Sun | Mar 18, 2018

Editorial: IMF hoists warning flag

Published:Tuesday | March 8, 2016 | 12:00 AM

Anyone with fanciful notions about the job Andrew Holness' administration faces in managing Jamaica's fiscal affairs would have been jerked from their reveries on only a cursory read of the statement by the International Monetary Fund (IMF) after last week's meeting between its officials and Prime Minister Holness.

It is true that Jamaica is only now in need of formal verification that the country met the performance targets for its 11th quarterly review under the four-year programme with the IMF. Something will have to go catastrophically wrong for those for the quarter to the end of March not to be met.

So, with only a year of the Extended Fund Facility (EFF) to go, most of the heavy lifting has been done in consolidating the fiscal accounts, substantially reducing the country's outsized debt as a proportion of national output and stabilising the macroeconomy. Indeed, late last year, the IMF felt sufficiently comfortable about what has been achieved to snip a half of a percentage point from the primary balance target, which should release an additional J$4.5 billion for spending by the Government in the new budget year.


Room for negotiations

Audley Shaw, Mr Holness' finance minister, then in Opposition, suggested at the time that the government of the day should have insisted on an even greater relaxation of the fiscal reins. Others now suggest the new administration has room to reopen negotiations with the Fund.

But last week, when Nigel Chalk, IMF's deputy director for the Western Hemisphere, and the Jamaica mission chief, Uma Ramakrishnan, met with the Mr Holness, they left little doubt about the limited space within which the Government will have to manoeuvre if Jamaica wishes to retain the Fund's imprimatur.

Indeed, there was agreement with the Government on its intention to design and implement policies that stimulate growth, create jobs, reduce poverty and reduce debt. But as the IMF's statement said, "there was also agreement of the importance of achieving the fiscal targets in the current programme".

It added: "In that context, fiscal measures should be designed to be consistent with a primary surplus target of seven per cent of GDP in 2016-17 and tax policy reforms should continue to contribute to a fair, equitable and efficient tax system."

Put another way, anything the Government plans to spend this fiscal year can't be on the basis of increased borrowing, but rather from increased earnings, or shifting expenditure priorities. In that regard, the Government has been told to be certain that it can fund the give-back under its promise to eliminate personal income tax for workers who earn up to J$1.5 million a year.

Also implicit in the statement was a warning to the administration to ensure that it works out the obvious kinks in its tax proposal, while ensuring that any fix to inequities, such as marginal reliefs - which could be an expensive undertaking - does not put the fiscal project out of kilter.

It is not clear as yet whether the IMF will insist that the Government complete pension reform this fiscal year as well as lower the public-sector wage bill to nine per cent of GDP. The administration has a tough job of establishing priorities and fulfilling undertakings, especially within the promised time frame.