IMF reaches agreement with Jamaica on fourth review of stand-by arrangement
An International Monetary Fund (IMF) staff team led by Uma Ramakrishnan visited Kingston from September 10–21, 2018, to conduct discussions on the fourth review of Jamaica’s financial and economic program supported by the IMF’s precautionary stand-by arrangement (SBA).
At the end of the visit, Ramakrishnan issued the following statement:
“The IMF team reached a preliminary agreement with the Jamaican authorities on a set of policies that aims to complete the fourth review under the SBA. Consideration by the IMF’s executive board is tentatively scheduled for November 2018. 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 Jamaican authorities continue to view the SBA as precautionary.
“Program implementation remains robust. All quantitative performance criteria for end-June 2018 were met and structural reforms are on track. The primary surplus of central government operations exceeded the program target by 0.7 percent of GDP, driven mainly by continued buoyant taxes; capital expenditure, which has typically lagged, exceeded budget by 13 percent; and non-borrowed reserves over-performed by about US$400 million. However, the inflation outturn for June 2018 was 2.8 percent (y/y), below the program target range.
“Economic growth is projected to reach 1.4 percent in FY2018/19, supported by mining and construction, and is expected to further increase to around 2 percent over the medium-term. The external current account deficit widened to 5.4 percent of GDP in FY2017/18, due to higher global oil prices and one-off increases in imports of equipment for mining and security; it is expected to be 3½ percent of GDP over the medium-term.
“Sustainably reducing the public-sector wage bill is important to channel savings towards social and growth-enhancing capital spending. It is important to advance this difficult but critical reform. Leveraging the current window from the 4-year wage agreement will help prioritization of government functions and institute a new compensation framework for public sector employees.
“It is important for the Bank of Jamaica to continue improving monetary policy signaling and limiting FX interventions to episodes of disorderly FX market conditions. Meanwhile, the government is moving to table legislation that amends the BOJ Act to anchor monetary policy on price stability. Ongoing improvements in the monetary policy toolkit and clear communication are essential for the success of this flagship reform.
“Strong economic fundamentals and sustained policy implementation of the authorities’ reform program provide the private sector with an unprecedented opportunity to expand domestic investment, generate economic opportunities, and become the growth engine for Jamaica.
“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.”