{
  "title": "Jamaica: Staff Concluding Statement of the 2021 Article IV Mission",
  "publication": "IMF News, November 17, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/11/17/mcs-jamaica-staff-concluding-statement-of-the-2021-article-iv-mission",
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  "summary": "We thank the Jamaican authorities for very candid and friendly discussions.",
  "publishDate": "2021-11-17",
  "sections": [
    {
      "heading": "Macro-financial progress and COVID-19 shock",
      "content": "- Jamaica made sustained progress before the pandemic: fiscal deficit reduced from 11 percent of GDP in 2009 to a surplus; public debt fell from 142 percent of GDP to 94 percent; inflation and the current account deficit declined.\n- Institutional reforms: Fiscal Responsibility Law, move to inflation targeting, greater exchange rate flexibility, strengthened financial oversight; recent passage of amendments to the Bank of Jamaica Act and legislation to establish a Fiscal Council.\n- Pandemic impact and policy response:\n  - Real GDP shrank by 10 percent during the initial Covid-19 shock.\n  - Early 2020 lockdown contained cases but caused severe economic contraction.\n  - Government suspended the fiscal rule for one year and temporarily reduced the primary balance target from 6½ to 3½ percent of GDP.\n  - Increased spending on health and social protection; reduced the GCT rate.\n  - Central bank injected liquidity and encouraged bank loan moratoria.\n  - Buffers built pre-crisis and calibrated policies prevented a follow-up fiscal, financial, or balance of payments crisis."
    },
    {
      "heading": "Recovery and near-term outlook",
      "content": "- Tourism rebounded to near 70 percent of pre-crisis levels despite two Covid-19 waves in 2021.\n- Real GDP in 2021Q2 was 14.2 percent higher than the same quarter a year earlier.\n- Growth projections:\n  - 8¼ percent in FY2021/22\n  - 3½ percent in FY2022/23"
    },
    {
      "heading": "Risks to the outlook",
      "content": "- Main risk: Covid-19 — a third wave is abating; one million people have received at least one dose; further waves domestically or abroad could disrupt tourism, trade, and capital flows.\n- Inflationary risks:\n  - Year-on-year inflation rose to 8.2 percent in September (above BOJ target range of 4-6 percent).\n  - Global food and energy price increases, import prices and shipping costs due to supply-chain shortages.\n- Other risks: natural disasters; uncertain duration of global inflationary pressures.\n- Upside risk: faster pace of vaccinations domestically and abatement of the pandemic in Jamaica’s main tourism markets."
    },
    {
      "heading": "Rebuilding fiscal buffers and public debt strategy",
      "content": "- Debt target: government’s goal to reduce debt to 60 percent of GDP by 2027/28 is appropriate.\n- Current fiscal position:\n  - Public debt increased to 109 percent of GDP as a result of the crisis.\n  - For FY 2022/23 the government aims at an overall fiscal surplus of about 0.3 percent of GDP (same as in FY 2021/22).\n  - Running fiscal surpluses of about 1 percent of GDP in FY 2023/24 and beyond would ensure smooth progress to the debt target.\n- Debt dynamics and fiscal space:\n  - Lower debt and debt service payments would create fiscal space for contingent and long-term pressures and buffers for natural disasters.\n  - Public debt and interest payments expected to decline faster as maturing bonds from the 2010 and 2013 debt exchange operations are paid down.\n  - Publication of a longer-term fiscal framework showing how the debt reduction will be achieved would increase credibility.\n- Expenditure composition and pressures:\n  - New public sector compensation system effective FY 2022/23 will standardize wages but add to the wage bill.\n  - Wage bill already one of the highest in the region; rises in the wage bill risk crowding out other expenditure.\n  - Recommendation: reassess government roles/responsibilities, increase efficiency, and consider reductions in public workforce size to offset wage costs.\n- Funding growth-enhancing priorities:\n  - Significant infrastructure needs; more resources needed for disaster resilience, police and crime prevention, and health (hospital beds and doctors per person relatively low).\n  - Options to free resources: re-orientation of existing expenditure, reducing exemptions to raise revenue, lowering the wage bill, and relying on declining debt and interest payments over the medium term.\n  - Lower debt and interest payments would create scope to scale up social spending in health and education.\n- Efficiency of existing expenditure:\n  - Spending on primary and secondary education is in line with regional peers, but test scores and years of schooling are relatively low."
    },
    {
      "heading": "Monetary policy and inflation",
      "content": "- Inflation developments:\n  - Expectation: inflation to increase to 8.8 percent at end-2021 and then recede to 6.7 percent at end-2022.\n  - Significant risks that inflation may be higher if global inflationary pressures last longer or pass-through is stronger.\n- BOJ policy action:\n  - BOJ raised policy rates by 100 bp. (to 150 bp) effective October 1.\n  - Further tightening may be needed depending on inflation developments to anchor expectations and bring inflation within the target range by end-2023.\n  - Monetary policy remains accommodative in real terms as the policy interest rate in real terms continued to decline in 2021."
    },
    {
      "heading": "Financial sector resilience and supervision",
      "content": "- Soundness indicators:\n  - Capital Adequacy Ratio at end-2020 was 14.3 percent (regulatory minimum 10 percent).\n  - NPLs have remained below 3 percent.\n  - Non-deposit taking institutions are more than sufficiently capitalized, profitable and stable.\n  - BOJ’s macroprudential assessment suggests financial sector risks are contained.\n- Supervisory gaps and risks:\n  - Financial sector dominated by complex conglomerates operating in multiple jurisdictions; headquarters in jurisdictions with differing oversight practices.\n  - Concentrated ownership, related party and large group exposures, off-balance sheet positions create contagion risks.\n  - Need for legislative framework for a special resolution regime for orderly resolution of distressed financial institutions, and for group-wide supervision.\n  - Continued advancement needed in data gathering and analytics on inter-institution linkages and cross-border exposures.\n- AML/CFT:\n  - Further strengthening of the AML/CFT regime and swift implementation of the action plan agreed with the FATF will support exit from the FATF grey list and strengthen correspondent banking relationships.\n  - A recently adopted national risk assessment provides better understanding of ML/TF risks and will help address priorities identified with the FATF."
    },
    {
      "heading": "Removing supply-side constraints to boost growth",
      "content": "- Long-run growth record:\n  - Average growth in 2010-19 was 0.6 percent.\n  - Real GDP per capita is at the same level as in 1970.\n  - In the last 25 years, growth exceeded 2 percent only twice.\n- Growth-accounting diagnosis:\n  - Low growth is due to declining productivity despite relatively high investment and rising employment-to-population ratio; total factor productivity has declined.\n- Structural contributors to weak growth:\n  - Decline of traditional export industries (sugar, bananas, textiles) after loss of preferential access; aluminum and bauxite lost market share.\n  - Supply-side constraints: low human capital, high crime, infrastructure deficiencies (logistics and energy), high production costs (electricity costs are the fourth highest in the world), limited SME access to finance, cumbersome cross-border trade and tax compliance, relatively high import tariffs, and competitors with enhanced U.S. market access via Free Trade Agreements.\n- Policy priorities to remove constraints:\n  - Make education and training more effective and better linked to labor demand.\n  - Upgrade infrastructure, logistics, and digitalization.\n  - Contain crime and shift energy sources toward renewables.\n  - Enhance governance and reduce vulnerabilities to corruption.\n  - Increase SME access to finance and simplify business procedures, particularly customs clearance.\n  - Advocate a bolder CARICOM approach to open trade policies and broader economic integration.\n\nWe thank the Jamaican authorities for very candid and friendly discussions.\n\nJamaica: Staff Concluding Statement of the 2021 Article IV Mission — November 17, 2021.\n\n---\n\n\n References\n\n- IMF COVID-19 Hub\n- Policy Tracker\n- Financial Assistance\n- Questions & Answers\n- Jamaica and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/11/17/mcs-jamaica-staff-concluding-statement-of-the-2021-article-iv-mission"
    }
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    "Published: November 17, 2021",
    "Jamaica made sustained progress before the pandemic: fiscal deficit reduced from 11 percent of GDP in 2009 to a surplus; public debt fell from 142 percent of GDP to 94 percent; inflation and the current account deficit declined.",
    "Institutional reforms: Fiscal Responsibility Law, move to inflation targeting, greater exchange rate flexibility, strengthened financial oversight; recent passage of amendments to the Bank of Jamaica Act and legislation to establish a Fiscal Council.",
    "Pandemic impact and policy response:",
    "Tourism rebounded to near 70 percent of pre-crisis levels despite two Covid-19 waves in 2021.",
    "Real GDP in 2021Q2 was 14.2 percent higher than the same quarter a year earlier.",
    "Growth projections:",
    "Main risk: Covid-19 — a third wave is abating; one million people have received at least one dose; further waves domestically or abroad could disrupt tourism, trade, and capital flows.",
    "Inflationary risks:",
    "Other risks: natural disasters; uncertain duration of global inflationary pressures.",
    "Upside risk: faster pace of vaccinations domestically and abatement of the pandemic in Jamaica’s main tourism markets.",
    "Debt target: government’s goal to reduce debt to 60 percent of GDP by 2027/28 is appropriate.",
    "Current fiscal position:",
    "Debt dynamics and fiscal space:",
    "Expenditure composition and pressures:",
    "Funding growth-enhancing priorities:",
    "Efficiency of existing expenditure:",
    "Inflation developments:",
    "BOJ policy action:",
    "Soundness indicators:",
    "Supervisory gaps and risks:",
    "AML/CFT:",
    "Long-run growth record:",
    "Growth-accounting diagnosis:",
    "Structural contributors to weak growth:",
    "Policy priorities to remove constraints:",
    "[IMF COVID-19 Hub](https://www.imf.org/en/Topics/imf-and-covid19)",
    "[Policy Tracker](https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19)",
    "[Financial Assistance](https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker)",
    "[Questions & Answers](https://www.imf.org/en/About/FAQ/imf-response-to-covid-19)",
    "[Jamaica and the IMF](http://www.imf.org/external/country/JAM/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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