JIS News

The standby lending facility of US$1.27 billion (SDR 820.5 million) for Jamaica, was approved by the International Monetary Fund (IMF), on February 4, paving the way for the other Multilaterals to pour in additional credit of some US$1.1 billion.
The agreement will immediately release funding of US$1.335 billion for Jamaica, from the US$2.37 billion pool of funds earmarked for the government’s Medium Term Programme over the 27-month period of the agreement. The funds are broken down as follows: IMF, US$650 million; Inter-American Development Bank (IDB), US$400 million; World Bank, US$250 million; and Caribbean Development Bank, US$35 million.
Significantly, some US$950 million of the loan package has been earmarked for the Financial Sector Support Fund (FSSF). This special facility is established by the Ministry of Finance and the Public Service to support banks and securities dealers whose balance sheets are weakened by their participation in the Jamaica Debt Exchange (JDX).
This funding will be split US$450 million from the IMF, US$200 million from the World Bank and US$300 million from the Inter-American Development Bank.
Another US$185 million will finance the budget and grow social spending by 25 per cent on programmes, such as PATH and the school feeding programme.
The outcome of the Jamaica Debt Exchange (JDX), which was a major sticking point to the agreement, has so far achieved a 97 per cent take-up. In its release announcing the approval of the Stand-by Agreement the Fund observed that the JDX would create savings for Government equivalent to 3.0 per cent of GDP and reduce by 65 per cent, the amount of maturing debt in the next three years.
Highlighting the main goals of the standby agreement, the IMF said that the country’s GDP is expected to shift from a contraction of 3.5 per cent in Financial Year (FY) 2009/10 to 0.5 per cent in 2010/11, and a further two per cent thereafter. The Fund expects Inflation for FY 2009/10 to be around 12 per cent and “in the absence of strong demand or foreign exchange market pressures,” to fall to an average of 11 per cent next year, eventually moderating to 6.0 per cent over the medium term.
It also emphasises expectations for public sector, taxation and financial reforms, and gives the Bank of Jamaica explicit responsibility for overall financial system stability.
The IMF mission chief for Jamaica, Mr. Trevor Alleyne, on a conference call following Thursday’s announcement of the Agreement, hailed the deal Jamaica received from the Fund, observing that it would position the country for growth, while noting that Jamaica would be able to access the private capital market in a year.
“Now is the time to implement; the serious work is to start now, which has been repeatedly said by the Prime Minister. We have confidence in the commitment given by the authority in terms of the programme they are going to implement and the success of the JDX is a positive sign,” he said.
Meanwhile, in a statement welcoming the news of the agreement, Finance and the Public Service Minister, Hon. Audley Shaw, stated that the Stand-by Arrangement will ensure that Jamaica has adequate foreign reserves over the period. “Importantly, approval will allow the country access to additional economic support from other multi-lateral development partners,” he said.
The Minister explained that the programme, which aims to increase Jamaica’s rate of economic growth, has among its objectives, the achievement of a significant reduction in the rate of inflation to 6-7 per cent over the medium term; the reduction of the overall public sector deficit to 1 per cent of GDP over the medium term; and an improvement in the current account deficit of the balance of payments from 18 per cent of GDP to 5 per cent of GDP over the medium term.
Mr. Shaw emphasised that a critical component of the programme is a 25 per cent expansion of the country’s social safety net spending, aimed at protecting the most vulnerable citizens. “This provision will see an expansion of coverage under the Programme of Advancement through Health and Education (PATH), from 325,000 beneficiaries to 360,000. The national school feeding programme will also be expanded,” he noted.
He also underscored the critical importance of the success of the JDX, going forward, “This is a historic and game-changing time in Jamaica’s history, and the Government of Jamaica is deeply grateful to the financial community for its overwhelming response to the Jamaica Debt Exchange. The JDX was a major prior action required for the favourable consideration of our application to the IMF,” he added.
The Minister observed that the Agreement marked the commencement of a challenging, but decisive journey towards good governance, solid economic development and the restoration of hope for all Jamaicans. “All members and sectors will share in the tremendous sacrifice before us, as together we lay down an economic framework conducive to investment, job creation, increased productivity and the generation of significant foreign exchange earnings. Above all, our goal is the creation of a society with good social conditions, where the aspirations of all can be realized,” Mr. Shaw said.