IMF NEWS

Market in Ocho Rios, Jamaica: the precautionary IMF loan will be an insurance against unforeseen economic shocks that are beyond the country's control (photo: Eye Ubiquitous/Newscom)

• IMF Country Focus

Jamaica's New IMF Agreement to Support Growth, Create Jobs

November 15, 2016

• Jamaica has made good progress under previous IMF-supported program
• More growth, jobs still needed
• New IMF loan to also provide insurance against unexpected shocks

The International Monetary Fund approved a new $1.64 billion loan for Jamaica, intended as insurance to support the country’s ongoing reform program to tackle poverty, create jobs, and improve living standards.

Jamaica has made significant strides in restoring economic stability over the past three years, supported by an IMF-backed program—the Extended Fund Facility (EFF)—which is set to expire in April 2017. With growth still short of expectations, and poverty and unemployment high, the authorities requested the cancellation of the EFF in favor of a new three-year Stand-By Arrangement (SBA) with the IMF.  The authorities intend to treat this new arrangement as precautionary and do envisage drawing on it unless unanticipated external shocks generate an actual balance of payments need.

In an interview, Uma Ramakrishnan, IMF mission chief for Jamaica, talks about the country’s achievements so far and how the new loan will help raise the living standards of its people.

IMF News: Jamaica has made very good progress under the previous program. Why does the country need new assistance from the IMF?

Jamaica has indeed made tremendous progress in stabilizing the economy since May 2013. Inflation is at historical lows, net international reserves have nearly tripled, and, most importantly, public debt has been placed on a solid downward path. These achievements were possible because program ownership was unwavering, despite a change in government after the elections in February 2016. Yet, the anticipated growth and employment dividends from the reforms did not fully materialize, partly because of a two-year drought and a Chick-V outbreak.

With the economic progress achieved so far, Jamaica no longer has a need for IMF financing support, given the country has regained access to domestic and international capital markets. Therefore, this new precautionary IMF loan supports the government’s growth- and employment-focused reform agenda by providing an insurance against unanticipated external shocks—for example, a sharp increase in oil prices, global market volatility, or natural disasters. The precautionary arrangement also helps provide certainty of policy continuity and macroeconomic discipline.

IMF News: Can you tell us what is different about the new Stand-By Arrangement?

The new program has a different measure of success. With economic stability now restored, the loan supports the administration’s focus on achieving higher growth and jobs to help reduce poverty and improve the living standards of the Jamaican people.

Reflecting the increased confidence in Jamaica’s reform implementation, the new Stand-By Arrangement nearly doubles the Fund’s financing commitment to $1.64 billion over three years, and shifts from quarterly to semi-annual reviews by the IMF’s Executive Board for monitoring program targets and policy implementation.

IMF News: Jamaica has struggled with low growth for decades. What are the IMF’s recommendations to help unlock the country’s growth potential?

The new Economic Growth Council, led by the private sector, has made a set of recommendations covering eight areas—including addressing crime, improving financial access and inclusion, reducing red tape, moving ahead on privatizations and public-private partnerships, and leveraging the diaspora—where reforms are needed to reboot Jamaica’s growth. The new program supports all these recommendations, and also includes improving social spending to support the poor and vulnerable.  In addition, continuing exchange rate flexibility, improving the ability of monetary policy to impact the real economy, and further reinforcing the financial sector will help secure macroeconomic stability and support growth.

The implementation of the country’s program will also be supported the Inter-American Development Bank, the World Bank, and other bilateral donors.

IMF News: Jamaica’s public debt ratio has been reduced significantly since 2013—from 145 percent of GDP to about 120 percent currently. The new program calls for further reductions. Is there room for more progress?

Yes, there is room for more progress. This will require continued fiscal discipline to reduce the public debt to 60 percent of GDP by 2025/26, consistent with the 2014 Fiscal Responsibility Law. The government is also pursuing other options for debt reduction including a debt-for-nature swap supported by the World Bank, as well as the use of government assets for debt reduction.

IMF News: You have mentioned a number of reforms to boost growth, reduce debt, and address a multitude of structural issues. How will the new program ensure that the most vulnerable are protected?

Jamaica’s poverty rate is relatively high—at around 20 percent—and a significant share of the poor remains outside of the social safety net. An important element of the new program is to improve the living standards of the poor, which could also be adversely impacted by the shift from direct to indirect taxes. So, the government intends to rebalance its spending to increase the benefits under the Program of Advancement through Health and Education—the government’s flagship conditional cash transfer program—and expand its school feeding program.

The government also plans to review the entire social safety net to improve the benefits and coverage of poor households, implement an effective strategy for households graduating from these programs into productive employment, and institute better monitoring and evaluation systems.