IMF Could Consider Standby Facility Application in November

Minister of Finance and the Public Service, Hon. Audley Shaw, has informed that the International Monetary Fund (IMF) could formally consider the Government’s Standby Facility application in November and not in October, as was previously agreed, due to shifts in each party’s schedule.
Government is seeking to borrow US$1.2 billion over three years under this facility, which was announced as part of the assistance that the Group of Twenty (G-20) countries are providing to the less developed economies, through the support of the IMF.
Addressing a weekly post-Cabinet press briefing, yesterday (September 23), at Jamaica House, the Minister noted that these changes in scheduling resulted from the fact that the Cabinet had to sign off on the document before the technical team could go to Washington in the USA, where the IMF is based, and the unavailability of key IMF officials who will be in attendance at the annual IMF World Bank meetings in Istanbul, Turkey.
“It is a fact that October will be a difficult month for the IMF, because they usually have their World Bank meetings in Washington, but every fourth year, they go to another location and so their attendance at this conference in Turkey could very well have an impact on their scheduling in terms of the month of October. It is within that context, and within the context of the fact that we were delayed a week, that the IMF may well consider our application (of a standby facility) formally in November, instead of October,” the Minister informed.
In explaining the reasons for the delayed trip, Mr. Shaw said this was primarily because “we (Government) made a decision that we had to change certain assumptions that were based on a potential liability management programme, which was contemplated with the private sector and which we decided to shelf. As a result of that decision, we decided take the extra time to reform the programme within the context of what the alternative measures would be.”
He pointed out that the Government had to “fine-tune” the medium-term programme going forward over the next four to five years, in terms of what are the plans of the Government, what are the targets, and what are the projections, which is a requirement of the IMF agreement. He noted that the revised programme was submitted to Cabinet on September 17 for its approval.
The technical team, headed by the Governor of the Bank of Jamaica, Derick Latibeaudiere and the Financial Secretary, Dr. Wesley Hughes, left the island for Washington on September 22.
Minister Shaw, who is to attend the IMF World Bank conference, will leave the island next week Wednesday (September 30). He said that while there, he will have the opportunity to have discussions at the appropriate level with the Managing Director, the Deputy Managing Director, and the Regional Director in charge of the Caribbean and Latin America.
He said that about the middle of the month (October), the IMF team will come to Jamaica to “complete our discussions and then we put together what is called the Letter of Intent, which then goes back to Washington to the management team and onwards for the consideration of the IMF Board.”
Noting the “excellent” relationship with the IMF, Mr. Shaw stressed the importance of having an IMF agreement, in that it “opens up access to funding from the multilateral institutions, both in respect of policy-based loans, and in respect of additional project-based loans. For the remainder of this fiscal year, having an agreement with the IMF could open up to Jamaica, resources of between US$400 and US$500 million, denominated at interest rates of between one and a half and four or five per cent interest rate.”
“This (agreement) fulfills an important policy decision of this Government to re-engage with the multilaterals, commit ourselves to good governance, commit ourselves to important reforms, and on that basis, gain access to cheaper funding, so that it will make us less reliant on expensive money on the international capital market and also allows us to ease the pressure on our demand for domestic borrowings,” the Minister added.
He said that accessing cheaper funds for public investment was very important, citing the Government Guarantee for a US$121 million for the Falmouth Cruise Ship project. “That money is coming in at 2.25 per cent interest rate. We are working on a programme now with the Chinese Government, to access significant funding to assist in an islandwide road repair programme. That money is going to come in at three per cent,” he explained.
The Minister noted that Government intends to continue accessing cheap money from multilateral entities, thereby maintaining lower interest rates. “In terms of public sector investment, I’m getting cheap money, and in terms of fiscal support and project support from multilaterals, I’m getting cheap money. That is going to begin to permeate and show an overall trajectory of lower interest rates on the budget over the medium term,” he stated.
He emphasised that the interest rate, which is now at 16 per cent, is one of the highest in the world, and “is unsustainable and untenable”.
“We are projecting interest costs over the medium term to be lowered from 16 per cent of the Gross Domestic Product (GDP) to 10 per cent of GDP within a few short years,” the Minister said.