Press Release No. 19/219

IMF Staff Concludes Visit to Jamaica

June 14, 2019

• Primary surplus in FY2018/19 was in excess of 7 percent of GDP for the sixth consecutive year, with public debt falling to about 95 percent of GDP at end-March 2019.
• The reduction in the Cash Reserve Requirement by 5 percentage points this year and the successive policy rate cuts to 0.75 percent should support private credit expansion as the government continues to deleverage.
• The IMF team reiterated the need to institute a new streamlined and performance-based compensation framework for government employees before the next round of wage negotiations.

An International Monetary Fund (IMF) staff team led by Uma Ramakrishnan visited Kingston from June 10 to 14, 2019, ahead of the sixth and final review under the SBA planned for September 2019. The team took stock of progress on Jamaica’s economic reform program supported by the IMF’s precautionary Stand-By Arrangement (SBA).

At the end of the visit, Ms. Ramakrishnan issued the following statement:

“Jamaica’s improved economic growth in FY2018/19 was buoyed by construction and mining. Unemployment is now at an all-time low of 8 percent. The inflation outturn was 3.9 percent (y/y) in April, closer to the Bank of Jamaica’s (BOJ) target range of 4–6 percent. The primary surplus was almost 7½ percent of GDP in FY2018/19, with public debt falling to about 95 percent of GDP at end-March 2019—the lowest since FY2000/01. Non-borrowed reserves were US$430 million above target at end-March 2019, providing critical buffer against unforeseen global economic shocks.

“The IMF team welcomes the recent BOJ’s accommodative policies aimed at restoring inflation to the target range. The reduction in the Cash Reserve Requirement by 5 ppts this year and the successive policy rate cuts to 0.75 percent should support private credit expansion as the government continues to deleverage. That said, enhanced central bank supervision and risk management practices at lending institutions will be critical to ensure careful assessment of risks to maintain financial stability.

“Meanwhile, the FY2019/20 budget execution is underpinned by continued buoyant tax collections in April and above budget capital expenditure—an encouraging new normal for Jamaica.

“Consistent with the overall objective of reducing its footprint in the foreign exchange (FX) market and promoting interbank market development, the BOJ should limit its FX interventions to episodes of significant market dislocations. At the same time, continued swings in the currency highlight the urgency to adopt an FX trading platform (to enhance market transparency and price discovery), and develop FX hedging instruments.

“Looking ahead, having strong institutions in place will be critical to entrench the hard-earned gains from the economic reforms. In this regard, the GOJ’s commitments to (i) enacting amendments to the BOJ Act to adopt a full-fledged inflation targeting framework, (ii) creating a policy framework for natural disasters risk financing, and (iii) tabling legislation for the establishment of an independent Fiscal Council are important next steps.

“Strengthening efforts to enhance the special resolution regime and consolidated supervision of financial conglomerates—as recommended by the recent IMF Financial Sector Assessment Program (FSAP)—are also critical. These actions require strong coordination among the BOJ and the Financial Services Commission (FSC).

“The IMF team also reiterated the need to institute a new streamlined and performance-based compensation framework for government employees before the next round of wage negotiations. This reform will ultimately lead to a more cost-effective and efficient public sector.

“The IMF team welcomes the open and transparent process for selection of the new Governor of the Bank of Jamaica.

“During the visit, the IMF team met with the Minister of Finance and the Public Service Dr. Nigel Clarke, Minister of Health Christopher Tufton, Minister of Energy, Science and Technology Fayval Williams, Bank of Jamaica Governor Brian Wynter, Financial Secretary Darlene Morrison, Planning Institute Director General Dr. Wayne Henry, senior government officials, private sector representatives, the opposition, and held a townhall meeting with students at the University of the Commonwealth Caribbean.

“We would like to thank the Jamaican authorities for their continued hospitality and frank discussions.”