IMF Tests: Is Jamaica Merely Passing Them?

Administrator on October 13, 2014, 7:01 am 923 3
IMF Tests:  Is Jamaica Merely Passing Them?

Jamaica has passed its fifth quarterly International Monetary Fund (IMF) review and the government is proud of this achievement. The truth is that failure under the IMF's four year Extended Fund Facility is not an option! It appears that from this latest achievement Jamaica remains on track to fulfill the targets of this IMF agreement. When the Managing Director of the IMF, Christine Legarde last visited Jamaica, she praised the Jamaican government's commitment to the programme and remarked that the economic outlook was "improving."

When Jamaica entered a Stand-by agreement with the IMF in 2010, the IMF had approved almost US $1.3 billion to help Jamaica to recover from growing government indebtedness, weak economic growth, and the impacts of the 2008 global recession. The Government of Jamaica had at the time projected that with this funding injection the country would have seen between 2010 and 2012 a reform of the public sector, reduction in the debt servicing costs, and financial sector reforms. IMF predictions then was for Jamaica's economy to grow from a negative 3 1/2 percent in 2009 to positive 2 percent by 2011. That Stand-by Agreement failed with no further support from the IMF for over a year after the GOJ missed two quarterly reviews.

Instead of growth, Jamaica's economy saw deterioration, partially due to the effects of the global economic recession and increased indebtedness. Suddenly the government found itself without fiscal space to undertake much of its programmes for economic growth and prosperity. The significant decline in aluminum and bauxite production and export as well as the rapid decline in the remittances from abroad added to the economic contraction Jamaica experienced. The government was faced with little option but to increase taxation to stem the fall in revenues.

The four year Extended Fund Facility that replaced the failed two year IMF deal with the Government of Jamaica in 2013 represented the effort of the succeeding administration to fulfill what the previous administration failed to do up to December 2011. The approved amount in 2013 was nearly US $950 million, almost 30% less than the amount the IMF approved in 2010. With this smaller amount the GOJ is expected to do a number of things including a public sector wage freeze, new taxes, debt exchanges among other measures to control the rate of government expenditure, manage the debt to GDP ratio of within 100%, manage inflation to within single digits, boost economic growth, and increase revenue.

By 2017, it is expected that the immediate risks of economic crisis would be averted and sustainable growth conditions arising from greater improvements in fiscal and debt management achieved. Under this Extended Fund Facility the signs appear good - reduced risks, stronger net exports, recovering international reserves, inflation that was under control, and improved growth in the domestic economy. Because of the achievements to date under the IMF Extended Fund Facility the country had so far received US $414.4 million toward budget support and balance of payment intervention. Reducing public debt is the key linchpin for the success of the reforms toward economic prosperity under the Extended Fund Facility. Reducing the debt is expected to come from tightened government budgets that would enable the country to live within its means. To keep this going will be a challenge but inevitably the country has no choice but to do it.

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