IMF praises Jamaica for “resolute implementation” of its economic programme

IMF-740KINGSTON, Jamaica, Thursday February 26, 2015, CMC – The International Monetary Fund (IMF) Wednesday praised the Jamaica government for its “resolute implementation” of its economic programme designed to strengthen the foundation for growth and employment in the country.

An IMF delegation has ended a two week visit to the island and according to its leader, Jan Kees Martin, “there is significant improvement in business and consumer confidence, which reached a two-year peak in September-December 2014”.

He said unemployment declined 0.7 percentage points from a year earlier to 14.2 per cent in October 2014, and “confidence in Jamaica’s economic policies is growing, as illustrated by the narrowing sovereign bond spread relative to the emerging market average”.

The IMF has just concluded the seventh review of the four-year US$958 million External Fund Facility (EFF) and said upon approval by its board, Jamaica would receive approximately US$40 million in financing.

Martin said he expects inflation to fall to around five per cent reflecting both declining oil prices and a reduction in macroeconomic imbalances.

“At the same time, growing confidence and improving competitiveness are projected to stimulate demand and increase economic activity to just over two per cent in the financial year 2015/16.

He said the external position is strengthening, net international reserves remain well above program goals, and the current account balance is projected to improve through this year and next.

“The programme is on track and policy implementation remains strong. All quantitative performance targets through end-December were met.

“However, the indicative target on tax revenue was narrowly missed. The Fund mission reached preliminary understandings with the authorities on economic policies that will accelerate the pace of reforms so as to further unlock growth and bolster financial stability.

“These reforms have required society-wide sacrifices and staunch efforts by the Jamaican people but are expected to yield growth and employment dividends over the medium term,” Martin said.

He noted that reforms to spur growth by expanding the economy’s productive capacity are progressing, noting that to lower the cost of electricity on a durable basis, the government has approved investments in new power plants.

“To boost construction activity, it is implementing a new strategy to streamline the approval process for construction permits. To improve competitiveness and available financing for private investment, the authorities are maintaining a flexible exchange rate and reinforcing their framework for monetary policy and financial sector stability.”

Martin said that the government tabled the national budget in Parliament last week and expects its adoption before end-March 2015, which will be the first time ahead of the new fiscal year.

He said the draft budget offers room for additional spending, in particular on medication and medical supplies. Funding for these expenses is envisaged through additional revenue mobilization.

“The authorities intend to maintain the wage bill in line with the budget allocation, and they remain committed to reduce the wage bill to nine per cent of gross domestic product (GDP) by 2016/17.

“The draft budget provides for contingencies to ensure that the 7.5 percent of GDP primary balance is maintained for a third consecutive year. Social spending, however, remains protected by a floor set in the overall economic program.

“This fiscal discipline, impressive by international standards, remains key to lowering Jamaica’s still very high public debt ratio. But sustaining this fiscal position over the medium term will require further steps to strengthen revenue administration, broaden the tax base, and improve public sector efficiency.”

The IMF official said that financial sector stability is being reinforced through progress in implementing the Banking Services Act, reforming the framework for repo transactions, strengthening depositor insurance and investor protection, and enhancing contingency planning and resolution frameworks.”

During their visit here, the IMF Mission met with Finance and Planning Minister Dr. Peter Phillips, Bank of Jamaica Governor Brian Wynter, Financial Secretary Devon Rowe, senior government officials, as well as representatives of the private sector and civil society.

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