May 1, 2013 | Press Release No.13/150

The Executive Board of the International Monetary Fund (IMF) today approved a four-year Extended Fund Facility (EFF) arrangement for Jamaica to support the authorities’ comprehensive economic reform agenda. The EFF arrangement amounts to SDR 615.38 million (about US$932.3 million). The financing arrangement forms a critical part of a total funding package of US$2 billion from Jamaica’s multilateral partners including the World Bank and the Inter-American Development Bank, with each having preliminarily agreed to allocate US$510 million over the next four years. The Executive Board approval enables an initial disbursement by the IMF of an amount equivalent to SDR 136.75 million (about US$207.2 million).

Following the Executive Board’s discussion, David Lipton First Deputy Managing Director and Acting Chair of the Board, stated:

“For most of the past three decades, Jamaica has suffered from very low growth, high public debt, and serious social challenges. Key factors behind these problems have been Jamaica’s unsustainable debt burden, low competiveness, a weak business climate, and lack of policy credibility. During 2012/13, the authorities started to tighten fiscal policy and prepared a comprehensive four-year economic reform program to address these challenges.

“The main objective of the program is to put public debt on a firmly downward trajectory and thereby create a virtuous cycle of debt sustainability and higher economic growth. The authorities’ multi-layered reform agenda comprises ambitious fiscal consolidation, improvement in competitiveness, debt reduction, and improved social protection programs.

“Achieving higher and sustained growth is key to increase the welfare of Jamaicans and ensure the country’s long-term macroeconomic stability. The authorities’ growth agenda integrates ambitious fiscal consolidation with structural reforms to reduce impediments to growth and facilitate strategic investments.

“While the full benefits of the reform agenda may take time to materialize, the reforms are urgently needed to ensure a more prosperous future for Jamaica. To enhance sustainability of the reform agenda, fair burden sharing of the reform effort is essential. A central component of the program is the authorities’ package of measures to promote social coherence that includes a floor on social spending, an improved social safety net, and programs to increase employment.

“The authorities recognize that safeguarding the financial sector is also critical. They have established a Financial Sector Support Fund to offer assistance, if needed, to financial institutions participating in the recent debt exchange.

“Although the risks to the program are high, the implementation of the prior actions, the frontloaded nature of the reform agenda, and the envisaged collaboration with development partners should help foster the successful implementation of the program.”

To read full text of the IMF’s press release, click here.

Jamaica ended the 2012-13 fiscal year with the lowest deficit in decades as the government reported a deficit of $54.6 billion for the year ending March 2013, just missing the original projection of $53 billion, as revenues came in at $344 billion while recurrent expenditure amounted to $399 billion. Revenues are $17 billion light on the original forecast of $366 billion, while expenditure that was budgeted originally at $414 billion came in $15 billion less. Savings on interest was the main factor for the reduction of expenses, as the item was down $11 billion on the originally budgeted amount.

The main areas of decline for revenues was Corporation Taxes $3 billion, PAYE $5 billion, and taxes on imported items $8 billion. For the current fiscal year government is projecting a deficit of under $10 billion coming from a combination of new taxes and a debt swap that was to have shave $17 billion off the interest bill.

Revenues on target | While revenues were off target for the fiscal year, data out of the Finance Ministry show that with the exception of December when revenues were off by more than $4 billion, the government’s original forecast for inflows were very close to target from November last year. In November, revenues were budgeted to be $29.156 billion but actual inflows came in $600 million less, January was $750 million less when government collected $29 billion, in February revenues fell $600 million short, when the intake was $31.47 billion, and for March $44 billion was pulled in instead of the $44.4 billion planned for. These numbers augur well for inflows into the system for the June quarter this year for government’s intake into their coffers. The data may also be indicating improved economic performance for the country in the first quarter this year compared to last year.