Jamaica's economic reform programme remains on track - IMF
Jamaica’s support programme under the International Monetary Fund (IMF) is on track with employment at historic highs, stronger fiscal and external positions, and subdued inflation, the IMF’s executive board revealed in its second review under the Stand-By Arrangement (SBA) for the country.
Nevertheless, vulnerability to weather-related shocks continues to pose important challenges to Jamaica’s growth performance.
Against this backdrop, supply-side reforms, including enhancing resilience to weather swings, needs to be accelerated to deliver better growth and job outcomes, reduce poverty, and improve living standards, while sustaining macroeconomic stability, the board indicated.
Commenting on Jamaica’s performance, Tao Zhang, Deputy Managing Director and Acting Chairman of the fund, noted that the Government’s commitment to the fund-supported programme remains strong more than four years after embarking on the challenging economic programme.
At the same time, Zhang expressed a need to conclude the ongoing wage negotiations to achieve budget certainty.
“More generally, fiscal sustainability requires a continued reduction in the public wage bill, particularly as the Government rethinks its role, responsibilities and (the) size of its workforce. Overhauling the pay structure and reviewing the complex system of allowances are vital foundations to a modern public sector that can attract and retain talent,” Zhang said.
He went on to indicate that a smaller public sector remains essential to creating space for much-needed spending on health, education, the social safety nets, public safety and growth-enhancing capital projects.
Zhang also said the move by the Government to reform the Bank of Jamaica Act will further enhance the monetary policy toolkit; improve communications, and strengthen the central bank’s balance sheet so it can move towards inflation targeting.
“To this end, the authorities are committed to maintaining exchange rate flexibility and limiting foreign exchange interventions to smoothing excessive volatility,” he said.
“Implementation of the resolution framework for financial institutions is critical for strengthening the financial sector’s resilience. Any changes to investment and foreign exchange limits of non-bank institutions should first carefully analyse growth and stability trade-offs and ensure that adequate supervisory capacity is in place,” he added.
In conclusion, Zhang said: “Structural reforms are critical to support a dynamic private sector that creates jobs. In this regard, efforts should be accelerated to divest underutilised public assets, upgrade procurement procedures, ease the development approval process, and foster financial inclusion.”
The 36-month SBA with a total access of SDR 1,195.3 million (about US$1.68 billion), the equivalent of 312 per cent of Jamaica’s quota in the IMF, was approved by the IMF’s Executive Board on November 11, 2016.
The Jamaican authorities continue to view the SBA as precautionary, and use it as an insurance policy against unforeseen external economic shocks that could lead to a balance of payment challenge.