Jamaica: Financial System Stability Assessment

IMF Staff Country Reports, December 3, 2018

Source details

The macroeconomic environment has improved, reflecting the authorities’ efforts, supported by an IMF arrangement.
Previously, years of high fiscal deficits, public enterprise borrowing, and financial sector bailouts led to:
- rapid government debt accumulation,
- crowding out of private credit,
- increased financial dollarization,
- stifled economic growth.
Fiscal discipline has been essential to reduce public debt (to about 100 percent of GDP).
With government debt accounting for a sizable share of financial institutions’ assets, falling interest rates on government debt are leading to a search for yield.
Entrenched structural obstacles continue to constrain economic growth, including:
- high crime,
- bureaucratic processes,
- insufficient labor force skills,
- poor access to finance.

Authorities have made good progress in implementing the 2006 FSAP recommendations.
Significant advances in the regulatory framework have occurred in several areas:
- securities dealers’ activities,
- powers to the Bank of Jamaica (BoJ),
- payment systems,
- introduction of the centralized securities depository.
Lagging areas:
- crisis management framework,
- risk-based supervision work.

Maintain fiscal discipline to continue reducing public debt and limit financial-sector vulnerability stemming from large government-debt exposures.
Monitor and address search-for-yield behavior in financial institutions as interest rates on government debt fall.
Complete remaining FSAP recommendations, prioritizing:
- strengthening the crisis management framework,
- advancing risk-based supervision capabilities.
Address structural constraints to support sustainable growth, including reforms to:
- reduce crime,
- streamline bureaucratic processes,
- enhance labor force skills,
- improve access to finance.