Minister of Finance, Planning and the Public Service, Dr. the Hon. Peter Phillips, as the first order of business in the new administration, which took office on January 5, put forward the Government’s position for a new arrangement with the International Monetary Fund (IMF).
The preliminary moves led to the concluded Article IV Consultation in March, and discussions that could culminate with a possible country programme will commence during the Spring Meetings of the Fund, scheduled for April 22 in Washington, D.C.
Rationalising the need for a new arrangement, the Minister said the previous government failed to successfully complete its Standby Agreement with the IMF, which was “stalled since last May, resulting in the non-disbursement of multilateral funding, including US$220 million from the Inter-American Development Bank (IDB).”
The Minister emphasised that the arrangement being sought is one that “provides (the country) sufficient time to nurture a sustainable acceleration of growth, while completing the fiscal and other economic reforms to resume discussions between the IMF and Jamaica."
Already, the Government has embraced a number of qualitative policy initiatives, including fiscal deficit and debt management; legislative reforms governing fiscal and monetary policy; tax and pension reforms; divestment of loss making public sector enterprises; rationalisation/elimination of tax waivers; containment of the public sector wage bill and related costs; implementation of measures to facilitate businesses, competitiveness and the realisation of sustainable economic growth.
Article IV Consultation
In March, a team from the IMF, led by the Fund’s Mission Chief for Jamaica, Luis Breuer, completed a 2-week formal assessment of the state of the Jamaican economy, including a full update on the financial position of the public sector as well as recent data and trends in the economy.
The local and IMF technical teams concurred that strong policy action is needed to place Jamaica’s debt ratios firmly on a downward trajectory and to address the challenge of slow growth. It was further agreed that there is a need to confront these issues simultaneously by strengthening public finances through comprehensive tax reform, tighter control of expenditure and a greater focus on enhancing the overall competitiveness of the Jamaican economy.
Both sides also agreed that there is a particular need to enhance social protection for the most vulnerable while these changes are being implemented.
Although the new administration is yet to enter a new arrangement with the IMF, the latest Net International Reserves (NIR) update from the Bank of Jamaica indicated that at end of March, the reserves were just under US$1.8 billion, representing a little over 23.50 weeks of goods imports.
Domestic inflation was projected to be in the range of 1.0 per cent to 2.0 per cent for the March 2012 quarter, largely similar to the outturn for the December quarter. Underpinning this outlook is the Bank’s forecast for a decline in imported inflation supported by relative stability in the exchange rate.
In addition, inflation expectations and domestic capacity conditions are expected to be relatively stable. The inflation rate for January, as reported by the Statistical Institute of Jamaica (STATIN), was 0.4 per cent, similar to the rate in the previous two months.
This outturn is in line with the Central Bank’s expectations for the month as well as the 1.0 per cent to 2.0 per cent forecast for the March 2012 quarter. Given the projection for the March 2012 quarter, the Central Bank has maintained its forecast for inflation in the target range of 6.0 per cent to 8.0 per cent for Financial Year 2011/12.
With respect to the forecast for output growth, the domestic economy is projected to expand in the range of 1.0 per cent to 2.0 per cent for the March 2012 quarter.
“This is predicated on projected expansions in Electricity and Water Supply, Hotels and Restaurants, Construction and Agriculture, Forestry and Fishing. Given the forecast for the quarter, real Gross Domestic Product (GDP) growth for the fiscal year is still expected to be in the range of 1.0 per cent to 2.0 per cent,” the Bank reported.
The Central Bank’s forecast for growth in the March 2012 quarter and for the fiscal year is supported by the relatively strong expansion in credit to the private sector from the commercial banks in the previous quarter.