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IMF: Jamaica’s Implementation Of Economic Programs Starting To Yield Dividends

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KINGSTON, Jamaica – An International Monetary Fund (IMF) mission visited Jamaica during February 16-25, 2015 to conduct discussions on the seventh review of Jamaica’s IMF-supported program under the Extended Fund Facility (EFF).

At the conclusion of the mission IMF Mission Chief Mr. Jan Kees Martijn issued the following statement in Kingston:

“The Government of Jamaica’s resolute implementation of its economic program, centered on strengthening the foundation for growth and employment, is starting to yield tangible dividends. There is significant improvement in business and consumer confidence, which reached a two-year peak in September-December 2014. Unemployment declined 0.7 percentage points from a year earlier to 14.2 percent 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.

“Looking forward, inflation is expected to fall to around 5 percent 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 2 percent in FY2015/16. 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 program 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.

“Reforms to spur growth by expanding the economy’s productive capacity are progressing. 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.

“The government tabled its 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. 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 9 percent of 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.

“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.

“The mission met with the Minister of Finance and Planning, Dr. the Hon. 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. The mission would like to thank the authorities and technical staff for their cooperation and hospitality.

“The IMF’s Executive Board is expected to consider the seventh review of Jamaica’s IMF-supported program under the EFF in March. Upon approval, SDR 28.32 million (about US$40 million) would be made available to Jamaica.”

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