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“Jamaica is ready to exit IMF financial support”. That is the word from Dr. Constant Longeng Ngouana, the International Monetary Fund’s (IMF) Resident Representative in Jamaica. He was speaking at a recent media interview where he shared his views on Jamaica’s economic performance. The IMF resident representative expressed his belief that Jamaica’s success in its economic performance over the past few years has placed the country in a position to exit the IMF programme and take care of its economic affairs.
Jamaica is currently benefitting from a US$1.6-billion Precautionary Stand-By Arrangement (PSBA) with the IMF. Previously, the island was in an Extended Fund Facility (EFF) between 2013 to 2016. Jamaica first entered into a standby agreement with the international lending institution in 2010.
Borrowing Relationship with IMF to end in September
Jamaica’s existing arrangement with the IMF is to end in September 2019. According to the IMF resident representative, the Fund will continue the partnership with the island. The nature of the future relationship with Jamaica will be consultative and not involve new financial support. The expected change in the relationship between the country and the IMF is in recognition of Jamaica’s maturity in policymaking and the economy. Jamaica expects to graduate from the borrowing arrangement with the IMF as projected barring unforeseen circumstances.
Ngouana praised Jamaica’ achievement which he acknowledged has taken place over a relatively short time. Since 2013, Jamaica has exceeded the various targets that were agreed between itself and the IMF. The results were the tremendous economic turn around that the country experienced. Initial doubts that Jamaica would have successfully transitioned economically from its dire position to its much-improved position disappeared.
“… everybody is in agreement that this has been a tremendous turnaround and we get calls all the time asking how did the Jamaican people do it. It’s really an economic transformation for such a short period,” Ngouana said.
An ingredient that enabled Jamaica’s success is the sound policymaking that is based on a broad consensus from stakeholders. Consequently, Jamaica was able to achieve positive economic growth within a short period.
Among Jamaica’s impressive achievements were:
- The reduction of the public debt from 147 percent of GDP in March 2013 to 95 percent by March 2019
- An increase in the Net International Reserves (NIR) from US $1 billion in 2013 to more than US$ 3 billion
- The reduction in inflation from double-digits to single digits within six years
- A reduction in the unemployment rate from 16.3 percent in April 2013 to 7.8 percent in April 2019
- A 1.9 percent growth in the Jamaica economy in 2018-19.
Although the rate of Jamaica’s economic growth was not at the targeted levels, the actual performance of a 1.9 percent growth in 2018-19 represents the best performance compared to the past 20 years.
Crime, however, remains a serious concern. Although Jamaica continues to grapple the crime problem, the island needs to do more to increase the gains achieved to date. Ngouana also indicated that the modernisation of Jamaica’s agriculture is also a reform that is necessary to further stimulate economic growth. Another structural impediment to growth is the limited access to financing that the country currently experiences.
IMF Team’s Latest Assessment
Previously, a staff team from the IMF led by Uma Ramakrishnan was in Jamaica from June 10 to 14, 2019. That visit came ahead of the sixth and final review under the IMF’s Stand-By Agreement to be held in September 2019. After the visit, the IMF team leader released a statement. Included in that statement were the following observations by the IMF team.
“Jamaica’s improved economic growth in FY2018/19 was buoyed by construction and mining. Unemployment is now at an all-time low of 8 percent. The inflation outturn was 3.9 percent (y/y) in April, closer to the Bank of Jamaica’s (BOJ) target range of 4–6 percent. The primary surplus was almost 7½ percent of GDP in FY2018/19, with public debt falling to about 95 percent of GDP at end-March 2019—the lowest since FY2000/01. Non-borrowed reserves were US$430 million above target at end-March 2019, providing (a) critical buffer against unforeseen global economic shocks.”
The statement lauded the BOJ’s recent accommodative policies to restore inflation to the target range. It further commended Jamaica’s reduction in the Cash Reserve Requirement by 5 percentage points during the current fiscal year and the successive policy rate cuts to 0.75 percent. The IMF noted that these actions should support private credit expansion as the government continues to deleverage. Furthermore, strengthened central bank supervision and risk management practices at lending institutions will be vital to ensure careful assessment of risks for financial stability.
Also, the IMF statement noted that the execution of the budget for the fiscal year 2019/20 is underpinned by continued buoyant tax collections in April and above budget capital expenditure which is regarded as an encouraging new normal for Jamaica.
IMF’s Recommendations for Jamaica
Among the other recommendations from the IMF is that the central bank should limit its interventions in the foreign exchange market to “episodes of significant market dislocations.” At the same time, the IMF noted, the continued shifts in the value of the currency indicate an urgent need for the central bank to adopt a foreign exchange trading platform. This platform should enhance market transparency and price discovery. Hedging instruments for FX trading may also be developed.
In order to entrench the hard-fought gains Jamaica has achieved, the IMF recommended that the Jamaican government keep its commitment to:
(i) enact amendments to the BOJ Act to adopt a full-fledged inflation targeting framework,
(ii) create a policy framework for natural disasters risk financing, and
(iii) table legislation for the establishment of an independent Fiscal Council
The Fund also recommended that the country strengthen efforts to enhance the special resolution regime and consolidated supervision of financial conglomerates. This action was recommended by the recent IMF Financial Sector Assessment Program (FSAP). The IMF, however, noted that these actions “require strong coordination among the BOJ and the Financial Services Commission (FSC).”
The IMF statement also reiterated the need for the Jamaican government to implement new streamlined and performance-based compensation framework for its employees. This recommended action should take place before the next round of wage negotiations. The Fund noted that this reform action will ultimately result in a more cost-effective and efficient public sector.
Meanwhile, Ngouana encouraged Jamaicans to remain on the present growth and reform path. He insisted that
“Jamaica has come too far to allow for any reversal. Sacrifice has been far-reaching by all Jamaicans and we (IMF) encourage the Jamaican people to stay the course.”