Increase banking competition, reduce collateral requirements
Greater banking-sector competition and a reduction in collateral requirements are among recommendations made by an International Monetary Fund (IMF) staff mission, which conducted two quarterly reviews of Jamaica's economic support programme recently.
In addition, it said that reforming financial-sector taxation, improving credit-risk assessment, and developing non-traditional financial services would help improve access to financial services and reduce the interest-rate spread.
The mission indicated that foreign direct investment inflows increased by nearly 30 per cent during the first three-quarters of fiscal year 2015-16, but noted that real gross domestic product is estimated to have expanded by only 0.8 per cent in the fiscal year. However, it added that with ongoing agricultural recovery and higher investment, growth for fiscal year 2016-17 is projected to rise to 1.7 per cent.
It said that achieving sustained higher growth and job creation requires continued reforms. "Fiscal discipline is critical for further reducing debt and creating space for productive capital spending. Combating crime, reducing the costs of energy and tax compliance, and improving infrastructure are essential to attract private investment," the staff mission said.
In its concluding statement following the 2016 Article IV consultation and the 11th and 12th review of the Extended Fund Facility, the mission also suggested that reforms to the monetary framework should centre on achieving price stability.
"A firmly established single mandate for achieving price stability will bolster the Bank of Jamaica's credibility and lay the foundation for an eventual move to inflation targeting," it said. "In addition, the central bank's liquidity provision should be made consistent with the loosened interest-rate stance."
The IMF staff said financial sector stability requires further actions. "Enhancements to the legal and operational frameworks for the resolution of banks and securities dealers should be determined and set up without delay," it said.
"The amended Bank of Jamaica Act needs to be backed by concrete tools, procedures, and complementary regulations in order to truly vest the central bank with overall responsibility for financial stability. Information exchange and collaboration between the various supervisory agencies needs further improvement. Strengthening prudential requirements for securities dealers will bolster systemic stability," the staff said.