IMF Executive Board Concludes 2022 Article IV Consultation with Jamaica

IMF News, February 8, 2023

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• Published: February 8, 2023

Recent developments and macroeconomic context

• Over the past few years, Jamaica has been buffeted by a difficult global environment—from COVID, the war in Ukraine, and the ongoing tightening of global financial conditions.
• Supported by sound policy frameworks and policies prioritizing macroeconomic stability, the economy is now recovering strongly.
• As COVID waned, stopover flight arrivals had rebounded to pre-crisis levels, and 2022 real GDP growth is expected to be around 4 percent.
• Pushed by global factors—in particular, the impact of the war in Ukraine on commodity prices—inflation has risen above the central bank’s target band but is expected to decline during the course of 2023.
• High commodity prices have resulted in an increase in the current account deficit.
• International reserves remain at healthy levels.
• The financial system is well-capitalized and liquid.

Outlook and risks

• The outlook points to a continued recovery in activity and inflation falling back within the Bank of Jamaica’s target range by end-2023.
• Key global risks identified:
  • The war in Ukraine may push commodity prices higher.
  • A stronger-than-envisaged tightening of global financial conditions may curb capital flows and reduce remittances.
  • New COVID variants could disrupt tourism and trade.
  • Natural disasters.
• The authorities’ response to recent shocks has been described as well designed:
  • Fiscal policy response to COVID was nimble, supporting the economy in 2020 but then quickly resuming a downward path for the debt as the impact of the pandemic faded.
  • Response to the upward surge in fuel and food prices was to allow for full pass-through while providing targeted support to the poor within the existing fiscal envelope.
  • The Bank of Jamaica has followed a data dependent tightening of monetary policy to counter inflationary impulses from the rapid recovery in demand and increases in global prices.
• These policies have struck the right balance in responding to shocks, protecting the vulnerable, countering inflationary pressures, and further securing debt sustainability.

Executive Board assessment

• Directors commended:
  • The authorities’ strong track record of building institutions and prioritizing macroeconomic stability.
  • A nimble and prudent policy response that helped Jamaica navigate the pandemic and other recent global shocks.
• Directors noted elevated uncertainty and risks from higher commodity prices, tighter-than-envisaged global financial conditions, new COVID outbreaks, and natural disasters.
• Key Director recommendations and assessments:
  • Maintain the planned path of primary balances coupled with continued data-dependent monetary policy tightening to further enhance debt sustainability, curb inflation, and create fiscal space to respond to future shocks.
  • Use the prudent fiscal envelope to identify resources for climate-resilient infrastructure, investments in health, security, and education.
  • Continue improving the fiscal policy framework, including:
  • Strengthening tax and customs administration and public financial management systems.
  • Utilizing the recently established Fiscal Commission.
  • Reforming the wage structure to simplify the system and reward performance.
  • Strengthen financial stability by adopting Basel III regulatory standards and bolstering supervision; enhance crisis management and consolidated supervision.
  • Step up efforts to improve the AML/CFT framework in line with the action plan agreed with FATF.
  • Further deepen FX markets and refine the macroprudential framework.
  • Note nascent benefits for financial inclusion from central bank digital currency adoption while managing possible risks.
  • Encourage a multipronged approach to overcome constraints to growth:
  • Strengthen education and training.
  • Upgrade infrastructure.
  • Digitalization of government services.
  • Reduce crime and barriers to trade.
  • Strengthen social inclusion via the strengthened cash transfer program.
  • Improve data quality and timeliness, leading to subscription to the SDDS.
  • Encourage reforms to alleviate climate change challenges and long-term vulnerabilities:
  • Strengthen physical and fiscal resilience.
  • Incentivize renewable energy generation.
  • Reduce energy consumption.
  • Develop markets for “green” financial instruments.
  • Ensure proper recognition and management of climate risks.
  • Reduced climate vulnerability would help catalyze private sector financing for climate-related investments.
  • Directors looked forward to continued and enhanced collaboration with other international organizations to support these efforts.

Selected economic indicators and key statistics

• Population (2019): 2.73 million
• Per capita GDP (2019): US$5729
• Quota (current; millions SDRs/% of total): 382.9/0.08%
• Literacy rate (2015)/Poverty rate (2017): 87%/12.6%
• Main products and exports: Alumina, tourism, chemicals, mineral fuels, bauxite, coffee, sugar
• Unemployment rate (July 2022): 6.6%
• Key export markets: U.S., U.K., Canada

• Annual indicators (Act./Proj.):
  • Real GDP growth (%): 2020/21 Act. -11.0; 2021/22 Act. 8.2; 2022/23 Proj. 3.5; 2023/24 Proj. 2.0
  • Unemployment (%) 1/: 2020/21 Act. 8.9; 2021/22 Act. 6.2
  • Inflation, end of period (%): 2020/21 Act. 5.2; 2021/22 Act. 11.3; 2022/23 Proj. 7.7
  • Inflation, average (%): 2020/21 Act. 5.0; 2021/22 Act. 7.4; 2022/23 Proj. 9.5; 2023/24 Proj. 6.5
• Central government finances 2/:
  • Budgetary revenue (% of GDP): 2020/21 Act. 29.5; 2021/22 Act. 31.0; 2022/23 Proj. 29.4
  • Budgetary expenditure (% of GDP): 2020/21 Act. 32.6; 2021/22 Act. 30.1; 2022/23 Proj. 29.1
  • Budget balance (% of GDP): 2020/21 Act. -3.6; 2021/22 Act. 0.9; 2022/23 Proj. 0.3
  • Of which: central government primary balance: 2020/21 Act. 6.8; 2021/22 Act. 5.8; 2022/23 Proj. 5.4
  • Public entities balance (% of GDP): 2020/21 Act. -0.5; 2021/22 Act. 0.0
  • Public sector balance (% of GDP): (no data listed for the periods)
  • Public debt (% of GDP): 2020/21 Act. 109.7; 2021/22 Act. 94.2; 2022/23 Proj. 84.1; 2023/24 Proj. 77.9
• Money and credit:
  • Broad money (% of GDP): 2020/21 Act. 74.4; 2021/22 Act. 70.4; 2022/23 Proj. 68.4; 2023/24 Proj. 68.2
  • Credit to the private sector (% of GDP): 2020/21 Act. 57.7; 2021/22 Act. 52.9; 2022/23 Proj. 51.6; 2023/24 Proj. 51.9
  • Treasury bill rate, end-of-period (%): 2021/22 Act. 1.5; 2022/23 Proj. 6.4
  • Treasury bill rate, average (%): 2021/22 Act. 1.7; 2022/23 Proj. 3.9
• Balance of payments:
  • Current account (% of GDP): 2020/21 Act. -1.1; 2021/22 Act. -1.2; 2022/23 Proj. -2.5; 2023/24 Proj. -2.8
  • FDI, net (% of GDP): 2020/21 Act. 1.3; 2021/22 Act. 1.9; 2022/23 Proj. 2.3; 2023/24 Proj. 2.7
  • Gross international reserves (weeks of imports): 2021/22 Act. 9.0
  • External debt (% of GDP): 2020/21 Act. 103.9; 2021/22 Act. 92.6; 2022/23 Proj. 82.7; 2023/24 Proj. 77.6
• Exchange rate:
  • End-of-period REER (appreciation +) (INS): 2020/21 Act. -8.4; 2021/22 Act. 1.0

1/ As of January in each period. 2/ Fiscal years run from April 1 to March 31. Authorities' budgets presented according to IMF definitions.

International Monetary Fund — Press Release No. 23/37 (February 8, 2023).

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Jamaica and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home