IMF Executive Board Concludes 2024 Article IV Consultation and Second Reviews Under the Precautionary and Liquidity Line and Under the Resilience and Sustainability Facility Arrangements with Jamaica

IMF News, February 28, 2024

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IMF Executive Board Concludes 2024 Article IV Consultation and Second Reviews Under the Precautionary and Liquidity Line and Under the Resilience and Sustainability Facility Arrangements with Jamaica

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• Published: February 28, 2024

Recent performance and near-term developments

• After two years of rapid post-pandemic recovery, GDP growth is projected at 1.7 percent in FY2023/24.
• Tourism is "well above pre-pandemic levels" and unemployment fell to a record-low of 4.5 percent by mid-2023.
• Inflation is converging to the Bank of Jamaica’s target band but was recently impacted by an increase in transport prices whose effects are "expected to dissipate towards the end of the year."
• Projected strong tourism inflows are expected to result in a current account surplus for FY2023/24, supporting a sound international reserves position.
• The financial system is described as "well capitalized and liquid," and public debt "continues to fall."

Outlook and risks

• The outlook points to sustained growth and inflation falling within the Bank of Jamaica’s target range amid sound external and fiscal positions and financial system stability.
• Key external risks highlighted:
  • A rise in global risk aversion may increase financing costs and lower projected global growth.
  • Regional conflicts could increase global commodity prices.
  • Climate-related events could weaken economic activity.
• The JMP policy mix (buoyant revenues, strict control of non-wage spending, and a data-dependent tight monetary stance) is characterized as placing Jamaica in a good position to respond to shocks, counteract inflationary pressures, and secure debt sustainability.

Fiscal, monetary, and structural policy actions

• Fiscal:
  • Continued progress reducing public debt through prudent fiscal policies and proactive debt management.
  • Supported by buoyant revenues and strict control of non-wage spending; reduction in public debt is moving toward the target in the Fiscal Responsibility Law.
  • Progress to enhance fiscal policy frameworks includes the operationalization of the Fiscal Commission, the wage bill reform, public debt management, and tax and customs administration reforms.
  • Recommendation: Improve the quality of public expenditure and public financial management to further strengthen policy frameworks.
• Monetary and financial sector:
  • The Bank of Jamaica has maintained an appropriately tight, data-dependent policy stance to counter inflationary impulses from a strong recovery, tight labor markets, and global commodity prices.
  • Authorities have taken steps to improve the AML/CFT framework.
  • Efforts advancing: adoption of Basel III, enhancing consolidated supervision, strengthening the resolution regime of financial institutions, broadening the supervisory perimeter, and expanding digital currency use.
  • Recommendation: Gradual adoption of reforms to capital flow measures and further deepening of FX markets.
• Climate and resilience:
  • Authorities are advancing an ambitious climate policy agenda to increase resilience and catalyze climate financing.
  • Recent reforms include steps to establish a natural disaster reserve fund, strengthen climate-related elements in public investment management, and enhance climate risk assessment in the financial system to embed these risks into supervisory activities.
  • Recommendation: Continue progress on the climate agenda to build resilience, transition to renewables, prepare the financial system to monitor risks, and catalyze climate financing.
• Structural and social policies:
  • Directors advocated reforms to foster productivity and resilience, including improving competition and resource allocation, strengthening education and training, upgrading infrastructure, reducing crime and barriers to trade, and closing gender gaps.
  • Social policies could benefit from enhanced targeting.
  • Improving data availability is encouraged to support evidence-based policymaking.

Executive Board assessment and actions

• Executive Directors agreed with the thrust of the staff appraisal and welcomed Jamaica’s strong policy frameworks and institutional reforms that improved public debt, international reserves, and macroeconomic stability.
• They supported completion of the second reviews of the Precautionary and Liquidity Line (PLL) and Resilience and Sustainability Facility (RSF) arrangements and associated decisions, and agreed Jamaica continues to meet the PLL qualification criteria.
• Directors concurred a data-dependent monetary policy stance is warranted given upside inflation risks from demand pressures, tight labor markets, and deepening geoeconomic fragmentation.
• Directors commended progress on fiscal consolidation and welcomed the independent Fiscal Commission; they emphasized avoiding crowding out priority non-wage expenditures and continuing to improve public financial management and expenditure efficiency to ensure consistency with the Medium-Term Fiscal Framework.
• Directors encouraged further deepening of FX markets, progress on AML/CFT remediation, adoption of Basel III, enhancements to supervision and resolution frameworks, and expansion of the central bank’s supervisory perimeter.
• Recommended reforms to boost productivity, improve targeting of social policies, and advance the climate agenda.
• It is expected that the next Article IV consultation with Jamaica will take place on the standard 12-month cycle.

Statement by Mr. Kenji Okamura, Deputy Managing Director and Acting Chair of the Board

• “Jamaica has continued to build a strong track record of investing in institutions and prioritizing macroeconomic stability with support of the Precautionary and Liquidity Line and the Resilience and Sustainability Facility Arrangements.
• “Sound fiscal and external positions, entrenched macroeconomic stability, and sound policy frameworks continued to support economic growth and a prudent and agile response to global shocks. Inflation is converging to the target and a sustained downward trajectory of public debt and reserve accumulation are enhancing Jamaica’s capacity to face adverse shocks. The authorities also remain committed to SDDS subscription.
• “Progress to enhance fiscal policy frameworks has continued, including the operationalization of the Fiscal Commission, the wage bill reform, public debt management, and tax and customs administration reforms. Going forward, efforts to improve the quality of public expenditure and public financial management can further improve policy frameworks.
• “The authorities have taken decisive steps to improve the effectiveness of the AML/CFT framework and intend to build on this progress going forward. Efforts continue to improve financial policy frameworks, advancing in the adoption of Basel III, enhancing consolidated supervision, and working to strengthen the resolution regime of financial institutions. Going forward, policy frameworks would benefit from gradual adoption of reforms to capital flow measures and further deepening of FX markets.
• “The authorities are advancing their ambitious climate policy agenda to increase resilience to climate change and catalyze climate financing. Recent reforms include steps to establish a natural disaster reserve fund, strengthen climate-related elements in public investment management, and enhance the climate risks assessment in the financial system to embed these risks into supervisory activities.
• Going forward, continued efforts to build resilience to global shocks through prudent policies and reforms to tackle supply-side constraints and raise productivity can further unleash Jamaica’s potential and foster inclusive growth over the medium term.”

Selected economic indicators (as presented)

• Population (2019): 2.73 million
• Per capita GDP (2019): US$5,738
• Quota (current; millions SDRs/% of total): 382.9/0.08%
• Literacy rate (2022)/Poverty rate (2021): 91.7%/16.7%
• Main products and exports: Alumina, tourism, chemicals, mineral fuels, bauxite
• Unemployment rate (July 2023): 4.5%
• Key export markets: U.S., U.K., Canada

• Annual indicators (selected years and projections)
  • Real GDP growth (%): 2021/22 Act.: 8.2; 2022/23 Act.: 4.7; 2023/24 Proj.: 1.7
  • Unemployment (%): 2021/22 Act.: 6.2; 2022/23 Act.: 4.5
  • Inflation, end of period (%): 2021/22 Act.: 11.3; 2022/23 Act.: 7.0; 2023/24 Proj.: 5.0
  • Inflation, average (%): 2021/22 Act.: 7.4; 2022/23 Act.: 9.5; 2023/24 Proj.: 6.5
  • Budgetary revenue (% of GDP): 2021/22 Act.: 31.0; 2022/23 Act.: 30.1; 2023/24 Proj.: 31.1; 2024/25 Proj.: 31.2
  • Budgetary expenditure (% of GDP): 2021/22 Act.: 29.8; 2022/23 Act.: 30.9
  • Budget balance (% of GDP): 2021/22 Act.: 0.9; 2022/23 Act.: 0.3
  • Central government primary balance (of which) (% of GDP): 2021/22 Act.: 6.8; 2022/23 Act.: 5.8; 2023/24 Proj.: 6.0; 2024/25 Proj.: 5.3
  • Public entities balance (% of GDP): 2021/22 Act.: 0.2; 2022/23 Act.: 0.0
  • Public sector balance (% of GDP): 2021/22 Act.: 1.1
  • Public debt (% of GDP): 2021/22 Act.: 94.2; 2022/23 Act.: 77.1; 2023/24 Proj.: 71.8; 2024/25 Proj.: 67.6
  • Broad money (% change): 2021/22 Act.: 12.9; 2022/23 Act.: 9.8; 2023/24 Proj.: 8.9; 2024/25 Proj.: 8.0
  • Credit to the private sector (% change): 2021/22 Act.: 9.1; 2022/23 Act.: 10.5; 2023/24 Proj.: 9.2; 2024/25 Proj.: 8.5
  • Treasury bill rate, end-of-period (%): 2021/22 Act.: 6.4; 2022/23 Act.: 8.3
  • Treasury bill rate, average (%): 2021/22 Act.: 2.9
  • Current account (% of GDP): 2021/22 Act.: -0.7; 2022/23 Act.: 2.0; 2023/24 Proj.: 1.0; 2024/25 Proj.: -0.2
  • FDI, net (% of GDP): 2021/22 Act.: 1.9; 2022/23 Act.: 2.5; 2023/24 Proj.: 2.7
  • Gross international reserves (weeks of imports): 2021/22 Act.: 5.6; 2022/23 Act.: 5.5
  • External debt (% of GDP): 2021/22 Act.: 92.6; 2022/23 Act.: 78.8; 2023/24 Proj.: 69.6; 2024/25 Proj.: 62.6
  • End-of-period REER (appreciation +): 2021/22 Act.: 6.6

Press Release No. 24/61, February 28, 2024; IMF Communications Department.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• PRESS CENTER
• Jamaica and the IMF
• IMF Policy Advice -- A Factsheet
• IMF-World Bank Debt Sustainability Framework for Low-Income Countries -- A Factsheet
• Press Releases
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home