with option of purchase by December 2013 (structural benchmark).
  - Conclude negotiations towards divestment of Wallenford Coffee Company (WCC) by December 2013.
  - Efforts with World Bank support to enter PPPs for Kingston Container Terminal, Norman Manley International Airport, and Jamaica Railway Corporation.

### Reform of Social Spending
- Social protection framework to support the most vulnerable while promoting empowerment and self-reliance.
- Initiatives include:
  - Improved training and certification for labour market participants.
  - Enhanced benefits for households under PATH; individual PATH benefits will be increased to maintain real value per the Benefit Review Mechanism.
  - Enhanced welfare-to-work (WTW) exit strategies for vulnerable households.
  - Increasing effectiveness of PATH beneficiary targeting through re-certification.
  - Actions to determine graduation from PATH and consolidation of existing employment programmes.
  - Specific timelines:
    - By September 2013: define a national strategy, improve and expand agency networks, strengthen administrative systems, and prepare human resources for scaling-up of Steps-to-Work (STW) island-wide.
    - By July 2013: define a graduation strategy for PATH households.
    - By October 2013: complete the re-certification exercise for PATH households.
  - Continued implementation and progressive scaling up of the Community Renewal Programme and the Steps-to-Work (STW) Programme.

### Spending on education — efficiency and effectiveness measures
- Balance student-teacher ratio within and between schools by:
  - Structured attrition, e.g., freeze on hiring new teachers in overstaffed schools to allow numbers to decline by attrition.
  - Mandatory retirement at the normal retirement age; schools with teachers beyond retirement age will be notified to regularize by September 2013.
  - Standardization of the student/teacher ratios at the secondary level (to begin 2013).
  - Establish a clear accountability mechanism enabling Central Government to set policies granting schools more autonomy, particularly flexibility in deployment and redeployment of teachers.
  - Continue voluntary reallocation of staff pending enabling legislation for mandatory redeployment (enactment by FY 2015/16).
  - Reform study leave policies to align with new hiring policy.
  - Restructure scholarship programmes into separate need-based and merit-based components (review and design in the 2013/14 academic year with full implementation in 2014).
  - Institute greater cost recovery at the tertiary level and improve funding structure of the student loan scheme to facilitate increased access to tertiary level training.

*Source: _cr13126 - 28.      The government will further strengthen its debt management strategy.*

### 40.      The provision of health care will be improved by creating greater efficiency and

### _cr13126 - 40.      The provision of health care will be improved by creating greater efficiency and

### Health care provision: objectives and measures
- Objective: improve provision of health care by creating greater efficiency and cost containment through reduction of programme duplication and increased cost-sharing with third party payers while protecting the poor and vulnerable population.
- Government measures (among other things):
  - Expand the benefit coverage of the National Health Fund through a review of the list of NCDs covered and drugs offered, in addition to improved procurement and management of pharmaceuticals.
  - Revitalize primary health care (PHC) by establishing regional centers of excellence and improving health centers island wide.
  - Establish a referral system to reduce unnecessary costs at the secondary and tertiary level.
- Additional measures to be considered:
  - Strengthen the billing mechanism to maximize revenue from payments by private insurance companies.
  - Address inefficiencies in drugs procurement and distribution.
  - Develop a mechanism to institute 24 hour per day service delivery.

### Monetary and exchange rate policy
- Monetary policy focus:
  - Maintain single digit inflation.
  - Use the BOJ’s 30-day certificate of deposit interest rate as the main instrument in the near term; adjust according to the Bank’s assessment of risks to the inflation target.
  - Monitor monetary base (and broad monetary aggregates) as leading indicators and manage the BOJ balance sheet to attain programme targets for the BOJ’s net domestic assets.
- Exchange rate framework and reserves:
  - Continue monetary policy within a managed floating exchange rate regime; allow the rate to adjust in an orderly manner according to fundamentals.
  - Commit to exchange rate flexibility and support adequate price competitiveness; intervene at times to avoid disorderly short-run movements.
  - Programme contains clear reserve targets to safeguard adequacy of reserve coverage.
- Statistics and reporting:
  - Continue development work to improve quality of balance of payments statistics per programme and IMF Statistics Mission of October 2011.
  - Quarterly reporting on the balance of payments and international investment position, including sectoral and instrument disaggregation, on a timely basis and consistent with BPM6, was introduced in March 2013 (intended as a structural benchmark and already implemented).
- Steps toward full-fledged inflation targeting (FFIT):
  - BOJ aims to progressively put in place requirements for FFIT once fiscal dominance is resolved by the medium term economic programme.
  - Near-to medium-term strategy includes strengthening BOJ governance through enhanced independence and commensurate adjustment to treatment of BOJ profit and loss transfers to and from the government.
  - Further develop the foreign exchange market to intermediate lumpy flows and deal with volatility, commencing with measures to strengthen foreign exchange market operations and planned development of an electronic platform for foreign exchange trading.
  - Develop mechanisms to enhance BOJ communication and education strategy and improve data collection and monitoring capabilities.

### Financial system reforms and safeguards
- Omnibus Banking Law and supervisory framework:
  - Enact an Omnibus Banking Law to harmonize prudential standards across deposit takers, facilitate consolidated supervision of financial conglomerates, strengthen corrective, sanctioning and resolution regime, and ensure BOJ operational independence for supervision (structural benchmark, March 2014).
  - Amend the Financial Services Commission Act to strengthen FSC enforcement powers and amend the BOJ Act to vest BOJ with overall responsibility for financial stability.
- Securities dealer sector reforms:
  - Phase out the “retail repo” business model over time to strengthen sector resilience and widen services.
  - Implement a legal and regulatory framework conducive for collective investment schemes (CIS) by:
    - Amending the Securities Act and attendant regulations to establish a comprehensive framework for regulation of CIS.
    - Amending the income tax law to remove double taxation of CIS.
    - Reforming the Companies Act to eliminate (or exempt CIS from) the need to register unit-holders in the companies’ registry.
    - Publicly commit to a timetable for raising the cap on investments in foreign securities from 5 percent of assets to at least 25 percent by end-2015, and removing the cap by end-2016 unless extraordinary circumstances require a reassessment (structural benchmark, December 2013).
  - Seek Fund technical assistance to tighten liquidity regulations and assess further prudential reforms (e.g., capital requirements, margin rules, and concentration and minimum transaction size limits) applicable to the retail repo sector over time.
- Immediate protections for retail repo clients:
  - Phase out licenses issued to individuals who are securities dealers and continue the freeze on issuing new licenses to securities dealers whose business model is based on retail repos (except those resulting from mergers and/or acquisitions of existing firms).
  - Apply enhanced reporting and oversight by the FSC for existing licensees eligible to conduct retail repo business.
  - By May 2013 require daily reconciliation of Client Holding Accounts held at Jamclear with FSC independently verifying these using data from Jamclear.
  - In consultation with Fund staff, establish distinct legal/regulatory treatment for retail repo client interests to protect their interests prior to and in the event of insolvency, including a single, local master repurchase agreement for retail repo transactions (structural benchmark, March 2014).
- Integrity and enforcement:
  - Incorporate technical assistance advice into broader legislative reforms to the BOJ Act, FSC Act, Securities Act and adoption of the Omnibus Banking Law (structural benchmark, March 2014) to enable BOJ and FSC to investigate and impose administrative and civil remedies on unlawful financial organizations (e.g., Ponzi schemes).
  - Develop plans to operationalize institutional reforms, including providing adequate resourcing to carry out new powers.

### Financing under the programme
- Multilateral and IMF financing needs and amounts:
  - Government envisages need for financing from multilateral sources of at least US$1 billion over the next 4 years.
  - Total funding from the IMF is expected to be SDR 615.4 million or 225 percent of quota.
  - The first disbursement, available upon approval of the arrangement, amounts to SDR136.8 million.
  - Jamaica will continue to draw financing from the PetroCaribe facility and strategically access external commercial markets and bilateral loans where possible.
  - Remaining fiscal financing needs to be filled through domestic financial sector borrowing.

### Safeguards assessment
- Government recognizes importance of completing a safeguards assessment of BOJ before the first review of the EFF.
- Central bank’s external auditors authorized to hold discussions directly with Fund staff.
- An IMF mission to conduct the safeguards assessment is scheduled for before the completion of the first review; BOJ will provide Fund staff with all necessary information in preparation.

### Programme monitoring, performance criteria, and review schedule
- Programme duration and monitoring:
  - The 4-year programme will be monitored through quantitative performance criteria, indicative targets, and structural benchmarks.
  - Programme reviews will be conducted quarterly; phasing of access and review schedule set out in Table 1.
  - Quantitative performance criteria and indicative targets through end-2013 are set out in Table 2.
  - Broad fiscal performance is monitored through performance criteria on both the primary balance of the central government and the overall balance of the broader public sector (the broader public sector is defined as: the central government and the self-financing public bodies).
  - Programme reviews will assess achievement of quantitative targets and focus on progress in key structural reforms; the first review will consider the FY 2013/14 budget and progress in structural fiscal reforms; the second review will focus on progress in improving competitiveness.
  - Structural benchmarks are set out in Table 3. Programme conditionality and reporting requirements are specified in the accompanying Technical Memorandum of Understanding.
- Key entries from Table 1 (Schedule of Reviews and Purchases):
  - May 1, 2013 — 136.7 SDR, 50 percent of Quota — Approval of Arrangement.
  - September 20, 2013 — 19.9 SDR, 7 percent of Quota — First Review and end-June 2013 performance criteria.
  - December 20, 2013 — 19.9 SDR, 7 percent of Quota — Second Review and end-September 2013 performance criteria.
  - March 20, 2014 — 45.9 SDR, 17 percent of Quota — Third Review and end-December 2013 performance criteria.
  - (Additional scheduled reviews and purchases continue through March 20, 2017 and total SDR 615.3 or 225.0 percent of quota.)
- Selected quantitative performance criteria from Table 2 (In billions of Jamaican dollars):
  - Primary balance of the central government (floor), 2012 actual: 39.1; 2013 estimate: 70.3; end-Dec. 2013: 111.5 (cumulative flows from April 1 through March 31).
  - Tax Revenues (floor), 2012 actual: 225.0; 2013 estimate: 322.2; end-Dec. 2013: 360.5.
  - Overall balance of the public sector (floor), 2012 actual: -52.1; 2013 estimate: -70.0; end-Dec. 2013: -6.7.
  - Central government direct debt (ceiling), 2012 actual: 1558.7; 2013 estimate: 150.1; end-Dec. 2013: 8.6.
  - Social spending (floor), 2013 estimate: 18.2; end-Dec. 2013: 20.1.
  - Cumulative change in net international reserves (floor), 2013 estimate: -260.7; end-Dec. 2013: 96.3 (in millions of U.S. dollars).
  - Cumulative change in net domestic assets (ceiling), 2013 estimate: 13.8; end-Dec. 2013: -10.7.
- Selected structural program conditionalities (Table 3 highlights):
  - Prior actions met: cease granting discretionary waivers with specified exceptions and caps; conclude a multi year agreement with major unions limiting nominal wage increases to zero for 2012/13 (and other limits); approval by parliament of the Public Debt Law; complete a debt exchange for domestic government bonds reducing public debt-to-GDP by at least 8.5 percent of GDP by 2020.
  - Structural benchmarks with timing include:
    - Table in parliament a budget in line with program commitments by April 30, 2013.
    - Introduce a 5-year public sector investment program (PSIP) beginning with FY2013/14 by April 30, 2013.
    - Present a conceptual proposal for a fiscal rule by August 31, 2013 and adopt a legally binding fiscal rule by March 31, 2014.
    - Finalize divestment of CAP or implement an asset lease agreement by December 31, 2013.
    - Amend tax and charitable treatment laws, implement Omnibus Tax Incentive Act, and broader tax reform on specified timelines between May 31, 2013 and March 31, 2014.
    - Tax administration benchmarks: amendments to Revenue Administration Act by June 30, 2013; increase LTO staff to 120 by June 30, 2013.
    - Financial sector benchmarks: establish and operate a Central Collateral Registry by December 31, 2013; implement CIS framework by December 31, 2013; implement legislative changes regarding unlawful financial operations by March 31, 2014; establish distinct treatment for retail repo client interests by March 31, 2014.

*Source: IMF staff report content as provided in the supplied excerpt.*

### 17. Enact Omnibus Banking Law consistent with Fund Staff advice to facilitate effective supervision of the financial

### 17. Enact Omnibus Banking Law consistent with Fund Staff advice to facilitate effective supervision of the financial sector.

### Technical Memorandum of Understanding (TMU) — Overview
- Sets out understandings between the Jamaican authorities and the IMF regarding:
  - Definitions of quantitative performance criteria and indicative targets for the program supported by the arrangement under the EFF.
  - Methods to be used in assessing programme performance and information requirements for monitoring targets.
  - Requirements under the prior action and the continuous structural benchmark concerning discretionary tax waivers.
- Consultation commitment: The authorities will consult with the Fund before modifying measures contained in the supporting letter or adopting new measures that would deviate from programme goals, and will provide necessary information for programme monitoring.

### Program exchange rates
- Program exchange rates are those that prevailed on January 31, 2013.
- Rates specified:
  - J$94.14 = US$1
  - J$144.92 = SDR 1
  - J$126.72 = €1
  - J$93.73 = CND$1
  - J$149.22 = £1
- Exception: Items affecting government fiscal balances will be measured at current exchange rates.

### Definitions: Central government and fiscal year
- Central government: set of institutions currently covered under the state budget; includes public bodies financed through the Consolidated Fund.
- Fiscal year: starts on April 1 and ends on March 31 of the following year.

### A. Cumulative Floor of the Central Government Primary Balance
- Definition:
  - Primary balance = total revenues minus primary expenditure; covers non-interest government activities as specified in the budget.
  - Revenues recorded when funds are transferred to a government revenue account; includes grants.
  - Capital revenues exclude revenues from asset sales proceeding from divestment operations.
  - Primary expenditure recorded on a cash basis; includes compensation payments, other recurrent expenditures, capital spending, and transfers to non-self-financed public bodies.
  - Costs associated with divestment operations or liquidation (e.g., cancellation of contracts, severance payments) allocated to current and capital expenditures accordingly.
  - Primary expenditures settled with bonds or other non-cash liability recorded as spending above-the-line, financed with debt issuance, and affect the primary balance.
- Reporting:
  - Data provided to the Fund with a lag of no more than four weeks after the test date.

### B. Cumulative Floor on Overall Balance of the Public Sector
- Definition: Public sector = central government + public bodies (institutional units that are government units or controlled by government units as per GFS Manual 2001).
- Public bodies include:
  - 18 “Selected Public Bodies”: Airport Authority of Jamaica (AAJ); Human Employment and Resource Training Trust (HEART); Jamaica Mortgage Bank (JMB); Housing Agency of Jamaica (HAJ); National Housing Trust (NHT); National Insurance Fund (NIF); Development Bank of Jamaica (DBJ); National Water Commission (NWC); Petrojam; Petroleum Corporation of Jamaica (PCJ); Ports Authority of Jamaica (PAJ); Urban Development Corporation (UDC); Jamaica Urban Transit Company Ltd. (JUTC); Caymanas Track Ltd. (CTL); Wallenford Coffee Company Ltd. (WCC); National Road Operating and Constructing Company Ltd. (NROCC); Petro-Ethanol; Clarendon Aluminum Production (CAP);
  - “Other Public Bodies”: Bauxite and Alumina Trading Company of Jamaica Ltd.; Road Maintenance Fund; Jamaica Bauxite Mining Ltd.; Jamaica Bauxite Institute; Petroleum Company of Jamaica Ltd. (Petcom); Wigton Windfarm Ltd.; Broadcasting Commission of Jamaica; The Office of Utilities Regulation; The Office of the Registrar of Companies; Runaway Bay Water Company; Jamaica National Agency for Accreditation; Spectrum Management Authority; Sports Development Foundation; Bureau of Standards Jamaica; Factories Corporation of Jamaica Ltd.; Kingston Freezone Company Ltd.; Micro Investment Development Agency Ltd.; Montego Bay Freezone Company Ltd.; Postal Corporation of Jamaica Ltd.; Self Start Fund; Betting Gaming and Lotteries Commission; Culture, Health, Arts, Sports and Education Fund; Financial Services Commission; Jamaica Deposit Insurance Corporation; Jamaica Racing Commission; National Export-Import Bank of Jamaica Ltd.; PetroCaribe Development Fund; Tourism Enhancement Fund; The Public Accountancy Board; Students’ Loan Bureau; National Health Fund; Agricultural Development Corporation; Agricultural Marketing Corporation; Cocoa Industry Board; Coffee Industry Board; Sugar Industry Authority; Overseas Examination Commission; Aeronautical Telecommunications Ltd.; Jamaica Civil Aviation Authority; Jamaica Ultimate Tire Company Ltd.; Jamaica Railway Corporation Ltd.; The Firearm Licensing Authority; Ports Management Security Corps Ltd.; Transport Authority.
- Overall balance calculation for public bodies:
  - Based on Statement A’s provided by the Public Enterprises Division of the Ministry of Finance and the Planning (MoFP).
  - Overall balance used: operational balance, plus capital account net of revenues (investment returns, minus capital expenditure, plus change in inventories), minus dividends and corporate taxes transferred to government, plus net other transfers from government.
  - Special: For National Housing Trust and Housing Agency of Jamaica, capital account revenues will not be netted out and will be included among recurrent revenue.
- Adjustments:
  - Definitions of “Selected Public Bodies” and “Other Public Bodies” will be adjusted as public bodies’ rationalization (including divestments and mergers) advances; process will not affect the performance criterion unless specifically stated.
  - Newly created entities will be incorporated into one of the two groups.
- Overall public sector balance = central government overall balance + overall balance of public bodies.
- Reporting:
  - Data provided to the Fund with a lag of no more than 6 weeks after the test date.

### C. Ceiling on the Stock of Central Government Direct Debt
- Definition:
  - Central government direct debt includes all domestic and external bonds and any other form of central government debt, such as supplier loans; excludes IMF debt.
  - Includes loan disbursements from the PetroCaribe Development Fund to finance central government operations.
  - Target set in Jamaican dollars with foreign currency debt converted using the programme exchange rate.
  - Change in stock of debt measured “below the line” as all debt issuance minus repayments on all central government debt.
  - Debt inflows recorded at the moment funds are credited to any central government account.
- Reporting:
  - Data provided to the Fund with a lag of no more than four weeks after the test date.
- Adjusters:
  - Target adjusted upwards if explicit government guarantees (stock as of end March 2012 plus new guarantees allowed under the programme) are called.
  - Target adjusted downwards if net divestment revenues (i.e., net of divestment expenses) take place.
  - Debt target adjusted for cross-currency parity changes; and pre-financing, as reflected by the increase in central government deposits.
  - Target adjusted downward by 20 percent of the value of the bonds converted through the February 2013 debt exchange into “Fixed Rate Accreting Bonds” (FRAN).

### D. Ceiling on Net Increase in Central Government Guaranteed Debt
- Definition:
  - Net increase = issuance minus repayments of central government guaranteed debt, in billions of Jamaican dollars, including domestic and external bonds, loans and all other types of debt.
  - Foreign currency debt converted to Jamaican dollars at the programme exchange rate.
  - Central government guaranteed debt does not cover loans to public entities from the PetroCaribe Development Fund.
  - Cumulative targets computed as difference between stock of government guaranteed debt as of end-March of each year and the stock as of the target date.
- Monitoring:
  - Cumulative net increase monitored on a continuous basis.
- Reporting:
  - Data provided to the Fund with a lag of no more than four weeks after the test date.
- Adjuster:
  - If central government debt guarantees are called, the stock of central government guaranteed debt will be adjusted downwards to preserve the performance criteria.

### E. Ceiling on Central Government Accumulation of Domestic Arrears
- Definition:
  - Domestic arrears = payments to residents determined by contractual obligations that remain unpaid 90 days after the due date (due date per contractual agreement, taking into account contractual grace periods).
  - Includes arrears on domestic central government direct debt, including to suppliers, and all recurrent and capital expenditure commitments.
- Monitoring:
  - Ceiling monitored on a continuous basis.
- Reporting:
  - Data provided to the Fund with a lag of no more than four weeks after the test date.

### F. Performance Criterion on Non-accumulation of External Debt Payments Arrears
- Consolidated government: central government + public bodies as defined in sections A and B.
- External debt: determined according to the residency criterion.
- Definition of “debt” (per Decision No. 6230-(79/140), as amended):
  - Current liability created under a contractual arrangement through provision of value (assets or services) requiring future payments in assets or services to discharge principal and/or interest.
  - Forms include:
    - Loans (deposits, bonds, debentures, commercial loans, buyers’ credits, repurchase agreements, official swap arrangements).
    - Suppliers’ credits.
    - Leases: debt is the present value (at lease inception) of all expected lease payments during agreement period excluding payments for operation, repair, or maintenance.
  - Arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt.
  - Failure to make payment on obligations not considered debt (e.g., payment on delivery) will not give rise to debt.
- External payments arrears:
  - Arrears of external debt obligations (principal and interest) falling due after March 29, 2013 that have not been paid at the time due, taking into account contractual grace periods.
  - Excludes arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or rescheduling agreement is being sought.
- Performance criterion:
  - The consolidated government and the BOJ will accumulate no external debt payment arrears during the programme period.
  - For this criterion, an external debt payment arrear is a payment by the consolidated government and the BOJ not made within seven days after falling due.
- Measurement:
  - Stock of external arrears calculated based on the schedule of external payment obligations reported by the MoFPS.
  - Data on external arrears reconciled with relevant creditors; necessary adjustments incorporated in targets as they occur.
  - Does not cover arrears on trade credits.
  - Applies on a continuous basis.
- Reporting:
  - MoFPS will provide final data on the stock of external arrears of the consolidated government and the BOJ to the Fund, with a lag of not more than two weeks after the test date.

### G. Ceiling on Central Government Accumulation of Tax Refund Arrears
- Definition:
  - Tax refund arrears = obligations on tax refunds in accordance with tax legislation that remain unpaid 90 days after the due date.
- Monitoring:
  - Central government accumulation of tax refund arrears monitored on a continuous basis.
- Reporting:
  - Data provided to the Fund with a lag of no more than four weeks after the test date.

### H. Floor on Accumulation of BOJ Net International Reserves (NIR)
- Definition:
  - NIR (BOJ) = U.S. dollar value of gross foreign assets of the BOJ minus gross foreign liabilities with maturity of less than one year.
  - Non-U.S. dollar denominated foreign assets and liabilities converted into U.S. dollars at the programme exchange rates.
  - Gross foreign assets (BPM6-consistent): readily available claims on nonresidents in foreign convertible currencies; include BOJ 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 from reserve assets: assets pledged/collateralized/encumbered; claims on residents; claims in foreign exchange arising from derivatives in foreign currency vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid assets.
  - Gross foreign liabilities: all foreign exchange liabilities to nonresidents, including commitments to sell foreign exchange arising from derivatives, and all credit outstanding from the Fund (including credit used for financing of the FSSF, but excluding credit transferred by the Fund into a Treasury account to meet the government’s financing needs directly).
- Reporting:
  - Data provided by the BOJ to the Fund with a lag of no more than five days past the test date.
- Adjusters:
  - NIR targets adjusted upward (downward) by the surplus (shortfall) in programme loan disbursements from multilateral institutions (the IBRD, IDB, and CDB) relative to the baseline projection reported in Table 1. Programme loan disbursements defined as external loan disbursements from official creditors usable for financing the consolidated government.
  - NIR targets also adjusted upward (downward) by the surplus (shortfall) in disbursements of budget support grants relative to the baseline projection reported in Table 1.
  - NIR target adjusted upwards (downwards) by the amount by which, at a test date, the cumulative changes from end-December 2012 in BOJ’s foreign exchange liabilities to residents (including banks’ foreign currency deposits in BOJ against reserve requirements) are higher (lower) than the baseline projection for this change reported in Table 2.
- Table 1. External Program Disbursements (baseline projection) — Cumulative flows from the beginning of the fiscal year (In millions of US$)
  - External loans from multilateral sources:
    - End-June 2013 15
    - End-September 2013 101
    - End-December 2013 126
    - End-March 2014 346
  - Budget support grants:
    - End-June 2013 0
    - End-September 2013 10
    - End-December 2013 27
    - End-March 2014 67

*Source: Attachment 2. Jamaica––Technical Memorandum of Understanding (March 31, 2014).*

### 1. BOJ's foreign liabilities to residents

### 1. BOJ's foreign liabilities to residents

### Outstanding stock and cumulative changes
- Outstanding stock  
  - End-December 2012 277.1
- Cumulative change from end-December 2012  
  - End-March 2013 40.0  
  - End-June 2013 45.0  
  - End-September 2013 50.0  
  - End-December 2013 53.0  
  - End-March 2014 56.0
- 1/ Converted at the programme exchange rates.  
- (In millions of US$) 1/

### Reserve liabilities items for NIR target purposes
- Table 2. Reserve liabilities items for NIR target purposes (referenced).

### I. Ceiling on Net Domestic Assets of the Bank of Jamaica
- Definition: The Bank of Jamaica’s net domestic assets (NDA) are defined as the difference between the monetary base and NIR. The monetary base includes:
  - currency in the hands of the non-bank public plus vault cash held in the banking system,
  - statutory cash reserve requirements against prescribed liabilities in Jamaica Dollars held by commercial banks at the Bank of Jamaica,
  - and the current account of commercial banks comprising of credit balances held at the central bank.
- Reporting: Data will be provided to the Fund with a lag of no more than three weeks after the test date.

### QUANTITATIVE INDICATIVE TARGETS: DEFINITION OF VARIABLES
- J. Cumulative Floor on Central Government Tax Revenues  
  - Definition: Tax revenues refer to revenues from tax collection. It excludes all revenues from asset sales, grants, bauxite levy, and non tax revenues. The programme will have a floor on central government tax revenues (indicative target). The revenue target is calculated as the cumulative flow from the beginning to the end of the fiscal year (April 1 to March 31).
  - Reporting: Data will be provided to the Fund with a lag of no more than four weeks after the test date.
- K. Floor on Central Government Social Spending  
  - Definition: Social spending is computed as the sum of central government spending on social protection programs as articulated in the central government budget for a particular fiscal year. These programmes are funded by GOJ resources only and comprise conditional cash transfers to children 0–18 years and the elderly; youth employment programmes; the poor relief programme for both indoor and outdoor poor; the school feeding programme; and the basic school subsidy.
  - Composition: This target comprises spending on specific capital and recurrent programmes.
    - Capital expenditure (only the following specific programmes will be part of the target):
      - 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 (only the following specific programmes will be part of the floor on social expenditure):
      - School feeding programme operating costs;
      - Operating cost of poor relief (both indoor and outdoor);
      - Golden Age Homes;
      - Children’s home, places of safety, and foster care including operating cost;
      - Career Advancement Programme; and
      - National Youth Service Programme.
  - Reporting: Data will be provided to the Fund with a lag of no more than four weeks after the test date.

### CONDITIONALITY ON TAX WAIVER REFORM
- Definition of discretionary waivers: any reduction in tax or customs duty payable, effected through the direct exercise by the Minister of Finance of his powers under the various tax statutes; in circumstances where there is no express provision for exemption in any statute.
- Conditionality: stipulates a ‘de minimis cap’ on granting new discretionary waivers that excludes waivers that are:
  - (i) granted to charitable organizations and for charitable purposes;
  - (ii) required to satisfy the GoJ’s already existing contractual or legal obligations; or
  - (iii) specifically exempted in the Technical Memorandum of Understanding (TMU).
- GOJ already existing contractual or legal obligations (Ad (ii)): comprise international treaties that have not yet been ratified, listed sector-specific arrangements, and existing contracts for government projects (as of the start of the arrangement period). International treaties that have not yet been ratified refers to CARICOM suspension for goods purchased outside of CARICOM.
- Sector specific arrangements on the basis of which waivers may be granted beyond the ‘de minimis’ cap are limited to the following:
  - Attractions Initiative—approved list of items based on the type of attraction and the capital needs. Waivers from customs duties and GCT only, up to 10 percent.
  - Tourism Ground Transportation/U-Drive—buses and cars for use in the tourism industry.
  - JAMPRO—Motion Picture Industry Act—Directive that motor vehicles for the motion picture industry should be signed off by the Minister of finance and Planning.
  - Jamaica Tourism Board—Conference materials for the sector, for re-export.
  - Ministry of Agriculture—Motor vehicles and equipments for approved farmers. Waivers for SCT only.
- Existing contracts for government projects (as of the start of the arrangement period) include:
  - COMPLANT — International Sugar Industry Co. Ltd. Agreement for Sale and Purchase between SCJ Holdings Limited, Sugar Company of Jamaica Limited, The Minister of Housing, Commissioner of lands, National Sugar Company Limited, Sugar Industry Authority, Sugar Shipping Limited and COMPLANT
  - Stanley Consultants Inc. — Southern Coastal Highway Improvement Project Feasibility Study and Preliminary Design. Segment 1: Port Antonio to Harbour View; Segment 2: Mandeville to Negril.
  - Kier Construction Limited — IDB Loan No. 2026/OC-JA Dry River Bridge, Harbour View, St. Andrew
  - Surrey Paving and Aggregate Company Limited — CDB Loan No. 16/SFR-OR-JAM Construction Contract No. WBIP/CDB/05/01––Fifth Road (Washington Boulevard Improvement) Project Vol. 1 – Contract Document
  - Surrey Paving and Aggregate Company Limited — CDB Loan No. 16/SFR-OR-JAM Construction Contract No. WBIP/CDB/05/01––Fifth Road (Washington Boulevard Improvement) Project Vol. 11 – Works Requirements
  - China Harbour Engineering Co. Ltd. — Jamaica Development Infrastructure Programme (JDIP) Island wide
  - China Harbour Engineering Co. Ltd. — Palisadoes Shoreline Protection and Rehabilitation Works
  - Golden Grove Sugar Company — Agreement for sale and Purchase (Duckenfield Estate, St. Thomas) SCJ Holdings Limited, National Sugar Company Limited, St. Thomas Sugar Company Limited
  - Vinci Construction Grands Project — Kingston Water & Sanitation Project–Rehabilitation of Mona & Hope Water Treatment Plants KSA/WI
  - Kier Construction Limited — Kingston Water Sanitation Project – Construction of New Waste Water Pump Station at Darling Street KSA/W2
  - M&M Jamaica Limited — Rehabilitation of the Negril Waste Water Treatment Plant
  - China Harbour Engineering Company — Jamaica North South Highway Project
  - Bouygues, Trans-Jamaican Highway, Jamaica Infrastructure Operators — Highway 2000
  - COMPLANT — Jamaica Economical Housing Project
- Additional waivers specifically exempted in the TMU (Ad (iii)) are:
  - Waivers from the CET for the procurement of oil outside of Caricom; and
  - Waivers related to financial sector restructuring required by the Supervisor pursuant to statutory provisions to enhance supervisory functions and facilitate supervision on a consolidated basis.

### INFORMATION REQUIREMENTS
- L. 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; required and excess reserves of the banking sector in local and foreign currency, total liquidity assistance to banks through normal BOJ operations, including overdrafts; overnight interest rates; GOJ bond yields.
  - Disbursements from the Financial System Support Fund, by institutions.
  - Deposits and liquidity assistance to institutions, by institution.
  - Bank of Jamaica purchases and sales of foreign currency.
  - Amounts offered, demanded and placed in Bank of Jamaica open market operations, including rates on offer for each tenor.
  - Amounts offered, demanded and placed in Government of Jamaica auctions; including minimum maximum and average bid rates.
- M. Weekly
  - Balance sheets of the core securities dealers, including indicators of liquidity (net rollovers and rollover rate for repos and a 10 day maturity gap analysis), capital positions, details on sources of funding, including from external borrowing on margin, and clarity on the status of loans (secured vs. unsecured). Weekly reports will be submitted within 10 days of the end of the period.
  - Deposits in the banking system and total currency in circulation.
- N. Monthly
  - Central government operations, with a lag of no more than four weeks after the closing of each month.
  - Public entities’ Statement A: consolidated and by institution for the “Selected Public Bodies”, and consolidated for the “Other Public Bodies” with a lag of no more than six weeks after the closing of each month.
  - Stock of public external and domestic debt, by creditor and by currency, as at end month. Data is to be provided within four weeks of month end.
  - Central government debt amortization and repayments, by instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans). Includes government direct, government guaranteed, and total. In the case of issuance of government guaranteed debt, include the name of the guaranteed individual/institution. The reporting lag should not exceed four weeks after the closing of each month.
  - Balances of the Consolidated Fund and main revenue accounts needed to determine the cash position of the government.
  - Stock of central government expenditure arrears.
  - Stock of central government tax refund arrears.
  - Stock of central government domestic and external debt arrears, and BOJ external debt arrears.
  - Central government spending on social protection programmes as defined for the indicative target on social spending.
  - Central government debt stock, including by (i) creditor (official, commercial domestic, commercial external; (ii) instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); (iii) direct and guaranteed. The reporting lag should not exceed four weeks after the closing of each month.
  - Holdings of domestic bonds (J$-denominated and US$-denominated) by holder category. The reporting lag should not exceed four weeks after the closing of each month.
  - Legal measures that affect the revenue of the central government (tax rates, import tariffs, exemptions, etc.).
  - Balance sheet of the Bank of Jamaica within three weeks of month end.
  - A summary of monetary accounts providing detailed information on the accounts of the Bank of Jamaica, commercial banks, and the overall banking system. Include a detailed decomposition on Bank of Jamaica and commercial bank net claims on the Central Government, selected public bodies, and other public bodies. This information should be received with a lag of no more than six weeks after the closing of each month.
  - Profits of the Bank of Jamaica on a cash and accrual basis, including a detailed decomposition of cash profits and profits from foreign exchange operations with a lag of no more than three weeks from month end.
  - Deposits in the banking system: current accounts, savings and time deposits within six weeks after month end. Average monthly interest rates on loans and deposits within two weeks of month end; weighted average deposit and loan rates within six weeks after month end.
  - Financial statements of other (non-bank) deposit taking institutions and insurance companies within six weeks of month end.
  - The maturity profile of assets and liabilities of core securities dealers in buckets within six weeks of month end.
  - Monthly balance sheet data of deposit taking institutions, as reported to the BOJ within six weeks of month end.
  - Data on reserve liabilities items for NIR target purposes (Table 9) within three weeks after month end.
  - A full set of monthly FSIs regularly calculated by the BOJ, including capital adequacy, profitability and liquidity ratios, within six weeks of month end.
  - Imports and exports of goods, in US$ million within five months after month end. Tourism indicators within three months after month end. Remittances’ flows within four weeks after month end.
  - Consumer price inflation, including by sub-components of the CPI index within four weeks after month end.
  - Use of the PetroCaribe Development Fund, including loan portfolio by debtor and allocation of the liquidity funds in reserve within four weeks after month end.
  - The balance sheet of the PetroCaribe Development fund.
  - Data on discretionary waivers, specifying those under the ‘de minimis’ cap, those under the broader cap, and those covered by the exceptions from these caps.
  - Data on tax waivers for charities and charitable giving.
- O. Quarterly
  - Summary balance of payments within three months after quarter end. Revised outturn for the preceding quarters and quarterly projections for the forthcoming year, with a lag of no more than one month following receipt of the outturn for the quarter.
  - Gross domestic product growth by sector, in real and nominal terms, including revised outturn for the preceding quarters within three months after quarter end; and projections for the next four quarters, with a lag no more than one month following receipt of the outturn for the quarter.
  - Updated set of macroeconomic assumptions and programme indicators for the preceding and forthcoming four quarters within three months of quarter end. Main indicators to be included are: real/nominal GDP, inflation, interest rates, exchange rates, foreign reserves (gross and net), money (base money and M3), credit to the private sector, open market operations, and public sector financing (demand and identified financing).
  - BOJ’s Quarterly Financial Stability Report.
  - Quarterly income statement data of deposit taking institutions, as reported to the BOJ within eight weeks of the quarter end.
  - Summary review of the securities dealer sector, within eight weeks of quarter end.
  - Summary report of the insurance sector (based on current FSC quarterly report), within eight weeks of quarter end.
  - Capital adequacy and liquidity ratios (against regulatory minima) for DTI’s and non-bank financial institutions within four weeks of quarter end.
  - FSC status report detailing compliance (and any remedial measures introduced to address any non compliance) with the agreed guidelines for the operation of client holding accounts at the CSD and FSC independent verification of daily reconciliations using data provided by Jamclear. Reports are due within four weeks of end quarter.
- P. Annual
  - Financial statements of pension funds within six months of year end.
  - Number of public sector workers paid by the consolidated fund by major categories.

### FUND RELATIONS (selected items)
- (As of February 28, 2013)
- Membership Status: Joined February 21, 1963; Article VIII.
- General Resources Account:  SDR Million      % Quota
  - Quota 273.50 100.00
  - Fund holdings of currency 815.35 298.12
  - Reserve position 0.00 0.00
- SDR Department:   SDR Million  % Allocation
  - Net cumulative allocation 261.64 100.00
  - Holdings 197.96 75.66
- Outstanding Purchases and Loans:
  - Stand-By Arrangements 541.80 198.10
- Latest Financial Arrangements (Approval Date / Expiration Date / Amount Approved (SDR Million) / Amount Drawn (SDR Million)):
  - Stand-By Feb. 04, 2010 / May 03, 2012 / 820.50 / 541.80
  - EFF Dec. 11, 1992 / Mar. 16, 1996 / 109.13 / 77.75
  - Stand-By Jun. 28, 1991 / Sep. 30, 1992 / 43.65 / 43.65
- Projected Payments to Fund: (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Forthcoming 20132014201520162017
  - Principal 175.28266.9195.633.99
  - Charges/Interest 4.16 3.190.590.080.07
  - Total 179.43270.1096.214.070.07

### Additional program context
- Implementation of HIPC Initiative: Not Applicable
- Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable
- Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable
- Exchange Rate Arrangements:
  - The external value of the Jamaican dollar has been determined in an interbank market operated by commercial banks beginning September 17, 1990. The Jamaican dollar has depreciated significantly since that time. On March 13, 2013 it was trading at around J$97.38 to the U.S. dollar.
- Last Article IV Consultation and Program Relations:
  - The last Article IV consultation was completed by the Executive Board on May 30, 2012. The Executive Board approved a 27-month SBA in an amount equivalent to SDR 820.5 million (about US$1.27 billion) on February 4, 2010 for which the Third Review was completed on January 14, 2011 (Country Report No. 11/49).

*Source: _cr13126 - 1. BOJ's foreign liabilities to residents (PDF).*

### 2010. Mr. Gene Leon is currently the Senior Resident Representative.

### _cr13126 - 2010. Mr. Gene Leon is currently the Senior Resident Representative.

### Relations with the World Bank — strategic orientation
- A new Jamaica-World Bank Group Country Partnership Strategy (CPS) was being prepared for Board presentation in the summer of 2013 to guide Bank Group support during 2013–2017 and supersede the Country Assistance Program ending July 2013.
- The current CPS focuses on three Results Areas: Supporting Economic Stability; Promoting Inclusive Growth; Promoting Sustained Growth; and one cross-cutting Area: Strengthening Governance.
- The CPS emphasizes continued work on fiscal and debt sustainability initiated in 2009 and greater direct attention to the growth and competitiveness agenda.
- The IFC will continue private sector support including strengthening PPP frameworks and the regulatory environment to increase World Bank Group synergies in Jamaica.

### World Bank — Major projects (selected objectives and financing)
- Second Jamaica HIV/AIDS Project (approved May 2008): US$10 million. Objectives include scaling up prevention interventions; increasing access to treatment, care, and support; strengthening program management and health sector capacity; strengthening biomedical waste management and capacity assessment.
- Jamaica Social Protection Project (SPP) (approved May 2008): US$40 million. Objectives: improve PATH effectiveness; develop Steps-to-Work (StW) system for working-age PATH households; formulate a reform program for public sector pension schemes; develop holistic social protection strategy. Components include child grants, technical improvements to PATH, capacity building in MLSS, pension reform preparation and administration improvements, and strategy development.
- Jamaica Hurricane Dean Recovery Project (approved December 2008): US$10 million. Objectives: restore community infrastructure (schools, clinics, feeder roads) to pre-hurricane levels and increase government hazard response capacity. Three components: repair/reconstruction; capacity building for hazard risk reduction; project management.
- Jamaica Rural Education Transformation Development Initiative (REDI) (approved September 2009): US$15 million. Objective: improve market access for rural micro and small-scale producers in agriculture and tourism. Components: rural subprojects (type A revenue-generating; type B infrastructure/marketing/management), national technical assistance and capacity building, and project management.
- Jamaica Early Childhood Development Project (approved May 2008): US$15 million. Objectives: improve monitoring/screening/early intervention; enhance quality of early childhood schools and care facilities; strengthen early childhood organizations and institutions. Components include SWAP co-financing for National Strategic Plan and consultant services for policy, screening systems, parenting sub-strategies, accreditation, and well-child clinic strengthening.
- Jamaica Education Transformation Capacity Building (approved November 2009): US$15 million. Objective: build capacity of NEI, JTC, REA, and NET to support ESTP. Components: enhanced performance and accountability (operationalize NEI/JTC/REA); mechanisms to mobilize resources to NET; communications, project management, monitoring and evaluation support.
- Jamaica Inner City Basic Services for the Poor Project (approved March 2006): US$29.3 million. Objective: improve quality of life in 12 inner-city areas and informal settlements via infrastructure, financial services, land tenure regularization, community capacity, and public safety improvements for over 60,000 residents.
- Energy Security and Energy Efficiency Project (proposed amount US$15.0 million in Table 1): Objectives: support Government Energy Policy goals to reduce energy costs and dependence on imported petroleum; increase renewable contribution to electricity generation; improve energy efficiency; develop gas strategy; strengthen institutional capacity; reduce GHG and other emissions. Operation comprises four components around regulatory/incentive frameworks, energy efficiency investments, renewable energy investments, and capacity building.
- Jamaica Climate Data and Information Management Project: Objectives: improve climate-related information quality and use; supply-side improvements (data generation); demand-side improvements (use of information in priority areas). Areas: upgrade Meteorological Services data systems; Risk Information Platform and Vulnerability Assessment; Climate Change Education and Awareness.
- Youth Empowerment via ICT Solutions and Creative Industries: Objective: reduce youth unemployment via microwork/free-lancing, start-up development in app economy, digitalization of government. Support: expand Digital Jam and regional digital literacy; establish incubator(s) for app economy and creative industries; establish four microwork aggregator hubs; promote paperless and cashless governance.
- Japan Social Development Fund (JSDF) Grant “Community Crime and Violence Prevention” (awarded February 2009): Supports JSIF in reducing crime and violence in high-risk inner-city communities via Integrated Crime and Violence Information System; JAVA Fund; technical assistance for grant management, communications, monitoring and evaluation.
- Jamaica: FBS Payments System Technical Advisory Service: Objectives: support BOJ in payments and securities settlement reform; develop regulatory framework for retail payment systems (including card and mobile); analyze development of fixed income securities trading platform.
- Diaspora Bond (technical assistance): Rationale: Jamaican migrants save about $5.4 billion per year; remittances account for approximately 15 percent of GDP. Objective: develop a Diaspora Bond programme to engage diaspora in Jamaica’s development; Bank provides technical assistance on strategy and investor engagement.
- Public Debt Management (DFID Grant): FAB engaged with Jamaica Debt Management Branch on Reform Plan implementation; assisted drafting Public Debt Management bill; provided Reform Change Advisor, training on cost-risk modeling, medium-term debt management strategy resulting in MTDS 2012–2014; designed training plans and Business Plan; recent Change Management Workshop.
- Supporting Economic Management in the Caribbean (SEMCAR) (TF071579): CIDA-financed program managed by World Bank and jointly implemented with IMF to improve economic management, regional integration, competitiveness in 12 Caribbean countries, supporting tax, customs, public financial management, regional training/ICT support center, and project management.

### Economic and sector work (analytical/advisory)
- Country Economic Memorandum (CEM) identified binding constraints to growth: high crime, fiscal and tax distortions, and deficient human capital; recommended targeted crime prevention, vocational training initiatives alongside school system strengthening, and comprehensive tax policy overhaul including streamlining tax incentives.
- Bank completed a Poverty and Social Impact Analysis (PSIA) of reforms undertaken during 2009–11 (including tax regime changes and divestment of some SOEs).
- Caribbean Growth Forum forthcoming to identify growth constraints and agree on an agenda to address them.

### Financial relations — World Bank portfolio and disbursements (exact figures)
- Table: Current Lending Portfolio for Jamaica (In millions of U.S. dollars)
  - JM–Inner City Basic Services Project: 29.3 net comm amounts; Total Disbursed 23.1; Total Undisbursed Balance 6.2
  - JM–Early Childhood Development Project–SWAP: 15.0; 10.7; 4.3
  - JM–Social Protection: 40.0; 37.5; 2.5
  - JM–Rural Economic Development Initiative: 15.0; 4.4; 10.6
  - JM-Education Transformation Capacity Building: 16.0; 9.5; 6.5
  - Energy Security & Efficiency Enhancement: 15.0; 4.0; 11.0
- Disbursements and Debt Service (Fiscal Year Ending June 30) (In millions of U.S. dollars) — selected rows preserved verbatim:
  - Total disbursements: 85.0 11.3 8.5 21.7 17.3 16.0 118.7 222.0 22.2 129.9 12.6
  - Repayments: 44.9 47.4 43.4 39.7 45.8 47.9 48.4 46.7 36.2 35.8 35.2
  - Net disbursements: 40.1 -36.1 -34.9 -17.9 -28.5 -31.9 70.3 175.3 -14.0 94.1 -22.7
  - Interest and fees: 21.9 18.9 17.5 20.5 22.4 21.6 16.6 12.6 10.8 10.7 9.5
  - *As of March 31, 2013; **Total Disbursement Estimates for FY 13 are US$20M

### Relations with the Inter-American Development Bank (IDB) — overview and portfolio
- Jamaica joined the IDB in 1969. IDB approvals exceeded US$1.0 billion over the last six years (period unspecified in text).
- IDB accounts for 17 percent of external public debt and 53 percent of multilateral debt in Jamaica.
- As of end-February 2013, Jamaica’s outstanding debt to the IDB was US$1.68 billion, comprising US$1623 million public sector loans and US$61.1 million private sector loans.
- Table 1. IDB Outstanding Debt (US$ mn.)
  - Public Sector: 1,623.8
  - Private Sector: 61.1
  - Total Debt Outstanding: 1,684.9
- IDB 2013–2014 Country Strategy (approved March 5, 2013) priorities: (i) Fiscal Sustainability; (ii) Social Protection and Safety; (iii) Financial Sector & Business Climate. Disaster Risk Management and Climate Change Adaptation is cross-cutting. Financing envelope yet to be approved.
- Active loan portfolio as of December 31, 2012: 15 investment loans valued at US$492.6 million, undisbursed balance US$347.2 million. Key sectors by share: Water (37 percent), Fiscal (15 percent), Transport (14 percent), Education (9 percent), Social Protection (8 percent), Agriculture (7 percent), Citizen Security and Justice (5 percent), Energy (5 percent).
- Table 2. Major Ongoing Projects
  - Projects in execution: 15; Amount US$492.6 mn.; Percent Disbursed 30
  - Private sector loans: 1; US$6.8 mn.; Percent Disbursed 0
  - IIC loans: 9; US$17.1 mn.; Percent Disbursed 67
  - TCs in execution: 40; US$18.1 mn.; Percent Disbursed 46
- Table 3. Net Flow of IDB Convertible Currencies (US$ million) — years 2010–2013(p), preserved verbatim:
  - 2010 2011 2012 2013(p)
  - a. Loan Disbursements: 626.4 131.4 52.3 53.9
  - PBL Disbursements: 600.0 50.0 0.0 0.0
  - b. Repayments (principal): 69.6 58.3 99.5 100.1
  - c. Net Loan Flow (a-b): 556.8 73.1 -47.2 -46.2
  - d. Subscriptions and Contributions: 0.0 5.6 0.0 0.0
  - e. Interest and Charges: 23.7 28.6 29.7 23.4
  - f. Net Cash Flow (c-d-e): 533.1 38.9 -76.9 -69.6
- Table 4. Total Projected Debt Service, 2010–2014 (Millions of U.S. dollars) — by year 2013–2017 preserved verbatim:
  - 2013 2014 2015 2016 2017
  - Principal: 100.1 60.7 63.6 94.6 105.1
  - Interest: 22.2 19.5 19.0 18.0 16.4
  - Total: 122.3 80.2 82.5 112.6 121.5

### Statistical issues — data gaps and quality (surveillance implications)
- Effective surveillance hampered by data gaps for the financial sector outside commercial banks and for public entities outside central government.
- Jamaica started participating in GDDS in early 2003; goal to move towards SDDS subscription over the medium term.
- Missing series in IFS: no recent data on industrial production, wholesale or producer prices, import volumes, or export and import prices.
- National accounts weaknesses: issues with both level and growth rate of GDP estimates; constraints include insufficient STATIN legal authority to collect source data, institutional weaknesses, and lack of resources.
- National accounts revision undertaken in 2008: implemented SNA93, updated base year initially to 2003 then to 2007; assistance from Sweden Statistics, Statistics Canada, and STA; first publication of quarterly national accounts in August 2002 with Statistics Canada assistance.
- Prices: CPI revised in 2007 with new weights updated to 2006 based on 2004–05 household survey; assistance from CARTAC.
- Government finance statistics: central government operations and debt updated monthly; some expenditures not recorded in period they occur; data on public entities outside central government published but inconsistent. Paucity of data on external debt stocks and maturities for nonfinancial public sector. Fiscal data not currently reported for publication in the IFS; authorities reported 2006 in GFSM 2001 format in 2007 GFS Yearbook.
- Monetary and financial statistics: BOJ monetary statistics sectorized and provided timely; submissions of standardized report forms initiated March 2007. Financial sector statistics outside banking system are weak; lack of adequate data on security dealers whose liabilities to public exceed those of banks.
- Balance of payments: BOJ compiles monthly and annual BOP statistics; detailed annual BOP and IIP reported to STA; first IIP data reported September 2007 with annual IIP since 2005 available in BOPSY and IFS.
- Key websites for statistics (as listed):
  - Bank of Jamaica: http://www.boj.org.jm/
  - Ministry of Finance and Planning: http://www.mof.gov.jm/
  - Planning Institute of Jamaica: http://www.pioj.gov.jm/
  - Statistical Institute of Jamaica: http://www.statinja.com/

### IMF — EFF arrangement and program summary (Press Release No.13/150, May 1, 2013)
- IMF Executive Board approved a four-year Extended Fund Facility (EFF) for Jamaica amounting to SDR 615.38 million (about US$932.3 million), equivalent to 225 percent of Jamaica’s quota.
- The financing arrangement is part of a total funding package of US$2 billion from multilateral partners, with World Bank and IDB each preliminarily agreeing to allocate US$510 million over the next four years.
- Initial IMF disbursement enabled: SDR 136.75 million (about US$207.2 million).
- Key program objectives and pillars:
  - Main objective: put public debt on a firmly downward trajectory to create a virtuous cycle of debt sustainability and higher economic growth.
  - Pillars: (i) structural reforms to boost growth and employment; (ii) actions to improve price and non-price competitiveness; (iii) upfront fiscal adjustment supported by extensive fiscal reforms; (iv) debt reduction including a debt exchange while protecting financial system stability; (v) improved social protection programs with a floor on social spending and strengthened social safety net.
  - Emphasis on fair burden sharing and measures to promote social coherence (floor on social spending, improved safety net, employment programs).
  - Financial sector safeguard: establishment of a Financial Sector Support Fund to assist, if needed, financial institutions participating in the debt exchange.
- Recent developments noted in the Annex:
  - Central government primary surplus improved to 5.2 percent of GDP in fiscal year 2012/13 (April–March) from 3.2 percent the previous year.
  - A tax package estimated at 1.6 percent of GDP (full-year effect) enacted during the third quarter of the fiscal year.
  - Fiscal Responsibility Framework strengthened, including sanctions for unbudgeted spending.
  - Economic activity: economy estimated to have contracted by 0.2 percent in FY2012/13; unemployment increased from 12 percent at end-October 2010 to 13.7 percent at end-October 2012.
  - Inflation estimated at about 7.3 percent on average in FY 2012/13.
  - External position deteriorated: current account deficit estimated around 12 percent of GDP; Net International Reserves dropped to below US$900 million (compared to US$1.9 billion at end-2011); since late 2012 downward trend contained with exchange rate depreciation allowed.

*Source: _cr13126 - 2010. Mr. Gene Leon is currently the Senior Resident Representative. (PDF content as provided).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2013/_cr13126.pdf_