## _cr1595

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---

### Executive summary — macro outlook and program status
- Growth: projected to reach 2 percent in 2015/16; GDP growth for 2014/15 projected at 0.4 percent; Real GDP dropped by 1.4 percent y/y during July–September 2014.  
- Inflation and exchange rate: inflation declined sharply to 5.3 percent (y/y) in January 2015; expected to be 4.7 percent by end-March; nominal exchange rate depreciated by 7.8 percent y/y relative to the U.S. dollar at end-December 2014 (real effective exchange rate fell by 1.5 percent).  
- External sector and reserves: current account deficit projected to have fallen by 3.2 percent of GDP from 2013/14 to 2014/15; Net international reserves amounted to US$1.8 billion by end-January 2015 and series shown (memorandum: NIR 884, 1,304, 1,893, 1,884, 1,824, 1,917, 2,071, 2,177, 2,345, 2,245).  
- Program status: all December 2014 quantitative performance criteria were met; staff recommends completion of the seventh review and an immediate purchase of SDR 28.32 million (about US$39 million).  
- Fiscal target: draft 2015/16 budget maintains a central government primary balance target of 7.5 percent of GDP.  
- Impact of oil price decline: imported energy cost reduction of about 4 percent of GDP; a 10 percentage point drop in world oil price reduces headline inflation by about 0.6 percentage point initially and by a cumulative 2 percentage point after four quarters (VAR model, quarterly data 2007–2014).

### Program implementation, fiscal performance, and risks
- Fiscal outturns and projections (selected):
  - Primary balance: outturn 7.7 and programmed 7.5 (percent of GDP).
  - Interest payments: outturn 8.2 and budgeted 7.7 (percent of GDP).
  - Overall fiscal balance: FY2014/15 outturn -0.4 and FY2015/16 budget -0.2 (percent of GDP).
  - Public sector debt (percent of GDP): 146.5 (2012/13), 141.6 (2013/14), 140.1 (2014/15Prog.), 140.5 (2014/15), 132.5 (2015/16), and projections down to 94.9 (2020/21).
- Revenues and expenditure (selected J$ millions series): budgetary revenue and grants 344,668 (2012/13), 396,982 (2013/14), 417,826 (2014/15), 458,101 (2015/16Proj.), ... 674,060 (2020/21Proj.).
- Key risks:
  - Disruptions in external financing (including PetroCaribe), revenue shortfalls, inability to contain wage bill, vulnerabilities during securities dealers’ transition and while domestic bond market remains frozen.
  - High public debt and large upcoming principal repayments; principal repayments example: 158,707 J$ million in 2015/16Prog.
  - Financial sector exposure: financial sector holds over 35 percent of public debt; government securities represent a multiple of capital base for banks, insurance companies, securities dealers.
- Staff appraisal: confidence improving but sustained growth needed; priority actions include energy reform, business climate improvements, financing infrastructure, and continued fiscal consolidation to meet a primary surplus of 7.5 percent of GDP.

### Structural reforms and governance progress
- Completed and in-progress reforms:
  - ASYCUDA pilot for Kingston Port installed (Structural Benchmark for December); pilot covering imports and exports planned end-May 2015.
  - Database of all PSIP projects completed.
  - Legislative amendments to remove tax obstacles for CIS completed; CIS foreign asset cap raised to 10 percent with timetable to 25 percent by December 2015.
  - Distinct treatment for retail repo client interests established (structural benchmark for December); legal/regulatory framework for trust-based repos entered into effect on January 1, 2015.
  - Electricity Act tabled in parliament (Structural Benchmark for January); revised Electricity Act expected effective by end-April 2015.
- Public sector transformation:
  - Shared services introduced (starting with legal services); automated human resource management (HCMES/Payroll) procurement progressing with vendor evaluation by February 2015; first entity implementation expected to start May 2015.
  - Authorities committed to reduce wage bill to 9 percent of GDP, goal deferred to 2016/17; draft budget provides for a decline in wage bill to 9.8 percent of GDP.
- Public financial management:
  - New Procurement Act expected April 2015; Electronic Tendering System pilots in four entities planned in FY2015/16.
  - TSA expansion: termination of certain imprest/transit accounts by March 31, 2015 and closure by October 1, 2015; all AGD-controlled funds to be in CTMS General Ledger by September 2015.

### Tax reform and tax administration strengthening
- Tax package and revenue measures:
  - Draft budget envisages tax revenues at 24.6 percent of GDP; tax package totals 0.7 percent of GDP including: raising specific taxes on petroleum products; extending environmental levy to domestic goods and CARICOM imports; applying VAT to residential electricity consumption above a social tranche; increasing excises on cigarettes; modest reduction in personal income tax burden.
  - Revenue risks: lower oil prices (ad valorem excises) and falling interest payments reduce revenues; pickup in non-oil import revenues expected to help.
- Administration and IT modernization:
  - Phase 1 of RAiS (GENTAX) implemented in February 2015 (Registration functionality, GCT, SCT, GART, Telephone) — structural benchmark met.
  - Phase 2 of RAiS (all major tax types) proposed by end-December 2015.
  - ASYCUDA World pilot in Kingston to be completed by end-May 2015; full national roll-out by March 2016.
  - LTO capacity: increase by 30 auditors (March 2014–March 2015) and further 20 auditors by September 2015; targets include 95 percent e-filing/e-payment take-up in LTO by March 2015 and doubling (100 percent increase) the number of LTO audits FY2013/14→FY2014/15.
  - New tax compliance plan to be published by April 2015; full implementation expected no later than July 2015.
- Tax-base measures:
  - Entity-by-entity review of grandfathered tax incentives aimed to be completed March 2015 (structural benchmark for January 2015) — status noted as not met in one listing but review “well underway and expected to be completed in March 2015.”
  - Plan to introduce new Special Economic Zones to replace export free-zones by end-2015 with staff advice to limit tax incentives and focus on infrastructure provision.

### Financial sector reform, retail repo transition, and stability measures
- Retail repo reform:
  - Legal/regulatory framework changed in December; trust-based framework operational design started with pilot to commence in April 2015; all repo transactions expected on platform by end-August 2015 (revised structural benchmark).
  - Program anticipates gradual downsizing of the retail repo business, incentivized by minimum transaction size and tighter prudential regulation; clients expected to shift to CIS (CIS funds under management rose almost 60 percent in first nine months of 2014).
- Prudential and resolution framework:
  - Banking Services Act implementation and regulations expected end-September 2015 (structural benchmark); BOJ amendments to vest BOJ with overall responsibility for financial stability expected by November 1, 2015 (proposed).
  - Securities (Prudential) Regulation 2014 entered into force January 1, 2015.
  - National crisis management plan expected by end-April 2015; contingency plans and financial backstops adopted.
- Market liquidity and stress testing:
  - Lack of liquidity in domestic government bond market remains a risk; authorities exploring options to re-liquify secondary market while safeguarding stability.
  - BoJ’s September stress test shows banks’ CAR slightly more robust to negative shocks than previous quarterly assessment.
- Financial soundness indicators (selected):
  - Capital Adequacy Ratio (CAR): 16.0 (2007), 15.2 (2008), 18.8 (2009), 18.2 (2010), 16.1 (2011), 14.1 (2012), 15.1 (2013), 16.0 (2014-Sep).
  - NPLs/loans: 2.3 (2007) ... 4.8 (2014-Sep).
  - Provision for loan losses/NPLs: 103.4 (2007) ... 106.6 (2014-Sep).
  - Excess liquidity (statutory liquid assets/prescribed liabilities): 25.0 (2007) ... 30.7 (2014-Sep).

### PetroCaribe, PPPs, and public bodies reporting
- PetroCaribe:
  - Under PetroCaribe Jamaica pays a portion of its oil import bill up front; remainder lent at concessional terms (portion varies with oil price: 40 percent when price > US$100/bbl; 95 percent when price < US$20/bbl; 60 percent when price is between US$50 and US$80).
  - Total debt stock accrued under PetroCaribe estimated about 22 percent of GDP at end-December 2014.
  - With lower oil prices net inflows from PetroCaribe projected to be negative over the medium term as repayments increase after grace periods expire; gross inflows projected in baseline to average more than US$150 million over the next two years.
  - Adjuster: overall public sector balance floor adjusted by PetroJam overall balance shortfall/excess with a cap J$3.5 billion.
- PPP loan-value cap and exclusions:
  - Continuous benchmark caps total loan value of all new user-funded PPPs at 3 percent of GDP cumulatively over program period; loan value may be excluded if Auditor General establishes only minimal contingent liabilities (no debt guarantees, demand or price guarantees, or termination clauses implying transfer of liabilities).
  - FY2015/16 projected nominal GDP reference: J$1,690 billion.
- Public bodies reporting and transparency:
  - Overall balance of public bodies calculated from Statement A’s supplied by Public Enterprises Division; definitions and reporting lags specified (data to Fund with lag no more than 6 weeks after test date).
  - Annual audited reports target: completed within six months of fiscal year end for public bodies; achieved for >60 percent of self-financing public bodies by end-2014, full compliance by December 2015 for others (except PetroCaribe and Petrojam).

### Growth, infrastructure, energy, SEZs, and social protection
- Energy sector:
  - Conversion of the 115 MW Bogue power station from oil to gas targeted by December 31, 2015.
  - JPS 190 MW natural gas-fired plant approved, expected completed by 2017.
  - Strategy to use gas, coal, and renewable energy to replace aging oil-fired facilities.
  - Additional renewable capacity: wind, solar, and biomass totaling 78 MW.
- Logistics and SEZs:
  - Drafting of SEZ Act and enabling regulations to commence immediately with World Bank support; SEZ Act expected passed by October 2015; White Paper expected by March 2015.
  - NMIA privatization: RFQ issued November 2014; preferred bidder selection expected by September 2015.
  - Caymanas SEZ: pre-feasibility completed January 2015; feasibility tender to be developed.
  - Portland Bight transhipment port feasibility studies commenced; first phase projected complete in last quarter of 2016 (pending approvals).
- Social and labor policy:
  - Poverty incidence: 17.6 percent in 2010 rising to 19.9 percent in 2012 (2012 Jamaica Survey of Living Conditions).
  - PATH graduation strategy broad implementation anticipated mid-2015; National Poverty Reduction Programme targeted by end of FY2015/16.
  - Labour Market Reform Commission to be operational by April 2015; Cabinet note on separation costs due by April 2015.

### Program conditionality, benchmarks, and monitoring
- Structural benchmarks and timelines (selected):
  - Pilot ASYCUDA in Kingston Port (end-May 2015 proposed); full ASYCUDA roll-out March 2016.
  - Implement trust for securities dealers (transition of retail repos) by end-August 2015 (revised).
  - Banking Services Act regulations in effect by end-September 2015 (structural benchmark).
  - BOJ to have overall responsibility for financial stability by November 1, 2015 (proposed).
  - Implement Phase 2 RAiS (GENTAX) by December 31, 2015 (proposed).
- Quantitative monetary and fiscal program lines (selected, as presented):
  - Cumulative change in NIR (floor): series shown including 45.1, 351.9, 254.3, 970.4, 529.4, 470.3, 470.3, 469.2, 469.2, 614.5.
  - Cumulative change in NDA (ceiling): series shown including -7.5, -27.0, -24.2, -98.1, -55.1, -45.7, -45.7, -44.0, -44.0, -45.5.
  - Indicative tax revenue floor series and primary balance floors presented in program tables (values preserved in source).
- Data provision and reporting requirements: extensive daily, weekly, monthly, quarterly, and annual reporting schedules specified (e.g., monthly central government operations with lag no more than four weeks; BOJ balance sheet within three weeks of month end; quarterly GDP by sector within three months after quarter end).
- Fund financing and reviews:
  - EFF arrangement approved May 1, 2013 for SDR 615.38 million; prospective drawings (4-year EFF) include 113.28, 113.28, 28.33 (selected series).
  - Schedule of reviews and purchases listed; completion of seventh review enables SDR 28.32 million immediate purchase.

*Source: _cr1595 (IMF staff report and associated materials, March 2015).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Overview
- Recent data point to a gradual pick-up in economic activity as the effects of the drought fade. Growth should reach 2 percent in 2015/16, and inflation is projected to fall to an average of 5¼ percent, largely owing to lower fuel prices.  
- The program is on track. All December 2014 quantitative performance criteria were met and structural reforms have progressed broadly on schedule. Based on continued strong performance and the authorities’ policy commitments, staff recommends completion of the seventh review.  
- Discussions centered on the 2015/16 budget (which maintains the ambitious primary surplus target, at 7½ percent of GDP), reforms of the financial sector, and steps to boost long-term growth.

### Signs of burgeoning growth
- Real GDP dropped by 1.4 percent y/y during July–September 2014 owing to a temporary drought and the maintenance closure of the petroleum refinery.  
- GDP growth for 2014/15 is now projected at 0.4 percent.  
- Growth is projected to rise to 2 percent in 2015/16 with the end of the drought expected to provide a boost of about ¾ percentage points.  
- Unemployment declined to 14.2 percent in October, 0.7 percentage points lower than a year earlier.  
- Business and consumer confidence rose to the highest levels in the past two years as of end-2014.  
- Tourism was buoyant (foreign stopover arrivals increased by 7 percent y/y in Q4 2014) and remittances were strong.  
- The Chikungunya virus outbreak appears to be abating.

### Inflation, exchange rate, and external sector
- Inflation declined sharply to 5.3 percent (y/y) in January 2015; inflation is expected to be 4.7 percent by end-March.  
- The nominal exchange rate depreciated by 7.8 percent y/y relative to the U.S. dollar at end-December 2014 (a 1.5 percent fall in the real effective exchange rate).  
- The current account deficit is projected to have fallen by 3.2 percent of GDP from 2013/14 to 2014/15.  
- Net international reserves amounted to US$1.8 billion by end-January 2015, well above program goals.

### The impact of lower oil prices (Box 1)
- Recent changes in global oil prices have reduced Jamaica’s imported energy costs by about 4 percent of GDP.  
- A 10 percentage point drop in the world oil price reduces headline inflation by about 0.6 percentage point initially, rising to a cumulative price reduction of 2 percentage point after four quarters (VAR model, quarterly data 2007–2014).  
- Channels for real income effects include: domestic demand (higher household real disposable income but a high marginal import share of consumption), external demand (lower air travel costs boosting tourism), and competitiveness (lower production costs relative to some competitors).  
- Historical data indicate a 10 percentage point drop in the oil price caused the current account-to-GDP ratio to improve by close to 1 percentage point in year 1.  
- Historical data suggest that, absent offsets, a 10 percentage point reduction in the oil price would worsen the government primary balance by 0.8 percent.

### Financial sector and credit
- Commercial bank credit to the private sector contracted slightly in real terms during Q4 2014; combined credit to the private sector grew by about 0.5 percent y/y in real terms in Q4 2014.  
- Private corporate debt securities issuance was buoyant; private non-financial corporate debt securities and bank credit trends are highlighted in the staff analysis.  
- Securities dealers’ repo liabilities to retail clients have decreased; collective investment schemes (CIS) intended to replace retail repos are growing (total CIS fund under management increasing by almost 60 percent in the first nine months of 2014).  
- The BoJ’s September stress test shows banks’ capital adequacy ratio was slightly more robust to negative shocks than in the previous quarterly assessment.  
- Jamaica’s sovereign bond spread relative to the emerging market average continues to narrow.

### Strong program implementation
- All quantitative performance criteria for end-December 2014 and continuous quantitative program targets were met.  
- Fiscal performance was broadly in line with the program through end-December 2014; the central government’s primary balance target was met through expenditure restraint, particularly in capital and wage outlays.  
- The indicative target on tax revenue was missed by a narrow margin; tax revenue was weak due to sluggish receipts from corporate income taxes and lower consumption tax revenues, while non-tax revenue was boosted by customs fees, capital income and dividends from public enterprises.  
- Net international reserves (NIR) and net domestic asset (NDA) significantly outperformed the program targets, owing to the external bond issuance in July 2014.

### PetroCaribe and related risks (Box 2)
- Under PetroCaribe, Jamaica pays only a portion of its oil import bill up front; the remainder is lent at highly concessional terms. The portion paid upfront varies with the oil price (40 percent when price > US$100/bbl; 95 percent when price < US$20/bbl; 60 percent when price is between US$50 and US$80). A modest share of repayments is currently made in-kind and could rise to US$35 million by 2020.  
- The total debt stock accrued by Jamaica under PetroCaribe is estimated to be about 22 percent of GDP at end-December 2014.  
- With lower oil prices, net inflows from PetroCaribe are projected to be negative over the medium term as debt repayments increase after grace periods expire. Gross inflows are projected in the baseline to average more than US$150 million over the next two years.  
- The net balance of payments and fiscal impacts of lower oil prices depend critically on continuing PetroCaribe inflows.

### Risks to the program
- Risks are slowly waning but remain substantial. Sustained improvement in growth is important to sustain the social consensus for reforms.  
- Key risks include disruptions in external financing (including from PetroCaribe), revenue shortfalls or inability to contain the government wage bill, and vulnerabilities in the financial system—particularly during the transition to the trust for securities dealers and while the domestic government bond market remains frozen.  
- Several infrastructure projects could unlock growth but implementation timelines have been protracted.

### Policy and reform priorities discussed
- Improve public financial management and tax compliance.  
- Negotiate a new public-sector wage agreement.  
- Transition securities dealers to a trust-based framework by August.  
- Reinforce financial system resilience in the context of retail repo reform and the growth of CIS.  
- Continue energy sector reform to support investment and growth.

_Executive Summary — March 13, 2015_

### 8.      Structural reforms have broadly progressed on schedule, except for a delay in

### _cr1595 - 8.      Structural reforms have broadly progressed on schedule, except for a delay in

### Progress on structural reforms
- An internationally compatible automated system for customs data was put in place, on a pilot basis, for the Kingston Port (Structural Benchmark for December).
- The database of all Public Sector Investment Plan (PSIP) projects was completed.
- Legislative amendments to remove tax obstacles for investments in collective investment scheme (CIS) were completed.
- The government raised the CIS investment cap in foreign assets to 10 percent, and published a timetable to further raise the cap to 25 percent by December 2015.
- The Cabinet approved the program of reforms for the new Development Applications Process (DAP) to accelerate approval for investment projects.
- A distinct treatment for retail repo client interests was established in the legal and regulatory framework (Structural Benchmark for December).
- The Electricity Act was tabled in parliament (Structural Benchmark for January).

### The 2015/16 budget: targets and composition
- The draft budget for FY2015/16 targets a primary balance of 7.5 percent of GDP, for a third consecutive year.
- Budget calendar innovations:
  - Tabled in February and scheduled to be adopted before end-March—i.e., for the first time, before the beginning of the new fiscal year.
  - Expenditures and revenues to be presented and discussed jointly in parliament.
- The draft budget for public enterprises aims to maintain an overall zero balance for these entities.
- Wage bill:
  - Draft budget provides for a decline in the wage bill to 9.8 percent of GDP.
  - Under the program the wage bill fell from 11 percent of GDP to just over 10 percent in 2014/15.
  - Authorities confirmed commitment to reduce the wage bill to 9 percent of GDP, with the goal deferred by one year to 2016/17.
- Contingencies:
  - The budget includes several contingencies—totaling more than 1 percent of GDP—to help safeguard the 7.5 percent of GDP primary balance target.
  - A specific contingency would cover the cost of a possible hedge against a steep rise in oil prices.
- Social spending:
  - Social spending will be protected and is subject to a floor in the program.
  - Budget includes higher allocations for the public health system (drugs and medical supplies) and some increase in public sector pensions.
  - Draft budget envisages an increase in program outlays by 0.9 percent of GDP, of which 0.4 percentage point is for one-off items.

### Revenues, tax measures, and administration
- Tax revenues envisaged at 24.6 percent of GDP in the draft budget.
- The tax package totals 0.7 percent of GDP and includes:
  - Raising specific taxes on petroleum products.
  - Extending the environmental levy to domestic goods and CARICOM imports.
  - Applying the value-added tax to residential electricity consumption above a social tranche.
  - Increasing excises on cigarettes.
  - A modest reduction in the personal income tax burden.
- Revenue risks noted:
  - Lower oil prices (given ad valorem petroleum excises) and falling interest payments on domestic debt will reduce revenues.
  - Pickup in revenues from non-oil imports expected to help the tax base.
- Revenue administration strengthening:
  - A new tax compliance plan has been developed, supported by a long-term advisor financed by Canada.
  - Audit capacity at the Large Taxpayer Office being reinforced with additional auditors, guided by quantitative targets under the program for end-March 2015 (a structural benchmark).
  - To facilitate implementation of a new integrated tax software, uncollectible tax debts are being written-off.
  - Tax authorities developing new revenue productivity indicators with IMF technical assistance.
- Tax-base reform:
  - Authorities planned to complete the review of entities in receipt of grandfathered tax incentives by end-March (a structural benchmark for end-January).
  - Plan to introduce new Special Economic Zones to replace existing export free-zones by end-2015, with staff advice to limit tax incentives and focus on infrastructure provision.
  - Authorities requested IMF technical support to identify further tax system improvements.

### Public financial management, public sector efficiency, and debt management
- New legal framework for government procurement being adopted with IADB assistance.
- Expansion and improvement of the Treasury Single Account (TSA) and other public financial management reforms underway.
- First phase of public sector transformation implemented with World Bank and IDB support:
  - Introduce shared services within central government, starting with legal services.
  - Develop an automated human resource management system.
- Authorities requested IMF assistance to develop a strategic plan to sustainably contain the wage bill without relying on wage or hiring freezes.
- Public debt management:
  - Short-term advisor on debt management and IMF long-term Treasury advisor supporting authorities.
  - Preparation of a new medium-term debt management strategy to develop the domestic capital market (including an Investor Relations Program and communication strategy), mitigate foreign exchange and interest rate risk, and improve maturity profile.

### Monetary policy, inflation anchoring, and competitiveness
- Monetary policy stance aims to be consistent with medium-term inflation of no more than 6 percent.
- Intention to transition to inflation targeting over the medium term; authorities intend to publish their first (annual) report on readiness for inflation targeting as of end-March.
- Measures taken:
  - Strengthened the corridor for short-term market interest rates.
  - Central bank actively managing liquidity, including through longer-term instruments, to provide more space for private sector credit.
- Exchange rate and reserves:
  - Resumption of exchange rate depreciation since October is supporting competitiveness and growth.
  - Lower global oil prices help the current account outlook.
  - Continued exchange rate adjustment remains necessary given inflation differentials and U.S. dollar appreciation.
  - Bank of Jamaica (BOJ) plans to continue purchasing foreign exchange, as market conditions allow, to rebuild non-borrowed reserves.

### Financial sector reform and stability
- Transition to a trust-based repo framework for securities dealers underway:
  - Change in legal and regulatory framework implemented in December to allow a transparent and robust framework for repo transactions.
  - Operational design of information systems started; pilot to commence in April.
  - All repo transactions expected to move to this platform by end-August 2015 (a revised structural benchmark).
  - Program anticipates a gradual downsizing of the repo business, incentivized by a minimum transaction size and tighter prudential regulation; clients expected to shift to Collective Investment Schemes (CIS).
- Risks and market liquidity:
  - Lack of liquidity in the government bond market remains a risk for evaluating financial intermediaries’ balance sheets.
  - Authorities exploring options to re-liquify the secondary domestic bond market while safeguarding financial stability.
  - Central bank maintains liquidity through repo operations.
- Regulatory and crisis-management enhancements:
  - Implementing regulations for the Banking Services Act are being drawn up and expected in effect by end-September 2015 (a structural benchmark) to establish consolidated bank supervision.
  - Amendments to the BOJ Act expected to vest the BOJ with overall responsibility for financial stability as of November 2015.
  - Agency-specific contingency plans and financial backstop facilities adopted; a national crisis management plan expected in April 2015.

### Growth, infrastructure, and regulatory reform to boost competitiveness
- Need to address impediments to growth: high crime, infrastructure bottlenecks, and red tape.
- Regulatory impediments:
  - Tracking system for construction permits implemented in November; intended extension to all agencies by June, 2015 and full effectiveness of the new fast-track system.
  - Online system for business registration planned by August.
- Electricity sector projects:
  - Government approved conversion of the 115 MW Bogue power station from oil to gas and construction of a new 190 MW LNG-based power plant by JPS.
  - Construction of a gas-powered co-generation plant by Alpart approved.
  - These projects expected to become operational between 2016 and 2018.
  - Strategy to use a mix of gas, coal, and renewable energy to replace aging oil-fired facilities.
- Strategic investments:
  - Construction of the final segments of the North-South Highway moving toward completion in 2016.
  - Authorities selecting a preferred bidder for the privatization of the Norman-Manley Airport as part of establishing Jamaica as a logistics hub.
- Social protection:
  - 2012 Jamaica Survey of Living Conditions showed poverty incidence rose from 17.6 percent in 2010 to 19.9 percent in 2012.
  - Strengthening of social protection framework via PATH; social protection strategy launched in July 2014 and a National Poverty Reduction Committee created (MEFP, ¶23).

### Program issues, benchmarks, and financing
- Proposed amendments and new conditions for the coming 12 months:
  - Performance criteria for end-December 2015 proposed, and amendments to fine-tune primary balance and overall fiscal balance criteria for June and September 2015.
  - Revision of timetables for three structural benchmarks:
    - Tabling new pension legislation by November 2015 rather than June.
    - Reorganizing government cash management function moved from June 2015 to September.
    - Implementing the trust for securities dealers moved to August 2015 rather than June.
  - New structural benchmarks proposed:
    - Pilot covering imports and exports for ASYCUDA customs software in the Kingston Port (end-May 2015).
    - Implement new software for domestic tax collection for all major tax types (end-December 2015).
    - Give the BOJ overall responsibility for financial stability (November 1, 2015).
- Financing and Fund position:
  - Program remains fully financed and staff’s assessment of Jamaica’s capacity to repay the Fund remains broadly unchanged from the last review.
  - Financing for the 2015/16 fiscal year from other IFIs is expected to be in line with, or somewhat above, initial commitments.
  - Debt service to the Fund and the purchase profile remain unchanged absent significant macro revisions.

### Staff appraisal and policy recommendations
- Confidence in the Jamaican economy has improved to its highest level in two years, but tangible growth dividends remain elusive; continued robust program implementation is needed to realize stronger growth.
- Priority actions to accelerate growth:
  - Accelerate reforms in the energy sector.
  - Improve the business climate and reduce red tape.
  - Find creative ways to finance infrastructure, including leveraging private participation and prioritizing strategic investment projects.
  - Collaborate with the World Bank, IADB, and bilateral donors.
- Monetary policy advice:
  - Maintain policy centered on price stability and competitiveness.
  - Allow sufficient real exchange rate depreciation to support tradable sectors, notably tourism.
- Financial sector advice:
  - Meet key milestones for retail repo reform; finalize transition to a trust-based framework by August.
  - Restore government bond market liquidity carefully to avoid financial stability risks.
- Fiscal and structural advice:
  - Continue fiscal consolidation; a primary surplus of 7.5 percent of GDP remains ambitious and central to public debt reduction.
  - Explore options to accelerate public debt reduction.
  - Boost revenue and improve public sector efficiency via ambitious customs and tax administration reforms.
  - Identify avenues to broaden the tax base and raise tax proceeds.
  - Enhance efficiency of public outlays through improved public financial management, prioritization, private participation, civil service reform, and reducing the burden of civil service compensation.

*Source: _cr1595 - 8.      Structural reforms have broadly progressed on schedule, except for a delay in (IMF staff text).*

### 33.      Risks remain high, but the authorities continue to rise to the challenges before them.

### 33.      Risks remain high, but the authorities continue to rise to the challenges before them.

### Staff recommendation
- Staff supports the authorities’ request for:
  - completion of the seventh review of the arrangement under the Extended Fund Facility,
  - the modification of performance criteria for end-June 2015 and end-September 2015,
  - the proposed establishment of end-December 2015 performance criteria.

### Macroeconomic developments and near-term outlook
- Growth and output:
  - The economy contracted in July-September quarter, largely due to the recent drought.
  - Real GDP growth series shown (quarterly y/y or SAAR) with sectoral contributions: Agriculture, Mining, Construction, Other, Tourism and Remittances.
- External sector and reserves:
  - Remittances are strengthening and tourism has picked up, especially in cruise passenger arrivals.
  - The current account deficit has narrowed markedly due to fiscal consolidation and improved competitiveness.
  - International reserves have increased, boosted by the July 2014 bond issuance.
  - Net international reserves (NIR, US$ million series shown; memorandum: NIR 884, 1,304, 1,893, 1,884, 1,824, 1,917, 2,071, 2,177, 2,345, 2,245).
- Exchange rate and inflation:
  - The exchange rate continues depreciating.
  - Inflation has come down with the recent drop in oil price.
  - CPI inflation and core inflation series presented (percent, y-o-y).
- Labor market and social conditions:
  - Unemployment is declining, but both unemployment and poverty levels remain high.
  - Unemployment rate (Jul. 2014): 13.8%.

### Fiscal developments and public finances
- Fiscal stance and deficits:
  - The primary fiscal balance has strengthened and is projected to remain at the programmed 7.5 of GDP in 2015/16.
  - The ambitious primary balance mostly covers interest payment obligations, with a nearly equilibrated overall balance.
  - Primary balance noted: 7.7 (outturn) and 7.5 (programmed).
  - Interest payments: 8.2 (outturn) and 7.7 (budget).
  - Overall fiscal balance: -0.4 (FY2014/15 outturn) and -0.2 (FY2015/16 budget).
- Revenue, expenditure, and financing (selected items from tables):
  - Budgetary revenue and grants (J$ millions): 344,668 (2012/13), 396,982 (2013/14), 422,942 (2014/15Prog.), 417,826 (2014/15), 458,101 (2015/16Proj.), 493,367 (2016/17Proj.), ... up to 674,060 (2020/21Proj.).
  - Tax revenue (J$ millions): 320,929 (2012/13), 344,848 (2013/14), 377,139 (2014/15Prog.), 377,895 (2014/15), 416,662 (2015/16), ... up to 646,968 (2020/21).
  - Budgetary expenditure (J$ millions): 399,279 (2012/13), 396,228 (2013/14), 431,689 (2014/15Prog.), 424,887 (2014/15), 461,892 (2015/16), ... up to 615,371 (2020/21).
  - Interest payments (J$ millions): 126,938 (2012/13), 110,906 (2013/14), 129,766 (2014/15Prog.), 128,396 (2014/15), 130,519 (2015/16), ... projections down to 126,797 (2019/20) and 0 (2020/21 row shows 0 but context presents series).
  - Gross financing needs (J$ millions): 146,248 (2012/13), 103,368 (2013/14), 80,477 (2014/15Prog.), 80,104 (2014/15), 161,898 (2015/16), 45,209 (2016/17), ... up to 202,113 (2020/21).
  - Principal repayments (J$ millions): 88,681 (2012/13), 104,122 (2013/14), 71,439 (2014/15Prog.), 73,397 (2014/15), 158,707 (2015/16), ... up to 260,802 (2020/21).
- Fiscal ratios (percent of GDP, selected):
  - Budgetary revenue and grants: 25.7 (2012/13), 27.2 (2013/14), 26.4 (2014/15Prog.), 26.6 (2014/15), 27.1 (2015/16), ... 25.4 (2020/21).
  - Tax revenue: 23.9, 23.6, 23.6, 24.0, 24.6, ... 24.4 (2020/21).
  - Budgetary expenditure: 29.8, 27.1, 27.5, 27.0, 27.3, ... 23.2 (2020/21).
  - Primary expenditure: 20.3, 19.5, 19.2, 18.9, 19.6, ... 18.4 (2020/21).
  - Interest: 9.5, 7.6, 8.1, 8.2, 7.7, ... 4.8 (2020/21).
  - Public sector debt (percent of GDP): 146.5 (2012/13), 141.6 (2013/14), 140.1 (2014/15Prog.), 140.5 (2014/15), 132.5 (2015/16), 126.7 (2016/17), 119.2 (2017/18), 110.9 (2018/19), 102.8 (2019/20), 94.9 (2020/21).

### Public debt composition and debt-service profile
- Total public debt composition (2013/14, percent of total public debt):
  - Government (Domestic): 49.9% (US$9.2b)
  - Government (External): 37.6% (US$6.9b)
  - Government guaranteed: 7.9% (US$1.4b)
  - Petrocaribe (net of CG financing): 4.6% (US$0.8b)
- External debt by creditor type (2013/14, percent of total external debt):
  - Multilateral: 32.5% (US$2.7b)
  - IMF: 9.4% (US$0.8b)
  - Bonds: 43.4% (US$3.6b)
  - Commercial banks: 4.4% (US$0.4b)
  - Bilateral Non-OECD: 7.6% (US$0.6b)
  - Bilateral OECD: 2.5% (US$0.2b)
  - Other: 0.2% (US$0.02b)
- Effective interest rates (percent) on external debt components (2013/14):
  - Listed series: 2.6, 1.4, 1.6, 2.2, 7.3, 1.1 (presented across creditor types).
- Debt maturity structure (December 2014):
  - External debt has longer maturity than the domestic debt.
- Key implication:
  - Savings on interest payments will free-up space for public capital expenditure, as the debt-to-GDP ratio falls.
  - Domestic nominal interest rates are now single-digit.

### Financial sector developments and risks
- Credit and deposits:
  - Growth of bank deposits and bank credit have both declined.
  - Private sector credit remains low by regional standards (private sector credit, December 2014, percent of GDP: Jamaica compared to regional peers).
  - Private sector credit (percent of GDP series across countries shown).
- Interest rates and spreads:
  - Interest rates remain high, but have stabilized in recent months.
  - Selected interest rate series shown: Treasury bill rate (6m), bank interest rate spread, lending (weighted) commercial banks, inflation.
- Financial sector holdings of public debt:
  - The financial sector still holds over 35 percent of public debt.
  - Government securities represent a multiple of the capital base for banks, insurance companies, securities dealers (financing to the public sector, December 2014, percent of capital base).
- Bank soundness indicators (selected, Table 8):
  - Capital Adequacy Ratio (CAR): 16.0 (2007), 15.2 (2008), 18.8 (2009), 18.2 (2010), 16.1 (2011), 14.1 (2012), 15.1 (2013), 16.0 (2014-Sep).
  - NPLs/loans: 2.3 (2007), 2.9 (2008), 4.7 (2009), 6.5 (2010), 8.9 (2011), 7.0 (2012), 5.4 (2013), 4.8 (2014-Sep).
  - Provision for loan losses/NPLs: 103.4 (2007), 87.2 (2008), 75.7 (2009), 69.9 (2010), 75.2 (2011), 90.3 (2012), 95.7 (2013), 106.6 (2014-Sep).
  - Excess liquidity (statutory liquid assets/prescribed liabilities): 25.0 (2007), 30.3 (2008), 31.3 (2009), 36.2 (2010), 30.5 (2011), 26.7 (2012), 25.3 (2013), 30.7 (2014-Sep).
- Monetary and central bank accounts (selected):
  - Bank of Jamaica summary accounts show trends in net foreign assets, net domestic assets, base money, currency in circulation, liabilities to commercial banks, credit to private sector (J$ billions and percent-change series provided).
  - Base money (end-of-period stocks, in billions of Jamaican dollars): 9, 14, 10, 21, 100, 107, 118, 129, 141, 154, 172 (table provides multi-year series).

### Projections and medium-term outlook (selected macro projections)
- Real GDP (annual percent change): -0.7 (2012/13), 0.9 (2013/14), 1.1 (2014/15Prel./Prog. entries), 0.4 (2014/15Prog.), 2.1 (2015/16), 2.3 (2016/17), 2.5 (2017/18), 2.7 (2018/19), 2.7 (2019/20), 2.7 (2020/21).
- Nominal GDP growth (annual percent): 6.2 (2012/13), 8.9 (2013/14), 9.4 (2014/15Prel.), 7.8 (2014/15Prog.), 7.5 (2015/16), 9.6 (2016/17), 9.8 (2017/18), 9.6 (2018/19), 9.1 (2019/20), 8.9 (2020/21).
- CPI (end of period): 9.1 (2012/13), 8.3 (2013/14), 8.1 (2014/15Prel.), 4.7 (2014/15Prog.), 7.0 (2015/16), 7.3 (2016/17), 7.0 (2017/18), 6.5 (2018/19), 6.0 (2019/20), 6.0 (2020/21).
- Current account balance (percent of GDP): -9.9 (2012/13), -8.5 (2013/14), -7.5 (2014/15Prel.), -5.3 (2014/15Prog.), -3.9 (2015/16), -3.7 (2016/17), -3.4 (2017/18), -3.1 (2018/19), -3.0 (2019/20), -3.1 (2020/21).
- Net international reserves (US$ millions, memorandum): 884 (2012/13), 1,304 (2013/14), 1,893 (2014/15Prel.), 1,884 (2014/15Prog.), 1,824 (2015/16Proj.), 1,917 (2016/17Proj.), 2,071 (2017/18Proj.), 2,177 (2018/19Proj.), 2,345 (2019/20Proj.), 2,245 (2020/21Proj.).

### Key risks highlighted
- Risks remain high (explicit statement).
- Specific vulnerabilities visible in:
  - High public debt stock (public sector debt: 146.5 percent of GDP in 2012/13 declining over projections but remaining large),
  - Large upcoming principal repayments and gross financing needs spikes (e.g., principal repayments 158,707 J$ million in 2015/16Prog.),
  - Financial sector exposure to public debt (financial sector holds over 35 percent of public debt and government securities represent a multiple of capital base),
  - Low private sector credit penetration by regional standards,
  - Continued high unemployment and poverty rates despite declines.

*Source: _cr1595 - 33.      Risks remain high, but the authorities continue to rise to the challenges before them.*

### 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be in

### _cr1595 - 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be in

### Structural benchmarks and program conditionality (selected items, status, and dates)
- 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets starting with the 2014/15 budget. — March 31, 2014 — Met
- 2. Government to finalize a review of public sector employment and remuneration that serves to inform policy reform. — March 31, 2014 — Met
- 3. Government to ensure there is: (i) no financing of Clarendon 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 covering: (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 — Proposed revision
- 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 — Proposed revision

### Tax reform (policy actions, implementation steps, and timelines)
- 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
- Tax reform implementation highlights (from Attachment I, Memorandum of Economic and Financial Policies):
  - Simplified the annual tax return filing for self employed taxpayers through a single annual return (S04), made available on the TAJ website on December 31, 2014.
  - Prepared permanent legislation (via a validation bill) for the Minimum Business Tax, to be tabled in March 2015.
  - Set up a Modernization Programme Office (MPO) in the TAJ; revised arrangements to be in place by end-April 2015.
  - Tabled legislation related to establishing the Revenue Appeals Department as a separate, independent entity; expected to be adopted by May 2015.
  - Implemented in February 2015 Phase 1 (Registration functionality, GCT, SCT, GART, Telephone) of the RAiS (GENTAX) integrated tax software package (structural benchmark).
  - Prepared (with IMF TA support) an estimate of the revenue compliance gap for the GCT; repeat analysis in subsequent years.
  - Explored options (with World Bank support) to simplify processes and reduce banking fees when making and receiving tax payments; exercise expected to yield results in 2015.
- Planned follow-up initiatives:
  - Property tax reform ready for implementation by the start of FY2015/16; amendments tabled in February 2015 for implementation in April 2015.
  - Entity-by-entity review of grandfathered incentives to be completed in March 2015 (structural benchmark for January 2015; review well underway and expected to be completed in March 2015).
  - Requested FAD TA (possibly with IDB) to assess tax reform impact, to inform priorities for further tax reform starting with the 2016/17 budget.
  - Plan to improve reporting on tax expenditures and estimated fiscal costs in future budgets (based on ongoing IDB TA).

### Tax administration (targets, implementation steps, and statuses)
- 15. 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
- 16. Government to implement ASYCUDA World for the Kingston Port as a pilot site. — December 31, 2014 — Met
- 17. 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
- 18. Government to complete pilot testing of ASYCUDA World (covering imports and exports) in the Kingston port. — May 1, 2015 — Proposed
- 19. Government to implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package. — February 28, 2015 — Met
- 20. Government to table in Parliament proposals for a comprehensive overhaul of the Customs Act. — June 30, 2015
- 21. Government to introduce new productivity indicators, in consultation with Fund staff, to measure the effectiveness and efficiency of the tax system. — November 30, 2015
- 22. Government to implement Phase 2 of the RAiS (GENTAX) integrated tax software package, for all major tax types. — December 31, 2015 — Proposed

### Financial sector and legal/regulatory reforms
- 23. Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010. — March 31, 2014 — Met
- 24. 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
- 25. 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
- 26. Government to table the Omnibus Banking Law consistent with Fund Staff advice to facilitate effective supervision of the financial sector. — March 31, 2014 — Met
- 27. Government to finalize the transition of retail repos to the trust-based framework. — August 30, 2015 — Proposed revision
- 28. Government to fully implement the Banking Services Act. — September 30, 2015
- 29. The BOJ to have overall responsibility for financial stability. — November 1, 2015 — Proposed

### Growth-enhancing structural reforms (selected items)
- 30. Government to implement a new (AMANDA) tracking system to track approval of construction permits across all parish councils. — December 30, 2014 — Met
- 31. Government to table in parliament the Electricity Act. — January 31, 2015 — Met

### Fiscal and monetary quantitative targets (selected figures as presented)
- Fiscal targets (selected lines as presented):
  - 1. Primary balance of the central government (floor): 66.0 66.8 121.0 17.0 17.0 32.0 40.0 65.0
  - 2. Tax Revenues (floor): 260.0 258.6 384.0 88.0 88.0 175.0 189.0 287.0
  - 3. Overall balance of the public sector (floor): -37.0 -36.5 -17.0 -11.6 -17.0 -21.0 -25.0 -33.0 -35.0
  - 4. Central government direct debt (ceiling): 1672.0 92.4 67.9 90.6 4.5 4.5 0.0 0.0 12.0
  - 6. Central government accumulation of domestic arrears (ceiling): 21.6 0.0 -0.1 0.0 0.0 0.0 0.0 0.0 0.0
  - 9. Social spending (floor): 14.8 18.2 21.7 4.5 4.5 9.5 9.2 15.6
- Monetary targets (selected lines as presented):
  - 10. Cumulative change in net international reserves (floor): 45.1 351.9 254.3 970.4 529.4 470.3 470.3 469.2 469.2 614.5
  - 11. Cumulative change in net domestic assets (ceiling): -7.5 -27.0 -24.2 -98.1 -55.1 -45.7 -45.7 -44.0 -44.0 -45.5
- Notes included in the source: 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 2014 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/ Cumulative change from end-December 2013; 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.

### Indicators of Fund credit, scheduled purchases, and reviews (selected figures)
- Prospective drawings (4-year EFF): 113.28 113.28 28.33 ...
  - (in percent of quota): 41.42 41.42 10.36 ...
- Projected Debt Service to the Fund (Amortization, Interest, SDR charges, Total debt service): selected totals shown as:
  - Amortization: 39.85 3.99 11.40 37.11 64.80 83.68 100.20 102.56 91.17 65.46 37.76
  - Interest and service charges: 3.96 5.90 6.50 6.30 5.83 5.11 4.17 3.11 2.03 1.16 0.55
  - SDR charges and assessments: 0.03 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04
  - Total debt service: 43.81 9.89 17.90 43.41 70.63 88.79 104.37 105.67 93.20 66.62 38.31
  - (in percent of exports of G&S): 1.56 0.34 0.59 1.38 2.17 ...
  - (in percent of GDP): 0.49 0.11 0.19 0.43 0.67 0.80 0.89 0.86 0.73 0.50 0.27
- Outstanding stock (in millions of SDRs and percent metrics): 477.76 587.05 603.98 566.88 502.08 418.39 318.19 215.63 124.46 59.00 21.24
  - (in percent of quota): 174.68 214.64 220.83 207.27 183.58 152.98 116.34 78.84 45.51 21.57 7.77
  - (in percent of GDP): 5.36 6.41 6.30 5.62 4.73 3.76 2.73 1.76 0.97 0.44 0.15
- Table 12: Schedule of Reviews and Purchases (selected lines):
  - May 1, 2013 — 136.75 — 50 — Approval of Arrangement
  - September 30, 2013 — 19.97 — 7 — First Review and end-June 2013 performance criteria
  - December 18, 2013 — 19.97 — 7 — Second Review and end-September 2013 performance criteria
  - March 19, 2014 — 45.95 — 17 — Third Review and end-December 2013 performance criteria
  - ... Total 615.38 — 225.0
- Appendix I: Letter of Intent excerpt (key points):
  - All quantitative fiscal and monetary performance criteria under the programme have been met for all quarterly test dates.
  - The Government requests completion of the seventh review of the extended arrangement under the Extended Fund Facility, approval of modification of performance criteria for end-June 2015 and end-September 2015 and the new performance criteria for December 2015 and the eighth purchase of SDR 28.32 million.
  - The 2015/16 budget submitted to Parliament on February 19 is consistent with programme objectives and is expected to be adopted before the start of the new fiscal year; it will maintain the primary surplus of the central government at 7.5 percent of GDP.
  - Funding the 2015/16 expenditure budget while achieving a 7.5% primary balance requires net revenue enhancing measures equivalent to 0.7% of GDP.
  - The expenditure budget maintains minimum real expenditure on specified social programmes and includes a comprehensive fiscal risk statement covering all significant contingent liabilities including those related to public sector entities and PPPs.

*Source: Content unit: _cr1595 - 1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be in (PDF content supplied).*

### 7.      Next steps to strengthen tax and customs administration include:

### 7.      Next steps to strengthen tax and customs administration include:

### Tax administration: compliance plan, large taxpayer administration, automation, and indicators
- Implementation of the tax compliance plan for FY2015/16-FY2016/17 prepared with assistance of the FAD's long term expert in tax administration; plan is articulated around a risk-based model.
  - Next steps: improve communication strategy on reporting requirements for taxpayers, employers and third party information providers; extend the tax compliance gap analysis; develop and implement an information matching and forensic data mining project.
  - The compliance plan will be published by April 2015, coordinating plans will be developed by that time, and full implementation of the plan is expected no later than July 2015.
- Full implementation of the elimination of zero rating under the GCT for government purchases by March 2015 (except for purchases by public schools).
- Improving large taxpayer administration through:
  - (i) increasing the number of staff in the large taxpayers office (LTO) by a further 30 auditors (from March 2014 to March 2015);
  - (ii) increasing the number of (full plus issue) audits completed in the LTO by 100 percent (from FY 2013/14 to FY 2014/15);
  - (iii) achieving 95 percent take up rate of e-filing and e-payment in the LTO (March 2015); and
  - (iv) writing off all GCT and SCT debts that have been subjected to risk-rated stress tests and consequently categorised as uncollectible in accordance with the Regulations (structural benchmark, end-March 2015).
  - Aim to similarly write off income tax debts subjected to risk-rated stress tests and categorised as uncollectible in accordance with the Regulations by April-2015.
  - The number of LTO auditors will be increased by another 20 by September 2015.
- Jamaica Customs Agency to undertake strategic amendments to the Customs Act with assistance of CARTAC to facilitate introduction of a modern integrated customs management system; a Bill to amend the Customs Act will be tabled in the houses of Parliament by end-June 2015 (structural benchmark).
- Automating tax and customs operations by implementing:
  - the full function production version of the ASYCUDA-World integrated customs software package for the entire country (March 2016), after completing pilot testing of this version (covering imports and exports) in the Kingston port by end-May 2015 (proposed structural benchmark);
  - Phase 2 of the RAiS (GENTAX) integrated tax software package, for all major tax types by end-December 2015 (proposed structural benchmark); the stamp duty and transfer tax will be added if possible (April 2016).
- Implement new revenue productivity indicators (structural benchmark for end-November 2015), building on Fund TA; indicators should cover e-filing, non-filing, audit coverage, objection and appeals results, arrears collection, collectible and disputed debts, refund processing, and customs clearance and customs post-clearance audits.

### Reforms to Public Financial Management and the Budget Process
- Government implementing updated action plan for public financial management reform, in collaboration with development partners.
  - A database of PSIP projects was completed in December 2014.
  - Criteria for determining which entities would be deemed commercial and could be excluded from fiscal rule coverage completed; associated regulations completed; sensitization programme to begin in the first quarter of FY 2015/16.
  - A Procurement Act expected to be passed in April 2015.
    - Next steps:
      - Implementation of the Electronic Tendering System in four pilot entities during the financial year; prototype tested in January 2015; pilot implementation to start in July 2015.
      - A new procurement manual to be prepared by August 2015, with IDB assistance.
- Strengthen macro-fiscal capacity of the Ministry of Finance and Planning (MOFP) with IMF TA:
  - undertake hands-on training for members of the Fiscal Policy Management Unit (FPMU);
  - review, re-organize and reclassify functions and positions in the FPMU;
  - develop structured work plans for each position in the re-organized FPMU by the second quarter of FY 2015/16;
  - recruit additional qualified staff for the re-organized Unit by the third quarter of FY 2015/16;
  - document procedures of methodology and processes for efficient production of key outputs and effective management of datasets and information on an on-going basis.
- Treasury Single Account (TSA) at the Bank of Jamaica will be further expanded and improved according to a plan developed with Fund TA:
  - Government will further increase direct payments through the TSA using the central treasury management system (CTMS); commenced in January 2015 with civil servants salaries for the (pilot) Ministry of Finance and Planning.
  - Coverage and functionality of the CTMS will continue to be expanded.
  - Use of a number of imprest and transit accounts will be terminated on March 31, 2015, with closure by October 1, 2015.
  - All funds under the direct control of the AGD will be managed in the General Ledger of the CTMS by September 2015.
  - Review, with IMF TA, the need for a service level agreement between the BOJ and the government for banking services provided by the BOJ.
- Accountant General’s Department (AGD) transitioning into a modern treasury department by March 2016:
  - Develop an AGD modernization plan and define a new organizational structure by September 2015.
  - Establish a new Cash Management Unit in the AGD; transfer the cash management function (currently handled by FPMU) to it by end-September 2015 (proposed revised structural benchmark), with IMF TA support.
  - Develop a new cash forecasting model by June 2015 and make it operational by September 2015.
- Adjusted Chart of Accounts first prepared in April 2014 and undergoing further revisions with a view to implementation by June 2015.

### Debt management
- Government committed to sharply reducing public debt; public debt expected to decline to 96 percent of GDP by March 2020.
- Strategy to achieve this: sustained fiscal efforts, policies to bolster growth, and additional measures; ensure sound public sector governance and public debt management in designing and implementing transactions.
- Strengthen debt management strategy and capacity:
  - Increase staffing of the middle office in the Debt Management Branch, provide skills training, and improve securities operations and domestic market development with IMF TA.
  - New medium-term debt management strategy and 2015/16 borrowing plan aim to reduce the burden of servicing government debt over time and ensure access to several sources of financing, including the domestic bond market.
  - Develop a debt management business continuity strategy and function with IMF TA in conjunction with BOJ and AGD planning; business continuity function will be defined through back office procedures.
  - In March 2015, the BOJ and the MOFP will finalize a Fiscal Agency Agreement on debt management operations and the debt issuance process.

### Public sector reform: transformation, wages, pensions, HR systems
- Public sector transformation actions:
  - put in place shared services within central government starting with legal services, with support from Justice Canada; report on optimal shared service model and attendant service level agreements expected by March 2015;
  - merge the Forensic Laboratory and the Legal Medicine Unit by completing the organisational structure by June 2015 and getting the new entity operational by September 2015;
  - complete the merger of the Betting Gaming and Lotteries and the Racing Commissions by April 2015.
- 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 reducing the wage bill to 9 percent of GDP in 2016/17 and placing public debt to GDP on a downward path over the medium term.
- Public sector positions:
  - Continue to reduce the size of the public sector over 2014–16 through elimination of posts and an attrition programme.
  - Filling of vacant positions will be constrained as needed to ensure overall wage ceiling of 9 percent of GDP by 2016/17, subject to preserving capacity in a limited number of priority areas.
  - FAD TA requested to help identify sustainable reform options to support containing the wage bill.
- 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 (proposed revised structural benchmark).
- Human resources software (HCMES; including Payroll):
  - Procurement progressing; evaluation of bids and preferred vendor identified by February 2015.
  - Contract negotiation and agreement of contract terms expected to be completed by April 2015.
  - Dedicated project management team in place; project plan to be completed by May 2015.
  - Implementation of HCMES/Payroll system for the first entity expected to start in May 2015 (subject to the Vendor).
  - Implementation for remaining five entities to commence by October 2015.
- A Chief Information Officer has been selected and is expected to be appointed in March 2015.

### Public bodies: transparency, monitoring, review
- Annual reports (including audited statements) for public bodies to be completed within six months of the end of the fiscal year:
  - Achieved by end-2014 for more than 60 percent of self-financing public bodies; to be achieved by December 2015 for all other public bodies (except PetroCaribe and Petrojam).
  - Public bodies failing to meet this condition without reasonable cause will be sanctioned under Section 25 of the Public Bodies Management and Accountability Act.
- Strengthen monitoring of budget-funded public bodies by:
  - enforcing the time limit for submission of financial statements to the Auditor General; and
  - bolstering capacity within the Auditor General’s office for more in-depth and frequent reviews.
- Undertake a review to evaluate scope for reintegrating some public bodies into central government and setting others at more arms-length distance with governance frameworks aligned with international best practices; TA requested to guide the review.

### Financial sector reforms: regulatory, resolution, depositor protection, securities market
- Mitigate risks in Jamaica’s highly interconnected financial system.
- Banking Services Act and resolution framework:
  - Bring into effect by end-September 2015 (structural benchmark) the Banking Services Act adopted in June 2014; supporting regulations requiring parliamentary approval will be tabled in July 2015.
  - MOFP and JDIC have contingency plans to complement BOJ and FSC plans; national crisis management plan to be finalized by end-April 2015 under auspices of the FRC.
  - Strengthen resolution framework for banking and securities sectors.
  - Make effective, by end-October 2015, legislative provisions to support the national crisis management plan and strengthen the resolution framework for the securities sector that will be tabled in September 2015, building on IMF TA; stakeholder consultation scheduled to start in April 2015.
  - Make effective, by end-June 2016, legislative provisions to support the resolution framework for the banking sector that will be tabled in March 2016, building on IMF TA; stakeholder consultation scheduled to start in December 2015.
  - By end-March 2015, have ready for discussion a strategy paper to further strengthen depositor protection and investor compensation across financial institutions.
  - BOJ to have overall responsibility for financial stability commencing November 1, 2015 (proposed structural benchmark); amendments to the BOJ Act vesting BOJ with this responsibility will be tabled in July 2015.
  - Prepare comprehensive strategy paper to enhance BOJ governance and autonomy over the program period, taking into account the IMF Safeguards Assessment, for discussion in May 2015; propose related BOJ Act amendments following a green paper to be tabled in July 2015.
- Securities dealers and CIS:
  - In January 2015 raised investment cap for CIS in foreign assets to 10 percent of assets, with timeline to migrate to 25 percent by end-December 2015; cap to be removed altogether by end-2016 unless extraordinary circumstances require reassessment.
  - Consultations ongoing between BOJ, regulated entities in insurance and pensions sectors, and FSC on relaxing current limits on permissible investments in foreign assets; BOJ and FSC will prepare a paper for discussion with industry by end-March 2015.
  - In December 2014 enacted legislative provisions to exempt CIS from the transfer tax and the stamp duty.
- Retail repo client protections and trust-based framework:
  - Established distinct treatment for retail repo clients in legal and regulatory framework, including establishing a Trust to hold underlying securities on their behalf during the term of the retail repo.
  - Legal and regulatory framework supporting the trust-based framework entered into effect on January 1, 2015 (structural benchmark).
  - Transition of retail repos to the trust-based framework to be finalized by end-August 2015 (proposed revised structural benchmark); pilot to commence in April 2015 and transition to start in June 2015.
  - Holders of retail repos concluded prior to January 1, 2015 that mature after the transition period will be encouraged to amend contracts to participate in the transition.
  - Ensure financial and operational readiness of securities dealers to move to a trust-based framework supported by joint focused stress tests by BOJ and FSC; continue to update stress tests and bolster communication efforts with JSE entities, securities dealers, and the public.
  - In December 2014 FSC implemented a revised set of securities dealer reporting and analysis templates to enhance data breadth and quality ahead of the transition.
- Prudential tightening for securities dealers:
  - Gradual tightening of prudential standards in line with best international practice over the medium term to reduce size of retail repo business to a level deemed systemically safe and prudentially manageable by BOJ and FSC.
  - By end-March 2015, assess whether to expedite timetable to gradually increase the minimum transaction size of retail repos and/or increase the ultimate minimum transaction size.
  - Securities (Prudential) Regulation 2014 entered into force on January 1, 2015.
  - In March 2015 adopt a strategy for gradual tightening of prudential standards and start executing it in September 2015.

### Monetary and exchange rate policy
- Monetary policy objective: achieve single digit inflation within a flexible exchange rate regime.
  - For FY2014/15, current projections point to inflation well below the 7 percent to 9 percent target range.
  - Envisage inflation to come down further during next fiscal year, with a range of 5.5 to 7.5 percent projected for FY2015/16.
  - Over the longer term, objective is gradual reduction of inflation to a rate consistent with main trading partners, in context of possible move to full-fledged inflation targeting.
  - Starting 2015, the BoJ will conduct annual reviews to assess readiness for inflation targeting; first review will assess institutional readiness as at March 2015.
- Liquidity provision and monetary operations:
  - BOJ will continue to respond to liquidity pressures in the financial system.
  - Plan to introduce auctions for periodic repo operations by early 2015 with IMF TA as step toward comprehensive liquidity provision framework.
  - Over FY 2015/16, BOJ will continue to refine monetary policy operations to increase certainty in liquidity provision at a price consistent with policy goals.

### Growth-enhancing reforms: business climate, land titling, insolvency, trade facilitation, SEZs
- Business climate improvements:
  - AMANDA system to track approval of construction permits across all parish councils implemented in all parishes; focus to implement system in all commenting agencies to be fully operational by June 2015.
  - Concept Paper developed to revise and standardize fee structure for application fees; aim to implement new structure by December 2015.
  - Cabinet approved reforms to the Development Applications Process (DAP) in December 2014 to be implemented within two years.
    - By June 2015, projects above certain thresholds to be handled by a joint technical team (including NEPA, National Works Agency and relevant parish councils); smaller projects by parish councils with clarity on expected maximum timeframes.
    - Report quarterly on progress in reducing time needed, including against the 90 day benchmark.
- Land titling and LAMP:
  - Under LAMP, 800 new titles expected to be issued during 2014/15.
  - LAMP to extend services to St. Ann, Westmoreland, St. James, Trelawny and Hanover.
  - During 2015/16 expect to issue an additional 2,500 titles under LAMP.
  - More broadly, under Jamaica land titling program, deliver 15,000 titles in 2015/16.
- Insolvency and business registration:
  - New Insolvency Act and implementing regulations now effective; training supported by IADB; a Supervisor of Insolvency appointed by Cabinet.
  - On-line system for business registration to be in place by end-August 2015, with IDB support; turnaround time for applications to be reduced to two business days by then.
- Electricity connections:
  - Urgent actions to reduce time needed for entrepreneurs to get an electricity connection.
  - Plans include automation of work processes within the Government Electricity Inspectorate (GEI) and acquisition of AMANDA software to streamline scheduling, inspecting, approving and certifying electrical installations.
  - Action plan for implementation to be completed by March 2015; adoption of AMANDA expected to be completed by end 2015/16, with IDB support.
- Trade facilitation and Port Community System (PCS):
  - Plans to establish a PCS to electronically integrate and streamline export and import procedures underway.
  - ASYCUDA World Customs Management System acquired by Jamaica Customs Administration will support integrated processes/procedures and the National Single Window.
  - Functions of PCS not offered through ASYCUDA may be pursued by private sector, possibly under a management contract.
  - New PCS RFP underway; preferred bidder expected to be selected by April 2015.
  - Systems to be integrated to provide a complete trade and logistics solution for Jamaica; project expected to be completed by the end of FY2016/17.
- Special Economic Zone (SEZ) Act:
  - SEZ Act expected to be passed by October 2015 to ensure compatibility with WTO requirements.
  - A White Paper expected to be issued by March 2015.

*Source: _cr1595 - 7.      Next steps to strengthen tax and customs administration include:*

### 2015. Drafting of the new SEZ Act (and its enabling regulations) will commence immediately

### 2015. Drafting of the new SEZ Act (and its enabling regulations) will commence immediately

### Special Economic Zone (SEZ) Act—drafting and objectives
- Drafting of the new SEZ Act (and its enabling regulations) will commence immediately thereafter, with World Bank support.
- The new regime is expected to:
  - focus on promoting synergies among enterprises and offering them a conducive and stable regulatory environment,
  - reduce reliance on tax incentives in order to avoid distorting the playing field or undermining revenues.
- Priority clarifications:
  - the precise governance structure of the SEZ Authority,
  - labor relations,
  - energy issues.
- Best practices to be followed include competitive bidding for allocation of any public resources to an SEZ.
- SEZ development will be:
  - private sector-led, financed and operated,
  - with regulatory oversight provided by the SEZ Authority.

### Strategic investments to establish Jamaica as a logistics hub
- Norman Manley International Airport (NMIA) privatization:
  - A rate review has now been completed, and the RFQ was issued in November 2014.
  - The pre-qualification of bidders is currently in progress, with the selection of a preferred bidder expected by September 2015.
- Kingston Container Terminal privatization:
  - Negotiations with the provisional preferred bidder are well underway.
- Caymanas SEZ:
  - Work is proceeding with World Bank support.
  - The tender for the feasibility study will be developed on the basis of the results of the pre-feasibility study which was completed in January 2015.
- Portland Bight transhipment port and industrial/commercial zones by China Harbour Engineering Company (CHEC):
  - Technical feasibility studies have commenced.
  - The feasibility studies are a prerequisite for determining construction methodology and for obtaining the terms of reference from NEPA for the Environmental Impact Assessment.
  - The project will be executed in phases with the first phase projected to be completed in the last quarter of 2016, pending the necessary approvals in each stage.

### Reducing the cost of electricity
- The Electricity Sector Enterprise Team (ESET) action plan foresees replacing current (oil-fired) generation capacity with gas, coal and ethane-fired plants to achieve significant cost savings.
- Next steps and timelines:
  - Conversion of the Bogue power station from oil to gas by December 31, 2015.
  - Government approved the construction of Jamaica’s first natural gas-fired power plant, a 190MW facility to be built and operated by JPS, and to be completed by 2017.
- Legislative and fiscal measures:
  - A revised Electricity Act was tabled in parliament in January (structural benchmark), and is expected to become effective by end-April 2015.
  - A plan is being prepared to ensure that all public entities (central government, local government, and public bodies) meet their financial obligations in a timely manner.

### Labour market reforms
- Comprehensive Labour Market Reform Agenda actions:
  - A Labour Market Reform Commission will be operational by April 2015 to review policies and practices in:
    - education and training;
    - productivity, technology and innovation;
    - labour policies and legislation;
    - social protection;
    - industrial relations.
- Separation costs and unemployment insurance:
  - Options to reduce the impact of high separation costs are being reviewed by the Unemployment Insurance Committee.
  - Decisions are to be supported by two IDB-supported consultancies on Unemployment Insurance.
  - A Cabinet note regarding options for reducing high separation costs will be submitted by April 2015.

### Poverty reduction and reform of social spending
- Institutional arrangements:
  - A new National Poverty Reduction Committee has been established.
  - An inter-sectoral Committee has been convened to guide and monitor development of a new National Policy on Poverty and a new Poverty Reduction Programme by the end of FY2015/16.
  - Subject to policy approval, a broader institutional framework will support implementation and monitoring, envisaging partnerships between Government, non-Government organizations, civil society and academia.
- Social protection measures:
  - Broad implementation of the graduation strategy for PATH households is anticipated in mid-2015.
    - Members meeting the criteria for the graduation strategy will receive a reduced and diminishing portion of their cash payments over a two-year period, with heads of households targeted for support which may include skills development, job readiness, and entrepreneurship grants.
    - Other beneficiaries deemed above the threshold for these interventions would receive fading cash payments over a year and exit the program.
  - The government launched a comprehensive social protection strategy in July 2014, and a monitoring and evaluation framework is now being developed.
  - A National Social Protection Committee has been convened with the first meeting held in November 2014.

### Quantitative and structural highlights (selected)
- Energy-related project capacities and dates:
  - Bogue conversion target: December 31, 2015.
  - JPS natural gas-fired plant size and completion: 190MW, to be completed by 2017.
- SEZ and logistics project timing:
  - NMIA preferred bidder selection expected by September 2015.
  - Caymanas SEZ pre-feasibility study completed in January 2015.
  - Portland Bight first phase projected to be completed in the last quarter of 2016.
- Labour and social program milestones:
  - Labour Market Reform Commission operational by April 2015.
  - Cabinet note on separation costs to be submitted by April 2015.
  - PATH graduation strategy broad implementation anticipated in mid-2015.
  - New National Poverty Reduction Programme targeted by end of FY2015/16.
- Legislative timing:
  - Revised Electricity Act expected to become effective by end-April 2015.

*Source: IMF staff report excerpt from the Jamaica program documents.*

### 11.      The overall balance of public bodies will be calculated from the Statement A’s

### _cr1595 - 11.      The overall balance of public bodies will be calculated from the Statement A’s

### Overall balance of public bodies: definition and scope
- The overall balance of public bodies is calculated from the Statement A’s provided by the Public Enterprises Division of the Ministry of Finance and the Planning (MoFP) for each selected public body and the group of other public bodies.
- Definition of overall balance: 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.
- Exception: For the National Housing Trust and the House Agency of Jamaica, capital account revenues will not be netted out and instead will be included among recurrent revenue.
- Definitions of “Selected Public Bodies” and “Other Public Bodies” will be adjusted with public bodies’ rationalization (divestments, mergers, advances) but such adjustments do not affect the performance criterion unless specifically stated.
- All newly created entities, including from mergers, will be incorporated into either Selected Public Bodies or Other Public Bodies.

### Overall public sector balance and reporting
- The overall balance of the public sector = central government overall balance + overall balance of public bodies.
- Reporting requirement: Data provided to the Fund with a lag of no more than 6 weeks after the test date.

### Adjuster: PetroJam’s impact on overall public sector balance (cumulative since fiscal year start)
- The floor for the overall public sector balance will be adjusted downward (upward) by the shortfall (excess) of PetroJam’s overall balance relative to baseline projections in Table 2.
- Adjustment cap: the value of the adjustment at the end of any quarter is 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 20152.5
  - End-September 20151.5
  - End-December 20153.0
  - End-March 20164.7

### Ceiling on the Stock of Central Government Direct Debt: definitions and reporting
- Definition: 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.
- Target currency: set in Jamaican dollars with foreign currency debt converted using the programme exchange rate.
- Measurement: change in the stock of debt measured “below the line” as all debt issuance minus repayments on all central government debt.
- For computing the debt target, debt inflows are recorded when funds are credited to any central government account.
- Reporting requirement: Data provided to the Fund with a lag of no more than four weeks after the test date.
- Adjusters:
  - Upward adjustment if explicit government guarantees (stock as of end March 2012 plus new guarantees allowed) are called.
  - Downward adjustment for net divestment revenues (net of divestment expenses).
  - Adjustment for cross-currency parity changes and pre-financing (increase in central government deposits).

### Ceiling on Net Increase in Central Government Guaranteed Debt
- Definition: Net increase = issuance minus repayments of central government guaranteed debt, in billions of Jamaican dollars; includes domestic and external bonds, loans and all other types of debt. Foreign currency debt converted at the programme exchange rate.
- Exclusion: Does not cover loans to public entities from the PetroCaribe Development Fund.
- Cumulative targets: difference between stock of government guaranteed debt as of end-March of each year and the stock as of the target date.
- Monitoring: cumulative net increase monitored continuously.
- Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date.
- Adjuster: If 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 = payments to residents determined by contractual obligations that remain unpaid 90 days after the due date; due date accounts for contractual grace periods.
- Coverage: arrears on domestic central government direct debt, suppliers, and all recurrent and capital expenditure commitments.
- Measurement: change in the stock of domestic arrears relative to the stock at end-March 2014, which stood at J$21.6 billion.
- Monitoring: continuous.
- Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date.

### Non-Accumulation of External Debt Payments Arrears
- Consolidated government includes central government and public bodies.
- External debt determined by residency criterion.
- Definition of “debt”: current contractual liabilities creating obligor payments (loans, suppliers’ credits, leases); for leases, debt equals present value at inception of all expected lease payments excluding operation/maintenance.
- Arrears, penalties and judicially awarded damages arising from failure to pay contractual debt are debt.
- 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, accounting for contractual grace periods. Excludes arrears where a clearance framework has been agreed or a rescheduling agreement is being sought.
- Performance criterion: consolidated government and the BOJ will accumulate no external debt payment arrears during the programme period.
  - Definition for this criterion: an external debt payment arrear = a payment by consolidated government and the BOJ not made within seven days after falling due.
- Calculation: stock of external arrears calculated from schedule of external payment obligations reported by MoFP; data reconciled with creditors and adjustments incorporated as they occur.
- Exclusion: does not cover arrears on trade credits.
- Application: continuous.
- Reporting: MoFP provides final data on stock of external arrears of consolidated government and the BOJ to the Fund with a lag of not more than two weeks after the test date.

### Ceiling on Central Government Accumulation of Tax Refund Arrears
- Definition: Tax refund arrears = obligations on tax refunds in accordance with tax legislation that remain unpaid 90 days after the due date.
- Measurement: change in the stock of tax refund arrears relative to the stock at end-March 2014, which stood at J$23.2 billion.
- Monitoring: continuous.
- Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date.

### Floor on the Cumulative Change in Net International Reserves (NIR)
- 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 consistently with BPM6 and include monetary gold, SDR holdings, foreign currency cash, foreign currency securities, liquid balances abroad and the country’s reserve position at the Fund. Excluded: assets pledged/collateralized/encumbered, claims on residents, claims arising from derivatives vis-à-vis domestic currency, precious metals other than gold, assets in nonconvertible currencies and illiquid assets.
- 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 BOJ foreign assets regardless of maturity.
- Reporting: BOJ provides data to the Fund with a lag of no more than five days past the test date.
- Adjusters: NIR targets adjusted upward (downward) by surplus (shortfall) in:
  - Programme loan disbursements from multilateral institutions (IBRD, IDB and CDB) relative to baseline in Table 3.
  - Disbursements of budget support grants relative to baseline in Table 3.
  - IMF budget support purchases relative to baseline in Table 3.
- Table 3. External Program Disbursements (baseline projection) — Cumulative flows from the beginning of the fiscal year (In millions of US$):
  - External loans from multilateral sources
    - End-December 201462
    - End-March 2015185
    - End-June 2015131
    - End-September 2015153
    - End-December 2015199
  - Budget support grants
    - End-December 201441
    - End-March 201524
    - End-June 201514
    - End-September 201524
    - End-December 201524
  - IMF budget support disbursements
    - End-December 2014141.54
    - End-March 2015141.54
    - End-June 20150
    - End-September 20150
    - End-December 20150
- NIR target will also be adjusted by the cumulative changes from end-December 2013 in BOJ’s foreign exchange liabilities to residents with maturity of less than one year relative to the baseline projection in Table 4.

### Ceiling on the Cumulative Change in Net Domestic Assets (NDA) of the Bank of Jamaica
- NDA definition: difference between the monetary base and NIR, converted into Jamaican dollars at the programme exchange rate.
- Monetary base includes currency in the hands of the non-bank public, vault cash in the banking system, statutory cash reserve requirements against prescribed liabilities in Jamaica Dollars held by commercial banks at the BOJ, and the current account of commercial banks comprising credit balances at the central bank.
- Reporting: Data provided to the Fund with a lag of no more than three weeks after the test date.
- Adjusters: NDA target adjusted downward (upward) for surplus (shortfall) in:
  - Programme loan disbursements from multilateral institutions relative to Table 3 baseline (converted into Jamaican dollars at the programme exchange rate).
  - Disbursements of budget support grants relative to Table 3 baseline (converted into Jamaican dollars).
  - IMF budget support purchases relative to Table 3 baseline (converted into Jamaican dollars).
  - The amount by which cumulative changes from end-December 2013 in BOJ’s foreign exchange liabilities to residents with maturity of less than one year exceed (fall short of) the Table 4 baseline projection, converted into Jamaican dollars.
- BOJ's foreign liabilities to residents — Outstanding stock:
  - End-December 2013282.7
- Cumulative change from end-December 2013:
  - End-December 201451.6
  - End-March 201562.7
  - End-June 201567.3
  - End-September 201567.3
  - End-December 201567.3
- Table 4. Reserve Liabilities Items for NIR Target Purposes (In millions of US$) 1/ (note: values above are presented as in the source)

### Quantitative Indicative Targets: definition of variables
- A. Cumulative Floor on Central Government Tax Revenues
  - Tax revenues = revenues from tax collection; excludes revenues from asset sales, grants, bauxite levy and non-tax revenues.
  - Target: floor on central government tax revenues (indicative) calculated as cumulative flow from beginning to end of fiscal year (April 1 to March 31).
  - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date.
- B. Floor on Central Government Social Spending
  - Social spending = sum of central government spending on social protection programmes in the central government budget funded by GOJ resources only; comprises conditional cash transfers to children 0–18 years and the elderly; youth employment programmes; the poor relief programme (indoor and outdoor); the school feeding programme; and the basic school subsidy.
  - Capital expenditure specific programmes to be included:
    - Youth employment programmes comprising on the job training, summer employment and employment internship programme.
    - Conditional cash transfers comprising children health grant, children education grants, tertiary level, pregnant and lactation grants, disabled adult grants, adult under 65 grants and adults over 65 grants.
    - Poor relief programme.
  - Recurrent expenditure specific programmes to be included:
    - School feeding programmes including operating costs.
    - Poor relief (both indoor and outdoor) including operating costs.
    - Golden Age Homes.
    - Children’s home, places of safety and foster care including operating cost.
    - Career Advancement Programme.
    - National Youth Service Programme.
  - Reporting: Data provided to the Fund with a lag of no more than four weeks after the test date.

### Conditionality on tax waiver reform
- Continuous structural benchmark: granting of new discretionary waivers is subject to a de minimis cap of J$10 million in any month.
- Definition: discretionary waivers = any reduction in tax or customs duty payable effected by direct exercise by the Minister of Finance under various tax statutes where there is no express statutory provision for exemption.
- Exclusions from the cap: tax measures related to international treaties not yet ratified and provisions for CARICOM suspensions which are binding international legal obligations.

### Conditionality on user-funded PPPs
- Continuous structural benchmark: total loan value of all new user-funded PPPs contracted after May 1, 2013 will be capped at 3 percent of GDP on a cumulative basis over the programme period.
- Status: At end-June 2014, the total loan value of existing user-funded PPPs contracted after May 1, 2013 was zero.

*Source: _cr1595 - 11. The overall balance of public bodies will be calculated from the Statement A’s (IMF PDF).*

### 56.      For the purpose of this condition, the loan value of a PPP may be excluded if the

### _cr1595 - 56.      For the purpose of this condition, the loan value of a PPP may be excluded if the

### Conditions for exclusion of PPP loan value
- The loan value of a PPP may be excluded if the Office of the Auditor General has established that the PPP involves only minimal contingent liabilities by demonstrating that the project has no debt guarantee, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government.
- Reporting requirement: data on the total loans value of all new user-funded PPPs, specifying the PPPs identified by the Office of the auditor General as involving only minimal contingent liabilities (including the absence of debt guarantees, demand or price guarantees or termination clauses that could imply a transfer of liabilities to the government).

### Applicable GDP reference
- For the purpose of this condition, the applicable GDP is the projected nominal GDP for the fiscal year published in the Fiscal Policy Paper tabled in parliament ahead of the adoption of the budget.
- For FY2015/16, the projected nominal GDP used as a reference is J$1,690 billion, as presented in Table 2G, part 2, Macroeconomic Framework, page 15.

### Information requirements — overview
- Purpose: ensure adequate monitoring of economic variables and reforms; authorities will provide specified data at daily, weekly, monthly, quarterly, and annual frequencies.

### Daily reporting (selected items)
- Net international reserves; nominal exchange rates; interest rates on BOJ repurchase agreements; total currency issued by the BOJ; deposits held by financial institutions at the BOJ; required and excess reserves of the banking sector in local and foreign currency; total liquidity assistance to banks through normal BOJ operations, including overdrafts; overnight interest rates; GOJ bond yields.
- Disbursements from the Financial System Support Fund, by institutions.
- Liquidity assistance to institutions from the BOJ, by institution.
- Bank of Jamaica purchases and sales of foreign currency, by transaction type (surrenders, public sector entities facility and outright purchases or sales including interventions).
- Amounts offered, demanded and placed in Bank of Jamaica open market operations, including rates on offer for each tenor and amounts maturing for each tenor.
- Amounts offered, demanded and placed in government of Jamaica auctions and primary issues; including minimum maximum and average bid rates.
- Daily foreign currency government of Jamaica debt payments (domestic and external).

### Weekly reporting (selected items)
- Balance sheets of the core securities dealers (covering at least 70 percent of the market), including indicators of liquidity (net rollovers and rollover rate for repos and a 10 day maturity gap analysis), capital positions, details on sources of funding, including from external borrowing on margin and clarity on the status of loans (secured vs. unsecured). Weekly reports will be submitted within 10 days of the end of the period.
- Deposits in the banking system and total currency in circulation.

### Monthly reporting (selected items and lags)
- Central government operations including monthly cash flow to the end of the current fiscal year, with a lag of no more than four weeks after the closing of each month.
- Public entities’ Statement A: consolidated and by institution for the “Selected Public Bodies” and consolidated for the “Other Public Bodies” with a lag of no more than six weeks after the closing of each month.
- Central government debt amortization and repayments, by instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans). Includes government direct, government guaranteed and total. Reporting lag should not exceed four weeks after month end.
- Balances of the Consolidated Fund and main revenue accounts needed to determine the cash position of the government.
- Stock of central government expenditure arrears.
- Stock of central government tax refund arrears.
- Stock of central government domestic and external debt arrears and BOJ external debt arrears.
- Central government spending on social protection programmes as defined for the indicative target on social spending.
- Central government debt stock by currency, as at end month, including by (i) creditor (official, commercial domestic, commercial external; (ii) instrument (J$-denominated and US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external official loans); (iii) direct and guaranteed. Reporting lag should not exceed four weeks after the closing of each month.
- The maturity structure of Government debt (domestic and external). Reporting lag should not exceed four weeks after the closing of each month.
- Legal measures that affect the revenue of the central government (tax rates, import tariffs, exemptions, etc.).
- Balance sheet of the Bank of Jamaica within three weeks of month end.
- A summary of monetary accounts providing detailed information on the accounts of the Bank of Jamaica, commercial banks and the overall banking system, to be received with a lag of no more than six weeks after the closing of each month.
- Profits of the Bank of Jamaica on a cash and accrual basis, including a detailed decomposition of cash profits and profits from foreign exchange operations with a lag of no more than three weeks from month end.
- Deposits in the banking system: current accounts, savings and time deposits within six weeks after month end. Average monthly interest rates on loans and deposits within two weeks of month end; weighted average deposit and loan rates within six weeks after month end.
- Financial statements of core securities dealers and insurance companies within six weeks of month end.
- The maturity profile of assets and liabilities of core securities dealers in buckets within six weeks of month end.
- Data on reserve liabilities items for NIR target purposes (Table 9) within three weeks after month end.
- A full set of monthly FSIs regularly calculated by the BOJ, including liquidity ratios, within eight weeks of month end.
- Monthly balance sheet data of deposit taking institutions, as reported to the BOJ, within four weeks of month end.
- Imports and exports of goods, in US$ million within twelve weeks after month end.
- Tourism indicators within four weeks after month end.
- Remittances’ flows within four weeks after month end.
- Consumer price inflation, including by sub-components of the CPI index within four weeks after month end.
- The balance sheet of the PetroCaribe Development Fund with a lag of no more than six weeks after the closing of each month.
- Data on discretionary waivers, specifying those under the ‘de minimis’ cap, those under the broader cap and those covered by the exceptions from these caps.
- Data on tax waivers for charities and charitable giving.

### Quarterly reporting (selected items and lags)
- Holdings of government bonds (J$-denominated and US$-denominated) by holder category. Reporting lag should not exceed four weeks after the closing of each month (not applicable to external and non-financial institutional holdings of GOJ global bonds).
- Use of the PetroCaribe Development Fund, including loan portfolio by debtor and allocation of the liquidity funds in reserve within six weeks after month end.
- The stock of public entities non-guaranteed debt.
- Summary balance of payments within three months after quarter end. Revised outturn for the preceding quarters and quarterly projections for the forthcoming year, with a lag of no more than one month following receipt of the outturn for the quarter.
- Gross domestic product growth by sector, in real and nominal terms, including revised outturn for the preceding quarters within three months after quarter end; and projections for the next four quarters, with a lag no more than one month following receipt of the outturn for the quarter.
- Updated set of macroeconomic assumptions and programme indicators for the preceding and forthcoming four quarters within three months of quarter end. Main indicators to be included are: real/nominal GDP, inflation, interest rates, exchange rates, foreign reserves (gross and net), money (base money and M3), credit to the private sector, open market operations and public sector financing (demand and identified financing).
- BOJ’s Quarterly Financial Stability Report.
- Quarterly income statement data of deposit taking institutions, as reported to the BOJ within eight weeks of the quarter end.
- Summary review of the securities dealer sector, within eight weeks of quarter end.
- Summary report of the insurance sector (based on current FSC quarterly report), within eight weeks of quarter end.
- Capital adequacy and profitability ratios (against regulatory minima) for DTI’s and non-bank financial institutions within eight weeks of quarter end.
- FSC status report detailing compliance (and any remedial measures introduced to address any non compliance) with the agreed guidelines for the operation of client holding accounts at the Jam Clear@ CSD and FSC independent verification of daily reconciliations using data provided by Jam Clear@ CSD. Reports are due within four weeks of end quarter.

### Annual reporting (selected 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.

### IMF Board review and disbursement (Press Release No. 15/147, March 30, 2015)
- The IMF Executive Board completed the seventh review of Jamaica’s program under a four-year, SDR 615.38 million arrangement under the Extended Fund Facility (EFF).
- The completion of the review enables an immediate purchase of an amount equivalent to SDR 28.32 million (about US$39 million).
- The EFF arrangement was approved on May 1, 2013.
- Statement highlights:
  - Program performance is on track and all quantitative performance targets for end-December were met.
  - Structural reforms have progressed broadly on schedule.
  - The decline in oil prices should help lower inflation expectations and boost demand.
  - Need to step up reforms to boost growth and employment: reform the energy sector, improve the business climate, and advance investment in critical infrastructure.
  - Budget for 2015/16 maintains primary surplus of 7.5 percent of GDP and supports public debt sustainability.
  - Priorities: boost revenue, improve public sector efficiency, strengthen customs and tax administration, broaden the tax base, improve public financial management, accelerate public sector reform, contain public sector wage costs.
  - Reform of the retail repo sector and implementation of the Banking Services Act are important for financial sector stability.

### Authorities’ statement and fiscal policy (Statement by Serge Dupont and Trevor Lessard, March 30, 2015)
- Authorities’ view: EFF and IMF technical assistance are important to the multi-year economic reform plan; all performance criteria for the seventh review were met; reform agenda proceeding broadly on schedule.
- Budget actions and fiscal stance:
  - On February 19th, the Minister of Finance laid before Parliament a budget for fiscal year 2015/2016 aligned with program expectations and maintaining a primary surplus of 7.5 percent of GDP.
  - For the first time the budget will be passed by both Houses of Parliament before the start of the upcoming fiscal year.
  - A Growth Agenda Policy Paper and a public/private initiatives matrix were tabled in Parliament.
  - A tax relief and revenue broadening package was implemented to mitigate the risk of a revenue shortfall in 2015/16.
  - The threshold on personal income tax was raised to help medium and lower income workers.
  - To safeguard fiscal sustainability, new revenue measures were introduced, chosen to be least harmful to the vulnerable and to growth.
  - Authorities committed to no salary increases over a five year period while honoring prior agreements; however, lower than anticipated growth resulted in an inability to meet the legislated wage/GDP target of 9.0 percent by fiscal year 2015/16. The authorities expect to meet the target by the following fiscal year.

### External competitiveness and monetary policy
- Bank of Jamaica (BoJ) objectives: price stability and a market-determined flexible exchange rate reflecting macroeconomic fundamentals.
- Decline in oil prices has aided current account developments and BoJ efforts to lower inflation and anchor expectations.
- BoJ continues to build up NIR through opportunistic purchases of hard currency, in line with program expectations.

### Reform agenda and energy sector developments
- Fall in oil prices produced substantial declines in electricity prices and increases in disposable income.
- Fuel pricing in Jamaica is market based; partly ad valorem tariff structure on fuel excises results in further gains when fuel prices decline.
- Energy reform measures and projects:
  - Plans approved to transform the 115 mega-watt (MW) Bogue power plant from oil to gas.
  - Plan to construct a new 190 MW LNG-based power plant.
  - Construction to begin by three smaller energy producers, to be completed over the next two years.
  - Additional renewable energy capacity through wind, solar, and bio mass projects totaling 78 MW.
  - Government implemented a tax measure to fund an energy stabilization initiative which will include the purchase of hedges in the oil market and conservation initiatives.
- Public sector transformation:
  - First phase of public sector transformation program being implemented with World Bank and IDB assistance.
  - Multi-year process aiming to rationalize the wage bill and create a more streamlined, effective, client-friendly public service.

### Conclusion — program outlook and priorities
- Confidence in authorities’ ability to deliver reforms and place debt on a downward trajectory is rising.
- Continued efforts needed to translate confidence into productive investment, jobs, and growth.
- Key priorities: mobilize private resources into investment, safeguard growth-enhancing public capital expenditures within EFF fiscal targets to alleviate bottlenecks and fill infrastructure gaps.

*Source: IMF document _cr1595 (Press Release No. 15/147 and associated report content), March 30, 2015. Canonical URL: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1595.pdf*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr1595.pdf_