## _cr15150 ## Source details **Canonical URL:** [_cr15150](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15150.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15150.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15150.pdf.json) --- ### Executive summary — Macroeconomic environment - Growth estimated at 0.2 percent in FY2014/15; projected to approach 2 percent in 2015/16 with a drought rebound expected to boost growth by ¾ percentage point. - Business confidence highest since 2007 in Q1 2015; consumer confidence strengthened. - Government signed a US$625 million concession agreement in April 2015 to upgrade and expand the Kingston Container Terminal (KCT). - Inflation dropped to 4 percent (y/y) in March 2015; inflation expected to rise later in 2015 but remain below 7 percent by end 2015/16. - Bank of Jamaica 30-day deposit rate adjusted in April to 5.5 percent; interest rate corridor narrowed by 50 basis points; BOJ liquidity operation rates lowered by 75 basis points. Market 6-month T-bill rates: 6.7 percent at end-May 2015 (from 7.1 percent at end-2014). - Real effective exchange rate broadly stable; rate versus the U.S. dollar depreciated about 5 percent (y/y) by end-March 2015. - Current account deficit shrank by 23 percent y/y in Q4 2014, driven by sharply lower oil import bill. Imports of capital goods increased by 37 percent; remittances up 7 percent (y/y) in January 2015; food imports fell by 4½ percent (y/y) in 2014. - Net international reserves rose to US$ 2.4 billion by end-April 2015. ### Program implementation and fiscal performance - All quantitative performance criteria and continuous quantitative targets for end-March 2015 met except the end-March performance criterion for the primary balance of the central government. - Primary surplus of the central government for FY2014/15 fell short of the program floor by J$3.8 billion (0.2 percent of GDP); primary surplus estimated at 7.5 percent of GDP (program’s main fiscal anchor). - Overall fiscal balance of the public sector target comfortably met, aided by lower interest costs and stronger public enterprise surpluses. - Tax revenue missed end-March indicative floor; shortfall equals 0.6 percent of GDP excluding a budget-neutral accounting impact. - Net international reserves (NIR) and net domestic assets (NDA) significantly outperformed program targets. - Structural reform timetable broadly proceeding: entity-by-entity review of grandfathered firms completed marginally later than end-January target; legislation tabled to amend property tax law, counter transfer pricing, and introduce a Minimum Business Tax; Chief Information Officer appointed in March 2015; LTO staff expanded by 30 auditors and audits increased by 100 percent. - Electronic filing and payment take-up in the LTO reached 80 percent (target 95 percent) due to technology difficulties and continued reliance on bank drafts. ### Fiscal policy challenges and measures - 2015/16 budget adopted March 27, 2015; maintains central government primary surplus target of 7.5 percent of GDP; increases health outlays and raises fuel taxes. - Public debt projected to decline but remain high, reaching 103.3 percent of GDP by 2020 under the program path. - Authorities adopted a tax revenue package expected to yield 0.6 percent of GDP (mostly from higher fuel taxes). - Wage bill targeted to fall from projected 9.9 percent of GDP in FY2015/16 to 9 percent of GDP in FY2016/17; measures to date largely nominal wage freezes. - Tax package measures include: GCT on electricity consumption above 350 kwH per month (about 6 percent of residential customers) and a J$7 per liter increase in specific excise tax on automotive fuels; these measures expected to yield 0.4 percent of GDP in additional revenues. Part of proceeds to fund an Energy Stabilization and Energy Efficiency Enhancement Fund (ESEF). - Staff guidance: design transparent hedges; resources from the financial hedge should focus on mitigating higher oil-price impacts on the poor and enhancing fuel efficiency, not stabilizing domestic fuel prices. - Revenue administration priorities: implement National Compliance Plan; organizational restructuring; LTO strengthening, automation, and creation of monitorable productivity indicators (structural benchmark). - Export Free Zones to be replaced with Special Economic Zones (SEZs) by end-2015; proposed structural benchmark to submit SEZ tax-regime legislation by October 2015 and limit eligibility, tax incentives, and ministerial discretion. ### Monetary and financial sector developments - Bank credit growth to the nonfinancial private business sector flat in real terms in Q1 2015; some financing shifted to corporate bond issuance. - Bank lending rates have fallen since start of 2015; Jamaica’s sovereign bond spread relative to emerging-market average continued to decline. - Prudential indicators: banks remain sound with stable NPLs and capital adequacy, but exposure to public sector debt remains high. - Vulnerabilities: securities dealers sector transitioning to a new model and a still-frozen domestic government bond market; repo liabilities to individual retail clients among securities dealers continue to fall. ### Risks, outlook, and staff recommendations - Risks receding but remain high: without stronger economic activity, social support for reforms and tight fiscal stance may falter. - External shocks (higher U.S. interest rates, changes in PetroCaribe flows) could affect external financial flows. - Continued weakness in budget revenue could jeopardize sustainability of fiscal consolidation. - Planned securities dealers reform and frozen domestic government bond market pose financial stability risks. - Staff supports completion of the eighth review of the arrangement and emphasizes capitalizing on improving confidence to catalyze private investment, employment, and growth through a comprehensive growth strategy addressing macro stability, job-creating investments, and business environment improvements. ### Box 1 — Supply and Demand of Bank Credit (key findings) - Bank credit to the private sector stagnated at around 30 percent of GDP. - Bank credit growth averaged 0.4 percent (y/y) in real terms during 2014. - Supply-side constraints: government crowding-out, concentration in established clients, higher NPLs, recent debt exchanges, and inadequate liquidity since early 2014. - Demand-side constraints: sluggish real GDP and income growth, pervasive informality. - Econometric model (2008–2014): credit demand positively affected by growth prospects and US growth; higher real interest rates lower demand. Credit supply driven by liquidity and deposit growth, held down by higher NPLs and higher banks’ exposure to the public sector. Supply constraints eased recently as BOJ injected liquidity through repo instruments and standing facilities. --- ### Public financial management and treasury operations - Plan to improve procurement and bring all government agencies into the Treasury Single Account (TSA) with FAD long-term advisor support. - Establish a Cash Management Unit to improve cash planning. - Accountant General Department modernizing and refocusing on treasury core function while expanding automation of work processes. - After bond issuance to prefinance summer 2015 debt, authorities expect to re-access international capital markets later in the year in line with the new Medium-Term Debt Strategy. ### Fine-tuning monetary conditions and exchange rate policy - Scope for gradual monetary easing conditional on inflation and reserve adequacy goals; BOJ injecting liquidity since early 2014. - Operational reforms: narrowing interest rate corridor; introduction of auctions for periodic repo operations; strengthening instruments anchoring the interest-rate corridor; exploring options to re-liquefy the secondary domestic bond market. - By end-2015, BOJ to publish first annual report on readiness to move to an inflation targeting framework. - Exchange rate assessment (Box 2): CEGR and EBA-lite do not offer clear evidence of REER misalignment; different methodologies yield mixed indications of under- and overvaluation; statistical confidence intervals very large. - Reserve adequacy: international reserves at 80.4 percent of benchmark in 2015, below suggested adequacy range of 100–150 percent. Policy implication: continue exchange rate flexibility and central bank reserve purchases as insurance. ### Financial sector reform and stability - Securities dealers: transition retail repos to a trust structure by end-August 2015 (structural benchmark) to protect retail clients; prudential tightening to encourage shift toward Collective Investment Schemes (CIS). - Regulatory strengthening: Banking Services Act adopted June 2014; implementing regulations to be adopted by end-September 2015 (structural benchmark). Amendments to give BOJ overall responsibility for financial stability to be submitted by end-July (timeline referenced). - Authorities preparing proposals to enhance BOJ governance and autonomy per IMF Safeguards Assessment. --- ### Growth-enhancing structural reforms and investment climate - Growth Agenda Policy Paper presented March 2015; aims to strengthen accountability of implementing agencies. - Administrative reforms: streamline development application process; online business registration; accelerate land registration. - Access to credit and financial inclusion: credit to private sector ~30 percent of GDP; credit bureaus and a collateral registry established; next steps include mobile banking, movable property collateral, and better nonbank credit data. - Electricity and energy: Electricity Act effective June 2015; Bogue power plant conversion from diesel to LNG expected early 2016; new 190 MW LNG-based plant planned; three renewable projects under construction totaling 78 MW. - Private participation and infrastructure: KCT concession, North-South Highway, airport privatization (five bidders shortlisted; preferred bidder expected November/December 2015), new Customs Act and electronic systems planned. - Social protection: National Social Protection Committee established; PATH beneficiary graduation strategy to commence mid-2015 with Steps-to-Work. --- ### Program design, conditionality, and financing - Additional program conditions proposed for the next 12 months; performance criteria for end-March 2016 being proposed. - Minor amendments to PCs for June, September, and December 2015 for NIR and NDA (accounting change) and overall public sector balance and guaranteed debt to reflect updated budget projections. - Temporary accommodation under central government direct debt ceiling to allow pre-financing of maturities due by fiscal year-end. - New structural benchmark proposed: submit SEZ tax-regime legislation by October 2015. - Program remains fully financed; staff assessment of Jamaica’s capacity to repay Fund broadly unchanged. Financing from other IFIs for 2015/16 expected in line with or somewhat above initial commitments. Debt service to the Fund and purchase profile unchanged absent macro revisions. - Staff supports completion of the eighth review, modification of performance criteria for end-June, end-September and end-December 2015, establishment of end-March 2016 performance criteria, and a waiver for nonobservance of the end-March 2015 central government primary surplus PC. Waiver justified by minor magnitude and corrective actions. --- ### Structural benchmarks, selected status highlights - Fiscal rule legislation revision — Met (March 31, 2014). - Public sector employment/remuneration review — Met (March 31, 2014). - E-filing mandatory in LTO for GCT and CIT — Met (March 31, 2014). - ASYCUDA World implemented for Kingston Port pilot — Met (December 31, 2014); pilot testing completion target May 31, 2015. - LTO staffing increase by 30 auditors and audits up 100 percent — Met; 95 percent e-filing take-up target Not met (take-up rate 80 percent). - Entity-by-entity review of grandfathered tax incentives — Not met (target Jan 31, 2015; reportedly completed March 2015). - Transition of retail repos to trust-based framework — Targeted completion August 30, 2015 (structural benchmark). - Implement Phase 2 of RAiS (GENTAX) by December 31, 2015 (structural benchmark). - Banking Services Act implementing regulations — Adopt by end-September 2015 (structural benchmark). - BOJ responsibility for financial stability — Effective November 1, 2015 (structural benchmark). ### Selected quantitative fiscal and monetary figures (as reported) - Primary balance of the central government (floor) (cumulative flows Apr 1–Mar 31): sample entries include 121.0, 117.2, 17.0, 17.0, 40.0, 40.0, 65.0, 65.0, 12.6, 0 - Tax Revenues (floor): sample entries include 84.0, 370.9, 88.0, 88.0, 189.0, 185.0, 287.0, 280.0, 411.0 - Overall balance of the public sector (floor): sample entries include -11.6, -12.6, 6.5, -21.0, -21.0, -33.0, -34.0, -35.0, -36.0, -3.7 - Central government direct debt (ceiling): sample entries include 0.6, 76.8, 4.5, 4.5, 0.0, 40.0, 12.0, 41.0, 71.0 - Cumulative change in net international reserves (floor) (in millions of U.S. dollars): sample entries include 1997.7, 529.4, 352.3, 1289.9, 470.3, -482.2, 469.0, -463.3, 614.5, -338.0, -339.0 - Cumulative change in net domestic assets (ceiling): sample entries include -120.2, -55.1, -36.3, -139.9, -45.7, 54.4, -44.0, 56.1, -45.5, 53.8, 24.2 ### TMU highlights and reporting requirements - Programme exchange rates (end-December 2014): Jamaican dollar to the US dollar 114.66; to the SDR 166.12; to the euro 139.21; to the Canadian dollar 97.69; to the British pound 177.68. - Fiscal year: April 1 to March 31. - NIR definition: BOJ gross foreign assets minus gross foreign liabilities with maturity less than one year; converted at programme exchange rates; NIR reporting lag no more than five days after test date. - NDA definition and reporting: NDA = monetary base minus NIR (converted); reporting lag no more than three weeks after test date. - Baseline projections (cumulative flows, in millions of US$) — External loans from multilateral sources: End-March 2015 185; End-June 2015 100; End-September 2015 151; End-December 2015 197; End-March 2016 279. - BOJ foreign liabilities outstanding stock End-December 2014 242.0; cumulative changes: End-March 2015 103.4; End-June 2015 108.0; End-September 2015 94.1; End-December 2015 126.1; End-March 2016 158.2. - Daily, weekly, monthly, quarterly and annual reporting schedules specified for NIR, BOJ operations, securities dealers data, central government operations, public bodies’ Statement A, stock of arrears, FSIs, trade and tourism indicators, CPI, remittances, and other items (various specified lags). --- ### Staff appraisal — priorities and risks (summary) - Halfway into a four-year program: activity slowly rebounding; lower oil prices improved current account and reduced inflation to lowest point in nearly fifty years. - Policy priorities: proactive growth strategy implementation; proceed with scheduled investments in new power plants; deepen financial inclusion and improve SME access to capital; trade facilitation and red-tape removal; continued exchange rate depreciation to safeguard competitiveness; calibrate monetary conditions to support private credit expansion while maintaining low inflation; move BOJ toward inflation targeting over time; finalize transition of retail repos to trust by August; strengthen BOJ responsibilities, governance and autonomy; explore options to reliquify domestic government bond market; protect social spending while targeting central government primary surplus of 7.5 percent of GDP; focus on tax compliance and administration; secure sustainable reduction in public sector wage bill via civil service reform; improve public financial management efficiency. - Program assessment: risks remain high but authorities’ commitment and implementation support higher growth, job creation, social welfare improvements, and sustainable debt path. EPOC continues strategic monitoring role. Corrective action adopted for minor primary surplus breach. *Source: _cr15150 - EXECUTIVE SUMMARY and MEFP chapter excerpts* ### EXECUTIVE SUMMARY ### _cr15150 - EXECUTIVE SUMMARY ### An improving macroeconomic environment - Growth is estimated at 0.2 percent in FY2014/15, weighed down by agricultural drag from last year’s drought. - Growth is projected to approach 2 percent in 2015/16, with the drought rebound expected to boost growth by ¾ percentage point. - Business confidence reached its highest level since 2007 in Q1 2015; consumer confidence has also strengthened. - The government signed a US$625 million concession agreement in April 2015 to upgrade and expand the Kingston Container Terminal (KCT). - Inflation dropped to 4 percent (y/y) in March 2015; inflation is expected to rise later in 2015 but remain below 7 percent by end 2015/16. - The Bank of Jamaica adjusted its 30-day deposit rate in April to 5.5 percent and narrowed the interest rate corridor by 50 basis points; rates on BOJ liquidity operations were lowered by 75 basis points. Market 6-month T-bill rates dropped to 6.7 percent at end-May from 7.1 percent at end-2014. - The real effective exchange rate was broadly stable over the past year; the rate versus the U.S. dollar depreciated about 5 percent (y/y) by end-March 2015. - The current account deficit shrank by 23 percent y/y in the last quarter of 2014, driven by a sharply lower oil import bill. Imports of capital goods increased by 37 percent; remittances were up 7 percent (y/y) in January 2015. Food imports fell by 4½ percent (y/y) in 2014. - Net international reserves rose to US$ 2.4 billion by end-April 2015. ### Program implementation remains on track - All quantitative performance criteria and continuous quantitative targets for end-March 2015 were met except the end-March performance criterion for the primary balance of the central government. - The primary surplus of the central government for FY2014/15 fell short of the program floor by J$3.8 billion (0.2 percent of GDP), reflecting downward revisions to growth and inflation and recent tax reforms complicating seasonality assessment. Nonetheless, the primary surplus is estimated at 7.5 percent of GDP—the program’s main fiscal anchor. - The overall fiscal balance of the public sector target was comfortably met, aided by lower interest costs and stronger public enterprise surpluses. - Tax revenue missed the end-March indicative floor; the shortfall reflects erosion of the tax base from lower imports, a more stable exchange rate, lower nominal GDP growth, and lower interest payments. The tax revenue shortfall amounted to 0.6 percent of GDP excluding a budget-neutral accounting impact. - Net international reserves (NIR) and net domestic assets (NDA) significantly outperformed program targets. - Structural reform timetable broadly proceeding: entity-by-entity review of grandfathered firms completed (marginally later than the end-January target); legislation tabled to amend property tax law, counter transfer pricing, and introduce a Minimum Business Tax; Chief Information Officer appointed in March 2015 to lead e-government; LTO staff expanded by 30 auditors and audits increased by 100 percent. - Electronic filing and payment take-up in the LTO reached 80 percent, short of the 95 percent target due to technology difficulties and continued reliance on bank drafts. ### Fiscal policy challenges - The 2015/16 budget increases health outlays and raises fuel taxes while maintaining a primary surplus target of 7.5 percent of GDP. - Public debt is projected to decline but remain high, reaching 103.3 percent of GDP by 2020 under the program path. - The authorities adopted a tax revenue package expected to yield 0.6 percent of GDP (mostly from higher fuel taxes) and continued revenue administration reforms. - The large wage bill is proving slow to decline, constraining space for public investment. Authorities aim to reduce the wage bill from a projected 9.9 percent of GDP in FY2015/16 to 9 percent of GDP in FY2016/17, relying to date largely on nominal wage freezes. - The new tax package broadens the GCT base to electricity consumption above 350 kwH per month and raises the specific excise tax on automotive fuels by J$7 per liter; these measures are expected to yield 0.4 percent of GDP in additional revenues. Part of proceeds will fund an energy stabilization fund for a financial hedge against future oil price increases and investments in climate-friendly energy projects. Staff emphasized transparent hedge design and that resources from the financial hedge should focus on mitigating higher oil-price impacts on the poor and enhancing fuel efficiency, rather than stabilizing domestic fuel prices. - Strengthening revenue administration is critical: implementation of a National Compliance Plan, organizational restructuring of revenue administration, LTO strengthening, automation, and creation of monitorable productivity indicators (a structural benchmark). - Export Free Zones will be replaced with Special Economic Zones (SEZs) by end-2015 to meet WTO obligations; authorities agreed to carefully limit the types of firms eligible for SEZs, limit tax incentives, and prevent ministerial discretion in incentives (a proposed structural benchmark on SEZ design). ### Monetary and financial sector developments - Bank credit growth to the nonfinancial private business sector remained flat in real terms in Q1 2015, though some financing shifted to corporate bond issuance. - Bank lending rates have fallen since the start of 2015; Jamaica’s sovereign bond spread relative to the emerging-market average continued to decline. - Standard prudential indicators suggest banks remain sound with stable NPLs and capital adequacy, but exposure to public sector debt remains high. - Vulnerabilities: securities dealers sector transitioning to a new business model and a still-frozen domestic government bond market leave financial system vulnerabilities temporarily elevated; repo liabilities to individual retail clients among securities dealers continue to fall. ### Risks, outlook, and policy implications - Risks to the program are receding but remain high: without stronger economic activity, social support for the reform program and tight fiscal stance may falter. - External financial flows could be affected by exogenous shocks, including higher U.S. interest rates or changes in PetroCaribe flows. - Continued weakness in budget revenue could jeopardize sustainability of fiscal consolidation over a longer horizon. - The planned reform of securities dealers and a frozen domestic government bond market pose risks to financial stability. - Staff supports the authorities’ request for completion of the eighth review of the arrangement and emphasizes capitalizing on improving confidence to catalyze higher private investment, employment, and growth through a comprehensive growth strategy addressing macro stability, strategic job-creating investments, and improvements in the business environment. *Source: _cr15150 - EXECUTIVE SUMMARY* ### 15. Better public financial management will increase efficiency in the use of budgetary ### _cr15150 - 15. Better public financial management will increase efficiency in the use of budgetary ### Public financial management and treasury operations - Authorities, assisted by an FAD long-term advisor, are charting out a plan to improve procurement and bring all government agencies into the Treasury Single Account. - Improvements underway: - Establishing a Cash Management Unit to improve cash planning. - Accountant General Department modernizing and refocusing on treasury as its core function while expanding the automation of work processes. - Following last year’s bond issuance to prefinance government debt falling due during the summer of 2015, and in line with the new Medium-Term Debt Strategy (MEFP, ¶16), the authorities expect to re-access international capital markets later in the year. ### Fine-tuning monetary conditions - Recent developments and scope for policy easing: - Decline in inflation and inflation expectations and improved external position have opened scope for gradual loosening of monetary policy, contingent on meeting goals for inflation and reserve adequacy. - Since early last year the BoJ has been injecting liquidity into the financial system; recent step to lower rates on the provision of BoJ’s liquidity should further support private credit. - Staff welcomed interest reductions and concurred there could be scope for further policy adjustments, conditional on price stability and reserve accumulation. - Operational changes and near-term reforms: - Narrowing of the interest rate corridor to provide clearer guidance for market rates and help shift from quantity to price-based monetary management. - Introduction of auctions for periodic repo operations. - Strengthening instruments that anchor the interest-rate corridor. - Exploring options to re-liquefy the secondary domestic bond market. - By end-2015, the first annual report will be published on the BOJ’s readiness to move to an inflation targeting framework. - Exchange rate and reserves: - Preliminary analysis based on the Fund’s EBA-lite and CGER models does not offer clear evidence of either over- or undervaluation after two years of exchange rate adjustment and an important current-account adjustment (Box 2). - Ongoing inflation differential with trade partners and potential risks from an upswing in oil prices call for continued nominal exchange rate depreciation, particularly versus the U.S. dollar. - Central bank should continue purchasing international reserves as insurance against external risks (related to PetroCaribe inflows and the imminent U.S. monetary tightening), since reserves fall short of the Fund’s metric for reserve adequacy. - Broad agreement on the need to replace, over time, borrowed reserves with owned reserves. ### Financial sector reform and stability - Securities dealers sector: - Timely implementation of envisaged reforms will help safeguard financial sector stability (MEFP ¶22). - Securities dealers finance long-term government bonds with short-term, deposit-like investments (“retail repos”). - By end-August 2015 repo transactions are expected to move to a trust structure (structural benchmark) to protect retail client interests by ensuring underlying securities are held safely and can be unwound in an orderly way if a securities dealer defaults. - Prudential standards being tightened to encourage a gradual shift away from repo instruments toward Collective Investment Schemes (CIS) such as unit trusts. - Regulatory strengthening: - Banking Services Act adopted in June 2014; implementing regulations should be adopted by end-September 2015 (structural benchmark). - Legislative amendments to be submitted to parliament by end-July to give the BoJ overall responsibility for financial stability. - Authorities preparing proposals to enhance the BoJ’s governance and autonomy, taking into account the findings of the IMF’s Safeguards Assessment. ### Growth-enhancing structural reforms - Business environment and investment: - Government presented its first Growth Agenda Policy Paper to parliament this March, detailing a strategy to strengthen accountability of implementing agencies (MEFP ¶25). - Plans to eliminate bureaucratic barriers: streamline the development application process, install an online system for business registration (to reduce turnaround time), and accelerate land registration. - Access to credit and financial inclusion: - Credit constraints for SMEs: - Bank credit to the private sector at around 30 percent of GDP, well below the level corresponding to Jamaica’s income and demographics. - Bank credit growth averaged 0.4 percent (y/y) in real terms during 2014. - Authorities have established credit bureaus and a collateral registry. - Growth noted in corporate bond and equity financing. - Next steps could include facilitating mobile banking, acceptance of movable property as collateral, and augmenting data on nonbank credit to support market analysis. - Electricity sector and energy: - Electricity Act expected to become effective in June 2015, clarifying roles and responsibilities. - Energy diversification strategy being implemented: - Conversion of the 115 MW Bogue power plant from diesel to LNG expected to be completed by early 2016. - New 190 MW LNG-based power plant planned. - One or two co-generation plants being prepared jointly with the bauxite industry. - Three renewable energy projects under construction with combined generation capacity of 78 MW. - Efforts underway to simplify the process for businesses and households to receive an electricity connection. - Private participation and infrastructure: - Jamaica ranked eight (out of 19 countries) in the Inter-American Development Bank’s Infrascope Index. - Ongoing North-South Highway project and recent concession for the Kingston Container Terminal. - Government shortlisted five bidders for the privatization of the international airport (a preferred bidder expected to be selected in November). - Working to adopt and implement a new Customs Act and new electronic systems to expedite customs clearance. - Social protection: - National Social Protection Committee established to oversee implementation of the Social Protection Strategy launched in July 2014. - Implementation of a strategy to graduate beneficiaries of PATH is expected to commence in mid-2015 in conjunction with the Steps-to-Work program. ### Program design and financing - Program adjustments and conditions: - Additional program conditions proposed to cover the coming 12-month period. - Performance criteria for end-March 2016 are being proposed. - Minor amendments to performance criteria for June, September, and December 2015 for NIR and NDA (an accounting change to reflect a new start date for the calculations) and the overall balance of the public sector and central government guaranteed debt (to reflect updated budget projections). - Temporary accommodation under the central government direct debt ceiling to allow for pre-financing of maturities falling due by the end of the fiscal year. - New structural benchmark proposed: submit by October 2015 legislation for a tax regime for the Special Economic Zones that is supportive of new economic activity but does not create risks to tax administration or revenue collection. - Financing and capacity to repay: - Program remains fully financed and staff’s assessment of Jamaica’s capacity to repay the Fund remains broadly unchanged from the last review (Tables 5 and 11). - Capacity deemed adequate and dependent on timely and strong implementation of government’s reform program. - Financing for the 2015/16 fiscal year from other IFIs expected to be in line with, or somewhat above, commitments made at the start of the program. - Debt service to the Fund and the purchase profile remain unchanged in the absence of significant revisions to the macroeconomic outlook. ### Staff appraisal — progress, priorities, and risks - Economic outlook and performance to date: - Halfway into the four-year reform program, economic activity is slowly rebounding amid a favorable external environment and a pickup in agriculture. - Lower oil prices improved the current account and, combined with prudent monetary policy, reduced inflation to its lowest point in nearly fifty years. - Tourism and remittance flows strengthening; food production increased last year despite a serious drought. - Nascent signs of import substitution as competitiveness improves. - Policy priorities: - Proactive implementation of the growth strategy critical to improve economic opportunities; scheduled investments in new power plants must proceed without delay. - Deepen financial inclusion and lift financing constraints on private investment by improving access to capital for SMEs and accelerating land registration reform. - Trade facilitation measures and progressive removal of red tape to attract new investors. - Safeguard competitiveness: continued exchange rate depreciation necessary given ongoing inflation differential with trading partners, risks from a possible upswing in oil prices, and the recent strengthening of the US dollar. - Calibrate monetary conditions to support expansion of private sector credit and growth while moving permanently to a low inflation environment; scope for further monetary policy support depends on international financial flows and the need to bolster non-borrowed reserves. - Move the BOJ’s operating framework toward inflation targeting in the context of a fully flexible exchange rate over time. - Strengthen financial sector: finalize transition of retail repos to a trust by August and strengthen BoJ responsibilities for financial stability, governance, and autonomy. - Explore options to reliquify the domestic government bond market once planned safeguards are in place. - Protect social spending while targeting the central government primary surplus target of 7.5 percent of GDP. - Focus on tax compliance and improvements in administration; be cautious that tax concessions linked to the Special Economic Zones do not undercut revenue efforts. - Secure sustainable reduction in public sector wage bill through fundamental civil service reform. - Improvements in public financial management to raise efficiency of public spending. - Program assessment and staff recommendation: - Risks remain high, but authorities’ strong commitment and program implementation bode well for higher growth, job creation, improving social welfare, and sustainable debt. - Economic Programme Oversight Committee (EPOC) continues to play an important strategic role in monitoring and supporting program implementation. - Breach of the primary fiscal surplus target was minor and corrective action has been adopted. - Staff supports authorities’ request for completion of the eighth review of the arrangement under the Extended Fund Facility, modification of performance criteria for end-June 2015, end-September 2015 and end-December 2015, establishment of end-March 2016 performance criteria, and a waiver for the nonobservance of the performance criterion on the primary surplus of the central government for end-March 2015. - Waiver justified by both the minor magnitude of the deviation and the corrective actions taken. ### Box 1 — Supply and Demand of Bank Credit in Jamaica (key findings) - Context and magnitude: - Bank credit to the private sector in Jamaica has stagnated. - At around 30 percent of GDP, bank credit to the private sector is well below the level that would correspond to Jamaica’s income and demographics. - Bank credit growth averaged 0.4 percent (y/y) in real terms during 2014. - Structural contributors: - Supply side: government crowding-out historically led to under-development of financial services to the private sector; banks’ lending portfolios concentrated in established clients. - Demand side: sluggish real GDP and income growth may have constrained appetite for bank borrowing; pervasive informality limits ability to seek funding through the formal banking system. - Econometric model results (2008–2014): - Credit demand: - Positively affected by growth prospects (proxied by tourism arrivals and business confidence). - Higher US growth has positive influence on credit demand. - Higher real interest rates lower demand for credit. - Credit supply: - Largely affected by liquidity conditions. - Responds favorably to deposit growth. - Held down by higher NPLs and recent debt exchanges. - Increases in banks’ exposure to the public sector and mounting liquidity pressure (approximated by a higher interbank borrowing rate) also depress supply of private credit. - Supply constraints have been statistically significant since early 2014, likely due to inadequate liquidity in the banking system. - Constraints appear to have eased in recent months as the BOJ injected liquidity through repo instruments and standing liquidity facilities. *Source: _cr15150 - 15. Better public financial management will increase efficiency in the use of budgetary* ### Box 2. 2015 Exchange Rate Assessment for Jamaica ### Box 2. 2015 Exchange Rate Assessment for Jamaica ### Summary finding - The preliminary results of the exchange rate assessment for Jamaica using the Fund’s CEGR and External Balance Assessment (EBA)-lite methodologies do not offer clear evidence of a misaligned real effective exchange rate (REER). ### Methodology outcomes and interpretation - Macroeconomic balance (MB) and external sustainability (ES) approaches: - Suggest the REER is undervalued. - A key assumption: oil prices will recover only gradually and partially from their recent decline, supporting the projected improvement in the current account balance. - Equilibrium real exchange rate (ERER) and purchasing power parity (PPP) approaches: - Point to some remaining overvaluation. - EBA-lite methodology: - Estimates the gap between the current account balance and its norm for 2015 and suggests a slight overvaluation. - Statistical confidence: - The confidence intervals are very large for all the estimates and, statistically, zero misalignment cannot be rejected. ### Quantitative summary (as reported) - CGER-type methodologies - Macroeconomic balance -5.5-3.4-0.18-11.53.18.8 - External sustainability-5.7-3.4-0.18-12.63.011.3 - Equilibrium real exchange rateN.A.N.A.N.A.19.415.121.9 - Purchasing power parityN.A.N.A.N.A.14.4 - Average REER Over(+)/Under (-)2.47.114.0 - EBA-lite methodology-4.7-5.0-0.182.1N.A.N.A. - Figure captioned metric: - Real effective exchange rate appreciation (-) or depreciation (+) needed to attain external equilibrium — values shown for ERER, MB, ES, PPP, and EBA-lite (percent). - Reserve adequacy metric: - Jamaica’s level of international reserves, at 80.4 percent of benchmark in 2015, is still significantly below the suggested adequacy range of between 100 and 150 percent. ### Policy implication - The reserve adequacy shortfall and the wide uncertainty around REER misalignment point to the need for continued exchange rate flexibility. *Source: Fund staff estimates.* ### 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be in ### 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. ### Structural benchmarks and implementation status - 1. Revise relevant legislation for 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 Alumina 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 — Met - 8. Develop an action plan for public sector transformation to cover: (1) introduction of shared corporate services; (2) reallocation, merger, abolition and divestment/privatization of departments and agencies; (3) outsourcing of services; (4) strengthening control systems and accountability (including in auditing and procurement); and (5) aligning remuneration with job requirements. — September 30, 2014 — Met - 9. Government to table changes in legislation for the new public sector pension system expected to be implemented by April 2016 (MEFP paragraph 25, Country Report No. 14/169). — November 30, 2015 - 10. Government to establish a new Cash Management Unit in the Accountant General Department (AGD) and transfer to it the cash management function currently handled by the Fiscal Policy Management Unit (FPMU). — September 30, 2015 ### Tax reform actions and status - 11. Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as stipulated in the TMU. — Continuous — Met - 12. 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 - 13. Government to table in parliament amendments to the GCT as stipulated in paragraph 12 of the June 2014 MEFP. — June 30, 2014 — Met - 14. 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 — Not met (note 2/ indicates the review was reportedly completed in March 2015) - 15. Government to table legislation governing the tax regime that will be part of the SEZ legislation consistent with the criteria listed in the June 2015 MEFP par. 13 to help safeguard the integrity of the tax system and avoid tax leakage. — October 31, 2015 — Proposed ### Tax administration benchmarks and outcomes - 16. 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 - 17. Government to implement ASYCUDA World for the Kingston Port as a pilot site. — December 31, 2014 — Met - 18. Government to: (i) increase the number of staff in the large taxpayers office (LTO) by a further 30 auditors (from March 2014 to March 2015); (ii) increase the number of (full plus issue) audits completed in the 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; (iv) write-off all GCT and SCT debts that have been subjected to risk-rated stress tests and consequently categorized as uncollectible according to the Regulations. — March 31, 2015 — Not met (note 3/: technical difficulties prevented achieving 95 percent take-up rate; take-up rate was 80 percent) - 19. Government to complete pilot testing of ASYCUDA World (covering imports and exports) in the Kingston port. — May 31, 2015 - 20. Government to implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package. — February 28, 2015 — Met - 21. Government to table in Parliament proposals for a comprehensive overhaul of the Customs Act. — June 30, 2015 - 22. Government to introduce new productivity indicators, in consultation with Fund staff, to measure the effectiveness and efficiency of the tax system. — November 30, 2015 - 23. Government to implement Phase 2 of the RAiS (GENTAX) integrated tax software package, for all major tax types. — December 31, 2015 ### Financial sector and regulatory reform - 24. Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010. — March 31, 2014 — Met - 25. 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 - 26. 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 — Met - 27. Government to table the Omnibus Banking Law consistent with Fund Staff advice to facilitate effective supervision of the financial sector. — March 31, 2014 — Met (note 4/ indicates the law was tabled in March 2014 with subsequent fine-tuning and adopted in June) - 28. Government to finalize the transition of retail repos to the trust-based framework. — August 30, 2015 - 29. Government to fully implement the Banking Services Act. — September 30, 2015 - 30. The BOJ to have overall responsibility for financial stability. — November 1, 2015 ### Growth-enhancing structural reforms - 31. Government to implement a new (AMANDA) tracking system to track approval of construction permits across all parish councils. — December 30, 2014 — Met - 32. Government to table in parliament the Electricity Act. — January 31, 2015 — Met ### Programme objectives, progress, and key performance notes - Programme aim: raise annual GDP growth to more than 2 percent. - Social protection: programme includes measures to strengthen and broaden the social safety net; ensure adjustment burden is effectively shared. - Role of stakeholders: support from Partnership for Jamaica Agreement and Economic Programme Oversight Committee (EPOC). - Debt trajectory: debt-to-GDP declined from 147 percent of GDP in March 2013 to 137 percent of GDP in March 2015, and is projected to reach 133 percent by March 2016. - Major reforms adopted in first two years: December 2013 tax incentive legislation; adoption of a fiscal rule in March 2014; Phase I of GENTAX in February 2015; adoption of the budget ahead of the fiscal year in March 2015. - Major reforms planned for years three and four: public sector transformation, public pension reform, and reform of the securities dealers sector, while maintaining a prudent fiscal stance. ### Quantitative fiscal and monetary performance figures (selected entries as presented) - Primary balance of the central government (floor) (cumulative flows from April 1 through March 31): entries include 121.0, 117.2, 17.0, 17.0, 40.0, 40.0, 65.0, 65.0, 12.6, 0 - Tax Revenues (floor): entries include 84.0, 370.9, 88.0, 88.0, 189.0, 185.0, 287.0, 280.0, 411.0 - Overall balance of the public sector (floor): entries include -11.6, -12.6, 6.5, -21.0, -21.0, -33.0, -34.0, -35.0, -36.0, -3.7 - Central government direct debt (ceiling): entries include 0.6, 76.8, 4.5, 4.5, 0.0, 40.0, 12.0, 41.0, 71.0 - Central government guaranteed debt (ceiling): entries include -1.8, -1.8, 2.0, 2.0, 2.0, 2.0, 0.0, 0.0, 0.0, 0.0 - Central government accumulation of domestic arrears (ceiling): entries include 21.6, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0 - Social spending (floor): entries include 21.7, 23.2, 4.5, 4.5, 9.2, 9.2, 15.6, 15.6, 23.2 - Cumulative change in net international reserves (floor) (in millions of U.S. dollars): entries include 1997.7, 529.4, 352.3, 1289.9, 470.3, -482.2, 469.0, -463.3, 614.5, -338.0, -339.0 - Cumulative change in net domestic assets (ceiling): entries include -120.2, -55.1, -36.3, -139.9, -45.7, 54.4, -44.0, 56.1, -45.5, 53.8, 24.2 ### Programme reviews, purchases, and Fund engagement - Prospective drawings (4-year EFF) and related figures: 85.00, 113.28, 28.33 (in millions of SDRs) and percent of quota figures: 31.08, 41.42, 10.36 - Amortization and interest/service schedule: Amortization entries include 23.9, 13.99, 11.40, 37.11, 64.80, 83.68, 100.20, 102.56, 91.17, 65.46, 37.76, 0.00; Interest and service charges entries include 2.71, 5.86, 6.45, 6.26, 5.79, 5.07, 4.14, 3.07, 2.00, 1.12, 0.51, 0.00 - Table 12 schedule of reviews and purchases (selected): May 1, 2013 — 136.75 million SDR — 50 percent of quota — Approval of Arrangement; subsequent dated reviews and purchases listed through March 15, 2017; Total 615.38 million SDR — 225.0 percent of quota. - Appendix I, Letter of Intent: dated June 1, 2015, describes programme performance and requests completion of eighth review of extended arrangement under the EFF and approval of modifications and ninth purchase of SDR 28.32 million; requests waiver for missed March 2015 primary surplus nominal target. *Source: _cr15150 - 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._* ### 7. The Government remains fully committed to the reform strategy. This MEFP ### 7. The Government remains fully committed to the reform strategy. This MEFP ### The 2015/16 Budget - The 2015/16 budget was adopted by Parliament on March 27, 2015. - The budget maintains the primary surplus of the central government at 7.5 percent of GDP. - The expenditure budget maintains priority outlays for specified social programmes above a floor in real terms. - The budget increases the allocation to the Ministry of Health relative to 2014/15 to ensure sufficient drugs and other medical supplies. - Capital projects for 2015/16 are mainly programmed in education, health, energy, infrastructure, security and agriculture. - The combined overall balance of the public bodies is projected at zero for the remaining programme years. - A new Energy Stabilization and Energy Efficiency Enhancement Fund (ESEF) introduced to: - finance the purchase of a hedge against the risk of a sharp increase in the price of oil; - manage resources to provide financial buffers for the balance of payments and the budget; - finance longer-term energy-efficiency and conservation initiatives. - Legislation and regulations governing the ESEF will be adopted following Cabinet approval to prescribe transparent governance, including: - formal establishment of an ESEF Advisory Board; - clearly defined reporting requirements to the portfolio ministry and to Parliament; - preset criteria and/or limits on allocation of ESEF’s resources among objectives. ### Tax Reforms — measures introduced and implemented - March 2015 tax package measures: - extension of the environmental levy to domestic goods and CARICOM imports; - application of GCT on electricity for residential customer usage above 350 KwH (applying to about 6 percent of current residential customers); - higher excises on cigarettes (by J$1.5 per stick); - increase in specific taxes on petroleum products by J$7 per litre to help compensate for lost revenue from lower global oil prices and provide resources for the establishment of the Energy Stabilization Fund. - Personal income tax threshold to be increased to J$592,800 per year effective January 2016. - Minimum Business Tax permanent legislation tabled in March 2015 and passed in May 2015. - Modernization Programme Office (MPO) set up in the TAJ; structure and management arrangements reviewed and revised in April 2015. - Revenue Appeals Department legislation tabled and adopted in May 2015 establishing it as a separate, independent entity (with IFC support). - Transfer pricing legislation tabled on May 5, 2015; expected to be passed in June 2015; OECD technical assistance to develop TAJ capacity to administer the new law. - With IMF TA, prepared an estimate of the revenue compliance gap for the GCT; plan to repeat analysis in subsequent years. - Explored options (with World Bank support) to simplify processes and reduce banking fees for tax payments; expected to yield results in 2015. - Fully implemented elimination of zero rating under the GCT for government purchases (except purchases by public schools). - Written off tax debts categorized as uncollectible in accordance with the Regulations in May 2015 after risk-rated stress tests. - Implemented property tax reform, including amendments to: - Property Tax Amendment Act; - Land Valuation Amendment Act; - Tax Collection Amendment Act. - Amendments provide for publication of names, valuation numbers, addresses and amounts outstanding of delinquent property owners in Jamaica Gazette, daily newspapers, broadcast media or a Government of Jamaica website (subject to court proceedings), and broaden media for posting of Assessment Notices. - Land Valuation Act amendments provide for a review mechanism (within a defined period) to assess the need for interim adjustment of land values to reflect changes in economic conditions and/or change in use. ### Tax Reforms — important follow-up initiatives - Requested a series of FAD TA projects (possibly with IDB) to: - assess impact of tax reform to date against objectives of widening the tax base, creating room for lower rates over the medium-term, and boosting economic activity; - review existing or proposed tax regimes where technological changes and/or FDI considerations warrant reassessment; - identify priorities for further tax reform to be considered starting with the 2016/17 budget. - By December 2015, assess the fiscal impact of ongoing grandfathering of tax incentives beyond 2020 (entity-by-entity review). - Plan (based on ongoing IDB TA) to improve reporting on tax expenditures and estimated fiscal costs in future budgets. ### Strengthening tax and customs administration — next steps and structural benchmarks - Implement the National Compliance Plan (NCP) for FY2015/16 prepared with FAD long term expert; NCP articulated around a risk-based model. - NCP expected to be published in June 2015. - Operational plans of tax offices and revenue service centers to be aligned with the NCP no later than July 2015. - FY2015/16 TAJ Programme Unit and Operational Plans to be finalized by 30 June 2015 and will include implementation strategies and detailed expected outputs/outcomes for arrears management and objections by September 30, 2015. - Completion of staffing the TAJ as a Semi-Autonomous Revenue Authority (SARA) by end-March 2016, with phased milestones: - by 31 July 2015 recruit direct reports to the Commissioner General and the Deputy Commissioners General; - by 30 Sept 2015 hire direct reports to chiefs and general management, and staff for Human Resources, Finance and Accounts, Strategic Services (including planning, performance monitoring and reporting and programmes) and Customer Care Center sections; - by 31 March 2016 complete phased transitioning to SARA of all remaining TAJ staff. - Management and HR training during calendar year 2015 (with CARTAC assistance) to assist SARA roll-out. - Incorporate performance indicators from the NCP for FY2015/16 into monthly reports by September 30, 2015, covering: - domestic revenue collections; registration compliance; filing (including e-filing) compliance; payment compliance (current year and arrears); correct returns (includes audit) compliance; objections processing; appeals results; withholding reporting; legal action to recover taxes; information matching and data mining activities; taxpayer education and assistance initiatives; tax gap analysis; refund processing; achievement of Government’s revenue measures tax package for FY2015/16. - This will finalize the transition to a more robust reporting system and meet the revenue productivity reporting structural benchmark for end-November 2015. - Full implementation of new revenue productivity indicators (structural benchmark for end-November 2015) measuring effectiveness and efficiency of the tax system, building on Fund TA. - Commence formal training of TAJ staff (auditors, lawyers, technical specialists and data analysts) on transfer pricing issues, including asset base erosion and profit shifting, as soon as legislation is passed, based on finalized OECD BEPS rules. - Start sensitization and education activities of taxpayers and their accountants impacted by new transfer pricing legislation by July 31, 2015. - Apply new transfer pricing law to returns for Year of Assessment 2015 by including transfer pricing specific issue audits in the LTO Audit Plan for FY2016/17. - Implement the Revenue Administration Cooperation and Information Sharing MOU signed in March 2015, including: - joint analysis, risk profiling and forensic data mining activities focusing on high compliance risk importers; - commencement of five (5) joint tax and customs compliance operations by 30 September 2015. - Attain JCA annual performance indicators and targets set out in Jamaica Customs Agency Corporate Strategic Plan 2015-2018, including customs clearance and customs post-clearance audits. - Amend the Customs Act with CARTAC assistance to facilitate a modern integrated customs management system; a Bill to amend the Customs Act to be tabled by end-June 2015 (structural benchmark). - Automate tax and customs operations by implementing: - (i) the full function production version of ASYCUDA-World integrated customs software for the entire country by March 2016, after pilot testing covering imports and exports in the Kingston port by end-May 2015 (structural benchmark); - (ii) Phase 2 of the RAiS (GENTAX) integrated tax software for all major tax types by end-December 2015 (structural benchmark); stamp duty and transfer tax to be added if possible (April 2016). ### Special Economic Zones (SEZs) - Create a new regime for SEZs to replace Export Free Zones in a manner compatible with WTO and CARICOM requirements to attract new economic activities, including logistics. - SEZs to support provision of physical and human infrastructure and a competitive regulatory regime, exploiting synergies and prioritizing backward linkages to maximize broader economic impact. - Legislation governing the tax regime as part of SEZ legislation to be tabled by end-October 2015 (proposed Structural Benchmark), consistent with criteria to safeguard tax integrity and avoid leakage: - Restrict eligibility to firms meeting preset criteria (excluding businesses in established traditional sectors), with no ministerial discretion. Ineligible sectors specified include extractive industries, tourism, telecommunication services, public utilities, financial services, construction services, real estate and property management, health services (excluding research and development) and retail; BPO and export processing sectors can be eligible. - Allow zero rating of indirect taxes for eligible entities within the zone, subject to appropriate legislative framework defining forms and procedures, bonded warehouse controls, administrative penalties and other sanctions against tax evasion. - Apply the same direct tax regime for firms in and out of SEZs—except for possibility of streamlined procedures and reduced rates (while ensuring effective CIT for enterprises in SEZs), and except for temporary grandfathering of incentives granted under Export Free Zones—with no ministerial discretion; regular personal income taxation applies for workers in SEZs. Reduced CIT rates for SEZ operators will be time-bound and non-renewable. - Beyond legislation, emphasize enhancements in tax and customs administration critical for SEZ tax regime success, notably: - strengthen inventory management systems (notably for customs-related procedures); - strengthen compliance enforcement to enhance risk management and post clearance audit. ### Reforms to Public Financial Management and the Budget Process - Implement updated action plan for public financial management reform with development partners. - Completed criteria and associated regulations for determining which entities are deemed commercial and could be excluded from fiscal rule coverage; sensitization programme to start in first quarter of FY2015/16. - A Procurement Act expected to be passed in June 2015. Next steps include: - Implementation of Electronic Tendering System in four pilot entities during the financial year; pilot implementation to start in July 2015. - A new procurement manual to be prepared by December 2015 with IDB assistance. - Strengthen macro-fiscal capacity of Ministry of Finance and Planning (MOFP) with IMF and other TA by: - undertaking hands-on training for members of the Fiscal Policy Management Unit (FPMU); - review, re-organize and reclassify functions and positions in the FPMU by December 2015; - develop structured work plans for each position in the re-organized FPMU by December 2015; - recruit additional qualified staff for the re-organized Unit by March 2016; - document procedures, methodology and processes for efficient production of key outputs and effective management of datasets and information on an ongoing basis. - Treasury Single Account (TSA) at the Bank of Jamaica to be further expanded and improved per Fund TA plan: - increase direct payments through the TSA using the central treasury management system (CTMS); commenced in January 2015 with civil servants’ salaries for pilot Ministry of Finance and Planning; - by September 2015, all salaries of civil servants at the central government will be paid through the TSA. - Coverage and functionality of CTMS to be expanded: - by September 2015, all funds under direct control of the AGD will be managed in the General Ledger of the CTMS. - Finalize a service level agreement between the BOJ and the government for banking services provided by the BOJ by August 2015 (with IMF TA). - Accountant General’s Department (AGD) implementing changes to modernize systems, processes and operations; major improvements expected by March 2016. - By September 2015, finalize a Treasury modernization plan and define a new organizational structure. - Establish a new Cash Management Unit in the AGD and transfer the cash management function (currently handled by FPMU) to it by end-September 2015 (structural benchmark), with IMF TA funded by the Canadian Department of Foreign Affairs, Trade and Development. - New cash forecasting model expected to be developed by June 2015 and operational by September 2015. - Adjusted Chart of Accounts prepared in April 2014 and undergoing revisions with a view to implementation for the 2016/17 budget. ### Debt Management - Government committed to sharply reducing public debt, expected to decline to 96 percent of GDP by March 2020. - Reduction to be achieved by sustained fiscal efforts, policies to bolster growth, and additional measures while ensuring sound public sector governance and public debt management. - Strengthen debt management strategy and capacity by: - increasing staffing of the middle office in the Debt Management Branch; - providing skills training; - improving securities operations and domestic market development with IMF TA (funded by the Canadian Department of Foreign Affairs, Trade and Development). - New medium-term debt management strategy and 2015/16 borrowing plan aim to reduce government debt servicing burden over time and ensure access to multiple financing sources, including the domestic bond market. - Develop a debt management business continuity strategy and function with IMF TA in conjunction with BOJ and AGD planning; define business continuity through back office procedures. - In March 2015, BOJ and MOFP finalized a Fiscal Agency Agreement on debt management operations and the debt issuance process. ### Public Sector Reform - Commitment to improving efficiency, quality and cost effectiveness of the public sector. - Public sector transformation actions (with timelines): - put in place shared services within central government starting with legal services, with support from Justice Canada; operation to be completed by end-October 2015. Report outlining optimal shared service model and service level agreements under review; submission to Cabinet expected by end-June 2015; final plan to be implemented within 6 months of government acceptance. - merge the Forensic Laboratory and the Legal Medicine Unit; organisational structure completed and new entity expected operational by September 2015. - complete organisational structure for merger of the Betting Gaming and Lotteries and the Racing Commissions by September 2015; merged structure expected to be implemented in May 2016. - merge the commodities boards (cocoa, coffee and coconut) and regulatory functions of the Export Division of MINAG pertaining to spices into the Jamaica Agricultural Commodities Regulatory Authority (JACRA); merger expected to be completed by March 31, 2016 and involves regulatory changes and preparing legislation for JACRA. - divest The Petroleum Company of Jamaica Limited, Petcom, with the selected bidder expected to be identified by July 31, 2015. - complete the RFP for software for the Asset Management Shared Services by August 2015. *Source: MEFP chapter excerpt (content unit _cr15150)* ### 2015. Consequent on funding, we will seek to complete the procurement of that system ### 2015. Consequent on funding, we will seek to complete the procurement of that system ### Public sector wages, positions, pensions, and HR systems - Wages and salaries - Government initiated discussions on a new wage agreement for the period after March 2015 to maintain a path of public sector wages consistent with a reduction in the wage bill to 9 percent of GDP in 2016/17 and firmly maintaining the ratio of public debt to GDP on a downward path over the medium term. - Public Sector Positions - GOJ will continue to reduce the size of the public sector over 2014–16 through elimination of posts and an attrition programme. - To ensure the GOJ’s overall wage ceiling of 9 percent of GDP by 2016/17 is met, filling of vacant positions will be constrained as needed, guided by the need to preserve capacity in a limited number of priority areas. - Pension Reform - New public pension system described in the June 2014 MEFP expected to be implemented by April 2016 (the start of FY 2016/17). - Requisite changes in legislation expected to be tabled by end-November 2015 (structural benchmark). - Human resources software (HCMES/Payroll) - Bid evaluation and preferred vendor identification completed in February 2015. - Contract negotiation and agreement of contract terms expected to be completed by June 2015. - Dedicated project management team in place; project plan to be completed by July 2015. - Implementation of HCMES/Payroll for the first entity, subject to the Vendor, expected to start in July 2015. - Implementation for the remaining six entities in phase 1 will commence by January 2016. - Chief Information Officer - A Chief Information Officer was selected and appointed in March 2015 to lead the e-government initiative and the public sector IT strategy. ### Public bodies: transparency, monitoring, and restructuring - Annual reports (including audited statements) for self-financing public bodies to be completed within six months of the end of the fiscal year; to be achieved by December 2015 for all self financing public bodies (with the exception of PetroCaribe, and Petrojam). - Non-compliance by Self Financing Public Bodies without reasonable cause will be sanctioned under Section 25 of the Public Bodies Management and Accountability Act. - Strengthened monitoring of budget-funded public bodies by: - Enforcing the six months time limit for submission of relevant public bodies’ financial statements to the Auditor General. - Bolstering capacity within the Auditor General’s office for more in-depth and frequent reviews; following funding and recruitment, a new organizational structure will be approved by end-September 2015. - Review to evaluate scope for reintegrating some public bodies into central government and setting others at more arms-length distance with governance aligned to international best practices; TA is being requested to guide this review. ### Financial sector reforms — prudential framework and crisis preparedness - Prudential framework enhancements - Make effective, by end-September 2015 (structural benchmark), the Banking Services Act; supporting regulations requiring parliamentary approval will be tabled in July 2015. - Execute, starting October 2015, the strategy paper to gradually tighten prudential standards for the securities sector, aiming to reduce the size of the retail repo business to a level deemed by the BOJ and the FSC to be systemically safe and prudentially manageable. - Minimum transaction size for retail repos to be gradually increased to J$1,000,000 by end-December 2015; quarterly assessments to consider expediting timetable and/or increasing the ultimate minimum transaction size. - By end-December 2015 steps will be taken to further strengthen depositor protection and investor compensation across financial institutions. - Crisis preparedness and resolution - National crisis management plan finalized under auspices of the FRC to complement plans of BOJ, FSC, JDIC, and MOFP. - Legislative provisions to support the national crisis management plan and strengthen the resolution framework for the securities sector to be tabled in October 2015 and made effective by end-November 2015 (building on IMF TA). - Legislative provisions to support the resolution framework for the banking sector to be tabled in March 2016, with stakeholder consultations starting in December 2015, and expected to be made effective by end-June 2016 (building on IMF TA). - BOJ mandate and governance - BOJ will have overall responsibility for financial stability commencing November 1, 2015 (structural benchmark); amendments to the BOJ Act to vest this responsibility will be tabled in July 2015. - Comprehensive strategy paper prepared to enhance BOJ governance and autonomy; related amendments to BOJ Act intended to be tabled following a green paper to be tabled in July 2015. ### Retail repo client protections and market adjustments - Legal/regulatory protection for retail repo clients - Distinct treatment established to protect retail repo clients by creating a Trust to hold underlying securities on their behalf during the term of the retail repo; Trust to facilitate actions in the event of transaction failure or default. - Transition of retail repos to the trust-based framework to be finalized by end-August 2015 (structural benchmark); pilot undertaken and transition to start in June 2015. - Holders of retail repos concluded prior to January 1, 2015 that mature after the transition are encouraged to amend contracts to participate in the transition and obtain Trust protections. - BOJ and FSC to support readiness through joint focused stress tests; JSE entities to bolster communications to dealers and the public. - Alternative, less risky models and foreign asset limits - Raise the investment cap for CIS in foreign assets to 25 percent by end-December 2015 according to the timeline published in January 2015; cap to be removed altogether by end-2016 unless extraordinary circumstances require reassessment. - BOJ and FSC prepared a paper for discussion on relaxing current limits on permissible investments in foreign assets for insurance and pensions sectors. ### Monetary and exchange rate policy - Inflation objective and targeting readiness - Monetary policy aimed at achieving single digit inflation within a flexible exchange rate regime. - Envisage inflation in the range of 5.5 to 7.5 percent in FY2015/16. - Longer-term objective: gradual reduction of inflation to a rate consistent with that of main trading partners, with a possible move to full-fledged inflation targeting. - Starting 2015, BOJ will conduct annual reviews to assess readiness for inflation targeting; first review will assess institutional readiness as at March 2015 and is expected to be completed by October 2015. - Liquidity provision refinements - BOJ preparing to introduce auctions for periodic repo operations during the course of the year with IMF TA assistance. - Over FY 2015/16, BOJ will consider refinements to monetary policy operations, such as varying the width of the interest rate corridor. ### Growth-enhancing reforms and business climate improvements - Growth Agenda - New Growth Agenda Policy Paper submitted to Parliament in March 2015 with a detailed Growth Agenda Matrix; MDAs will report implementation progress monthly to the Growth Agenda Subcommittee. - Regulatory and administrative initiatives - AMANDA (Application Management and Data Automation system) implemented in all parishes; focus on implementing in all commenting agencies to be fully operational by June 2015. Concept Paper developed to revise and standardize application fee structure for implementation by December 2015. - Development Applications Process (DAP) reforms approved December 2014 to be implemented within two years; by July 2015 applications above certain thresholds to be handled by a joint technical team; quarterly reporting on progress including against the 90 day benchmark. - National Building Act expected to be passed by September 2015 and become effective by December 2015. Building Code and Application Document to be implemented by August 2015. - LAMP: 851 new titles issued during 2014/15; services expanded to St. Ann and Westmoreland; expansion to St. James, Trelawny and Hanover in 2015/16. Expectation to issue an additional 2,500 titles during 2015/16. - New Insolvency Act and implementing regulations now effective; Supervisor of Insolvency appointed and Office now in operation. - Online business registration system to be piloted by December 2015 and in place by April 2016 (IDB support); turnaround time for applications to be reduced to two business days by April 2016. - Automation of Government Electricity Inspectorate (GEI) processes and acquisition of AMANDA to streamline electrical connection procedures; action plan to be completed by June 2015; adoption of AMANDA expected to be completed by end 2015/16 (IDB support). - Port Community System (PCS) and ASYCUDA World Customs Management System integration underway; new PCS RFP underway and preferred bidder selected in May 2015; project expected to be completed by mid-2016. - Development Bank of Jamaica (DBJ) to provide J$4.1 billion funding to MSMEs in 2015/16, up from J$3 billion in 2014/15. - Mobile Money for Microfinance initiative to be fully rolled out in 2015. - Agro Parks Initiative: nine agro parks operational; negotiations ongoing to establish at least five more parks in 2015/16. - National strategic plan for the BPO industry approved by Cabinet in March 2015; implementation started in April 2015. ### Strategic investments and infrastructure projects - Kingston Container Terminal (KCT) - 30-year concession agreement signed in early April 2015 with private consortium for KCT privatization. - Concessionaire to undertake dredging of access channel and KCT basin to handle larger vessels after Panama Canal expansion. - Transfer of operating control expected shortly after financial close expected in the last quarter of CY2015. - Concessionaire expected to invest approximately US$625 million over two phases, with possibility of a third phase. - Norman Manley International Airport (NMIA) - Pre-qualification of bidders completed; five bidders shortlisted; selection of a preferred bidder expected by December 2015. - Caymanas SEZ - Tender for feasibility study issued in May 2015; feasibility study expected to commence by August 2015 (World Bank support). - Portland Bight transhipment port and zones (CHEC) - Technical feasibility studies have commenced. - First phase projected to be completed in the last quarter of 2016, pending necessary approvals. ### Electricity sector reforms and cost reduction - ESET action plan to replace oil-fired generation with gas, coal and ethane-fired plants to achieve cost savings. - Conversion of the Bogue power station from oil to gas by March 2016. - Government approved construction of a 190MW natural gas-fired power plant to be built and operated by JPS, to be completed by 2017. - Several renewable energy projects underway. - Revised Electricity Act tabled in parliament in January (structural benchmark) and expected to become effective by June 2015. - Preparing a plan to ensure all public entities meet financial obligations in a timely manner. ### Labour market, poverty reduction, and social protection - Labour market reforms - Comprehensive Labour Market Reform Agenda: Labour Market Reform Commission and Secretariat established and operational on April 1, 2015. - Commission will review policies/practices in education and training; productivity, technology and innovation; labour policies and legislation; social protection; and industrial relations. - Concept note on options to reduce impact of high separation costs expected to be submitted to Cabinet in July 2015. - Poverty reduction and social protection - New National Poverty Reduction Committee established in early 2015; inter-sectoral Committee convened to guide development of a new National Policy on Poverty and a new Poverty Reduction Programme by the end of FY2015/16. - Graduation strategy for PATH households: broad implementation anticipated by mid-2015. - Comprehensive social protection strategy launched in July 2014; monitoring and evaluation framework being developed. - National Social Protection Committee convened; first meeting held in November 2014. *Source: _cr15150 - 2015. Consequent on funding, we will seek to complete the procurement of that system* ### 8. Consolidated government accumulation of external debt payment arrears (ceiling) 6/12/0.00.00.00.00.00.00.00.00.0 ### _cr15150 - 8. Consolidated government accumulation of external debt payment arrears (ceiling) 6/12/0.00.00.00.00.00.00.00.00.0 ### Quantitative performance criteria and monetary targets - Ceiling: "Consolidated government accumulation of external debt payment arrears (ceiling) 6/12/0.00.00.00.00.00.00.00.00.0" - Social spending (floor): "9/10/21.723.24.54.59.29.215.615.623.2" - Cumulative change in net international reserves (floor): "8/11/14/1997.7529.4352.31289.9470.3-482.2469.0-463.3614.5-338.0-339.0" - Note: "In millions of U.S. dollars." (footnote 8) - Cumulative change in net domestic assets (ceiling): "11/14/-120.2-55.1-36.3-139.9-45.754.4-44.056.1-45.553.824.2" - Footnotes and definitions related to targets: - "1/ Targets as defined in the Technical Memorandum of Understanding." - "2/ Including proposed modified performance criteria for the net international reserves and the net domestic assets." - "3/ Based on program exchange rates defined in the March 2015 TMU." - "4/ Cumulative flows from April 1 through March 31." - "5/ Excludes government guaranteed debt. The central government direct debt excludes IMF credits." - "6/ Includes debt payments, supplies and other committed spending as per contractual obligations." - "7/ Includes tax refund arrears as stipulated by law." - "8/ In millions of U.S. dollars." - "9/ Indicative target." - "10/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes." - "11/ For March 2015: cumulative change from end-December 2013; proposed revised PC show cumulative change from end-December 2014." - "12/ Continuous performance criterion." - "13/ This accumulation is measured as the change in the stock of arrears relative to the stock at end-March 2014. The latter stock is listed in the column for the stock at end-December 2014." ### Structural benchmarks, measures, and implementation status (selected) - Institutional fiscal reforms (timing and status) - 1. "Revise the relevant legislation for the adoption of a fiscal rule ... 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 ..." — March 31, 2014 — Met - 3. "Government to ensure there is: (i) no financing of Clarendon Alumina 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 — Met - 8. "Develop an action plan for public sector transformation ..." — September 30, 2014 — Met - 9. "Government to table changes in legislation for the new public sector pension system expected to be implemented by April 2016 (MEFP paragraph 25, Country Report No. 14/169)." — November 30, 2015 - 10. "Government to establish a new Cash Management Unit in the Accountant General Department (AGD) and transfer to it the cash management function currently handled by the Fiscal Policy Management Unit (FPMU)." — September 30, 2015 - Tax reform and administration (selected) - 11. "Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as stipulated in the TMU." — Continuous — Met - 12. "Broader tax reform to become effective, including the modernization of taxes, with limited exemptions, and lower tax rates ... as stipulated in par. 13 of the March 2014 MEFP." — March 31, 2014 — Met - 13. "Government to table in parliament amendments to the GCT as stipulated in paragraph 12 of the June 2014 MEFP." — June 30, 2014 — Met - 14. "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 — Not met 2/ - 15. "Government to table legislation governing the tax regime that will be part of the SEZ legislation ... consistent with the criteria listed in the June 2015 MEFP par. 13 ..." — October 31, 2015 — Proposed - 16. "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 - 17. "Government to implement ASYCUDA World for the Kingston Port as a pilot site." — December 31, 2014 — Met - 18. Multi-part LTO targets (staff increase, audits, take-up rate, write-offs) — March 31, 2015 — Not met 3/ - Footnote 3/: "While all other elements of the benchmarks were met, technical difficulties prevented the achievement of 95 percent take-up rate of e-filing in the LTO. The take-up rate was 80 percent." - 19. "Government to complete pilot testing of ASYCUDA World (covering imports and exports) in the Kingston port." — May 31, 2015 - 20. "Government to implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package." — February 28, 2015 — Met - 21. "Government to table in Parliament proposals for a comprehensive overhaul of the Customs Act." — June 30, 2015 - 22. "Government to introduce new productivity indicators, in consultation with Fund staff, to measure the effectiveness and efficiency of the tax system." — November 30, 2015 - 23. "Government to implement Phase 2 of the RAiS (GENTAX) integrated tax software package, for all major tax types." — December 31, 2015 - Financial sector (selected) - 24. "Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010." — March 31, 2014 — Met - 25. "Government to submit proposals for a distinct treatment for retail repo client interests in the legal and regulatory framework ..." — March 31, 2014 — Met - 26. "Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework ..." — December 30, 2014 — Met - 27. "Government to table the Omnibus Banking Law 1/ consistent with Fund Staff advice to facilitate effective supervision of the financial sector." — March 31, 2014 — Met 4/ - 28. "Government to finalize the transition of retail repos to the trust-based framework." — August 30, 2015 - 29. "Government to fully implement the Banking Services Act." — September 30, 2015 - 30. "The BOJ to have overall responsibility for financial stability." — November 1, 2015 - Growth-enhancing structural reforms (selected) - 31. "Government to implement a new (AMANDA) tracking system to track approval of contruction permits across all parish councils." — December 30, 2014 — Met - 32. "Government to table in parliament the Electricity Act." — January 31, 2015 — Met ### Technical Memorandum of Understanding (TMU): definitions and reporting - Purpose and scope: - "This Technical Memorandum of Understanding (TMU) sets out the understandings between the Jamaican authorities and the IMF regarding the definitions of quantitative performance criteria and indicative targets for the programme supported by the extended arrangement under the EFF. It also describes the methods to be used in assessing the programme performance and the information requirements to ensure adequate monitoring of the targets. In addition, the TMU specifies the requirements under the continuous structural benchmark concerning discretionary tax waivers." - Exchange rate convention: - "For programme purposes, all foreign currency-related assets, liabilities and flows will be evaluated at 'programme exchange rates' ... The updated programme exchange rates are those that prevailed on December 31, 2014." - Table 1. Program Exchange Rates (End-December, 2014)/1 - "Jamaican dollar to the US dollar 114.66" - "Jamaican dollar to the SDR 166.12" - "Jamaican dollar to the euro 139.21" - "Jamaican dollar to the Canadian dollar 97.69" - "Jamaican dollar to the British pound 177.68" - Footnote 1/: "Average daily selling rates at the end of December 2014" - Central government and fiscal year: - "The central government for the purposes of the programme consists of the set of institutions currently covered under the state budget. The central government includes public bodies that are financed through the Consolidated Fund." - "The fiscal year starts on April 1 in each calendar year and ends on March 31 of the following year." - Cumulative floor of the central government primary balance: - Definitions: "The primary balance of the central government is defined as total revenues minus primary expenditure and covers non-interest government activities as specified in the budget." - "Revenues are recorded when the funds are transferred to a government revenue account. Revenues will also include grants. Capital revenues will not include any revenues from asset sales proceeding from divestment operations." - "Central government primary expenditure is recorded on a cash basis and includes compensation payments, other recurrent expenditures and capital spending. Primary expenditure also includes transfers to other public bodies which are not self-financed." - "All primary expenditures directly settled with bonds or any other form of non-cash liability will be recorded as spending above-the-line, financed with debt issuance and will therefore affect the primary balance." - Reporting: "Data will be provided to the Fund with a lag of no more than four weeks after the test date." - Cumulative floor on overall balance of the public sector: - Definitions: "The public sector consists of the central government and public bodies. Public bodies are institutional units that are themselves government units or are controlled, directly or indirectly, by one or more government units." - Coverage: Lists of "Selected Public Bodies" and "Other Public Bodies" are specified in the TMU (full list provided in source). - Calculation: "The overall balance of public bodies will be calculated from the Statement A’s provided by the Public Enterprises Division of the Ministry of Finance and the Planning (MoFP) ... The definition of overall balance used is operational balance, plus capital account net of revenues (investment returns, minus capital expenditure, plus change in inventories), minus dividends and corporate taxes transferred to government, plus net other transfers from government." - Reporting: "Data will be provided to the Fund with a lag of no more than 6 weeks after the test date." - Adjuster: "The floor for the overall public sector balance ... will be adjusted downward (upward) by an amount equivalent to the shortfall (excess) of PetroJam’s overall balance (relative to baseline projections in Table 2), with the value of the adjustment at the end of any quarter capped at J$3.5 billion." - Table 2. Overall Balance of Petrojam (Baseline Projection) — In billions of Jamaican dollars: - "End-December 2014 -2.0" - "End-March 2015 -3.8" - "End-June 2015 2.5" - "End-September 2015 -1.8" - "End-December 2015 -2.8" - "End-March 2016 -3.5" - Ceiling on the stock of central government direct debt: - Definitions: "Central government direct debt includes all domestic and external bonds and any other form of central government debt, such as supplier loans. It excludes IMF debt. It includes loan disbursements from the PetroCaribe Development Fund to finance central government operations." - Measurement: "The change in the stock of debt will be measured 'below the line' as all debt issuance minus repayments on all central government debt." - Reporting: "Data will be provided to the Fund with a lag of no more than four weeks after the test date." - Adjusters: "The target will be adjusted upwards if explicit government guarantees ... are called. The target will be adjusted downwards if net divestment revenues ... take place. The debt target will be adjusted for cross-currency parity changes; and pre-financing, as reflected by the increase in central government deposits." - Ceiling on net increase in central government guaranteed debt: - Definitions: "Net increase in central government guaranteed debt is calculated as issuance minus repayments of central government guaranteed debt, in billions of Jamaican dollars, including domestic and external bonds, loans and all other types of debt." - Monitoring: "The cumulative net increase in central government guaranteed debt will be monitored on a continuous basis." - Reporting: "Data will be provided to the Fund with a lag of no more than four weeks after the test date." - Adjuster: "In the case where the central government debt guarantees are called, the stock of central government guaranteed debt will be adjusted downwards to preserve the performance criteria." - Ceiling on central government accumulation of domestic arrears: - Definition: "Domestic arrears are defined as payments to residents determined by contractual obligations that remain unpaid 90 days after the due date. ... Central government domestic arrears include arrears on domestic central government direct debt, including to suppliers and all recurrent and capital expenditure commitments." - Measurement: "This accumulation is measured as the change in the stock of domestic arrears relative to the stock at end-March 2014, which stood at J$21.6 billion." *Source: _cr15150 - 8. Consolidated government accumulation of external debt payment arrears (ceiling) 6/12/0.00.00.00.00.00.00.00.00.0 (IMF PDF).* ### 24. The ceiling on central government accumulation of domestic arrears will be monitored ### _cr15150 - 24. The ceiling on central government accumulation of domestic arrears will be monitored ### Monitoring of Central Government Domestic Arrears - The ceiling on central government accumulation of domestic arrears will be monitored on a continuous basis (Paragraph 24). - Reporting: Data will be provided to the Fund with a lag of no more than four weeks after the test date (Paragraph 25). ### Non-Accumulation of External Debt Payments Arrears — Definitions and Performance Criterion - Consolidated government includes the central government and the public bodies, as defined in sections A and B (Paragraph 26). - External debt is determined according to the residency criterion (Paragraph 27). - Definition of “debt” (current, not contingent liability created under a contractual arrangement requiring future payments). Principal forms listed (Paragraph 28): - i. Loans (including deposits, bonds, debentures, commercial loans, buyers’ credits; repurchase agreements; official swap arrangements). - ii. Suppliers’ credits (deferred payments for delivered goods/services). - iii. Leases (debt equals the present value at inception of all lease payments expected during the agreement, excluding payments covering operation, repair or maintenance). - Arrears, penalties and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt (Paragraph 29). - External payments arrears: arrears of external debt obligations (principal and interest) falling due after March 31, 2014 that have not been paid at the time due, taking into account contractual grace periods; arrears covered by a clearance framework or rescheduling agreement are excluded (Paragraph 30). - Performance criterion: The consolidated government and the BOJ will accumulate no external debt payment arrears during the programme period. An external debt payment arrear is defined as a payment by the consolidated government and the BOJ, which has not been made within seven days after falling due (Paragraph 31). - Calculation and reconciliation: Stock of external arrears will be calculated based on the schedule of external payment obligations reported by the MoFP; data will be reconciled with creditors and adjustments incorporated as they occur (Paragraph 32). - Exclusions and continuity: - This performance criterion does not cover arrears on trade credits (Paragraph 33). - The performance criterion will apply on a continuous basis (Paragraph 34). - Reporting: The MoFP will provide final data on the stock of external arrears of the consolidated government and the BOJ to the Fund, with a lag of not more than two weeks after the test date (Paragraph 35). ### Ceiling on Central Government Accumulation of Tax Refund Arrears - Definition: Tax refund arrears are obligations on tax refunds in accordance with tax legislation that remain unpaid 90 days after the due date (Paragraph 36). - Measurement: Accumulation is measured as the change in the stock of tax refund arrears relative to the stock at end-March 2014, which stood at J$23.2 billion (Paragraph 36). - Monitoring: The central government accumulation of tax refund arrears will be monitored on a continuous basis (Paragraph 37). - Reporting: Data will be provided to the Fund with a lag of no more than four weeks after the test date (Paragraph 38). ### Floor on the Cumulative Change in Net International Reserves (NIR) — Definitions, Adjusters, and Baseline Projections - NIR definition: U.S. dollar value of BOJ gross foreign assets minus gross foreign liabilities with maturity of less than one year; non-U.S. dollar assets/liabilities converted at programme exchange rates; gross foreign assets defined consistent with BPM6; exclusions listed (Paragraph 39). - Gross foreign liabilities: include all foreign exchange liabilities to nonresidents, commitments to sell foreign exchange arising from derivatives, and all credit outstanding from the Fund (including credit used for financing of the FSSF, but excluding credit transferred by the Fund into a Treasury account to meet the government’s financing needs directly). In deriving NIR, credit outstanding from the Fund is subtracted from foreign assets regardless of maturity (Paragraph 40). - Reporting: Data provided by the BOJ to the Fund with a lag of no more than five days past the test date (Paragraph 41). - Adjusters to NIR targets (Paragraph 42 and following): - Upward (downward) adjustment for surplus (shortfall) in programme loan disbursements from multilateral institutions (IBRD, IDB and CDB) relative to baseline in Table 3. - Upward (downward) adjustment for surplus (shortfall) in disbursements of budget support grants relative to baseline in Table 3. - Upward (downward) adjustment for surplus (shortfall) in IMF budget support purchases relative to baseline in Table 3. - Upward (downward) adjustment by the amount the cumulative changes from end-December 2014 in BOJ’s foreign exchange liabilities to residents with maturity less than one year differ from baseline projection in Table 4. - Baseline projection — Cumulative flows from the beginning of the fiscal year (In millions of US$) — External loans from multilateral sources (Table 3): - End-March 2015 185 - End-June 2015 100 - End-September 2015 151 - End-December 2015 197 - End-March 2016 279 - Baseline projection — Budget support grants (Table 3): - End-March 2015 0 - End-June 2015 12 - End-September 2015 21 - End-December 2015 21 - End-March 2016 35 - Baseline projection — IMF budget support disbursements (Table 3): - End-March 2015 142 - End-June 2015 0 - End-September 2015 0 - End-December 2015 0 - End-March 2016 0 - BOJ's foreign liabilities to residents — Outstanding stock and cumulative changes (Table 4): - Outstanding stock End-December 2014 242.0 - Cumulative change from end-December 2014: - End-March 2015 103.4 - End-June 2015 108.0 - End-September 2015 94.1 - End-December 2015 126.1 - End-March 2016 158.2 - Note: Converted at the programme exchange rates (Table 4, footnote 1). ### Ceiling on the Cumulative Change in Net Domestic Assets (NDA) of the Bank of Jamaica - Definition: NDA = monetary base minus NIR, converted into Jamaican dollars at the programme exchange rate. Monetary base includes currency in hands of non-bank public, vault cash, statutory cash reserve requirements in Jamaica Dollars, and the current account of commercial banks comprising credit balances held at the central bank (Paragraph 43). - Reporting: Data provided to the Fund with a lag of no more than three weeks after the test date (Paragraph 44). - NDA adjusters: NDA target adjusted downward (upward) for surplus (shortfall) in programme loan disbursements from multilateral institutions, budget support grants, and IMF budget support purchases relative to Table 3 baseline, converted into Jamaican dollars at the programme exchange rate. NDA target adjusted downwards (upwards) by the amount the cumulative changes from end-December 2013 in BOJ’s foreign exchange liabilities to residents with maturity less than one year differ from baseline projection in Table 4, converted into Jamaican dollars (Paragraph 45). ### Quantitative Indicative Targets — Definitions - Cumulative Floor on Central Government Tax Revenues: - Definition: Tax revenues refer to revenues from tax collection and exclude 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) (Paragraphs 46–47). - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date (Paragraph 47). - Floor on Central Government Social Spending: - Definition: Social spending = sum of central government spending on social protection programmes funded by GOJ resources as articulated in the budget (Paragraph 48). - Included capital programmes (Paragraph 49): - Youth employment programmes (on the job training, summer employment and employment internship programme). - Conditional cash transfers (children health grant, children education grants, tertiary level, pregnant and lactation grants, disabled adult grants, adult under 65 grants and adults over 65 grants). - Poor relief programme. - Included recurrent programmes (Paragraph 50): - School feeding programmes including operating costs. - Poor relief (both indoor and outdoor) including operating costs. - Golden Age Homes. - Children’s home, places of safety and foster care including operating cost. - Career Advancement Programme. - National Youth Service Programme. - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date (Paragraph 51). ### 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 (Paragraph 52). - Definition of discretionary waivers: any reduction in tax or customs duty payable effected through direct exercise by the Minister of Finance where there is no express provision for exemption in statute (Paragraph 53). - Exclusions from the cap: tax measures related to international treaties not yet ratified and provisions for CARICOM suspensions which are binding international legal obligations (Paragraph 54). ### 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, total loan value of existing user-funded PPPs contracted after May 1, 2013 was zero (Paragraph 55). - Exclusion: A PPP loan value may be excluded if the Office of the Auditor General establishes the PPP involves only minimal contingent liabilities (no debt guarantee, demand or price guarantees or termination clauses implying transfer of liabilities to government) (Paragraph 56). - Applicable GDP: projected nominal GDP for the fiscal year published in the Fiscal Policy Paper tabled in parliament ahead of the adoption of the budget. For FY2015/16, the projected nominal GDP used as a reference is J$1,690 billion (Paragraph 57). ### Information Requirements — Reporting Frequencies and Key Items - Daily reporting items include (Paragraph 58 — 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 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. - BOJ 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 BOJ 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 GOJ debt payments (domestic and external). - Weekly reporting items (submitted within 10 days of the end of the period) include (Paragraph 58 — Weekly): - Balance sheets of the core securities dealers (covering at least 70 percent of the market), including liquidity indicators (net rollovers and rollover rate for repos and a 10 day maturity gap analysis), capital positions, details on sources of funding, including external borrowing on margin, and status of loans (secured vs. unsecured). - Deposits in the banking system and total currency in circulation. - Monthly reporting items (lags specified) include (Paragraph 58 — Monthly): - Central government operations including monthly cash flow to end of fiscal year (lag no more than four weeks). - Public entities’ Statement A: consolidated and by institution for “Selected Public Bodies” and consolidated for “Other Public Bodies” (lag no more than six weeks). - Central government debt amortization and repayments, by instrument; includes direct, guaranteed and total (lag no more than four weeks). - Balances of the Consolidated Fund and main revenue accounts. - 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). - Central government debt stock by currency, creditor and instrument (lag no more than four weeks). - Maturity structure of Government debt (domestic and external) (lag no more than four weeks). - Legal measures affecting central government revenue. - Balance sheet of the Bank of Jamaica within three weeks of month end. - Summary of monetary accounts with detailed BOJ and banking system accounts (lag no more than six weeks). - BOJ profits on cash and accrual basis, with decomposition (lag no more than three weeks). - 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. - Financial statements of core securities dealers and insurance companies within six weeks. - Maturity profile of assets and liabilities of core securities dealers within six weeks. - Data on reserve liabilities items for NIR target purposes (Table 9) within three weeks. - A full set of monthly FSIs regularly calculated by the BOJ, within eight weeks. - Monthly balance sheet data of deposit taking institutions as reported to the BOJ, within four weeks. - Issuance of exempt distributions by financial and non-financial corporations, six weeks after month end. - Imports and exports of goods, in US$ million within twelve weeks after month end. - Tourism indicators within four weeks after month end. - Remittances’ flows within four weeks after month end. - Consumer price inflation, including CPI sub-components within four weeks after month end. - Balance sheet of the PetroCaribe Development Fund with lag no more than six weeks. - Data on discretionary waivers (specifying those under ‘de minimis’ cap, broader cap, and exceptions). - Data on tax waivers for charities and charitable giving. - Data on total loan value of all new user-funded PPPs, specifying PPPs identified by the Office of the Auditor General as involving minimal contingent liabilities. - Quarterly reporting items (with lags specified): - Holdings of government bonds by holder category (lag no more than four weeks after month close for applicable items). - Use of the PetroCaribe Development Fund, including loan portfolio and liquidity allocation within six weeks. - Stock of public entities non-guaranteed debt. - Summary balance of payments within three months after quarter end. - Revised outturn for preceding quarters and quarterly projections for the forthcoming year, with a lag no more than one month following receipt of outturn. - GDP growth by sector (real and nominal), revised outturns and projections within three months after quarter end; projections for next four quarters with lag no more than one month following receipt of outturn. - Updated macroeconomic assumptions and programme indicators for preceding and forthcoming four quarters within three months of quarter end (main indicators listed). - BOJ’s Quarterly Financial Stability Report. - Quarterly income statement data of deposit taking institutions as reported to the BOJ within eight weeks of quarter end. - Summary review of the securities dealer sector within eight weeks of quarter end. - Summary report of the insurance sector within eight weeks of quarter end. - Capital adequacy and profitability ratios for DTI’s and non-bank financial institutions within eight weeks of quarter end. - FSC status report on client holding accounts at Jam Clear@ CSD with independent verification of daily reconciliations; reports due within four weeks of end quarter. - Annual reporting items: - Financial statements of pension funds within six months of year end. - Number of public sector workers paid by the consolidated fund by major categories. *Source: _cr15150 - 24. The ceiling on central government accumulation of domestic arrears will be monitored* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15150.pdf_