Economic Reform Programme Central to Reducing Debt and Spurring Growth

The Government’s Economic Reform Programme (ERP) for Jamaica is central to the administration’s strategic priority focus on attaining fiscal prudence in its pursuit of a credible economic programme for the country.

Key elements of this focus include: negotiating a new medium-term agreement with the International Monetary Fund (IMF); containing public expenditure; eliminating waste and corruption; divesting select public assets; and tax and public sector reform.

In this regard, the ERP aims to, among other things: spur economic growth; contribute to reducing Jamaica’s trillion dollar public debt; maintain the country’s balance of payments schedule; and enhance its global market competitiveness.

Development and implementation of the ERP, being largely driven by the Ministry of Finance and Planning, is pivotal to the government’s four-year Memorandum of Economic and Fiscal Policies (MEFP) negotiated with the IMF. The MEFP maps out, among other things, the extent of support expected to be forthcoming from the IMF over the period, spanning 2013 to 2016.

Bank of Jamaica (BoJ) Governor, Brian Wynter, and Sagicor Life Jamaica Limited President and Chief Executive Officer, Richard Byles, co-chair an Economic Programme Oversight Committee (EPOC) which has been appointed by the government to assist in overseeing the ERP’s implementation.

The government’s successful implementation of key prior conditions, and commitment to undertaking other measures over the period, which were agreed on with the IMF, and commenced in 2012, led to the latter’s Executive Board approving a US$958 million four-year Extended Fund Facility (EFF) for Jamaica in May.

These measures are intended to: reduce Jamaica’s debt from 145 per cent of the gross domestic product (GDP), to 96 per cent; attain of a 7.5 per cent primary budgetary surplus target; and contain public expenditure, inclusive of public sector salary restructuring to reduce the ratio to GDP from 10.6 per cent, as at March 31, 2013, to nine per cent by fiscal year 2015/16.

Key undertakings, which the administration commenced in 2012 and advanced significantly during 2013, include: passage of the Public Debt Management Bill; implementation of the National Debt Exchange (NDX), which saw government bond holders exchanging their old instruments for newer ones at a lower interest rate and an extended maturity date. This exercise recorded a 99 per cent stakeholder participation, which has saved the administration approximately $17 billion in interest payments; and a wage restraint agreement signed between the administration and unions representing public sector employees.

The civil servants agreed to forego salary increases for April 2012 to March 2015 and, instead, receive several benefits over the period. It is expected to contribute significantly to public expenditure containment over the period.

The IMF Executive Board’s approval of the EFF in May, subsequent to the government’s fulfillment of the prior actions, led to Jamaica receiving an initial US$207.2 million.

Subsequent implementation of additional measures by the government during the April to June quarter led to Jamaica receiving an additional US$30.6 million, on approval by the Executive Board. This, after the IMF Staff Mission Team to Jamaica concluded in its quarterly review report that the government had fulfilled certain stipulated structural benchmarks, commitments, and obligations during the period.

These include: tabling of the 2013/14 Budget in April by Finance and Planning Minister, Dr. the Hon. Peter Phillips, which met the 7.5 per cent primary surplus target; completion and roll-out of a Central Treasury Management System (CTMS), expected to yield substantial savings to the Consolidated Fund; passage of the Revenue Administration Amendment Act, which aims to enhance sector-wide statutory obligations compliance; and commencement of the public sector and pension reform and transformation process, including the start of the parliamentary debate on the Pensions (Superannuation Funds and Retirement Schemes) (Validation and Amendment) Act.

Public sector pension reform, slated for implementation by April 2016, will entail civil servants contributing to their pensions.

The public sector transformation process also included the Jamaica Customs being changed to an Executive Agency, thereby enabling it to effectively carry out its operations autonomously.

Significant implementation of the ERP continued from July onwards. This included; passage of the Charities Act, which will regulate the operations of all local charitable organisations; passage of the Omnibus Fiscal Incentive Legislation, which  seeks to establish a transparent and coherent regime to govern all tax incentives.

Its provisions also support a policy of granting waivers to the primary inputs integral to the production of goods and services.

The Bills comprising the Omnibus legislation are the Fiscal Incentives (Miscellaneous Provisions) Act; and the Income Tax Relief (Large Scale Projects and Pioneer Industries) Act 2013. Customs Tariff (Revision) (Amendment) Resolution 2013; and Stamp Duty (Amendments of Schedule) Order 2013.

Other key legislation passed include the Securities (Amendment) Act) to combat the establishment of unlawful financial organisations commonly known as ponzi or pyramid schemes; and the Security Interests in Personal Property Act (2013), to allow, for the first time, intangibles, including intellectual property and other forms of personal property to now become part of the collateral that can be pledged to secure financing for business.

Other measures at various stages of execution include: divestment/privatization of key state entities, deemed necessary to safeguarding the country’s financial security while enhancing outputs.

These include sale of Wallenford Coffee Company to AIC International Investments Limited, in a deal worth approximately $4 billion; and shortlisting three entities – DP World, PSA International, and Terminal Link Consortium – for consideration in the proposed divestment of the Kingston Container Terminal (KCT).

Enterprise Teams have also been appointed to oversee privatization of the Norman Manley International Airport, Jamaica Railway Corporation, and Caymanas Track Limited.

Other activities include: the Development Bank of Jamaica’s (DBJ) allocation of some $2 billion to micro, small and medium size enterprise (MSME) sector to facilitate its expansion, deemed key to enhancing economic growth. Upwards of $1 billion of this sum has already been disbursed.

The DBJ also announced plans to launch the Jamaica Venture Capital Programme within the first half of the 2014/15 fiscal year, which commences on April 1, 2014. This initiative is joint undertaking with the IDB, and aims to provide readily accessible funding options to MSMEs.

The government is also undertaking a number of significant projects, deemed pivotal to advancing economic growth, and which are at various stages of implementation. These include: the North/South Highway project, which will link the northern and southern sides of the island; the Logistics Hub Initiative, which seeks to position Jamaica as the fourth node in the global logistics trade chain; and the Agro-Parks project, which entails development of nine such facilities aimed at maximizing agricultural outputs and reducing the country’s food import bill, which averages nearly US$1 billion annually.

Consequent on timely implementation of the ERP during the July to September quarter which recorded growth of just under one per cent, Jamaica also remains on course for a third drawdown of some US$30 million, after the administration was deemed by the Staff Mission Team to have fulfilled obligations and commitments. The Executive Board is slated to deliberate over the Team’s and announce its decision during December.

Based on the gains made, the economy is projected to record growth in the region of one per cent for the October to December quarter.