Jamaica: IMF Staff Reaches Staff Level Agreement on Fourth Review for Stand-by Arrangement

Date: September 24, 2018

The International Monetary Fund (IMF) staff team headed by Ms. Ramakrishnan visited the island over the period September 10-21, 2018 for the fourth review of Jamaica’s economic and financial program which is supported by the precautionary Stand-By Arrangement (SBA) of the IMF.

The consideration by the IMF’s executive board is tentatively set for November of this year. According to the Ms. Ramakrishnan, “Upon approval, an additional SDR 160.8 million (about US$226 million) will be made available for Jamaica, bringing the total accessible credit to about US$1.2 billion.” The SBA issued by the IMF is continued to be seen as precautionary by the Jamaican authorities.

Ms. Ramakrishnan further noted that, “Program implementation remains robust with all quantitative performance criteria for end-June 2018 being met and structural reforms are on track. The primary surplus of central government operations exceeded the program target by 0.7% of GDP. This was as a result of continued buoyant taxes; capital expenditure, which has typically lagged, exceeded budget by 13%; and non-borrowed reserves over-performed by about US$400 million.” On the other hand, Inflation fell to 2.8% year over year, below the target range (4.0%-6.0%) that implemented by the Bank of Jamaica (BOJ).

“Economic growth is expected to move up to 1.4% for the financial year of 2018/19 which should be driven by the mining and construction industries and a further 2% increase over the medium term. However, the external current account widened to 5.4% of GDP which was due to higher global oil prices and one-off increases in imports of equipment for mining and security; but this is expected to decline to 3.5% of GDP over the medium term.”

It was highlighted by Ms. Ramakrishnan that reducing the public-sector wage bill is vital as it channels savings towards social and growth-enhancing capital spending, difficult but a critical reform. Leveraging the current window from the 4-year wage agreement will assist prioritization of government functions and institute a new compensation framework for public sector employees.

Furthermore, it is pertinent for BOJ to continue improving the monetary policy signalling and limiting FX interventions to episodes of disorderly FX market conditions. The Government has taken the initiative of amending the legislation of the BOJ Act to anchor monetary policy on price stability. For the success of this reform, there must be persistent improvements in the monetary policy toolkit and clear communication. The reform program provides for the private sector an unprecedented opportunity to expand domestic investment, generate economic opportunities and become the growth engine for Jamaica.

Mrs. Ramakrishnan, added, “Jamaica will benefit from fostering financial inclusion policies, while taking into consideration financial stability risks. Addressing domestic constraints to financial intermediation will support market deepening and further catalyze domestic investment. The recent IMF’s Financial Sector Assessment Program (FSAP) mission recommended careful prioritization and sequencing of the financial sector reform agenda, including enhancing supervisory capacity and intensifying monitoring, as well as spearheading the work on consolidated risk-based supervision, finalizing the crisis resolution regime for financial institutions, and completing the securities dealers’ reforms.”