Jamaica has a commendable track record with IMF
What is the New StandBy Arrangement?
On November 11, 2016, the executive board of the International Monetary Fund (IMF) approved a three-year Standby Arrangement (SBA) for Jamaica to immediately replace the existing Extended Fund Facility (EFF) that was slated to end in March 2017.
The new Standby Arrangement will give Jamaica access to amounts of up to US$1.64 billion or 312 per cent of Jamaica's quota with the IMF, over a three-year period. Of this amount, the SBA will immediately make US$411.9 million available to Jamaica. Similar to but less stringent than the EFF, the SBA will make funds available after Jamaica pass biannual review test instead of quarterly.
What does this mean?
This is good news for the current government as it was unable to strike a deal with the IMF when they met back in 2010. Now, the increased robustness and resilience that the economy has manifested over the last couple of years has provided a strong foundation that the world hopes Jamaica will capitalise on as the country has done well thus far. After a meeting in Jamaica, Tao Zhang, deputy managing director and acting chair of the IMF, highlighted that the country has established a commendable track record of programme ownership and implementation under the EFF. Low annual inflation, a build-up of Net International Reserves and a narrowing current account deficit are signs that the macroeconomy has become more stable. Also, the public debt has been trending downwards due to fiscal discipline and proactive debt management strategies. Despite this, economic growth remains low and unemployment and poverty remain high. Economic growth is adversely affected by the prevalence of crime and violence across the country.
What will the reform focus on?
The reform programme will continue to anchor on fiscal discipline and reducing the nation's public debt. The Jamaican government will in the meantime focus on other reform efforts on ways to increase economic growth and create more jobs. Another important aspect of the programme is continued public sector transformation which should seek to better allocate public resources towards infra-structure development, social protection and security. The new reform should also aim to improve how the Government delivers public services. The shift from direct to indirect taxes should continue to broaden the tax base, improve the efficiency of the tax system and help to facilitate more economic growth.
What about monetary policy?
The Bank of Jamaica has been encouraged to incorporate the inflation targeting approach to increase the efficiency and credibility of monetary policy. The IMF has outlined that key reforms include strengthening the operational autonomy of the BOJ, refining the monetary policy signalling and liquidity provision framework and improve macroeconomic modelling and framework. Jamaica is committed to maintaining a flexible exchange rate and to continue build its reserves through market determined exchange rate. According to the IMF, the Jamaican government is treating the SBA as precautionary and will only draw down funds in the event of negative external shocks that might have negative impact on the economy. According to the IMF, further steps will be taken to increase the resilience of the financial sector and provide greater access to credit and financial inclusion for all types of investment.
What about growth? How exactly will Jamaica achieve growth?
The IMF has recognised that reform is needed to increase production and productivity. It has recommended that a reform to the nation's approach to the supply of goods and services is needed to increase output and employment. With this in mind, the IMF is encouraging international affiliates to support the Government's Economic Growth Council to help with the successful implementation of their recommendations.
How exactly will Jamaica achieve growth?
Economic growth cannot be achieved on its own out of thin air. It requires coordination of different economic agents; the firm, the government, affiliates and the household. As such, resources must be directed to increase the utility optimising potential of each of these groups. Focusing mainly on growth and job creation, with less emphasis on development and wealth creation, will continue to demotivate employment and productivity because the household utility function is constrained by a meagre budget. An improved social safety net programme is insufficient; crime is a consequence of this. Jamaicans have ambition; they are always seeking a way out even if the platform is not suitable.
- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona Campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email firstname.lastname@example.org.