KINGSTON, Jamaica – On Tuesday, June 16th The Executive Board of the International Monetary Fund (IMF) completed the eighth review of Jamaica’s economic performance under a program supported by a four-year Extended Fund Facility (EFF) of SDR 615.38 million (about US$932.3 million at the time of approval). The completion of the review enables the disbursement of SDR 28.32 million (about US$39.8 million). The four-year EFF arrangement with Jamaica was approved by the IMF’s Executive Board on May 1, 2013 . The Board’s decision on the eighth review was taken on a lapse of time basis.
Jamaica’s economic performance under the authorities’ economic program is on track and has remained strong. All performance criteria for end-March 2015 were met, with the exception of the central government primary balance criterion, which was narrowly missed. Structural reforms have advanced broadly in line with the program.
Half-way into the authorities’ four-year reform program, investment and growth prospects are gradually improving. Growth is projected to approach 2 percent in 2015/16, as the full impact of lower oil import costs and the recovery from last year’s drought materialize, and as the improved business climate and confidence feed economic activity. Lower oil prices have improved the current account and, combined with prudent monetary policy, reduced inflation to its lowest point in nearly 50 years.
Continued proactive implementation of the government’s growth strategy will be critical to improve Jamaica’s economic growth and job opportunities. To foster sustainably lower electricity costs, scheduled investments in new power plants need to proceed without delay. Improving access to credit by small and medium-sized enterprises will improve financial inclusion and support private investment.
The recent welcome shift to a more accommodative monetary policy stance should support the expansion of private credit and economic growth. Further loosening hinges on the responses of international capital flows and the inflation trend. Continued focus on strengthening the regulatory and supervisory framework of the financial sector remains essential for stability. Fiscal sustainability relies on fundamental reform to bolster tax compliance and constrain the growth of current spending. This calls for improvements in revenue administration and a sustainable reduction in the public sector wage bill through fundamental civil service reform. Improvements in public financial management are also important to raise the efficiency of public spending.
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EXECUTIVE SUMMARY
Investment and growth prospects are gradually improving. Growth is projected to be about 2 percent in 2015/16, as the full-year impact of lower oil import costs and the recovery from last year’s drought materialize, and as improvements in the business climate and confidence feed through to activity. Lower oil prices are expected to reduce inflation faster than previously expected. Implementation of the government’s reform agenda remains strong. All performance criteria were met, with the exception of the end-March performance criterion for the primary balance which was narrowly missed. Structural reforms have advanced broadly in line with the program. Staff supports the authorities’ request for the completion of the eighth review of the arrangement. Focus of the review. At the half-way juncture of the authorities’ IMF-supported program, discussions centered on how best to capitalize on improving business and consumer confidence to catalyze higher private investment, employment and growth. The authorities have produced a comprehensive growth strategy that tackles the need for macroeconomic stability, strategic investments that promote job creation, and improvements in the business environment. Meanwhile, the program continues to bolster revenue administration and financial stability. Although risks to the program are slowly receding, they remain high. Without stronger economic activity, social support for the demanding reform program may falter. External financial flows could be affected by exogenous shocks, notably higher U.S. interest rates or changes in PetroCaribe flows. Continued weakness in budget revenue could jeopardize the sustainability of the fiscal consolidation over a longer horizon. Vulnerabilities in the financial system are temporarily elevated due to the securities dealers sector transitioning to a new business model and the domestic government bond market remaining frozen.
