IMF Executive Board Concludes 2018 Article IV Consultation and the Third Review under the Stand-By Arrangement with Jamaica

IMF News, April 16, 2018

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Canonical URL: IMF Executive Board Concludes 2018 Article IV Consultation and the Third Review under the Stand-By Arrangement with Jamaica

The 36-month SBA has total access of SDR 1,195.3 million (about US$ US$1.7 billion), equivalent of 312 percent of Jamaica’s quota in the IMF; approved on November 11, 2016.
The Jamaican authorities view the SBA as precautionary and use it as insurance against unforeseen external shocks.
All quantitative performance criteria and structural benchmarks for end-December 2017 were met.
Fiscal consolidation is ongoing:
- Primary surplus is expected to be at least 7 percent of GDP in FY17/18 and a similar target is set in the FY18/19 budget.
- Public debt is projected to be under 100 percent of GDP by end-March 2019.
Key fiscal recommendations to create space for growth-enhancing spending:
- Structurally reduce the wage bill by overhauling the compensation structure to retain skills and reward performance.
- Streamline the vast and inequitable allowances structure.
- Prioritize key government functions and shed activities the government can no longer afford.
- Change the capital-labor mix through technology upgrades and better monitoring and accountability of government spending.
- Reduce the size of the public workforce as part of a holistic approach to durable wage-bill reduction.

Growth outcomes and projections:
- GDP growth was estimated at 0.5 percent in 2017.
- Growth forecast revised to 0.9 percent in FY17/18 and about 2¼ percent in the medium term.
- Growth has averaged 0.9 percent since reforms began.
- Growth constraints include weak agriculture, slow recovery in mining, deceleration in manufacturing, structural issues, crime, and implementation capacity constraints.
Inflation and current account:
- CPI inflation in February was 4.4 percent (y/y).
- Core inflation in February 2018 was 2.7 percent.
- Both headline and core inflation expected to steadily approach the midpoint of the BOJ target band (4-6 percent) over the medium-term.
- Current account deficit at 2.8 percent of GDP in FY17/18; expected to shrink over the medium-term as oil prices remain contained and tourism earnings improve.

Monetary policy stance and reforms:
- With inflation likely to remain in the lower part of the central bank’s target range, a looser monetary stance remains appropriate.
- Upcoming revisions to the BOJ Act should include a clear mandate for price stability, a reformed governance structure, and a strong central bank balance sheet to institutionalize inflation targeting.
- Formalizing inflation targeting requires commitment to a flexible, market-determined exchange rate with limited central bank intervention; FX sales should be confined to disorderly market conditions.
- Continued development of the FX market, liquidity management and forecasting toolkit, and upgraded BOJ communication practices recommended.
Financial sector indicators and recommendations:
- Non-performing loans about 2 percent of assets at end-2017.
- Banks’ capital about 14 percent of risk-weighted assets, above the 10 percent regulatory minimum.
- Liquidity risks appear manageable; banks’ FX assets and liabilities broadly matched.
- Recommendations:
- Continue prudential and supervisory improvements.
- Consider changes to investment limits for non-banks only after thorough assessment and reinforced regulations, risk management guidelines, and supervisory arrangements.
- Introduce a Special Resolution Regime for financial institutions to strengthen the safety net and clarify requirements for public resource use.

Persisting structural bottlenecks:
- Entrenched obstacles include crime, bureaucratic processes, insufficient labor force skills, and poor access to finance.
- Agricultural sector vulnerability to weather shocks exacerbated rural poverty in 2015.
- Risks of reform fatigue and loss of social support if growth remains feeble and crime escalates.
Policy recommendations to improve social outcomes and inclusive growth:
- Invest in early childhood education, interventions to improve school attendance, and skills training for youth to reduce crime and raise wages and growth.
- Support productive private investments by improving lending to smaller businesses and reducing lending-deposit interest spreads.
- Resist using scarce public resources to “pick winners”; instead pursue a uniform, broad-based, and low rate tax system, level playing field for business, and harmonized rules for all.

The economic reform program since May 2013 marked a turning point; fiscal discipline anchored by the Fiscal Responsibility Law has been essential to reduce public debt and secure macroeconomic stability.
Considerable progress in macroeconomic policies and outcomes: employment at historic highs, inflation and current account deficit modest, comfortable international reserves, and historically low external borrowing costs.
Continued reform implementation is critical to safeguard gains and deliver stronger growth and job creation; difficult structural reforms require broad-based support and policymakers’ commitment.

Population (2013): 2.8 million
Quota (current; millions SDRs/% of total): 382.9/0.08%
Per capita GDP (2014): US$4955
Literacy rate (2015)/Poverty rate (2015): 87%/21.2%
Unemployment rate (Oct. 2017): 10.4%
SBA access: SDR 1,195.3 million (about US$ US$1.7 billion), 312 percent of quota
Real GDP growth (annual percent change): 2014/15: 0.2; 2015/16: 1.0; 2016/17: 1.3; 2017/18: 1.6 (Prog./Est. columns reflect staff table)
Real GDP projections (annual percent change): 2018/19: 0.9; 2019/20: 1.7; 2020/21: 1.9; 2021/22: 2.1; 2022/23: 2.2; 2023/24: 2.3
Consumer price index (average): 2016/17: 3.4; 2017/18: 2.4; 2018/19: 4.3; 2019/20: 4.7
Public debt (FRL definition) 4/: 2016/17: 113.9; 2017/18: 107.1; 2018/19: 104.1; 2019/20: 98.3; 2020/21: 93.7; 2021/22: 87.9; 2022/23: 83.2; 2023/24: 78.0
Public debt (EFF definition) 5/: 2016/17: 139.7; 2017/18: 121.3; 2018/19: 122.1; 2019/20: 111.9; 2020/21: 104.8; 2021/22: 98.6; 2022/23: 92.3; 2023/24: 86.6; 2024/25: 80.5
Current account balance (percent of GDP): 2014/15: -7.0; 2015/16: -2.0; 2016/17: -3.0; 2017/18: -2.5; 2018/19: -2.8; 2019/20: -2.9; 2020/21: -2.7
Net international reserves (US$ millions): 2014/15: 2,294; 2015/16: 2,416; 2016/17: 2,762; 2017/18: 3,282; 2018/19: 3,066; 2019/20: 3,219; 2020/21: 3,833; 2021/22: 4,238; 2022/23: 4,614; 2023/24: 5,273

IMF Press Release No. 18/130, April 16, 2018.