Press Release No. 24/61

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

February 28, 2024

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] and Second Reviews Under the Precautionary and Liquidity Line and Under the Resilience and Sustainability Facility Arrangements with Jamaica.

Over the last years, Jamaica has successfully reduced public debt, anchored inflation, and strengthened its external position. It has built a strong track record of investing in institutions and prioritizing macroeconomic stability, which allowed Jamaica's response to recent global shocks to be prudent, agile, and supportive of growth. After two years of rapid post-pandemic recovery, GDP growth is projected at 1.7 percent in FY2023/24, with tourism well above pre-pandemic levels and unemployment falling to a record-low of 4.5 percent by mid-2023. Inflation is converging to the Bank of Jamaica’s target band, though it 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 well capitalized and liquid, and the public debt continues to fall.

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. Nonetheless, global risks remain high. A rise in global risk aversion may increase financing costs and lower projected global growth, and regional conflicts could increase global commodity prices. Finally, climate-related events could weaken economic activity. The Jamaican authorities continue to implement sound macroeconomic policies, aided by strong policy frameworks. Supported by buoyant revenues and strict control of non-wage spending, a prudent fiscal stance continues to support a reduction in public debt towards the target in the Fiscal Responsibility Law. The Bank of Jamaica has maintained an appropriately tight policy stance, and its data dependent monetary policy is countering the inflationary impulse from a strong economic recovery, tight labor markets, and global commodity prices. This policy mix is placing Jamaica in a good position to respond to shocks, counteract inflationary pressures, and secure debt sustainability.

Following the Executive Board’s discussion, Mr. Kenji Okamura, Deputy Managing Director and Acting Chair of the Board, issued the following statement:

“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.”

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Jamaica’s strong policy frameworks and institutional reforms, which had led to substantial improvements in public debt, international reserves, and macroeconomic stability, and supported a post-pandemic rebound in growth alongside declining inflation and unemployment. Noting the strong program performance, they supported the completion of the second reviews of the Precautionary and Liquidity Line (PLL) and Resilience and Sustainability Facility (RSF) arrangements and the associated decisions. They agreed that Jamaica continues to meet the PLL qualification criteria.

Directors noted the positive medium-term outlook subject to risks from tighter global financial conditions, lower global growth, higher commodity prices, and natural disasters. They supported ambitious reforms to unlock growth potential and strengthen resilience to shocks.

Directors concurred that a data-dependent monetary policy stance is warranted given upside risks to inflation stemming from demand pressures, tight labor markets, and deepening geoeconomic fragmentation.

Directors commended the authorities’ continued progress in reducing public debt through prudent fiscal policies and proactive debt management. They welcomed the independent Fiscal Commission, which will further strengthen the fiscal framework. While supporting the wage bill reform, which would standardize pay structures and help retain skilled workers, they emphasized the need to avoid crowding out priority non-wage expenditures and to continue to improve public financial management and expenditure efficiency to ensure consistency with the Medium-Term Fiscal Framework. Directors positively noted the ongoing tax and customs administration reforms to support revenue mobilization.

Directors welcomed progress with adoption of Basel III standards, and efforts to strengthen consolidated supervision, enhance the resolution regime of financial institutions, and expand the central bank’s supervisory perimeter. They commended decisive steps addressing deficiencies in the AML/CFT framework and encouraged the authorities to build on this progress. Directors encouraged further efforts to deepen FX markets and noted the central bank’s efforts to expand digital currency use.

Directors advocated reforms to foster productivity and build resilience to shocks, including steps to improve competition and resource allocation, strengthen education and training, upgrade infrastructure, reduce crime and barriers to trade, and close gender gaps. Social policies could benefit from enhanced targeting. Improving data availability will benefit evidence-based policymaking. Directors encouraged progress on the climate agenda to build resilience, transition to renewables, prepare the financial system to monitor risks, and catalyze climate financing.

It is expected that the next Article IV consultation with Jamaica will take place on the standard 12-month cycle.