IMF Executive Board Approves US$1.64 billion Stand By Arrangement for Jamaica

IMF News, November 11, 2016

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Canonical URL: IMF Executive Board Approves US$1.64 billion Stand By Arrangement for Jamaica

Executive Board approved a three-year Stand-By Arrangement (SBA) for Jamaica to support continued economic reform.
Access under the SBA arrangement amounts to about US$ 1,64 billion (SDR 1,195.3 million), the equivalent of 312 percent of Jamaica’s quota in the IMF.
The arrangement is to be treated by the Jamaican authorities as precautionary; they do not intend to draw on the SBA unless exogenous shocks generate an actual balance of payments need.
The Executive Board approval makes about US$ 411.9 million (SDR 300.1 million) available immediately; the remainder will be made available in six tranches upon completion of semi-annual program reviews.

Under the preceding Extended Fund Facility (EFF) program, Jamaica has established a commendable track record of program ownership and implementation.
Fiscal discipline and proactive debt management have helped reduce public debt by more than 25 percent of GDP since the start of the extended arrangement under the EFF.
Macroeconomic stability indicators cited:
- Low inflation
- Buildup of foreign currency reserves
- Decline in the current account deficit
Growth and labor market:
- Growth averaged 0.8 percent during the program period
- Growth improved to 1.4 percent in Q1 of FY16/17, supported by gains in agriculture, manufacturing, electricity generation, and tourism
- Growth in FY2016/17 is expected to reach 1.7 percent in FY16/17
- Unemployment is 13.7 percent in April 2016, partly reflecting increased labor force participation
Financial market sentiment: Jamaica’s international bonds are trading close to the average rate of other emerging markets.
Remaining challenges: low growth, high poverty and unemployment, and crime and security challenges that impose a serious drag on growth.

Better support growth, jobs, and social protection by:
- Improving public sector efficiency
- Rebalancing from direct to indirect taxes
- Strengthening the social safety net
- Reallocating public resources to growth-enhancing capital spending
Reduce public debt to 60 percent of GDP by 2025/26 by maintaining a primary surplus at 7 percent of GDP for the duration of the new arrangement.
Modernize the monetary policy framework and build the foundation for an eventual move to inflation targeting, while:
- Maintaining exchange rate flexibility
- Continuing to build precautionary reserves
Bolster the resilience of the financial system.

Fiscal policy and public sector:
- Continue fiscal discipline and public debt reduction as the anchor of the reform program.
- Public sector transformation to re-orient public resource allocation toward infrastructure, social protection, and security-related spending, while delivering more efficient public services.
- Protect social spending while instituting reforms to strengthen the social safety net.
Tax policy:
- Continue growth-friendly shift from direct to indirect taxes to broaden the tax base and improve tax system efficiency.
Monetary policy and reserves:
- Strengthen operational autonomy of the Bank of Jamaica.
- Refine monetary policy signaling and liquidity provision framework.
- Improve macroeconomic modeling and forecasting.
- Maintain exchange rate flexibility and continue to build international reserves through market-based purchases of foreign exchange.
Financial sector:
- Enhance financial sector resilience and promote greater access to credit and financial inclusion.
Supply-side and security-related reforms:
- Execute structural growth reforms recommended by the authorities’ Economic Growth Council, in collaboration with development partners.
- Redirect resources to combat crime and ensure national security.
- Ease growth bottlenecks to facilitate stronger private sector job creation as government refocuses and streamlines its role.

Arrangement duration: three years.
Immediate availability: about US$ 411.9 million (SDR 300.1 million).
Remainder disbursed in six tranches upon completion of semi-annual program reviews.
The arrangement is precautionary; draws would only occur if exogenous shocks create a balance of payments need.

Press Release No. 16/503 — November 11, 2016