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IMF pleased with Jamaica's economic performance

Wednesday, June 20, 2018

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KINGSTON, Jamaica (CMC) — An International Monetary Fund (IMF) delegation has ended a one-week visit to Jamaica saying that economic progress is reflected in high employment levels, an 11-year low unemployment rate, and significantly lower poverty rate.

IMF Mission Chief for Jamaica Uma Ramakrishnan, who headed the delegation during the visit that ended Friday, said that the central government primary surplus was 7.7 per cent of gross domestic product (GDP) in the financial year 2017/18, exceeding the budget target by 0.7 percentage points of GDP.

The delegation had arrived here to take stock of progress on Jamaica's economic reform programme that is being supported by the IMF's Precautionary Stand-By Arrangement.

“Record-high employment levels, an 11-year low unemployment rate, and significantly lower poverty rate — particularly rural poverty — have underpinned the Jamaican economy. Rapid deceleration in food and electricity prices contributed to inflation falling below the Bank of Jamaica's (BOJ) target range of four to six per cent during March and April 2018,” she said.

She said the gross international reserves reached US$3.7 billion at end-May, or about 25 weeks of imports, even as the current account deficit jumped to 5.2 per cent of GDP in the financial year due to several one-off factors, including imports of capital equipment for mining and security, as well as higher global oil prices.

However, weather swings took a toll on growth in the financial year, estimated to be just below one per cent.

Ramakrishnan said the improved central government primary surplus was due to buoyant taxes and some underperformance in capital spending.

PUBLIC DEBT DOWN

She said the sustained fiscal discipline, demonstrated in a primary surplus exceeding seven per cent of GDP since 2013/14, has helped reduce public debt to about 104 per cent of GDP at end-March 2018, down from 145 per cent five years ago.

“Wage negotiations have been settled with union groups representing about 70 per cent of central government employees, and every effort is being made by the authorities to reach agreement with the remaining groups, including the police and nurses, to limit budget uncertainty.”

The IMF team noted that the four-year wage agreement provides a window of opportunity to overhaul the public sector's compensation structure, including by streamlining the vast and inequitable allowance structure, retaining skills while rewarding performance, and prioritising government functions.

“The resulting reduction in the workforce from this refocusing of the public sector's activities will support a durable reduction in the wage bill and help ensure budget resources can be freed up to fund social priorities, combatting crime, and pursuing growth-enhancing capital spending,” Ramakrishnan said.

“We support the recent policy rate cuts and the BOJ's resolve to cut interest rates further, if needed, to steer inflation towards the mid-point of the central bank's target range. The IMF team welcomes the progress being made to revise the BOJ Act, which will be critical to the full shift to inflation targeting, and the related work to strengthen central bank communications.

“We also welcome the authorities' initiative to further entrench fiscal sustainability, including by developing an independent fiscal council and a public financial management strategy for natural disasters,” she said.

The IMF official said that the ongoing Financial Sector Assessment Programme by the IMF for Jamaica is expected to inform financial sector reforms going forward, including on bank supervision and non-bank regulations.

During the visit, the team met with Prime Minister Andrew Holness, Minister of Finance and the Public Service Dr Nigel Clarke, Bank of Jamaica Governor Brian Wynter, other senior government officials, as well as members of the private sector, labour unions, and the Opposition.

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