Government should enter into another IMF programme
Co-chairman of the Economic Programme Oversight Committee (EPOC), Richard Byles, said that while he is bullish about Jamaica's future, his confidence would be boosted if the Government publicly discloses, this year, its intention to negotiate another programme with the International Monetary Fund (IMF).
He said it would be true to say that confidence in the country is high "and certainly my attitude is positive and quite bullish, and I think that Jamaica continues to be on the right road," notwithstanding the challenge the Government had with meeting the gap created by an increase in the income tax threshold.
However, he said that Jamaica has done well in the past three and a half years because of the strict IMF four-year Extended Fund Facility negotiated by the People's National Party administration and which began in May 2013.
That programme expires in March 2017.
"What the IMF programme has done is hold our feet to the fire and make sure that we did all of the right things, because it is so easy to not do the right things and do the popular things," said Byles.
"And so my confidence beyond next year is going to depend a lot on us having a continuing programme with the IMF," he said, noting that "it doesn't have to be the same kind of programme that we have now".
Emphasising that it is not likely to be the same kind of programme, Byles said, however, that "it needs to be one that works with us to set targets that are achievable but, most importantly, are on the path to getting our debt down to manageable levels".
In addition, he said, "it must be a plan that sets out milestones that we can measure our performance against, and it must be a plan that has sanction if we breach achieving any of those targets."
Against that background, he said "my confidence would be made even greater if, during the course of this year, it was disclosed publicly that we intended to discuss with the IMF a new programme to continue beyond March of next year," the specifics of which would be discussed and negotiated between the Government and IMF staff, Byles said at a press conference in New Kingston last week.
He noted that the IMF has different kinds of relationship with different countries, but typically lends to countries that have balance of payments problems.
"We had one back in 2013. We currently don't have one, thanks in large measure to the price of energy. That has saved this country, I believe, in excess of US$700 million a year and that has helped a lot," he said. "Our exchange rate movement has stifled a lot of imports and helped us also," he added.
However, he said Jamaica has a massive debt problem at a ratio of 125 per cent of gross domestic product, way above the 60 per cent generally accepted limit, and that by next year that should be at about 120 per cent or twice the limit.
"My view, Jamaica needs the assistance and the guidance to take us off that precipice edge of 120 per cent debt to GDP and step us back further and further towards the 60 per cent," he said.
Among the IMF's instruments for non-concessional loans are standby arrangements (SBA), designed to help countries address short-term balance of payments problems. The length of a SBA is typically 1224 months.
It also includes flexible credit line for countries with strong fundamentals, policies and track records of policy implementation, the duration of which is either one or two years.
The precautionary and liquidity line is for countries with sound fundamentals and policies, and a track record of implementing such policies.
The Extended Fund Facility (EFF) helps countries address medium- and longer-term balance of payments problems, reflecting extensive distortions that require fundamental economic reforms.
EFF arrangements are typically longer than SBAs, normally not exceeding three years at approval. However, a maximum of up to four years is also allowed, predicated on the existence of a balance of payments need beyond the three-year period, the prolonged nature of the adjustment required to restore macroeconomic stability, and the presence of adequate assurances about the member's ability and willingness to implement deep and sustained structural reforms.
The rapid financing instrument provides rapid financial assistance with limited conditionality to all members facing an urgent balance of payments need.
Referring to the increase in the income tax threshold to $1 million on July 1 this year, Byles said that will require an additional $14 billion to move it to $1.5 million next year. Noting also the expiration of the four-year agreement to draw down $11 billion a year from the National Housing Trust for budgetary support, Byles said there will be a potential $25-billion gap in fiscal year 2017-18.
"Why am I speaking about that from now? Because it's a big number and we have to start thinking about it and craft the way in which we are going to deal with it from now," he said.
"So, although it falls outside of the IMF programme - because the IMF programme terminates in March of next year - nonetheless, as Jamaicans, it is a challenge that will be there and we will have to meet it," he added.
"We can tax and we can tax. ... Maybe there are other ways to fund it other than taxing, but that it something that the Government, and the Ministry of Finance in particular, needs to pay attention to from now, along with the IMF, to see how to craft a solution to that $14 billion and the $11 billion," said Byles.