Nigel Clarke | IMF and World Bank COVID-19 support to Jamaica
I am writing to respond to an unfortunate innuendo by Mr Delano Franklyn in his article published in The Gleaner on August 28.
He referenced the fact that in May 2020, the IMF granted approval for the disbursement of US$520m, and in March 2021, the World Bank approved US$150m to assist with COVID-19-related issues and asked what has happened with these funds, despite the fact that the answers have long been in the public domain, have been carried in local media, and are available with a simple Google search.
It is entirely possible, however, that he was, and is, totally unaware of this. I therefore wish to use the opportunity to recap and expound.
IMF’S US$520M RAPID FINANCING FACILITY
The Government of Jamaica (GOJ) applied for access to the IMF’s Rapid Financing Facility in April 2020 due to the then anticipated deleterious impact of COVID-19 on Jamaica’s foreign exchange inflows. This was quickly approved and disbursed by the Fund in May 2020 in an amount of US$520m. (Over 100 countries eventually successfully applied for access to this facility). As I disclosed in Parliament and on social media at the time, which was carried in the print and electronic media, including in The Gleaner, these funds have been used to shore up the foreign exchange reserves of our central bank.
One of the sharpest and most dangerous economic effects of the COVID-19 pandemic has been the precipitous collapse of foreign exchange earnings to Jamaica from tourism. During 2020, Jamaica’s foreign exchange earnings from tourism fell by approximately 74 per cent, or US$2.5 billion! There is absolutely no historical precedent for such a disintegration of Jamaica’s foreign exchange supply. As a comparison to make the point, during the global financial crisis of 2009, Jamaica’s foreign exchange earnings declined by five per cent. In the aftermath of the 9/11 terrorist attacks, Jamaica’s foreign exchange earnings declined by 14 per cent.
The Rapid Financing Facility of US$520m helped maintain the supply of foreign exchange during this extremely treacherous period. Adequacy of foreign exchange reserves is essential to maintaining the continued extension of credit by foreign suppliers to local importers, and hence the flow of goods and supplies into Jamaica, especially during times of crisis.
Jamaica is an open economy where trade represents 80 per cent of GDP. An inadequacy of foreign exchange reserves can metastasise, leading to a crippling balance of payment crisis that severely complicates and delays recovery. We have experienced this many times before. Jamaica entered into programme relationships with the IMF that covered a combined 32 years out of the 59 years since Independence. Each of the 16 times that Jamaica has entered into a programme relationship with the IMF, the problem has been related to, or been evidenced by, an inadequacy of foreign exchange reserves in our central bank.
The good news is that Jamaica’s gross foreign exchange reserves now stand at approximately US$4.8 billion and our net international reserves are approximately US$3.8 billion. These are at the highest levels in our history and provide us with protection as we continue to face the uncertainties of the COVID-19 pandemic, and as we embark on the recovery of lost tourism earnings and output.
WORLD BANK’S US$150M LOAN
The loan agreement for the World Bank’s COVID-19 Response and Recovery Development Policy Loan was approved on March 18, 2021, in an amount of US$150 million. This was reported in The Gleaner and Jamaica Observer at the time.
The loan was signed on March 24, 2021, and drawn down in full on March 31, 2021, and April 1, 2021; and the amounts formed part of the financing of Jamaica’s 2021-22 Budget passed by Parliament. Accessing of this budget support loan was structured around Jamaica achieving three interrelated pillars, prior to the approval and disbursement of the loan:
1. The ongoing efforts of the GOJ to protect poor and vulnerable households and communities from the economic and social shocks of the COVID-19 pandemic;
2. The GOJ’s efforts to promote sustainable business growth and job creation by assisting firms to survive the initial shock associated with the pandemic and protect jobs; and
3. Jamaica’s long-term recovery by strengthening monetary, fiscal, and environmental policies for sustainable growth and transparent debt reduction.
The GOJ’s $20-billion CARE Programme launched in March 2020 was already far advanced in implementation when the World Bank initiated their COVID-19 budget assistance programme, which made for an efficient loan approval and disbursement process.
It is important to understand that as a budget support operation, the amount disbursed as the World Bank loan in March and April 2021 is not associated with the implementation of any specific programme. Rather, having met the conditions, it is disbursed to the GOJ to support its Budget.
SERVE JAMAICA PROGRAMME
It is useful to recall that among several other items of expenditure, the GOJ’s Budget for 2021-22 includes the $60-billion Social and Economic Recovery with Vaccines (SERVE) Jamaica Programme. The SERVE Jamaica Programme includes a $31-billion infrastructure component that supports jobs and economic recovery. Furthermore, under the SERVE Jamaica Programme, $10.5 billion was allocated for the procurement of vaccines, personal protective gear, medical supplies and pharmaceuticals on account of COVID-19.
In addition, under the SERVE Jamaica Programme, approximately $18 billion of social and economic support was allocated for a broad range of groups, inclusive of MSMEs ($5 billion in grants, loans and equity financing through the DBJ), the unemployed ($3 billion through the SET Cash Programme), vaccine incentives for the elderly ($1 billion), as well as support for the expansion of Wi-Fi access and broadband in schools ($1.8 billion) in light of COVID-19.
The SERVE Jamaica Programme also includes grant support for several occupational and other groups that cannot all be listed here.
Beyond the SERVE Jamaica Programme, however, the Budget includes, for the first time, the introduction of a social pension for the elderly who have no other identifiable source of income. Over 30,000 seniors are eventually expected to be in receipt of a monthly social pension as a result.
In addition, GOJ expenditures for existing social assistance, social protection and labour market programmes exceed $35 billion in cost.
Dr Nigel Clarke is minister of finance and the public service and member of parliament for St Andrew North Western. Send feedback to firstname.lastname@example.org.