IMF — Page 2

GOJ’s program for reduction & growth

January 26, 2014 by IC Insider.com

The principal objective of the Government of Jamaica’s programme is to reduce the national debt and raise the sustainable growth rate of our national output.

The governor of the Bank of Jamaica, Bryan Wynter, stated in a recent address at a JMA’s 2014 Economic Forum, that the Government has committed to implementing revenue, expenditure and debt management measures to ensure that the debt goes down in relation to GDP. This commitment entails the achievement of annual primary surpluses of 7.5% of GDP over the life of the programme. The governor went on to outline other measures that are to be put in place to achieve the main objectives.

“With this,” he stated, “the borrowing need of the Government has fallen sharply, which is leading to a steady reduction in the debt to GDP ratio to below 100% by 2020. Government intends to make the current fiscal responsibility framework stronger by developing binding fiscal rules. This will increase transparency, lock in the gains of fiscal consolidation and ensure that budgets will be sustainable even beyond the end of the four-year IMF agreement.

Image courtesy of arztsamui/FreeDigitalPhotos.net

“A central plank of the programme is the implementation of structural reforms aimed at creating an environment supportive of economic growth. One of the main structural reforms to which the Government has committed is the improvement of the tax system, including tax administration.

“Fiscal incentives legislation was also passed in December which overhauls and simplifies decades of tax law to the advantage of productive businesses.

“To kick-start growth, the government has started to implement catalytic, strategic, public-private investments. Already, the government has initiated production in six agro-parks, aimed at import substitution. The objective is to develop a total of nine such parks by the end of 2014.

“The GOJ is also committed to improving the competitiveness of the economy through legislative and administrative changes. Additionally, amendments to the Companies Act were passed which streamline the business registration process through the use of a multi-purpose registration instrument. A bill to modernise our bankruptcy rules, the Insolvency Bill, was also tabled in Parliament.

“The Government is in the process of establishing a Port Community System to electronically integrate and streamline export and import procedures. It is also moving to establish more flexible work arrangements and improve access to skills training. Furthermore, initiatives to achieve energy diversification and conservation are in progress.

“Supporting these reforms will be the preservation of a stable macroeconomic environment through sound monetary and fiscal policies. Inflation is expected to decline over the medium term towards our long-run objective. This decline in inflation, in conjunction with a more competitive exchange rate, will foster increased price competitiveness of Jamaica’s exports of goods and services.

“Lower inflation will also allow Jamaican businesses to finance investments at lower interest rates. The reduction in fiscal deficits and the public debt will make more resources available to the productive sector and will complement Bank of Jamaica’s thrust to maintain single-digit inflation.

“The Government also committed to undertaking reforms which will increase the efficiency and competitiveness of the financial system and credit market. You may have seen in the media recently, where we committed to a timetable for raising the cap on investments in foreign securities from 5% of assets to at least 25% by end-2015 and removing it by end-2016, unless extraordinary circumstances require a reassessment. The drafting of Jamaica’s Omnibus Banking statute, which includes regulations to give consumers increased protection and to underwrite the regulatory basis for agency banking, is far advanced.

“We are confident that we will be successful with the December test both with respect to the structural benchmarks and the quantitative performance criteria. More importantly, the Government is already looking ahead to the coming fiscal year with a view to crafting policies and commitments aimed at further improving the business climate in Jamaica and securing stronger growth.

“The economy began its recovery during the September quarter, registering growth of 0.5 per cent. We expect that growth of a little under 1.0 per cent will materialise for the fiscal year, in line with our projections.

“As the economy stabilises, the fiscal and external balances improve and the debt ratios are brought down towards sustainable levels, we should see the Government being able to address more effectively important social and developmental issues such as education and training and crime and social peace.”

Filed Under: Economy, Feature Stories Tagged With: BOJ, Economy, GOJ, IMF

Barbados faces major challenges

December 20, 2013 by IC Insider.com

A statement from the IMF mission chief Ms. Nicole Laframboise: “The Barbados economy continues to face considerable economic challenges. The authorities agreed with staff on the need for urgent policy adjustments and deeper reforms over an extended period to restore fiscal and external sustainability. Weak exports and tourism arrivals, slow growth, and expansive fiscal policy have led to a sharp increase in public debt and fiscal financing pressures. Real output is projected to fall by 0.7 percent in 2013. Inflation has declined and is forecast to average 2.3 percent for 2013. In the external sector, tourism receipts have remained flat and the current account deficit is projected to widen to 11.4 percent of GDP this year. Together with a sharp drop in private capital inflows in 2013, international reserves have fallen this year to US$468 million at end-October”.

The statement continues “In this environment, the fiscal position has come under increasing strain. The central government deficit is expected to rise to 9.5 percent of GDP in 2013/14 and central government debt had risen to 94 percent of GDP by September 2013. Spending cuts under the authorities’ budget proposals announced in August are broadly on track, but tax revenues are falling short of projections. The authorities plan to take additional measures to strengthen adjustment and reduce pressures on the balance of payments.

“A strategic, comprehensive approach is needed to address the underlying weaknesses in public finances and to increase efficiency in the public sector. Policy formulation should be guided by a medium-term fiscal anchor to reduce central government debt to below 85 percent of GDP by 2018. A fundamental review of the tax system is warranted, and the authorities have requested technical assistance on this from the IMF. The goal would be to broaden the revenue base, which has been seriously eroded by statutory and discretionary waivers. In the interim, a number of measures could be taken to significantly improve the yield by strengthening compliance and efficiency in revenue and customs administration.

“The central government wage bill rose to 10.3 percent of GDP in 2012/13, the highest in the region, which together with interest payments limits room for investment spending. Staff takes note of the government’s decision to reduce the civil service up front. This will lower spending and send a strong signal about policy commitment, though these workers should have access to unemployment support and programs for re-employment. Alternatively, downsizing by attrition and implementing a wage formula that freezes the average wage per worker would also reduce the wage bill significantly over time and would contribute to lowering economy-wide labor costs. This is needed to raise Barbados’ external competitiveness, particularly given the nation’s deep commitment to its exchange rate peg, which the IMF recognises.

“There is scope to greatly improve the targeting of social spending and lower costs to ensure that Barbados retains its high standards of equity and social protection. There is some duplication across ministries, and some social programs, such as childcare and housing, are not well targeted and may be benefiting middle and higher income groups at the expense of the most needy.

“It will be critical to address weaknesses in the oversight and operations of the statutory bodies, whose financial performance in many instances is not available. In the near term, the authorities could establish an independent oversight mechanism tasked with enforcing compliance and accountability. Equally urgent, the operations of the main state entities should be reviewed with a view to identifying their strategic purpose, reducing losses and raising efficiency. Fund technical assistance in support of reform of statutory bodies is expected to start in early 2014.

“Under a new interest rate policy framework in place since April, the Central Bank of Barbados (CBB) has increased its holdings of Treasury bills in 2013, resulting in a decline in short-term yields. Direct financing of the government, which is exacerbating pressures on the balance of payments, should be reversed and short-term interest rates allowed to rise to levels more consistent with safeguarding the exchange rate anchor. This would demonstrate that monetary policy is supportive of the currency peg.

“The financial sector, particularly banks, has remained strong, although deteriorating macroeconomic conditions have had a significant impact on asset quality and profitability.

Filed Under: Economy Tagged With: Barbados, Economy, IMF

IMF team passes Jamaica, BUT

August 22, 2013 by IC Insider.com

The IMF team reviewing Jamaica’s compliance with the agreement tied down earlier this year, gave the authorities glowing marks for their achievements for the first quarter to the end of June, effectively giving their seal of approval but, “These staff level understandings are subject to approval by the IMF’s Management and Executive Board. Provided that performance remains strong, Board consideration of the first review of Jamaica’s IMF-supported program under the Extended Fund Facility could take place late September. Upon approval, SDR 19.97 million (about US$30 million) would be made available to Jamaica.

“Overall policy implementation thus far under the program has been strong and structural reforms are progressing” the IMF team stated. The team went on further to state that all quantitative performance targets and indicative targets for end-June were met, including the floor on social spending. For FY 2013/14, a budget that targets a central government primary surplus of 7.5 percent of GDP has been adopted and is now being implemented. The Government continues to implement its decision to strictly limit the granting of discretionary waivers. Several legislative amendments have been adopted to bolster tax administration, and the resources of the large tax-payers office have been increased. All other structural benchmarks to date have also been met in a timely manner. A conceptual framework for a fiscal rule that will help lock in the gains from fiscal consolidation over the longer term is expected to be ready by the end of this month.

“Key elements of the authorities’ updated program are:

The adoption of fundamental tax reform before the next fiscal year, designed to broaden the tax base, simplify the tax system, reduce tax rates, and reduce economic distortions and support growth. Tax reform is programmed to commence with an Omnibus Incentive Tax Act and a Charities Bill, to be tabled in parliament before end-September.
Steadfast implementation of the government’s strategy to increase growth by improving the business environment and pursuing strategic investments.
Further actions to make the financial sector more resilient, through enhanced supervision and monitoring, and with phased reforms of the securities dealers sector.
Strengthening the social protection framework, with enhanced efforts to move recipients from welfare to work, and the recent increase in PATH benefits.

Filed Under: Economy Tagged With: GOJ, IMF

IMF loan payment for St Kitts

August 22, 2013 by IC Insider.com

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The Executive Board of the International Monetary Fund (IMF) completed the fifth and sixth reviews of St. Kitts and Nevis’ economic performance under a program supported by a 36-month Stand-by Arrangement (SBA) in July. The completion of the reviews allows the immediate disbursement of an amount equivalent to SDR 4.266 million (about US$6.45 million), bringing total disbursements under the arrangement to SDR 47.37 million (about US$71.58 million).

According to statement released by the fund, “The St. Kitts and Nevis authorities have continued the successful implementation of their Fund-supported program, in particular making progress toward achieving fiscal objectives and debt restructuring. Following a four-year contraction in economic activity, signs of an economic recovery are emerging. Sustained commitment to prudent macroeconomic policies and reforms will be necessary to address remaining risks and vulnerabilities and to support stronger and inclusive growth.

“The 2013 budget is aligned with the authorities’ dual objectives of redeploying resources towards growth-enhancing outlays and continuing fiscal consolidation through significant budgetary primary surpluses. To boost revenue, while steps are being taken to improve revenue administration, action will also be needed to broaden the tax base, in particular to streamline tax exemptions. Moreover, the fiscal performance of the Nevis Island Administration could usefully be bolstered and would benefit from improved communication between the twin-island federation

“The restructuring of public debt has continued, notably with establishing the legal framework for incremental debt/land swaps. To help buttress banks’ income, it is necessary to proceed with launching the land asset management company, according to best practices, and with land sales. Continued collaboration with the Eastern Caribbean Central Bank will be needed to monitor and address financial sector developments and implement reforms.

“Accelerating the pace of structural reforms is important to secure lasting gains in fiscal sustainability, neutralize pressures on current outlays, and promote stronger and inclusive growth. Priority should be given to pension and civil service reform and to streamline the social safety net. Implementing programs to upgrade education and training skills of job seekers to enhance their employment prospects will also be important.”