THE INTERNATIONAL Monetary Fund (IMF) Country Report No. 13/126 provides the details and the requisite requirements which Jamaica must satisfy to remain qualified for the extended fund facility agreement offered by the IMF.
This country report, completed on April 17, was prepared by a team of IMF staff assigned to the mission, following a series of discussions with Jamaican officials ending on February 15.
The views expressed in the report are the views of the IMF staff who prepared the report, and not necessarily the views of the IMF executive board. A brief overview of the content is as follows:
The document begins by outlining the overall economic background of the country, highlighting the high debt accumulated from excessive public borrowing, which eroded private credit and private expenditure with limited development efforts.
A standby agreement was approved by the IMF board for Jamaica in February 2010, but subsequently went off track due to negligence and mismanagement by the previous administration.
This reduced investor as well as consumer confidence in the economy, which contributed to slow economic growth and maintaining high import relative to exports.
The new four-year programme to be engaged by the IMF and Jamaica from now to 2017, is geared towards gradually putting measures in place to reduce the risk of encountering the same economic crisis again. It will create a platform for sustainable economic growth by improving the country's fiscal balances and reducing the debt burden.
The main elements of the programme are as follows:
i. Overall structural economic reforms to reduce unemployment and increase economic growth.
ii. Actions to increase competitiveness in prices and other areas.
iii. Immediate adjustment to Government spending and tax policy (fiscal reforms).
iv. Debt-reduction strategies including debt exchange programme (NDX), which already occurred and was successful.
v. Improved social protection programmes, which will increase social safety nets to cushion the poor from hardship, while the other adjustment programmes take effect. The agreement has in place a minimum amount in which the Government must spend on social programmes to minimise the effect of the structural reforms.
The agreement encourages strong early focus on a reform agenda to support Jamaica's economic recovery as quickly as possible.
The reform agenda is concentrated on actions to improve how the Government manages its finances, developing rules to regulate how the Government spends and collects taxes, rearranging the tax system, improving the business climate, move towards a monetary policy system that targets inflation, make adjustments also to the trading of stocks, bonds and other securities. An improvement in how the Government spends and collects taxes, will improve Jamaica's debt problem in the future. The overall structural changes will improve the macro economy, increasing the possibility of economic growth and development while, at the same time, reducing the burden of the poor.
The IMF team of staff supports the Jamaican authorities' request for the extended fund facility, but identifies the high risks associated with the implementation of the programme.
These include: risk arising from delayed economic recovery, financial sector vulnerabilities, long delays or partial delays in implementation of specific aspects of the programme, and natural disasters. The IMF document did not outline crime and violence as a foreseeable risk.
There are specific targets Jamaica must meet every other month to remain qualified for the extended fund arrangement. As of the end of June 2013, the following structural benchmarks should have been met:
1. Parliament to adopt amendments to the revenue administration act to (i) provide access to third-party information to enhance compliance management; (ii) empower the Tax Administration Jamaica to require mandatory e-filling for groups taxpayers and/or type of taxes.
2. Government to increase the professional staff of large taxpayer offices to 120 staff members.
3. Fiscal targets: (i) Primary balance of the central government should be no less than $14 billion; increasing to at least $32 billion by the end of September; (ii) Tax revenues should be no less than $73.3 billion increasing to $150.7 billion by the end of September; (iii) Central government direct debt should not be greater than $13.9 billion at the end of June and should not exceed $21.4 billion at the end of September.
4. Social spending should be no less than $4.1 billion at the end of June, and no less than $8 billion at the end of September.
5. There are also monetary targets for cumulative changes in the net international reserves and change in net domestic assets.
If these targets were met by the end of June, Jamaica satisfies the requirements and remains qualified to continue receiving funds from the IMF. The Gleaner in its attempt to educate, inform and keep the Jamaican public up to date, will continue to explain and comment on each aspect of this country report No. 13/126 where relevant.
Dr André 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 email@example.com.