Mon | Jan 21, 2019

Examining the September NIR target

Published:Wednesday | August 14, 2013 | 12:00 AM
The Bank of Jamaica building, home of the monetary authority and managers of the NIR. - Norman Grindley/Chief Photographer

Jamaica has had various arrangements with the International Monetary Fund over three decades.

More than 50 per cent of Jamaica's historical agreements with the IMF ended up being cancelled or continued with a waiver because of breaches to Net International Reserves (NIR) targets.

Hence, we look at the NIR target for September under the current External Funding Facility ending 2017, which holds quantitative performance criteria for the NIR.

The Economic Programme Oversight Committee (EPOC), after its first meeting, issued what appeared to be revised targets for the NIR, according to information on the website

The net reserves at December 2012 were estimated at US$1.126 billion. By March of this year, they had fallen to US$792.6 million.

EPOC's target for June 2013 was US$852.5 million. For September it is US$883.3 million.

'Safety net' needed

June's NIR ended at US$1.003 billion, exceeding the minimum criteria by more than US$150 million. This 'safety net' will be required if Jamaica is to exceed the minimum performance criteria for September 2013, according to

"Why? Since the 2010 IMF stand-by arrangement was agreed with the IMF and funds were placed in Jamaica's account in February 2010, Jamaica's NIR has lost, on average, US$13.7 million per month through June 2013," the website said.

"Assuming this holds true, which is a very big assumption, the NIR would decrease by about US$41.1 million by the end of September."

If that estimate holds, the NIR will fall to US$962.1 million. But Jamaica also faced a combined US$80.2m of loan repayments to the IMF on August 1 and 8 under the 2010 stand-by agreement, which would cut the NIR down to US$881.9 million. This is marginally less than the performance criteria of US$883.3 million for end-September.

However, Jamaica can still meet the target, if it passes the first IMF test. This would lead to a distribution of approximately US$30 million before the close of the month, on September 20.

These loan funds will come just in time to repay another portion of the 2010 SBA which is due on September 25. That repayment should amount to just under US$12 million.

In all, by the end of September, given the EFF distribution and loan repayment schedules, Jamaica should end up with just about US$900 million of reserves, safely passing the IMF's NIR criteria for September with the next eye on December.

The real question is: where will the Jamaican dollar end up in September? One of the key tenets of the IMF's structural reform was to have the Bank of Jamaica performing the function of inflation targeting instead of trying to manage currency movements.