## _cr14295 ## Source details **Canonical URL:** [_cr14295](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14295.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14295.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14295.pdf.json) --- ### EXECUTIVE SUMMARY — Fragile growth and reduced near-term financing risks - Growth and inflation - Estimated growth in 2013/14: 0.9 percent. - Projected growth in FY2014/15: 1.1 percent. - Projected growth in 2015/16: 2.0 percent (upward revision reflecting crop recovery). - CPI inflation: about 8 percent for FY2014/15; rose to 9 percent in July due to fruits and vegetables. - Unemployment: 13.2 percent by April (seasonally adjusted), down from 15.9 percent a year earlier and 13.5 percent in January. - Exchange rate movements: Jamaica dollar weakened 10.7 percent y/y relative to the U.S. dollar and 6.6 percent y/y in real effective terms (by end-June). - External and reserve position - Government issued an external bond in July 2014 for US$800 million; 10-year bond priced with a yield of 7.625 percent. - Gross international reserves at end-August: US$2.7 billion (about 4 months of next year’s imports of goods and services). - Net international reserves at end-August: US$2.1 billion. - Large debt repayments due in October 2014 and June and July 2015; reserves projected to be broadly back on the path projected before the bond issue by end-2015. - External adjustment - Revised current account deficit for 2013/14: 10.4 percent of GDP. - Projected current account deficit for 2014/15: 7.5 percent of GDP. - Financial conditions and credit - BOJ liquidity injections through six-month repos continued; interbank overnight rates moderated to 3-4 percent in August. - Credit to the domestic private sector: 1.1 percent quarter-on-quarter (6.3 percent year-on-year) in June 2014; growth concentrated in consumer loans. - Banks’ capital-adequacy ratio broadly stable between end-March and end-June; NPLs increased marginally. - Key near-term risks - Delay in growth recovery could undermine social support for reforms. - Financial sector vulnerabilities: exposures to government debt and an illiquid secondary market. - Risks to external financing, including from PetroCaribe. - Budget execution risks from revenue shortfalls, inability to continue reducing the wage bill, and deteriorating performance by public bodies. ### PROGRAM STATUS AND PERFORMANCE — Strong policy implementation - Program design and reviews - Four-year, SDR 615.38 million (225 percent of quota) Extended Arrangement under the EFF approved May 1, 2013. - First four reviews completed on schedule; staff recommends completion of the fifth review based on strong performance and authorities’ commitments. - All end-June 2014 quantitative performance criteria, continuous quantitative program targets, and structural benchmarks were met. - Fiscal performance (first quarter FY2014/15) - Tax revenues: above the program floor for the first quarter and aligned with authorities’ projections through July. - Grants disbursements: somewhat lower than projected; expenditures adjusted through savings on the wage bill. - Central government primary balance and overall fiscal balance of the broader public sector remained above program targets. - Overall balance of public bodies included an annualized deficit of 1.3 percent of GDP, with continued shortfalls for Clarendon Alumina Production (CAP) and Petrojam. - Structural reforms implemented or advanced - Banking Services Act adopted June 2014. - Amendments to the GCT Act tabled June 2014; provisional order introduced June 1; legislation expected September. - Remaining tax obstacles for CIS lifted by provisional order in July. - Tax Collection Act and Tax Penalties Act tabled in July; expected adoption in September. - CTMS strengthened; new Procurement Bill tabled in July. - Policy approved in July to limit use of virements and ex-post regularization of unbudgeted spending. - Institutional engagement - Broad societal support; EPOC provides monthly feedback. ### GOVERNMENT FINANCING AND PUBLIC DEBT - Recent bond and financing needs - Recent external bond issuance will comfortably cover government cash-flow needs over the current fiscal year and into 2015/16. - Through the medium term, net financing needs projected to remain close to zero, with peaks in gross financing needs as outstanding bonds mature. - Public debt increased temporarily with the external bond issue but projected to return to prior path over 2015 as existing debt is repaid. - Options for domestic government financing expected to be restored as confidence strengthens. - Staff cautioned fiscal savings from debt management operations would need to be relatively large to justify negative impacts on liquidity and reserves. - Debt projections and targets - Under currently identified policies the debt level expected to fall from 140 percent of GDP at end-March 2014, to 101 percent of GDP by March 2020. - Authorities working to achieve 96 percent of GDP goal by March 2020 through debt-asset swaps and asset sales. - Note: revision in historical GDP data accounts for an increase in this ratio by 1½ percentage points. - 2015/16 budget anchors and challenges - Budget to be adopted by parliament before April 2015. - Program fiscal anchors: - central government primary surplus of 7.5 percent of GDP, and - overall balance for the public bodies. - Authorities intend to limit decline in tax revenues to no more than ¼ percent of GDP (relative to current projection for 2014/15). - Non-tax revenue will decline due to non-repetition of windfall proceeds from sale of telecommunication licenses in 2013/14 and 2014/15. - Wage bill expected to decline from 10 percent of GDP in FY2014/15 to 9 percent of GDP in the coming budget, creating room to repay arrears and scale up capital spending. ### PUBLIC FINANCIAL MANAGEMENT, CAPACITY BUILDING, AND CAP - PFM actions and support - Coordinated PFM action plan with World Bank, IaDB, and EU. - Canadian financing for long-term Fund advisor (cash and debt management) and short-term FAD TA for macro-fiscal unit and revenue forecasting. - Strategy focuses on strengthening treasury management, expanding the TSA, and building capacity in the Accountant General department. - IFMIS introduction postponed due to reprioritization and capacity constraints. - Clarendon Alumina Production (CAP) — fiscal risk context - CAP holds government’s 45 percent stake in JAMALCO. - CAP financed losses and arrears via credit line from Noble Resources Inc amounting to US$120 million for 2013–2016 (no government guarantee). - Transfers to CAP dropped to zero in the first year of the EFF-supported program (meeting continuous benchmark). - Consortium exploring a coal-based power plant that could lower operational costs by about 15 percent; two bidders submitted business plans in mid-2014; energy solution could be operational in the second-half of 2017. - Continued operation of CAP over next three years depends on: global aluminum prices; CAP’s alumina prices in 2016 and 2017; company funding if credit line exhausted; strategic direction if ALCOA sells its shares to Noble. - Program bans financing of CAP by public bodies and use of public assets (other than shares in CAP and CAP-owned assets) as collateral for third-party financing. ### MONETARY POLICY FRAMEWORK AND RESERVES - BOJ operational reforms - BOJ reforms in early August: increased access limits for overnight standing liquidity window, introduced additional unlimited overnight liquidity facility at a higher interest rate, and increased interest rates on facilities to align with market rates. - Moves toward a price-based liquidity provision framework with unlimited quantities to create a corridor for short-term market rates. - Predictable liquidity provision could help address undue risk aversion in bank credit provision. - Monetary outcomes and reserves - Despite liquidity injections in 2014, authorities met monetary targets; inflation remains contained; interbank rates normalized. - Recent bond issuance raised international reserves above program path. - BOJ shifting composition of reserves away from reliance on reserves borrowed from domestic banking system at short maturities. - Current reserve cushion expected to be temporary; government external debt maturities during 2015 will cause drawdown on reserves as BOJ provides foreign exchange for amortization payments. - Staff stressed no scope to ease exchange rate flexibility or opportunistic purchases of foreign currency to secure continued reserve increases. ### FINANCIAL SECTOR REFORMS AND MARKET LIQUIDITY - Central vulnerabilities and reform focus - High exposure of financial sector to sovereign debt; drying up of secondary markets in government paper. - Reliquification of the secondary market could shift the sovereign yield curve upward producing capital losses for financial companies. - Reforming securities dealers sector (financing long-term government bonds with short-term, deposit-like “retail repos”) is central. - Planned regulatory and supervisory actions - New Banking Services Act adopted June 2014 — expected effect by June 2015. - Authorities to develop comprehensive crisis management and resolution strategy centered on securities and banking sectors; requested Fund TA; stakeholder consultation to start early 2015. - Strengthening regulatory framework for non-bank financial institutions with long-term resident advisor (Canadian-funded) and short-term experts. - Revising BOJ Act to enhance governance, autonomy, and clarify financial stability mandate in collaboration with Fund staff. - Trust-based retail repo framework and timeline (selected preserved items) - Stress tests to verify securities dealers' readiness (Aug. 2014). - Financial backstops for exceptional financial support for securities dealers (Sept. 2014). - Establishment of a minimum transaction size for retail repos and timetable for gradual increases (Sept. 2014). - Design of the new transaction structure (Sept. 2014). - Contingency plans (Oct. 2014). - Strategy for gradual tightening of prudential standards (Nov. 2014). - Legal and regulatory framework to support trust-based framework (Dec. 2014). - Stakeholder consultation on comprehensive strategy for crisis management and resolution (Jan. 2015). - Legislative reform to support comprehensive strategy for crisis management and resolution (March 2015). - Finalize transition to trust-based repo framework (June 2015). - Retail repo client protection (trust-based framework) - Standardized legal documentation, reporting requirements for dealers and custodians, definitive legal treatment in dealer insolvency. - Trust functions: hold underlying securities on behalf of retail repo clients; ensure funds and securities flow; custody; facilitate actions on default; ensure client interests are clearly identified and held apart from dealer’s estate. - Implementation timeline: finalize transaction structure by September 2014; legal/regulatory framework by end-December 2014 (structural benchmark); pilot by end-February 2015; start transition by mid-April 2015; finalize transition by end-June 2015. - FSC and BOJ conducted joint focused stress tests that concluded mid-August 2014. ### SUPPORTING GROWTH AND SOCIAL PROTECTION - Growth-enhancing measures - Remove regulatory impediments to investment and trade; continue exchange rate flexibility to offset inflation differential. - Legislation for flexible work arrangements expected by end-September. - Enhance credit to productive sectors via collateral registry and guarantee scheme for SME lending. - Swift implementation of Insolvency Act expected after adoption in September 2014. - Increased use of internet-based services through e-government project. - Tabling of new Electricity Act delayed; expected in January 2015 after reassessment. - Social protection measures - Government launched July strategy to streamline social protection, improve coordination, cost-effectiveness, targeting, and exit strategies. - Near term: planned increase in PATH benefits by 15 percent in September; recertification exercise ongoing. ### PROGRAM ISSUES, QUANTITATIVE TARGETS, AND CONDITIONALITY - Adjustments due to bond issue - Recent bond issue requires modifications to quantitative targets; establishment of performance criteria for end-June 2015 proposed. - Proposed modifications to direct government debt performance criterion for Sept 2014–Mar 2015 accommodate the bond; modest modification to March 2015 overall balance criterion to accommodate first semi-annual interest payment. - Program floor for international reserves would not be adjusted. - Existing targets foresee reserves rising to import coverage of 4½ months by March 2017 (from less than three months at start of program). - Key quantitative program facts and reporting lags (selected) - NIR increased to US$1.37 billion by end-June 2014. - As of end-July 2014, reserves amounted to US$2,180 million, boosted by US$800 million external bond. - Real GDP increased by 1.2 percent in first quarter of FY2014/15 (April–June 2014). - Consumer price inflation: 9.0 percent (year-on-year) in July 2014. - Current account deficit: 10.4 percent of GDP in 2013/14 (down from 12.6 percent in 2012/13). - All quantitative performance targets and indicative targets for end-June were met. - Technical Memorandum and program rules (selected) - Programme exchange rates (End-December, 2013): J$ to US$ 106.38; J$ to SDR 163.83; J$ to euro 139.97; J$ to CAD 99.72; J$ to GBP 175.84. - Definitions for central government primary balance, overall public sector balance, ceilings on central government direct debt and guaranteed debt, arrears definitions, NIR definitions, and extensive reporting requirements with specified lags are set in the TMU. - Table 3 baseline external program disbursements (cumulative from fiscal year start, US$ millions): External loans multilateral — End-September 2014 41; End-December 2014 141; End-March 2015 176; End-June 2015 42. Budget support grants — End-September 2014 15; End-December 2014 24; End-March 2015 39; End-June 2015 0. IMF budget support purchases — End-September 2014 70.77; End-December 2014 141.54; End-March 2015 141.54; End-June 2015 0. ### TAX, CUSTOMS, AND ADMINISTRATION REFORMS - Tax reform actions and timelines - Minimum Business Tax implemented by provisional order from April 2014; permanent legislation to be passed by December 2014. - Amalgamation of statutory payroll deductions: SO3 form finalized and gazetted in March 2014; SO4 annual return to be completed by end-December 2014. - Amendments to the GCT Act tabled by June 2014; expected adoption by Parliament by September 2014. Main elements include broadening GCT and SCT on motor vehicles, curtailing reduced SCT rate with CIF cap US$35,000 for pickups used in agriculture, eliminating exempt status of electricity for independent private power producers, elimination of zero-rating of government purchases (in place since June 1, 2014 by provisional order), and extending GCT to imported services (exceptions listed). - Entity-by-entity review of grandfathered incentives by end-FY2014/15 (structural benchmark January 2015). - Study on scope for imposing GCT on petroleum products vs existing SCT to inform FY2015/16 decisions. - Over medium term, convergence of personal and corporate income tax rates to a uniform headline rate envisaged, subject to fiscal space. - Property tax reform envisaged for implementation by start of FY2015/16. - Tax administration modernization and benchmarks - Make e-filing mandatory for LTO clients for GCT and CIT — March 31, 2014 — Met. - Implement ASYCUDA World for Kingston Port (pilot) — December 31, 2014. - Increase auditors by 50 (March 2014–March 2015); double audits in LTO; achieve 95 percent e-filing/e-payment take-up in LTO — March 31, 2015. - Implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of GENTAX — February 28, 2015. - Table comprehensive overhaul of Customs Act — June 30, 2015 — Proposed. - Introduce new productivity indicators for tax system — November 30, 2015 — Proposed. - Customs and TAJ/JCA improvements - ACCPAC introduced in March 2014 for JCA; TAJ inventory/asset management components in September 2014. - Tax Collection (Miscellaneous Provisions) Act and Tax Penalties (Harmonization) Act tabled and expected adoption in September 2014. - Modernization programme office in TAJ to be set up before end-September 2014. - ASYCUDA World implementation timeline and full GENTAX implementation through March–April 2016. ### STRUCTURAL BENCHMARKS, CONDITIONALITY, AND TIMETABLE (selected) - Structural benchmarks met and upcoming (selected) - 1. Revise legislation for fiscal rule to be incorporated in annual budgets starting 2014/15 — March 31, 2014 — Met. - 2. Finalize review of public sector employment and remuneration — March 31, 2014 — Met. - 3. No financing or guarantees for CAP by government/public bodies — Continuous — Met. - 4. Table 2014/15 budget consistent with program — April 30, 2014 — Met. - 5. Table comprehensive Public Sector Investment Program — April 30, 2014 — Met. - 6. Cap total loan value of new user-funded PPPs at 3 percent of GDP — Continuous — Met. - 7. Ensure public service database e-census up to date and covers all MDAs — September 10, 2014. - 8. Develop action plan for public sector transformation — September 30, 2014. - 9. Table changes in legislation for new public sector pension system — June 30, 2015. - 12. Table amendments to GCT — June 30, 2014 — Met. - 21/22. Retail repo legal treatment proposals submitted/established — March 31, 2014 — Met; December 30, 2014 — pending. - 23. Omnibus Banking Law tabled — March 31, 2014 — Met (adopted June 2014). - Timetable of program reviews and purchases (selected) - May 1, 2013 — SDR 136.75 — 50 Percent of Quota — Approval of Arrangement. - Sept 30, 2013 — SDR 19.97 — 7 Percent of Quota — First Review. - Dec 18, 2013 — SDR 19.97 — 7 Percent of Quota — Second Review. - Mar 19, 2014 — SDR 45.95 — 17 Percent of Quota — Third Review. - June 20, 2014 — SDR 45.95 — 17 Percent of Quota — Fourth Review. - Sept 15, 2014 — SDR 45.95 — 17 Percent of Quota — Fifth Review. - Dec 15, 2014 — SDR 45.95 — 17 Percent of Quota — Sixth Review. - Mar 15, 2015 — SDR 28.32 — 10 Percent of Quota — Seventh Review. - Subsequent scheduled reviews/purchases continue through Mar 15, 2017; total SDR 615.38 — 225.0 Percent of Quota. ### MACRO-FINANCIAL DATA HIGHLIGHTS (selected series and exact figures preserved) - Key fiscal aggregates (percent of GDP, selected years across 2011/12–2019/20): - Budgetary revenue: 25.6; 25.7; 27.2; 26.4; 26.8; 26.1; 26.1; 26.3; 26.4; 26.4. - Budgetary expenditure: 32.0; 29.8; 27.1; 26.9; 27.5; 26.4; 25.3; 25.3; 24.9; 24.6. - Primary expenditure: 22.4; 20.3; 19.5; 18.9; 19.2; 18.6; 18.6; 19.3; 19.4; 19.4. - Wage bill: 11.1; 11.0; 10.7; 10.0; 10.1; 9.0; 9.0; 9.0; 9.0; 9.0. - Interest payments: 9.6; 9.5; 7.6; 8.0; 8.3; 7.8; 6.7; 5.9; 5.5; 5.1. - Budget balance (percent of GDP): -6.4; -4.1; -0.6; 0.1; -0.5; -0.7; -0.3; 0.8; 1.1; 1.5; 1.9. - Public debt trajectory (central government direct and guaranteed, percent of GDP): - 2011/12: 141.7 - 2012/13: 146.5 - 2013/14: 141.6 - 2014/15: 135.6 - 2015/16: 139.9 - 2016/17: 131.4 - 2017/18: 125.5 - 2018/19: 117.0 - 2019/20: 108.8 - Subsequent projection: 100.8 - Central government operations (J$ levels, 2013/14 prelim.): - Budgetary revenue and grants: 407,160 million J$. - Tax: 362,058 million J$. - Budgetary expenditure: 415,206 million J$. - Interest: 119,567 million J$. - Primary expenditure: 295,679 million J$. - Gross financing needs: 113,726 million J$. - Public debt composition (2013/14, percent and US$): - Government (Domestic): 49.9 percent (US$9.2b) - Government (External): 37.6 percent (US$6.9b) - Government guaranteed: 7.9 percent (US$1.4b) - Petrocaribe (net of CG financing): 4.6 percent (US$0.8b) - External debt composition (2013/14, percent and US$): - Multilateral: 32.5 percent (US$2.7b) - IMF: 9.4 percent (US$0.8b) - Bonds: 43.4 percent (US$3.6b) - Commercial banks: 4.4 percent (US$0.4b) - Bilateral Non-OECD: 7.6 percent (US$0.6b) - Bilateral OECD: 2.5 percent (US$0.2b) - Other: 0.2 percent (US$0.02b) - External sector and reserves (selected) - Current account (US$ millions): 2011/12 -2,173; 2012/13 -1,846; 2013/14 -1,477; 2014/15 (prog.) -1,125. - Net international reserves (US$ millions): 2011/12 1,777; 2012/13 884; 2013/14 1,304; 2014/15 (prog.) 1,594; 2015/16 (prog.) 1,893; 2016/17 (prog.) 1,811; 2017/18 (prog.) 1,907; 2018/19 (proj.) 2,067; 2019/20 (proj.) 2,174; further projection 2,353. - Trade and services (2013/14, US$ millions): Exports (f.o.b.) 1,530; Imports (f.o.b.) 5,273; Services (net) 661; Tourism receipts 2,095. - Monetary sector (select stocks in billions J$) - BOJ net international reserves (end-period series): 158; 83; 139; 190; 225; 232; 259. - Base money (end-period stock): 84; 94; 104; 102; 113; 124. - Monetary survey net foreign assets: 165; 113; 187; 238; 273; 281; 307. - Credit to private sector: 249; 294; 326; 354; 355; 397; 451. - Liabilities to private sector (M3): 350; 396; 421; 462; 456; 502; 553. ### PROGRAM FINANCING, CAPACITY TO REPAY, STAFF APPRAISAL - Financing and capacity to repay - Program remains fully financed; staff assessment of Jamaica’s capacity to repay the Fund remains broadly unchanged from last review. - Capacity deemed adequate, contingent on timely and strong implementation of the program. - External financing broadly in line with earlier program assumptions; IFI disbursements expected relatively backloaded in current fiscal year. - Staff proposed that scheduled September 2014 purchase associated with fifth review be used for direct budget support. - Domestic government financing remains constrained by frozen bond market; external bond issuance boosted near-term liquidity. - Debt service to the Fund and purchase profile remain unchanged absent significant macro revisions. - Authorities established memorandum of understanding between central bank and government on servicing obligations to the Fund. - Staff appraisal — gains and outlook - Jamaica regained market access and raised resources via external commercial bond on favorable terms. - Program on track with all quantitative performance criteria and structural benchmarks met at end-June 2014. - External position strengthened; competitiveness improved. - Macroeconomic outlook: gradual pickup in activity and employment, moderating inflation; drought dampened near-term performance. - Policy priorities and recommendations (selected) - Remove regulatory and financial impediments to investment; continue exchange rate adjustment; overhaul red tape; facilitate credit to productive sectors. - Maintain ambitious primary fiscal surplus and identify further debt-reduction options (elimination of guarantees, asset swaps/sales). - Strengthen debt management and rebuild external reserves buffer. - Accelerate public sector modernization, improve treasury management, macro-fiscal forecasting, and revenue administration reforms; reduce tax expenditures. - Implement subsidiary legislation to give effect to Banking Services Act without delay; reorient securities dealers’ business models; restore secondary market liquidity while preserving stability. - Maintain restrained monetary policy stance to contain inflation and raise reserves; BOJ moving toward price-based liquidity provision. ### RISKS, VULNERABILITIES, AND PRIORITY ACTIONS - Main risks - Revenue shortfalls and risks to projected reduction in the wage bill could derail budget targets. - Persistence of high unemployment and poverty despite modest recovery. - Financial sector concentration: financial institutions hold 40 percent of public debt; government securities multiples of capital base. - Domestic bond market remains frozen, constraining domestic financing options. - Priority actions implied by analysis and program support - Comprehensive, timely implementation of government economic strategy with international support to foster recovery, job creation, and declining poverty. - Maintain fiscal consolidation and budget discipline to secure public debt reduction path. - Preserve external buffers and prudent debt management to mitigate financing and rollover risks. - Strengthen measures to boost private sector credit and financial intermediation. *Source: _cr14295 - EXECUTIVE SUMMARY and selected IMF staff report extracts (IMF), September 10, 2014.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### FRAGILE GROWTH AND REDUCED NEAR-TERM FINANCING RISKS - Recent growth and inflation - Estimated growth in 2013/14: 0.9 percent. - Projected growth in FY2014/15: 1.1 percent. - Projected growth in 2015/16: 2.0 percent (upward revision reflecting crop recovery). - CPI inflation: about 8 percent for FY2014/15; rose to 9 percent in July due to fruits and vegetables. - Unemployment: 13.2 percent by April (seasonally adjusted), down from 15.9 percent a year earlier and 13.5 percent in January. - Exchange rate movements: Jamaica dollar weakened 10.7 percent y/y relative to the U.S. dollar and 6.6 percent y/y in real effective terms (by end-June). - External and reserve position - Government issued an external bond in July 2014 for US$800 million; 10-year bond priced with a yield of 7.625 percent. - Gross international reserves at end-August: US$2.7 billion (about 4 months of next year’s imports of goods and services). - Net international reserves at end-August: US$2.1 billion. - With large debt repayments due in October 2014 and June and July 2015, reserves are projected to be broadly back on the path projected before the bond issue by end-2015. - External adjustment - Revised current account deficit for 2013/14: 10.4 percent of GDP. - Projected current account deficit for 2014/15: 7.5 percent of GDP. - Financial conditions and credit - Bank of Jamaica liquidity injections through six-month repos continued; interbank overnight rates moderated to 3-4 percent in August. - Credit to the domestic private sector: 1.1 percent quarter-on-quarter (6.3 percent year-on-year) in June 2014; growth concentrated in consumer loans. - Banks’ capital-adequacy ratio broadly stable between end-March and end-June; NPLs increased marginally. - Key risks - Growth recovery delay could undermine social support for reforms. - Financial sector vulnerabilities (exposures to government debt, illiquid secondary market) could become more pressing. - Risks to external financing, including from PetroCaribe, could crystallize. - Budget execution risks from revenue shortfalls, inability to continue reducing the wage bill, and deteriorating performance by public bodies. ### STRONG POLICY IMPLEMENTATION - Program status - Jamaica’s four-year, SDR 615.38 million (225 percent of quota) Extended Arrangement under the EFF approved May 1, 2013. - First four reviews completed on schedule; staff recommends completion of the fifth review based on strong performance and updated authorities’ commitments. - All end-June 2014 quantitative performance criteria, continuous quantitative program targets, and structural benchmarks were met, including June indicative targets for tax collection and social spending. - Fiscal performance (first quarter FY2014/15) - Tax revenues: above the program floor for the first quarter and aligned with authorities’ projections through July. - Grants disbursements: somewhat lower than projected; expenditures adjusted through savings on the wage bill. - Central government primary balance and overall fiscal balance of the broader public sector remained above program targets. - Overall balance of public bodies included an annualized deficit of 1.3 percent of GDP, with continued shortfalls for Clarendon Alumina Production (CAP) and oil company Petrojam. - Structural reforms implemented or advanced - Banking Services Act adopted by Parliament in June 2014 (harmonizes prudential standards, strengthens corrective action and sanctioning regime, promotes BOJ operational independence in supervision). - Amendments to the General Consumption Tax (GCT) Act tabled in Parliament in June to broaden the tax base and eliminate zero rating of government purchases; provisional order introduced June 1; legislation expected to be adopted in September. - Remaining tax obstacles for Collective Investment Schemes (CIS) lifted by provisional order in July. - Tax Collection Act and Tax Penalties Act tabled in July to strengthen revenue administration’s collection powers; expected adoption in September. - Central Treasury Management System (CTMS) strengthened with modules for tracking expenditures; new Procurement Bill tabled in July. - Policy approved in July to tighten budgetary execution by limiting use of virements and ex-post regularization of unbudgeted spending. - Institutional and societal engagement - Broad societal support for the program; stakeholders emphasized ongoing consultation and the role of the Economic Program Monitoring Committee (EPOC) for monthly feedback. ### DEEPENING THE REFORM AGENDA - Overall update - Program updated to support ambitious fiscal goals by strengthening tax administration, enhancing public financial management, and containing the civil service wage bill. - Further steps articulated to reform the securities dealers sector and strengthen the financial system more broadly. - Financial sector reforms and vulnerabilities - Continued emphasis on reducing banks’ exposure to government debt and addressing inactive secondary market in government bonds. - Risk that re-liquefaction of the secondary market and an upward shift in the yield curve could create capital losses for financial companies. - Social and growth support - Recognition that keeping societal support requires that painful reforms and real wage compression lead to more rapid job creation and income growth. ### A. Preparing for the 2015/16 Budget - Revenue and budget monitoring measures - Authorities tightening monitoring of taxpayers and preserving budget contingencies to keep the 2014/15 budget on track. - Examination of effects of recent reform of tax incentives on taxpayer behavior, as these complicate monthly revenue projection and evaluation. - Tax audits made more focused on larger taxpayers and more systematic, with cross-referencing of different types of taxes owed. *Source: _cr14295 - EXECUTIVE SUMMARY (IMF), September 10, 2014.* ### 11. The recent bond will comfortably cover the government’s cash-flow needs over the ### 11. The recent bond will comfortably cover the government’s cash-flow needs over the ### Government financing and public debt - The recent external bond issuance will comfortably cover the government’s cash-flow needs over the current fiscal year and into 2015/16. - Through the medium term, net financing needs are projected to remain close to zero, with peaks in gross financing needs as outstanding bonds mature. - Public debt has increased temporarily with the external bond issue, but is projected to return to its prior path over 2015 as existing debt is repaid (see paragraph 3). - Options for domestic government financing are expected to be restored as confidence strengthens. - The authorities are exploring opportunities to undertake debt management operations; staff cautioned that fiscal savings from such operations would need to be relatively large to justify the negative impact on the level of government liquidity and international reserves. - Under currently identified policies the debt level is expected to fall from 140 percent of GDP at end-March 2014, to 101 percent of GDP by March 2020. - The authorities continue working to identify additional debt-asset swaps, and asset sales so as to achieve the 96 percent of GDP goal by March 2020. - Note: The revision in the historical GDP data accounts for an increase in this ratio by 1½ percentage points. ### 2015/16 budget and fiscal anchors - Preparations for the 2015/16 budget have started; the budget is scheduled to be adopted by parliament before April 2015. - No further fiscal consolidation is foreseen; the program fiscal anchors are: - a central government primary surplus of 7.5 percent of GDP, and - overall balance for the public bodies. - Key fiscal challenges include the quality of adjustment and erosion of the effective tax base due to: - decline in the government wage bill, - decline in interest spending, and - ongoing weakness in imports — all taxed relatively heavily. - The authorities intend to limit the resulting decline in tax revenues to no more than ¼ percent of GDP (relative to the current projection for 2014/15). - Non-tax revenue will decline due to non-repetition of windfall proceeds from sale of telecommunication licenses that took place in 2013/14 and 2014/15. - Despite a lower revenue ratio, further decline in the wage bill is expected to offer room for: - repayment of budgetary arrears to suppliers accumulated prior to the EFF-supported program, and - scaling up capital spending to support major infrastructure programs. ### Fiscal policy measures and structural benchmarks - Modernize the public sector to reduce the wage bill from 10 percent of GDP in FY 2014/15 to 9 percent of GDP in the coming budget. - The wage restraint agreement (wage freeze since March 2012) expires in March 2015; authorities aim to meet the 2015/16 objective through continued wage restraint and public sector reforms. - Near-term actions: completion of public sector employee database and elaboration of an Action Plan for public sector transformation (both structural benchmarks for September). - IaDB support for an automated HR management system. - Implement action plan for upgrading revenue administration. - Near-term: set up dedicated office for modernization of tax administration, enhance large-taxpayer administration, pilot new automated tax and customs systems (MEFP, ¶7, 8). - Legislative amendments to the Customs Act to be tabled in parliament in September (for ASYCUDA implementation). - New structural benchmarks proposed: - table a new Customs Act (June 2015), and - establish new indicators for measuring productivity of tax collection (November 2015). - Broaden the tax base and curtail sector and firm-specific tax incentives introduced in late 2013 to reduce tax expenditures gradually. - IaDB technical analysis underway; support for January 2015 review of progress in phasing out grandfathered firm-specific incentives (MEFP, ¶6). - Monitor and address fiscal risks. - Government will incorporate a comprehensive fiscal risks statement in the upcoming budget. - Government reiterated commitment to refrain from any further public financial support for Clarendon Alumina Production (CAP). ### Public financial management (PFM) and capacity building - Authorities implementing coordinated PFM action plan supported by World Bank, IaDB, and EU. - Additional assistance (Canadian financing) for a long-term resident Fund advisor (cash and debt management) and short-term FAD TA to strengthen macro-fiscal unit and revenue forecasting. - Updated strategy focuses on strengthening treasury management, expanding the single treasury account, and building capacity in the Accountant General department (MEFP, ¶10). - Introduction of an Integrated Financial Management System (IFMIS) has been postponed due to reprioritization and capacity constraints. ### Clarendon Alumina Production (CAP) — fiscal risk context - CAP is the holding company for the government's 45 percent stake in JAMALCO (joint venture with ALCOA). - CAP’s profitability highly sensitive to international aluminum prices; prior to the EFF arrangement CAP often relied on government transfers when aluminum prices were low. - Government resolved not to provide further financial support to CAP under the EFF-supported program. - Since July 2013 CAP’s losses and outstanding arrears to ALCOA have been financed through a credit line from Noble Resources Inc—backed by CAP’s shares in the joint venture, with no government guarantee. - The credit line amounted to US$120 million for 2013–2016. - Transfers to CAP dropped to zero in the first year of the EFF-supported program (meeting a continuous benchmark), notwithstanding a negative cash balance. - Consortium exploring a new coal-based power plant that would lower operational costs by about 15 percent; two bidders submitted business plans in mid-2014; energy solution could be operational in the second-half of 2017. - Continued operation of CAP over next three years depends on: - (i) global aluminum prices; - (ii) CAP’s alumina prices in 2016 and 2017 consequent on expiration of contracts yielding lower percentages of the aluminum metal reference price; - (iii) the company’s funding scheme if credit line is exhausted; and - (iv) strategic direction if ALCOA sells its shares to Noble, as currently contemplated. - Program commitment also bans financing of CAP by public bodies and use of public assets (other than shares in CAP and assets owned by CAP) as collateral for third-party financing of CAP. ### Monetary policy framework and reserves - BOJ reforms in early August: increased access limits for the overnight standing liquidity window, introduced an additional unlimited overnight liquidity facility at a higher interest rate, and increased interest rates on its facilities to better align with market rates (MEFP, ¶22). - If implemented effectively, moves toward a price-based liquidity provision framework with unlimited quantities that would create a corridor for short-term market rates. - Predictable liquidity provision could help address undue risk aversion in bank credit provision. - Despite liquidity injections in 2014, authorities met monetary targets under the program, inflation remains contained, and interbank interest rates have normalized. - Recent bond issuance raised international reserves above the program path. - BOJ has begun shifting composition of reserves away from reliance on accumulating reserves borrowed from domestic banking system at short maturities. - Current reserve cushion expected to be temporary; government external debt maturities during 2015 will cause a drawdown on reserves as BOJ provides foreign exchange for amortization payments. - Staff stressed no scope to ease up on exchange rate flexibility or opportunistic purchases of foreign currency to secure continued increase in owned reserves over the program horizon. ### Financial sector reforms and market liquidity - Reform agenda aims to create a safer system focused on delivering private financing for growth-enhancing investment. - Reforming securities dealers sector (which finances long-term government bonds with short-term, deposit-like investments “retail repos”) is central. - High exposure to sovereign debt is the central risk, exacerbated by drying up of secondary markets in government paper. - Reliquification of the market could produce an upward shift in the sovereign yield curve with potential capital losses for financial companies. - Authorities plan to improve regulatory and supervisory framework, including crisis management and resolution. - New Banking Services Act adopted June 2014—expected to take effect by June 2015. - Authorities to develop comprehensive strategy for crisis management and resolution centered on securities and banking sectors (MEFP, ¶16); requested Fund TA. - Stakeholder consultation process scheduled to start in early 2015. - Strengthening regulatory framework for non-bank financial institutions with assistance of long-term resident advisor (Canadian-funded) and short-term experts. - Collaborating with Fund staff on revising the BOJ Act to enhance governance and autonomy of BOJ and clarify financial stability mandate. - Trust-based repo framework for securities dealers: sequencing guided by MCM and LEG TA; authorities undertaking stress tests and establishing financial backstops. - Staff urged minimizing delays; framework to be put in place by end-2014 and implemented thereafter. - Final phase involves gradual tightening of prudential requirements to reflect risks and incentivize a market-based shift to alternative products. - Box 3: Securities Dealers Reforms timeline and actions (selected items and dates preserved from source) - Stress tests to verify securities dealers' readiness for the new retail repo framework (Aug. 2014) - Financial backstops for exceptional financial support for securities dealers (Sept. 2014) - Establishment of a minimum transaction size for retail repos and a timetable for gradual increases (Sept. 2014) - Design of the new transaction structure (Sept. 2014) - Contingency plans (Oct. 2014) - Strategy for gradual tightening of prudential standards (Nov. 2014) - Legal and regulatory framework to support the trust-based framework (Dec. 2014) - Stakeholder consultation on comprehensive strategy for crisis management and resolution (Jan. 2015) - Legislative reform to support comprehensive strategy for crisis management and resolution (March 2015) - Finalize transition to trust-based repo framework (June 2015) - Authorities considering policy options and using stress tests, backstops, and contingency plans to restart and reliquify the secondary bond market. ### Supporting growth and social protection - Policies to remove obstacles to investment and trade complement fiscal consolidation and exchange rate flexibility to restore sustainable growth and external competitiveness. - Ongoing flexibility of the nominal exchange rate will be needed to offset persistent inflation differential with Jamaica’s main trading partners. - Regulatory impediments to investment and business transactions need to be lifted without delay (MEFP, ¶23). - Legislation to introduce flexible work arrangements expected to be adopted by end-September. - Enhance credit to productive sectors via collateral registry and guarantee scheme for SME lending. - Authorities will seek swift implementation of the Insolvency Act following expected adoption in September 2014. - Increased use of internet-based services through e-government project to improve business climate. - Tabling of a new Electricity Act (structural benchmark for September 2014) delayed; expected to be tabled in parliament in January 2015 (proposed modification of structural benchmark) after reassessment by the Electricity Sector Enterprise Team (MEFP, ¶25). - Social protection: - Government launched in July a strategy for a more comprehensive approach to social protection policy to streamline programs, improve coordination, cost-effectiveness, targeting, and exit strategies. - Near term: planned increase in PATH benefits by 15 percent in September, while continuing recertification exercise. ### Program issues and quantitative targets - Recent bond issue requires modifications to quantitative targets under the program; establishment of performance criteria for end-June 2015 is proposed. - Proposed modifications to the performance criterion on direct government debt for September 2014 through March 2015 accommodate the bond issue; a modest modification to the March 2015 overall balance performance criterion would accommodate the first semi-annual interest payment on this bond. - The program floor for international reserves would not be adjusted. - Existing targets foresee reserves rising gradually to levels above various measures of adequacy, with import coverage expected to reach 4½ months of imports of goods and services by March 2017 (from less than three months at the start of the program). - The newly issued external commercial bond will temporarily raise actual reserves above this floor into 2015, though the level and duration of this deviation are difficult to project as they depend on possible liability management operations by the government and the central bank. - Proposed modifications to the performance criterion on the primary balance for end-December 2014 and end-March 2015 reflect a shift in the timing within the fiscal year of a wage settlement agreed at the outset of the program. - Modified floor for tax revenues at December 2014 is based on an updated analysis of the timing of receipts within the fiscal year. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 24. The program remains fully financed and staff’s assessment of Jamaica’s capacity to ### _cr14295 - 24. The program remains fully financed and staff’s assessment of Jamaica’s capacity to repay the Fund remains broadly unchanged from the last review (Table 10). ### Program financing and capacity to repay - The program remains fully financed and staff’s assessment of Jamaica’s capacity to repay the Fund remains broadly unchanged from the last review (Table 10). - This capacity is deemed adequate and depends on the timely and strong implementation of the ambitious program. - External financing has remained broadly in line with earlier program assumptions, with IFI disbursements expected to be relatively backloaded in the current fiscal year. - Staff maintains its proposal presented in the June 2014 staff report that the scheduled September 2014 purchase, associated with the fifth review under the extended arrangement, be used for providing direct budget support. - Domestic government financing remains blocked by the frozen bond market; the external bond issuance that has boosted liquidity in the near term was calibrated incorporating the expected Fund support. - Debt service to the Fund and the purchase profile remain unchanged in the absence of significant revisions to the macroeconomic outlook. - As a safeguard, the authorities have established a separate memorandum of understanding between the central bank and the government on servicing obligations to the Fund. ### Staff appraisal — gains, outlook, and vulnerabilities - Gains emerging from Jamaica’s demanding program of reforms: - Jamaica has regained market access and raised financial resources by issuing an external commercial bond on favorable terms, following four completed program reviews under the Fund-supported program. - The program remains on track, with all quantitative performance criteria and structural benchmarks met at end-June 2014. - The external position has strengthened, helped by further gains in external competitiveness. - Macroeconomic outlook: - Earlier projections of a very gradual pickup in economic activity and employment, and moderating inflation, are now playing out (although dampened in the near term by the effects of drought). - Stronger growth is desirable to help cement social cohesion and societal support for sustaining the reforms under the program. - Vulnerabilities and needed actions: - Delays in procuring additional power generation capacity and tabling the Electricity Act are regrettable; timely but rigorous resolution of outstanding issues will be critical to support growth and attract inward investment. - Domestic bond market remains frozen, constraining domestic financing options. ### Policy priorities and recommendations - Remove regulatory and financial impediments to investment to boost growth and job creation: - Continue exchange rate adjustment given the substantial depreciation already realized and the inflation differential with trading partners. - Overhaul red tape constraining investment and import-export transactions. - Facilitate the provision of credit to productive sectors. - Fiscal consolidation and debt sustainability: - Maintain the ambitious primary fiscal surplus over the next several years. - Identify further options to retrench public debt, including through elimination of existing guarantees and asset swaps or sales. - Strengthen the debt management strategy and rebuild a suitable external reserves buffer. - Action is needed in several areas to ensure the sustainability and improve the quality of the fiscal adjustment. - Public sector modernization: - Accelerate modernization to lock in gains from fiscal consolidation. - Implement plans to create a skilled, cost-effective public sector and control the wage bill woven carefully throughout the 2015/16 budget. - Structural reforms to improve public expenditure efficiency and revenue mobilization: - Improve treasury management and macro-fiscal forecasting. - Accelerate reforms to strengthen the revenue administration. - Continue focusing on achieving a significant reduction in tax expenditures. - Financial sector regulation and liquidity: - Implement subsidiary legislation to give effect to the Banking Services Act without delay. - Reorient the business model of securities dealers in a timely manner. - Restore liquidity to the secondary market for government bonds while preserving financial stability. - Monetary policy and operational framework: - Maintain a restrained monetary policy stance to contain inflationary pressures and raise reserves over the medium term. - The Bank of Jamaica (BOJ) has started moving towards a price-based liquidity provision framework to help facilitate the creation of a corridor for short-term market rates. *IMF staff appraisal, Jamaica program review (paragraphs 24–31).* ### 32. Risks remain high, but the comprehensive and timely implementation of the ### _cr14295 - 32. Risks remain high, but the comprehensive and timely implementation of the ### Overall assessment and IMF recommendation - Staff is confident that the government’s policy commitments will achieve: - a return to robust growth and job creation, - sustained reduction in public debt (principal objectives of the program). - Staff fully supports the authorities’ request for: - completion of the fifth review under the arrangement under the Extended Fund Facility, - the proposed establishment and modification of performance criteria. - Financing risks have subsided with Jamaica’s recent placement in international financial markets, but other risks persist, notably: - keeping the budget on track in the face of risks to revenues and to the projected reduction in the wage bill. ### Recent economic developments - Real activity: - After contracting in 2012/13, there has been a modest recovery in economic activity. - Real GDP per capita (historical series shown). - Labor market and poverty: - Unemployment rate (Apr. 2014): 13.6 percent. - Unemployment and poverty levels remain high. - External sector and external buffers: - Remittances are strengthening. - Tourism has picked up owing to a surge in cruise passenger arrivals. - The current account deficit narrowed markedly since 2012/13 with fiscal consolidation and improved competitiveness. - Net international reserves (NIR) have continued to increase since October 2013, boosted by the July 2014 bond issuance. - Prices: - Inflation declining since mid-2013, but rose in July 2014 due to drought. ### Fiscal developments and public finances - Fiscal consolidation progress: - The fiscal position strengthened from 2012/13 to 2013/14 and is projected to remain stable in 2014/15 owing to lower wage and capital spending. - Key aggregated fiscal numbers (selected from Table 1, percent of GDP and levels where shown): - Budgetary revenue: 25.6; 25.7; 27.2; 26.4; 26.8; 26.1; 26.1; 26.3; 26.4; 26.4 (for 2011/12 through 2019/20, respectively). - Budgetary expenditure: 32.0; 29.8; 27.1; 26.9; 27.5; 26.4; 25.3; 25.3; 24.9; 24.6. - Primary expenditure: 22.4; 20.3; 19.5; 18.9; 19.2; 18.6; 18.6; 19.3; 19.4; 19.4. - Wage bill: 11.1; 11.0; 10.7; 10.0; 10.1; 9.0; 9.0; 9.0; 9.0; 9.0. - Interest payments: 9.6; 9.5; 7.6; 8.0; 8.3; 7.8; 6.7; 5.9; 5.5; 5.1. - Budget balance (percent of GDP): -6.4; -4.1; -0.6; 0.1; -0.5; -0.7; -0.3; 0.8; 1.1; 1.5; 1.9 (as shown across years). - Public debt trajectory (central government direct and guaranteed, including PetroCaribe, percent of GDP): - 2011/12: 141.7 - 2012/13: 146.5 - 2013/14: 141.6 - 2014/15: 135.6 - 2015/16: 139.9 - 2016/17: 131.4 - 2017/18: 125.5 - 2018/19: 117.0 - 2019/20: 108.8 - Subsequent shown projection: 100.8 - Central government operations (levels, Table 2, select items in Jamaican dollars): - Budgetary revenue and grants (2013/14 prelim.): 407,160 million J$. - Tax (2013/14 prelim.): 362,058 million J$. - Budgetary expenditure (2013/14 prelim.): 415,206 million J$. - Interest (2013/14 prelim.): 119,567 million J$. - Primary expenditure (2013/14 prelim.): 295,679 million J$. - Gross financing needs (2013/14 prelim.): 113,726 million J$. ### Public debt composition and debt service - Total public debt composition (2013/14, percent of total public debt): - Government (Domestic): 49.9 percent (US$9.2b) - Government (External): 37.6 percent (US$6.9b) - Government guaranteed: 7.9 percent (US$1.4b) - Petrocaribe (net of CG financing): 4.6 percent (US$0.8b) - External debt composition (2013/14, percent of total external debt): - Multilateral: 32.5 percent (US$2.7b) - IMF: 9.4 percent (US$0.8b) - Bonds: 43.4 percent (US$3.6b) - Commercial banks: 4.4 percent (US$0.4b) - Bilateral Non-OECD: 7.6 percent (US$0.6b) - Bilateral OECD: 2.5 percent (US$0.2b) - Other: 0.2 percent (US$0.02b) - Effective interest rates of CG external debt (2013/14, percent): listed by instrument categories (examples shown): 2.6; 1.4; 1.6; 2.2; 7.3; 1.1 (as in figure). - Debt maturity: External debt has longer maturity than domestic debt; domestic debt concentrated at shorter maturities. ### Financial sector and intermediation - Credit and deposits: - Growth of deposits and credit to the private sector has slowed. - Credit to the private sector remains low relative to credit to the public sector and low by regional standards. - Private sector credit (June 2014, percent of GDP) shown as low relative to peers. - Interest rates and spreads: - Interest rates remain high but have stabilized in recent months. - Treasury bill rate (end-of-period, Table 1): 6.3; 6.2; 9.1 (for selected years). - Financial sector exposures to government: - The financial sector holds 40 percent of public debt. - Government securities represent a multiple of financial institutions’ capital base (figures for specific institutions and percent of capital base shown in figure). ### External sector and balance of payments (select figures) - Current account (US$ millions, Table 5): - 2011/12: -2,173 - 2012/13: -1,846 - 2013/14: -1,477 - 2014/15 (prog.): -1,125 - Net international reserves (US$ millions, Table 5): - 2011/12: 1,777 - 2012/13: 884 - 2013/14: 1,304 - 2014/15 (prog.): 1,594 - 2015/16 (prog.): 1,893 - 2016/17 (prog.): 1,811 - 2017/18 (prog.): 1,907 - 2018/19 (proj.): 2,067 - 2019/20 (proj.): 2,174 - Further projection: 2,353 - Trade and services (2013/14, US$ millions): - Exports (f.o.b.): 1,530 - Imports (f.o.b.): 5,273 - Services (net): 661 - Tourism receipts (2013/14): 2,095 (tourism receipts series shown). ### Monetary sector (select highlights) - Bank of Jamaica summary (Table 6, end-of-period stocks, in billions J$): - Net international reserves (end-period stock for select years): 158; 83; 139; 190; 225; 232; 259 (series shown). - Base money (end-period stock): 84; 94; 104; 102; 113; 124 (series shown). - Monetary survey (Table 7, end-of-period stocks, in billions J$): - Net foreign assets: 165; 113; 187; 238; 273; 281; 307 (series shown). - Credit to private sector: 249; 294; 326; 354; 355; 397; 451. - Liabilities to private sector (M3): 350; 396; 421; 462; 456; 502; 553. ### Public entities - Selected public entities operating balances and fiscal transfers (Table 4, select items): - Operating balance selected public entities (2013/14 prelim.): 16.6 (billion J$ shown). - Net current transfers from the central government (2013/14 prelim.): -19.1 (billion J$ shown). - Gross capital expenditure selected public entities (2013/14 prelim.): 39.6 (billion J$ shown). - Overall balance selected public entities (2013/14 prelim.): -14.2 (billion J$ shown). ### Key risks and policy priorities - Main risks: - Revenue risks and risks to the projected reduction in the wage bill could derail budget targets. - Persistence of high unemployment and poverty despite a modest recovery. - Financial sector concentration of public debt holdings and government securities multiples of capital base. - Policy priorities implied by analysis and program support: - Continue comprehensive and timely implementation of the government’s economic strategy with international community support to foster recovery, job creation, and declining poverty. - Maintain fiscal consolidation and budget discipline to secure the projected path of public debt reduction. - Preserve external buffers and prudent debt management to mitigate financing and rollover risks. - Strengthen measures to boost private sector credit and financial intermediation. *Source: IMF staff report content provided in the content unit.* ### 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be in ### _cr14295 - 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be in ### Structural benchmarks and status (selected structural conditionality) - 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets starting with the 2014/15 budget. — March 31, 2014 — Met - 2. Government to finalize a review of public sector employment and remuneration that serves to inform policy reform. — March 31, 2014 — Met - 3. Government to ensure there is: (i) no financing of Clarendon Alimina Production (CAP) by the government or any public body, including Petro Caribe; and (ii) no new government guarantee for CAP or use of public assets (other than shares in CAP and assets owned by CAP) as collateral for third-party financing of CAP. — Continuous — Met - 4. Government to table in parliament a budget for 2014/15 consistent with the program. — April 30, 2014 — Met - 5. Government to table in parliament a comprehensive Public Sector Investment Program (MEFP paragraph 17, Country Report No. 13/378). — April 30, 2014 — Met - 6. Cap the total loan value of all new user-funded PPPs at 3 percent of GDP on a cumulative basis over the program period. — Continuous — Met - 7. Ensure that the public service database e-census is up to date and covers all Ministries, Departments and Agencies. — September 10, 2014 - 8. Develop an action plan for public sector transformation covering: (1) introduction of shared corporate services, (2) reallocation/merger/abolition/divestment/privatization of departments and agencies, (3) outsourcing of services, (4) strengthening control systems and accountability (including auditing and procurement), and (5) aligning remuneration with job requirements. — September 30, 2014 - 9. Table changes in legislation for the new public sector pension system expected to be implemented by April 2016 (MEFP paragraph 25). — June 30, 2015 ### Tax reform actions and timelines - 10. Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as stipulated in the TMU. — Continuous — Met - 11. Broader tax reform to become effective, including the modernization of taxes, with limited exemptions, and lower tax rates (paragraphs 6, 7, 8, and 9 of the MEFP for Country Report 13/378) and as stipulated in par. 13 of the March 2014 MEFP. — March 31, 2014 — Met - 12. Government to table in parliament amendments to the GCT as stipulated in paragraph 12 of the June 2014 MEFP. — June 30, 2014 — Met - 13. Government to conduct an entity by entity review of all grandfathered entities and of their specific tax incentives in the context of the new tax incentives legislation by end-2014/15. — January 31, 2015 Key tax-reform particulars described in the MEFP: - Minimum Business Tax implemented by provisional order starting April 2014; permanent legislation to be passed by December 2014. - Amalgamation of statutory payroll deductions: SO3 form finalized and gazetted in March 2014; annual return of the SO4 form to be completed by end-December 2014. - Amendments to the GCT Act tabled by June 2014; expected adoption by Parliament by September 2014. Main elements: - Broadening application of GCT and SCT on motor vehicles; curtailing reduced SCT rate by limiting CIF value to US$35,000 for pickup trucks used for agricultural activity. - Elimination of the exempt status of electricity for independent private power producers. - Elimination of the zero-rating of government purchases (in place since June 1, 2014, by provisional order); to be made permanent via amendments. - Extension of the GCT to imported services other than electricity, business processing, tourist accommodations and imports by the bauxite/alumina subsector. - Tax base broadened as of April 1, 2014 by allowing for the payment of GCT on vehicles up to 10 years old by Provisional Order; to be made permanent via amendments. Follow-up and medium-term intentions: - Conduct entity-by-entity review of grandfathered incentives by end-FY2014/15 (structural benchmark January 2015) to facilitate transition to the new regime. - A study on scope for imposing GCT on petroleum products vs existing SCT (with no net increase in petroleum taxation) is being completed; conclusions will inform FY2015/16 decisions. - Improve reporting on tax expenditures in future budgets based on IDB technical assistance. - Over the medium term, convergence of personal and corporate income tax rates to a uniform standard headline rate is envisaged, subject to available fiscal space and attainment of revenue targets. - Property tax reform envisaged to be ready for implementation by the start of FY2015/16. ### Tax administration benchmarks and modernization - 14. Government to make e-filing mandatory for LTO clients with respect to General Consumption Tax (GCT) and Corporate Income Tax (CIT). — March 31, 2014 — Met - 15. Implement ASYCUDA World for the Kingston Port as a pilot site. — December 31, 2014 - 16. (i) Increase the number of staff by a further 50 auditors (from March 2014 to March 2015); (ii) increase the number of (full plus issue) audits completed in the large taxpayers office (LTO) by 100 percent (from FY 2013/14 to FY 2014/15); (iii) achieve 95 percent take up rate of e-filing and e-payment in the LTO. — March 31, 2015 - 17. Implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package. — February 28, 2015 - 18. Government to table in Parliament proposals for a comprehensive overhaul of the Customs Act. — June 30, 2015 — Proposed - 19. Introduce new productivity indicators, in consultation with Fund staff, to measure the effectiveness and efficiency of the tax system. — November 30, 2015 — Proposed ### Financial sector structural actions - 20. Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010. — March 31, 2014 — Met - 21. Government to submit proposals for a distinct treatment for retail repo client interests in the legal and regulatory framework to the relevant financial industry for consultation (MEFP March 2014 Paragraph 25) in consultation with Fund staff. — March 31, 2014 — Met - 22. Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework (June 2014 MEFP Paragraph 29) in consultation with Fund staff. — December 30, 2014 - 23. Government to table the Omnibus Banking Law consistent with Fund Staff advice to facilitate effective supervision of the financial sector. — March 31, 2014 — Met Notes on the Omnibus Banking Law: - 1/ Currently referred to as the Banking Services Act. - 2/ The law was tabled in March 2014 with subsequent fine-tuning in collaboration with Fund staff prior to its adoption in June. ### Growth-enhancing structural reforms - 24. Government to implement a new (AMANDA) tracking system to track approval of construction permits across all parish councils. — December 30, 2014 - 25. Government to table in parliament the Electricity Act. — January 31, 2015 — Proposed revision ### Fiscal and program performance highlights (selected quantitative and program indicators) - Net international reserves (NIR) increased to US$1.37 billion by end-June 2014. - As of end-July 2014, reserves amounted to US$2,180 million, boosted by an US$800 million external bond issued by the Jamaican Government in early July. - Real GDP is estimated to have increased by 1.2 percent in the first quarter of FY2014/15 (April to June 2014). - Consumer price inflation amounted to 9.0 percent (year-on-year) in July 2014. - Current account deficit is estimated at 10.4 percent of GDP in 2013/14, down from 12.6 percent in 2012/13. - Fiscal performance in the first quarter of FY 2014/15: tax revenues slightly above the June programme floor; grants lower than anticipated; current and capital expenditures lower than projected; central government primary balance and overall balance of the public sector exceeded the programme target. - All quantitative performance targets and indicative targets for end-June were met; structural benchmarks due during April to June 2014 were met. ### Selected timetable of program reviews and purchases (Schedule of Reviews and Purchases) - May 1, 2013 — 136.75 Millions of SDR — 50 Percent of Quota — Approval of Arrangement - September 30, 2013 — 19.97 Millions of SDR — 7 Percent of Quota — First Review and end-June 2013 performance criteria - December 18, 2013 — 19.97 Millions of SDR — 7 Percent of Quota — Second Review and end-September 2013 performance criteria - March 19, 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 - September 15, 2014 — 45.95 Millions of SDR — 17 Percent of Quota — Fifth Review and end-June 2014 performance criteria - December 15, 2014 — 45.95 Millions of SDR — 17 Percent of Quota — Sixth Review and end-September 2014 performance criteria - March 15, 2015 — 28.32 Millions of SDR — 10 Percent of Quota — Seventh Review and end-December 2014 performance criteria - Subsequent scheduled reviews and purchases continue through March 15, 2017 with repeated amounts of 28.32 Millions of SDR (10 Percent of Quota) and the total amount listed as 615.38 Millions of SDR — 225.0 Percent of Quota *Source: Attachment 1 and tables within the IMF staff report content provided in the PDF unit.* ### 7. Reforms to strengthen tax and customs administration are proceeding. Steps to ### 7. Reforms to strengthen tax and customs administration are proceeding. Steps to ### Tax and Customs Administration: recent actions - Continued to improve JCA accounting and financial systems through the introduction of ACCPAC (Accrual Accounting System) in March 2014 for the JCA, and in September 2014 for the TAJ (inventory and asset management components only). - Tabled and debated the Tax Collection (Miscellaneous Provisions) Act, 2014 and the Tax Penalties (Harmonization) Act, 2014 (formerly referred to as the Revenue Administration Act and the Tax Collection Act) to strengthen the powers of Tax Administration Jamaica (TAJ) and Jamaica Customs Agency (JCA) to collect outstanding arrears. - Amendments (including powers to seize and sell taxpayers’ property, harmonization of penalties and fines where appropriate and the introduction of mandatory income tax filing for every business) are expected to be adopted by Parliament in September 2014. ### Tax and Customs Administration: next steps and structural benchmarks - Setting up a modernization programme office in the TAJ before end-September 2014. - Improving the regime for making tax payments, with lower bank charges, by February 2015, with the assistance of the World Bank. - Increase the number of banks that accept the use of RTGS as an alternative channel for the payment of duties and taxes on commercial imports; discussions with banks are ongoing. - Improving large taxpayer administration through: - (i) increasing the number of staff by a further 50 auditors (from March 2014 to March 2015); - (ii) increasing the number of (full plus issue) audits completed in the large taxpayers office (LTO) by 100 percent (from FY 2013/14 to FY 2014/15); - (iii) achieving 95 percent take up rate of e-filing and e-payment in the LTO (March 2015) (structural benchmark, March 2015). - Aim to write off debts that have been subjected to risk-rated stress tests and consequently categorised as uncollectible in accordance with the Regulations by end-March 2015. - Enact amendments to the Customs Act to facilitate implementation of ASYCUDA World and trade facilitation (September 2014). A comprehensive overhaul of the Customs Act will be tabled by June 2015 (new structural benchmark). - Automating tax and customs operations by implementing: - (i) ASYCUDA World for the Kingston Port as a pilot site (structural benchmark for December 2014), - (ii) Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package (structural benchmark for February 2015), - (iii) ASYCUDA-World integrated customs software package for the entire country (March 2016), - (iv) GENTAX integrated tax software package for all major tax types; the stamp duty and transfer tax will be added if possible (April 2016). - Preparing (with IMF TA support) an estimate of the revenue compliance gap for the GCT by February 2015, to provide a basis for measuring the impact of administrative reforms. - Legislation related to the establishment of the Revenue Appeals Department as a separate, independent entity, with IFC support, will be tabled in Parliament by end-October 2014. - Implementing new revenue productivity indicators (new structural benchmark for November 2015), covering compliance gaps for all major taxes, as well as e-filing, non-filing, audit coverage, objection and appeals results, arrears collection, collectible and disputed debts, refund processing, and customs clearance and customs post-clearance audits. ### A Fiscal Rule: adoption and implementation steps - A new fiscal rule to enhance fiscal transparency and lock in the gains of fiscal consolidation was adopted by Parliament in March 2014. - Fiscal targets based on the coverage of entities under the perimeter of the rule will take effect after the EFF programme. - The classification rules for determining which entities would be deemed commercial and, on that basis, could be excluded from the coverage of the fiscal rule will be completed by October 31 2014. - Exclusion criteria include indicators consistent with fiscal and managerial independence: price setting and transfers, independence of human resource policy, financial standards, and transparency and governance. - Next steps (noted in June 2014 MEFP) relevant for the 2015/16 budget include: - Develop mechanisms to closely monitor possible fiscal costs and contingencies associated with possible PPPs. - The total loan value of all new user-funded PPPs (excluding those confirmed by the Auditor General to involve only minimal fiscal contingent liabilities) will be capped at 3 percent of GDP on a cumulative basis over the programme period (continuous structural benchmark). - Ministry of Finance and Planning to develop capacity to: (i) analyze PPP contracts and identify direct fiscal impacts and valuation of contingent obligations; (ii) disclose fiscal risks (both explicit and implicit); and (iii) review value-for-money decisions. - A database of PPP projects will be completed in October 2014. - Augment the capacity of the OAG to provide an independent assessment of macroeconomic and budget forecasts, the quality of adjustment measures and the proper treatment of PPPs; OAG to apply and interpret criteria for inclusion of public entities under the fiscal rule after the current EFF programme. Additional resources to recruit experts in public finance and macroeconomics; strengthen OAG statutory autonomy, including financial autonomy. - Undertake a comprehensive review of the sanctions and enforcement framework in consultation with Fund staff, to have a more streamlined process in place by July 2015. - Develop an improved annual risk statement; starting with the 2015/16 budget, present a comprehensive and clear fiscal risk statement covering all significant contingent liabilities including those related to commercial public sector entities and PPPs. Technical assistance expected from the IDB, the World Bank and the IMF. ### Reforms to Public Financial Management and the Budget Process - Implementing an updated action plan for public financial management reform in collaboration with development partners. - Strengthen macro-fiscal capacity of the Ministry of Finance and Planning (MOFP) with IMF TA; an action plan will be completed by September 2014 including: - Strengthening tri-partite macro-fiscal coordination among the Bank of Jamaica (BOJ), the MOFP and the Planning Institute of Jamaica (PIOJ) to improve development and review of macro-fiscal projections and policies and monitoring of macro-fiscal outcomes; improving revenue forecasting to avoid continuous deficit bias. - Re-organization and rationalization of the Fiscal Policy Management Unit (FPMU) with strengthened modeling, forecasting, impact and sensitivity analysis; recruitment of additional qualified staff for the Ministry’s FPMU. - Rationalization of cash management functions between the FPMU and the AGD. - Capacity building through regular visits of a peripatetic advisor (IMF TA) for training and hands-on support. - Treasury Single Account (TSA) at the Bank of Jamaica to be further expanded and improved: closure of imprest and various transit accounts (including clearing accounts for the payment of salaries), collection of gross revenue flows, inclusion of extra budgetary funds, executive agencies and budget-financed public bodies in the TSA. - With Fund technical assistance a plan for further expansion of the TSA will be developed by December 2014. - Review needs for a service level agreement between the BOJ and the government for banking services provided by the BOJ. - Central Treasury Management System (CTMS): established ahead of schedule (end-March 2014 structural benchmark), strengthened by including modules for tracking of expenditures; a CTMS development strategy will be prepared by March 2015. - AGD transition into a modern treasury department by March 2016 commenced in April 2013 with a consultancy; by December 2014 aim to develop an AGD modernization plan and define a new organizational structure. - AGD Modernization Task Force including MOFP and AGD expertise to be established by end-October 2014. - New Cash Management Unit to be established in the AGD; cash management function (currently handled by FPMU) will be transferred to it by June 2015. - A new cash forecasting model is expected to be developed by March 2015, with the help of IMF TA (funded by the Canadian Department of Foreign Affairs, Trade and Development). - Earlier plans to introduce an IFMIS by 2016/17 will be reevaluated in consultation with TA providers. - Adjusted Chart of Accounts first prepared in April 2014 and undergoing further revisions with a view of its implementation by November 2014. - Procurement reforms: - Government began publishing a Public Procurement Page in the print media in December 2013. - Implementation of the Electronic Tendering System in four pilot entities during the financial year 2014/15. - Adoption and effectiveness of the Procurement Act tabled by July 2014, with a view to its passing and effectiveness by January 2015. - A new procurement manual will be prepared by March 2015, with IDB assistance. ### Public Investment and Budget Preparation measures - Improved Public Investment Management System (PIMS), designed with World Bank support, will be supported by a high-level Public Investment Management Committee to be in place by August 2014. - Creation of a web-based public investment management information system, Phase 1 became operational in July 2014. - A PSIP policy paper will be before Cabinet by the end of September 2014. - Budget preparation work plan elements: - Issue by September 2014 the budget call for early and accurate budget envelopes and priorities. - Strengthen the policy to limit the use of virements and ex-post regularization of unbudgeted spending through supplementary budgets (approved in July 2014). - Strengthen development of realistic budget apportionment plans. ### Debt reduction and debt management - Government committed to sharply reducing public debt, projected to decline to 96 percent of GDP by March 2020. - Achieved through sustained fiscal efforts, policies to bolster growth, and additional measures such as debt–asset swaps and asset sales; legal and administrative processes established. - A plan of action to reduce public debt by at least 1.0 percent of GDP by early 2015 was completed in August 2014. - For the IMF-supported reform programme, reporting on public debt includes government guaranteed debt and PetroCaribe debt (net of its financing to the central government and its holdings of guaranteed debt). - Strengthen debt management strategy: increase staffing of the middle office, skills training and improvements to securities operations. - By January 2015, the BOJ and the MOFP will finalize a Fiscal Agency Agreement on debt management operations and the debt issuance process. ### Public Sector Reform and employment measures - Develop an action plan for public sector transformation by end-September 2014 (structural benchmark) covering: shared corporate services; reallocation, merger, abolition and divestment/privatization of departments and agencies; outsourcing of services; strengthening control systems and accountability (including auditing and procurement); and aligning remuneration with job requirements. - Fiscal Responsibility Framework and programme target: reduce the size of the wage bill to 9.0 percent of GDP for FY2015/16. - Wages and salaries: initiate discussions on a new wage agreement for the period after March 2015 to maintain a prudent path of public sector wages. - Public sector positions: continue to reduce the size of the public sector over 2013–15 through elimination of some posts and an attrition programme; filling of vacant positions will be constrained as needed to meet the 9.0 percent of GDP wage ceiling. - Improve public service databases in e-Census and ensure it is up to date by September 10, 2014 and covers all MDAs (structural benchmark). - Procurement of human resources software system (HCMES; including Payroll) progressing; vendor expected to be contracted by early November 2014. - Dedicated project management team for HCMES with IDB support to be in place by October 2014 and a project plan prepared by December 2014. - Start of implementation of the HCMES/Payroll system for the first entity, eGov Jamaica Ltd, expected to commence in January 2015. - Implementation for the remaining five entities (including TAJ and JCA) in Phase one expected to commence in February 2015. - Public bodies: sector’s overall balance projected to be in balance for remaining programme years. - Annual reports (including audited statements) for public bodies to be completed within six months of the end of the fiscal year: by end-2014 for self-financing public bodies and by December 2015 for all other public bodies. - Strengthen monitoring by enforcing time limits for submission of financial statements to the Auditor General and bolstering OAG capacity for in-depth reviews. - By June 2015, undertake review to evaluate scope for reintegrating some public bodies into central government and setting others at arms-length with governance aligned to international best practices. ### Financial Sector Reforms - Mitigate risks in Jamaica’s highly interconnected financial system. - Banking Services Act adopted by Parliament in June 2014; will take effect by June 2015 after finalizing subsidiary legislation. Act harmonizes prudential standards, facilitates consolidated supervision of financial conglomerates, strengthens corrective, sanctioning and resolution regime, and ensures BOJ operational independence for supervision. - Sought Fund technical assistance to develop a comprehensive strategy for crisis management and resolution frameworks centered on the securities and banking sectors. - Subject to TA review, make legislative amendments to support the strategy by end-March 2015, with stakeholder consultation to start by mid-January 2015. - FSC will provide indemnification to its staff under the PBMA for costs of legal proceedings. - Strengthen regulatory and supervisory framework for non-bank financial institutions with Fund TA. - Authorities will prepare a comprehensive strategy paper to enhance BOJ governance and autonomy for discussion by December 2014. - Amend the BOJ Act to vest the BOJ with overall responsibility for financial stability and assess need and scope for priority revisions, especially in the context of the Safeguards assessment, and address these by end-March 2015. ### Securities and investment environment - Published timetable in December 2013 for raising the cap for CIS on investments in foreign assets from 5 percent of assets to at least 25 percent by end-2015, with a first step effective as of July 1, 2014. - The cap will be removed altogether by end-2016 unless extraordinary circumstances require a reassessment. - Consultations ongoing between the BOJ, regulated entities in insurance and pensions sectors, and the FSC to assess lifting limits on permissible investments in foreign assets; BOJ and FSC to prepare a discussion paper with industry by March 2015. - Remaining tax obstacles to CIS (stamp duty and transaction tax) were removed in July 2014 through a provisional order that will expire in December 2014 and could be renewed for periods of three months; legislative amendments will be adopted by end-December 2014 to remove these obstacles for a longer period. *IMF staff report (extract).* ### 18. We are implementing measures to protect the interest of retail repo clients. In ### _cr14295 - 18. We are implementing measures to protect the interest of retail repo clients. In ### Retail repo client protection: trust-based framework - Establish a distinct treatment for retail repo clients in the legal and regulatory framework to protect their interests prior to and in the event of the insolvency of a securities dealer. - Key components of the framework: - Standardized legal documentation for retail repo transactions, including a master retail repurchase agreement and trust deed. - Reporting and other regulatory requirements for the securities dealers who are parties to retail repurchase agreements. - Reporting and other regulatory requirements for the Jamaica Stock Exchange entities that will serve as custodian and trustee with respect to the trust arrangement. - Definitive legal treatment for the retail repo client interests in the event of a dealer's insolvency. - Trust functions: - Hold the underlying securities on behalf of retail repo clients during the term of the retail repo. - Ensure funds and securities flow in accordance with the terms of the retail repo agreement. - Responsible for custody of securities underlying retail repo transactions. - Facilitate appropriate actions in the event of transaction failure or default. - Ensure each retail repo client's interest in the underlying securities is clearly and uniquely identified and held apart from the dealer’s estate in the event of insolvency. - Implementation timeline and interim steps: - By September 2014, finalize the transaction structure for the trust-based framework. - By end-December 2014, the legal and regulatory framework supporting this framework will be in place (structural benchmark). - Finalize transition of retail repos to the trust-based framework by end-June 2015, taking into account evolving market conditions and ensuring financial stability. - Start a pilot by end-February 2015. - Start the transition by mid-April 2015. ### Strengthening the securities dealer sector and contingency measures - Actions to ensure financial and operational readiness of securities dealers for the trust-based framework, supported by joint focused stress tests by the FSC and BOJ that concluded mid-August 2014. - Planned measures and timing: - By end-September, set up backstop facilities for exceptional financial support for the securities dealers. - By end-October 2014, put in place contingency plans for the securities and banking sectors to maintain broader financial stability. ### Prudential standards and sector reform - Medium-term objective: gradual tightening of prudential standards in line with best international practice to reform the securities dealers sector and ensure the retail repo business is systemically safe and prudentially manageable. - Specific measures and timing: - By end-September 2014, the FSC will establish (i) an initial minimum transaction size for retail repos, and (ii) a timetable to gradually increase the minimum transaction size. - By mid-November 2014, put in place a strategy for the gradual tightening of prudential standards. - Possible supporting measures: - Gradual tightening of capital and liquidity ratios. - Tapering of the intermediation ratio. - Operational and/or regulatory measures to discourage investors from closing retail repo positions prior to contractual maturity. - The FSC will continue to enhance monitoring and reporting methods for securities dealers. ### Monetary and exchange rate policy (contextual link) - Monetary policy remains aimed at achieving single digit inflation within a flexible exchange rate regime. - BOJ forecasts and objectives: - For FY2014/15, the BOJ’s forecast for inflation is in the range of 7 percent to 9 percent. - Over the medium term, envisage inflation to come down to a range of 6 percent to 8 percent. - Longer term objective: achieve a gradual reduction of inflation to a rate consistent with that of main trading partners, in the context of a possible move to full-fledged inflation targeting. - BOJ liquidity operations: - BOJ has removed the volume limit on its Standing Liquidity Facility. - Over FY 2014/15, BOJ will continue to refine monetary policy operations to increase certainty in liquidity provision at a price consistent with policy goals. ### Implementation status and structural benchmarks (selected entries relevant to retail repo/legal treatment) - Structural benchmarks and timing (financial sector): - Government to submit proposals for a distinct treatment for retail repo client interests in the legal and regulatory framework to the relevant financial industry for consultation (MEFP March 2014 Paragraph 25) in consultation with Fund staff — March 31, 2014 — Met. - Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework (June 2014 MEFP Paragraph 29) in consultation with Fund staff — December 30, 2014. *Italic: Extracted from the IMF document _cr14295 (excerpt provided).* ### 23. Government to table the Omnibus Banking Law ### 23. Government to table the Omnibus Banking Law ### Structural program conditionality and timelines - Government to table the Omnibus Banking Law (currently referred to as the Banking Services Act) — action consistent with Fund Staff advice to facilitate effective supervision of the financial sector. - Met: March 31, 2014. 2/ - Note: The law was tabled in March 2014 with subsequent fine-tuning in collaboration with Fund staff prior to its adoption in June. - Government to implement a new (AMANDA) tracking system to track approval of construction permits across all parish councils. - Deadline: December 30, 2014 - Government to table in parliament the Electricity Act. - Deadline: January 31, 2015 - Proposed revision noted for the Electricity Act entry. ### Technical Memorandum of Understanding (TMU): scope and exchange rate basis - The TMU sets out definitions of quantitative performance criteria and indicative targets for the programme supported by the extended arrangement under the EFF, methods for assessing programme performance, and information requirements for monitoring targets. - For programme purposes, all foreign currency-related assets, liabilities and flows will be evaluated at “programme exchange rates” that prevailed on December 31, 2013, except items affecting government fiscal balances, which are measured at current exchange rates. - Table 1. Program Exchange Rates (End-December, 2013)/1: - Jamaican dollar to the US dollar 106.38 - Jamaican dollar to the SDR 163.83 - Jamaican dollar to the euro 139.97 - Jamaican dollar to the Canadian dollar 99.72 - Jamaican dollar to the British pound 175.84 - 1/ Average daily selling rates at the end of December 2013 ### Quantitative performance criteria: definitions and reporting requirements - General: - Central government for programme purposes consists of the set of institutions currently covered under the state budget and includes public bodies financed through the Consolidated Fund. - Fiscal year: starts April 1 and ends March 31. - 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 government revenue account; include grants; exclude capital revenues from asset sales from divestment operations. - Primary expenditure recorded on a cash basis and includes compensation, other recurrent expenditures, capital spending, and transfers to non-self-financed public bodies. - Costs associated with divestment operations or liquidation of public entities allocated to current and capital expenditures accordingly. - All primary expenditures directly settled with bonds or other non-cash liability recorded above-the-line and financed with debt issuance, affecting 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: - Public sector = central government + public bodies. Sector membership determined by control per GFS Manual 2001. - Public bodies include all self-financed public bodies, including the 17 “Selected Public Bodies” and “Other Public Bodies”. - The 18 “Selected Public Bodies” include: 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); National Road Operating and Constructing Company Ltd. (NROCC); Petro-Ethanol; Clarendon Aluminum Production (CAP). - “Other Public Bodies” include (selection as listed): 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; 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 of public bodies derived from Statement A’s provided by the Public Enterprises Division of the MoFP. - Definition of overall balance: operational balance + capital account net of revenues (investment returns minus capital expenditure plus change in inventories) minus dividends and corporate taxes transferred to government + net other transfers from government. - Special case: For NHT and HAJ, capital account revenues are included among recurrent revenue (not netted out). - Adjustments to definitions of Selected/Other Public Bodies allowed as rationalization occurs; will not affect performance criterion unless stated. - Overall public sector balance = sum of 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. - Adjuster: Floor for overall public sector balance will be adjusted downward (upward) by shortfall (excess) of PetroJam’s overall balance relative to baseline projections in Table 2; adjustment capped at J$3.5 billion at the end of any quarter. - Table 2. Overall Balance of Petrojam (Baseline Projection) — In billions of Jamaican dollars: - End-June 2014 2.9 - End-September 2014 -3.7 - End-December 2014 -2.0 - End-March 2015 -3.8 - End-June 2015 2.5 - C. Ceiling on the Stock of Central Government Direct Debt: - Definition: 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 programme exchange rate. - Change in stock of debt measured “below the line” as all debt issuance minus repayments on all central government debt. - For computing target, debt inflows recorded when 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 are called; adjusted downwards if net divestment revenues occur; adjusted for cross-currency parity changes; and for pre-financing reflected by increase in central government deposits. - D. Ceiling on the 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 other debt types; foreign currency converted at programme exchange rate. - Excludes loans to public entities from the PetroCaribe Development Fund. - Cumulative targets computed as difference between stock as of end-March each year and stock as of target date. - Cumulative net increase monitored continuously. - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date. - Adjuster: if government debt guarantees are called, the stock of guaranteed debt adjusted downwards to preserve performance criteria. - E. Ceiling on Central Government Accumulation of Domestic Arrears: - Definition: domestic arrears = payments to residents determined by contractual obligations unpaid 90 days after due date; due date reflects contractual agreement including grace periods. - Includes arrears on domestic central government direct debt, suppliers and all recurrent and capital expenditure commitments. - Accumulation measured as change in stock of domestic arrears relative to stock at end-March 2013, which stood at J$21.6 billion. - Ceiling monitored continuously. - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date. - F. Non-Accumulation of External Debt Payments Arrears: - Consolidated government = central government + public bodies as defined. - External debt determined according to residency criterion. - Debt defined per Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements, Decision No. 6230–(79/140), as amended, covering loans, suppliers’ credits, and leases (present value at inception). - Arrears, penalties and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt are debt. - External payments arrears consist of arrears of external debt obligations falling due after March 29, 2013 that have not been paid at the time due, taking into account contractual grace periods. - Arrears resulting from nonpayment of debt service for which a clearance framework has been agreed or rescheduling is being sought are excluded. - Consolidated government and BOJ will accumulate no external debt payment arrears during the programme period. - External debt payment arrear defined as payment by consolidated government and BOJ not made within seven days after falling due. - Stock of external arrears calculated based on schedule reported by MoFP; reconciled with creditors and adjustments incorporated as they occur. - Criterion does not cover arrears on trade credits. - Performance criterion applies continuously. - Reporting: MoFP to provide final data on stock of external arrears of consolidated government and BOJ with a lag of no 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 that remain unpaid 90 days after due date. - Accumulation measured as change in stock relative to stock at end-March 2013, which stood at J$24.6 billion. - Monitored continuously. - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date. - H. Floor on the Cumulative Change in Net International Reserves (NIR): - NIR of the BOJ = U.S. dollar value of gross foreign assets of BOJ minus gross foreign liabilities with maturity less than one year; non-U.S. dollar assets/liabilities converted at programme exchange rates. - Gross foreign assets defined consistent with BPM6; include monetary gold, SDR holdings, foreign currency cash, foreign currency securities, liquid balances abroad and reserve position at the Fund. - Exclusions: assets pledged, collateralized or encumbered; claims on residents; claims in foreign exchange from derivatives vis-à-vis domestic currency; precious metals other than gold; assets in nonconvertible currencies; illiquid assets. - Gross foreign liabilities include all foreign exchange liabilities to nonresidents, including commitments to sell foreign exchange from derivatives and all credit outstanding from the Fund (including credit used for financing of the FSSF, but excluding credit transferred by the Fund into a Treasury account to meet government financing needs directly). - In deriving NIR, credit outstanding from the Fund is subtracted from foreign assets regardless of maturity. - Reporting: BOJ to provide data to the Fund with a lag of no more than five days past the test date. - Adjusters: NIR targets adjusted upward (downward) by surplus (shortfall) in programme loan disbursements from IBRD, IDB and CDB relative to baseline in Table 3; adjusted by surplus (shortfall) in disbursements of budget support grants relative to baseline in Table 3; adjusted by surplus (shortfall) in IMF budget support purchases relative to baseline in Table 3. - Table 3. External Program Disbursements (baseline projection) — Cumulative flows from the beginning of the fiscal year (In millions of US$): - External loans from multilateral sources - End-September 2014 41 - End-December 2014 141 - End-March 2015 176 - End-June 2015 42 - Budget support grants - End-September 2014 15 - End-December 2014 24 - End-March 2015 39 - End-June 2015 0 - IMF budget support disbursements - End-September 2014 70.77 - End-December 2014 141.54 - End-March 2015 141.54 - End-June 2015 0 - Additional NIR adjuster: adjusted by amount by which cumulative changes from end-December 2013 in BOJ’s foreign exchange liabilities to residents with maturity less than one year (including banks’ foreign currency deposits in BOJ) are higher (lower) than baseline projection reported in Table 4. ### Reporting lags and continuous monitoring - Reporting lags specified for various criteria: - Central government primary balance: no more than four weeks after test date. - Overall public sector balance: no more than 6 weeks after test date. - Central government debt and guaranteed debt: no more than four weeks after test date. - Domestic arrears and tax refund arrears: no more than four weeks after test date. - External arrears (consolidated government and BOJ): no more than two weeks after test date. - NIR (BOJ): no more than five days past the test date. - Several performance criteria are monitored on a continuous basis (cumulative net increase in guaranteed debt; central government accumulation of domestic arrears; non-accumulation of external debt payments arrears; central government accumulation of tax refund arrears). *Source: _cr14295 - 23. Government to table the Omnibus Banking Law* ### 39. Definition: The Bank of Jamaica’s net domestic assets (NDA) are defined as the difference ### Definition: The Bank of Jamaica’s net domestic assets (NDA) are defined as the difference ### NDA definition - The NDA are defined as the difference between the monetary base and NIR, converted into Jamaican dollars at the programme exchange rate. - 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 and adjusters for the NDA target - Reporting: - Data will be provided to the Fund with a lag of no more than three weeks after the test date. - Adjusters to the NDA target (direction specified): - Downward (upward) adjustment for the surplus (shortfall) in programme loan disbursements from multilateral institutions (the IBRD, IDB and CDB) relative to the baseline projection reported in Table 3, converted into Jamaican dollars at the programme exchange rate. - Downward (upward) adjustment for the surplus (shortfall) in disbursements of budget support grants relative to the baseline projection reported in Table 3, converted into Jamaican dollars at the programme exchange rate. - Downward (upward) adjustment for the surplus (shortfall) in IMF budget support purchases relative to the baseline projection reported in Table 3, converted into Jamaican dollars at the programme exchange rate. - Downwards (upwards) adjustment by the amount by which, at a test date, the cumulative changes from end-December 2013 in BOJ’s foreign exchange liabilities to residents with a maturity of less than one year (including banks’ foreign currency deposits in BOJ) are higher (lower) than the baseline projection for this change reported in Table 4, converted into Jamaican dollars at the programme exchange rate. ### Reserve liabilities items (selected figures reported) - BOJ's foreign liabilities to residents — Outstanding stock: - End-December 2013 282.7 - Cumulative change from end-December 2013: - End-June 2014 38.2 - End-September 2014 44.9 - End-December 2014 51.6 - End-March 2015 62.7 - End-June 2015 67.3 - Note: 1/ Converted at the programme exchange rates. ### Quantitative indicative target: Cumulative floor on central government tax revenues - Definition: - Tax revenues refer to revenues from tax collection. - Excludes all revenues from asset sales, grants, bauxite levy and non tax revenues. - 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. ### Floor on central government social spending (definition and composition) - Definition: - Social spending is computed as the sum of central government spending on social protection programmes as articulated in the central government budget for a particular fiscal year. - 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. - Capital expenditure components (must be included): - Youth employment programmes comprising on the job training, summer employment and employment internship programme. - Conditional cash transfers comprising children health grant, children education grants, tertiary level, pregnant and lactation grants, disabled adult grants, adult under 65 grants and adults over 65 grants. - Poor relief programme. - Recurrent expenditure components (must be included): - School feeding programmes including operating costs; - Poor relief (both indoor and outdoor) including operating costs; - Golden Age Homes; - Children’s home, places of safety and foster care including operating cost; - Career Advancement Programme; 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 - Continuous structural benchmark: - Granting of new discretionary waivers is subject to a de minimis cap’ of J$10 million in any month. - 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. - Exclusions from the cap: - Tax measures related to international treaties not yet ratified and provisions for CARICOM suspensions which are binding international legal obligations. ### Conditionality on user-funded PPPs - Continuous structural benchmark: - Total loan value of all new user-funded PPPs contracted after May 1, 2013 will be capped at 3 percent of GDP on a cumulative basis over the programme period. - At end-June 2014, the total loan value of existing user-funded PPPs contracted after May 1, 2013 was zero. - Exclusion criteria: - The loan value of a PPP may be excluded if the Office of the Auditor General has established that the PPP involves only minimal contingent liabilities (demonstrating no debt guarantee, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government). - Applicable GDP reference: - The applicable GDP is the projected nominal GDP for the fiscal year published in the Fiscal Policy Paper tabled in parliament ahead of the adoption of the budget. - For FY2014/15, the projected nominal GDP used as a reference is J$1,617 billion, as presented in Table 2E, Medium-Term Macroeconomic Profile, part II, Macroeconomic Framework, page 11. ### Information requirements (reporting frequency and selected items) - 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. - Liquidity assistance to institutions from the BOJ, by institution. - Bank of Jamaica purchases and sales of foreign currency, by transaction type (surrenders, public sector entities facility and outright purchases or sales including interventions). - Amounts offered, demanded and placed in Bank of Jamaica open market operations, including rates on offer for each tenor and amounts maturing for each tenor. - Amounts offered, demanded and placed in government of Jamaica auctions and primary issues; including minimum maximum and average bid rates. - Daily foreign currency government of Jamaica debt payments (domestic and external). - Weekly: - Balance sheets of the core securities dealers (covering at least 70 percent of the market), including indicators of liquidity (net rollovers and rollover rate for repos and a 10 day maturity gap analysis), capital positions, details on sources of funding, including from external borrowing on margin and clarity on the status of loans (secured vs. unsecured). Weekly reports will be submitted within 10 days of the end of the period. - Deposits in the banking system and total currency in circulation. - Monthly (reporting lags specified): - Central government operations including monthly cash flow to the end of the current fiscal year, 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. - Central government debt amortization and repayments, by instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans). Includes government direct, government guaranteed and total. Reporting lag should not exceed four weeks after the closing of each month. - Balances of the Consolidated Fund and main revenue accounts needed to determine the cash position of the government. - Stock of central government expenditure arrears. - Stock of central government tax refund arrears. - Stock of central government domestic and external debt arrears and BOJ external debt arrears. - Central government spending on social protection programmes as defined for the indicative target on social spending. - Central government debt stock by currency, as at end month, including by (i) creditor (official, commercial domestic, commercial external; (ii) instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); (iii) direct and guaranteed. Reporting lag should not exceed four weeks after the closing of each month. - The maturity structure of Government debt (domestic and external). 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. Including Bank of Jamaica outstanding open market operations by currency and maturity and a detailed decomposition on Bank of Jamaica and commercial bank net claims on the central government, 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 core securities dealers and insurance companies within six weeks of month end. - The maturity profile of assets and liabilities of core securities dealers in buckets within six weeks of month end. - Data on reserve liabilities items for NIR target purposes (Table 9) within three weeks after month end. - A full set of monthly FSIs regularly calculated by the BOJ, including liquidity ratios, within eight weeks of month end. - Monthly balance sheet data of deposit taking institutions, as reported to the BOJ, within four weeks of month end. - Imports and exports of goods, in US$ million within twelve weeks after month end. - Tourism indicators within four weeks after month end. - Remittances’ flows within four weeks after month end. - Consumer price inflation, including by sub-components of the CPI index within four weeks after month end. - The balance sheet of the PetroCaribe Development Fund with a lag of no more than six weeks after the closing of each month. - Data on 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. - Data on the total loans value of all new user-funded PPPs, specifying the PPPs identified by the Office of the auditor General as involving only minimal contingent liabilities (including the absence of debt guarantees, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government). - Quarterly: - Holdings of government bonds (J$-denominated and US$-denominated) by holder category. Reporting lag should not exceed four weeks after the closing of each month (not applicable to external and non-financial institutional holdings of GOJ global bonds). - Use of the PetroCaribe Development Fund, including loan portfolio by debtor and allocation of the liquidity funds in reserve within six weeks after month end. - The stock of public entities non-guaranteed debt. - 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 profitability ratios (against regulatory minima) for DTI’s and non-bank financial institutions within eight weeks of quarter end. - FSC status report detailing compliance (and any remedial measures introduced to address any non compliance) with the agreed guidelines for the operation of client holding accounts at the Jam Clear@ CSD and FSC independent verification of daily reconciliations using data provided by Jam Clear@ CSD. Reports are due within four weeks of end quarter. - 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. *Italic: Press Release No. 14/436 — September 24, 2014: IMF Executive Board Concludes Fifth Review under the Extended Fund Facility with Jamaica and Approves US$68.8 Million Disbursement* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14295.pdf_