The International Monetary Fund (IMF) says Jamaica’s commitment to a US$1.68 billion Stand-By Arrangement (SBA) programme remains strong more than four years after embarking on difficult economic reforms.
“Programme performance is on track and macroeconomic stability is entrenched, with stronger fiscal and external positions, subdued inflation, and employment at historic highs,” said Tao Zhang, the IMF’s Deputy Managing Director.
“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, must be accelerated to deliver better growth and job outcomes, reduce poverty, and improve living standards, while sustaining macroeconomic stability,” he added.
The IMF executive board on Monday completed the second review of the SBA indicating that while the commitment remains strong more than four years into the reform programme, fiscal sustainability requires a continued reduction in the public wage bill, particularly as the government rethinks its role, responsibilities, and size of its workforce.
It said that Jamaica’s structural reforms are critical to build resilience and support inclusive growth.
The 36-month SBA with a total access of US$1.68 billion was approved by the IMF on November 11, 2016 and the Washington-based financial institution said that the Jamaican authorities continue to view the SBA as precautionary, and to use it as an insurance policy against unforeseen external economic shocks that could lead to a balance of payments need.
Zhang said concluding the ongoing wage negotiations are necessary for budget certainty.
“More generally, fiscal sustainability requires a continued reduction in the public wage bill, particularly as the government rethinks its role, responsibilities, and 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.
“In addition, a smaller public sector remains essential to create space for much needed spending on health, education, social safety nets, public safety, and growth enhancing capital projects.” He said that the Jamaican authorities recognise that reforms to the Bank of Jamaica Act, further enhancing the monetary policy toolkit, improving communications, and strengthening the central bank’s balance sheet are essential for moving toward inflation targeting.
“To this end, the authorities are committed to maintaining exchange rate flexibility and limiting foreign exchange interventions to smoothing excessive volatility,” he added.
The IMF official said that implementation of the resolution framework for financial institutions are 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.
“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,” he added.