Press Release: IMF Executive Board Approves US$932.3 Million Arrangement under the Extended Fund Facility for Jamaica

IMF News, May 1, 2013

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Canonical URL: Press Release: IMF Executive Board Approves US$932.3 Million Arrangement under the Extended Fund Facility for Jamaica

The Executive Board approved a four-year Extended Fund Facility (EFF) arrangement for Jamaica.
EFF amount: SDR 615.38 million (about US$932.3 million), equivalent of 225 percent of Jamaica’s quota in the IMF.
The financing arrangement is part of a total funding package of US$2 billion from Jamaica’s multilateral partners.
World Bank and Inter-American Development Bank have each preliminarily agreed to allocate US$510 million over the next four years.
Initial IMF disbursement enabled by approval: SDR 136.75 million (about US$207.2 million).

Jamaica’s challenges over the past three decades: very low growth, high public debt, and serious social challenges.
Identified root causes: unsustainable debt burden, low competitiveness, a weak business climate, and lack of policy credibility.
Authorities began tightening fiscal policy and prepared a comprehensive four-year economic reform program during 2012/13.
Main objective of the program: put public debt on a firmly downward trajectory to create a virtuous cycle of debt sustainability and higher economic growth.
Multi-layered reform agenda components:
- Ambitious fiscal consolidation.
- Improvement in competitiveness.
- Debt reduction.
- Improved social protection programs.
Growth agenda integrates ambitious fiscal consolidation with structural reforms to reduce impediments to growth and facilitate strategic investments.
Social measures emphasized: fair burden sharing, a floor on social spending, an improved social safety net, and programs to increase employment.
Financial sector safeguard: establishment of a Financial Sector Support Fund to offer assistance, if needed, to financial institutions participating in the recent debt exchange.
Risk assessment: “Although the risks to the program are high, the implementation of the prior actions, the frontloaded nature of the reform agenda, and the envisaged collaboration with development partners should help foster the successful implementation of the program.”

Fiscal tightening began in 2012/13 after the government took office in January 2012.
Central government primary surplus for fiscal year 2012/13 (April-March): 5.2 percent of GDP (up from 3.2 percent the previous year).
Tax package enacted during the third quarter of the fiscal year with a full-year effect estimated at 1.6 percent of GDP.
Fiscal Responsibility Framework strengthened, including a sanctions regime for unbudgeted spending.
Economic activity: estimated contraction of 0.2 percent in FY2012/13.
Unemployment: increased from 12 percent at end-October 2010 to 13.7 percent at end-October 2012.
Inflation: estimated at about 7.3 percent on average in FY 2012/13.
External position deterioration:
- Current account deficit estimated at around 12 percent of GDP.
- Net International Reserves fell to below US$900 million (compared to US$1.9 billion at end-2011).
Since late 2012, downward trend in reserves has been contained while the exchange rate has been allowed to depreciate.

Program horizon: FY2013/14 through FY2016/17.
Overall aim: avert immediate crisis risks and create conditions for sustained growth via significant improvement in fiscal and debt positions and competitiveness.
Main pillars:
- (i) Structural reforms to boost growth and employment.
- (ii) Actions to improve price and non-price competitiveness.
- (iii) Upfront fiscal adjustment, supported by extensive fiscal reforms.
- (iv) Debt reduction including a debt exchange to place public debt on a sustainable path, while protecting financial system stability.
- (v) Improved social protection programs, including a floor on social spending to safeguard vulnerable groups.
Reform focus areas:
- Strengthen public financial management.
- Introduce a fiscal rule.
- Reform the tax system.
- Improve the business climate.
- Move towards inflation targeting.
- Reform the securities dealers sector.
Emphasis: heavy and frontloaded reform agenda with measures to ensure fair burden sharing; fiscal reforms essential to put debt on a downward trajectory; structural reforms pivotal for higher and sustained growth and increased welfare.

Press Release No.13/150, May 1, 2013, IMF COMMUNICATIONS DEPARTMENT