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The International Monetary Fund (IMF) has projected real gross domestic product (GDP) growth of up to 4 per cent for the Jamaican economy this fiscal year, while also projecting a return to single-digit inflation and a decline in the debt-to-GDP ratio.
Hailing the Jamaican Government’s decision to balance the budget this fiscal year as a “landmark decision”, the Fund expressed the view that the goal “appears within reach”.
The IMF, in a highly positive assessment of the Jamaican economy published yesterday (June 28), said “the authorities have succeeded for the second consecutive fiscal year in maintaining stability, following the near-crisis in the first half of 2003”.
In the report titled, ‘Jamaica: Interim Staff Report Under Intensified Surveillance’, the IMF said while global conditions had been very favourable, “the generally positive results of the last two years owe much to the renewed fiscal consolidation, reflected in the very high primary budget surpluses”. Jamaica’s high primary surpluses were also highlighted in the recent World Bank report on the Caribbean titled, ‘The Caribbean in the 21st Century’.
Heaping praise on the Jamaican Government, the Fund said that “domestic interest rates have declined sharply from their March 2003 peak, the exchange rate has stabilized and inflation has decelerated markedly. In fiscal year 2004/05, the economy showed resilience in the face of severe adverse external shocks, including Hurricane Ivan and high oil prices”. The IMF praised “the high degree of national ownership” of the macro-economic direction of the Government, citing the Memorandum of Understanding (MOU) signed with the trade unions.
The influential Washington-based institution said “the staff welcomes the continuing progress toward strengthening the regulatory and supervisory framework of the financial system”.
The multilateral lending agency also noted that the legislative and regulatory framework for combating money laundering and the financing of terrorism was being strengthened, noting that the Bank of Jamaica and the Financial Services Commission last year passed legislation to share information with overseas regulators and to revoke licences if deemed warranted.
The report noted that the banking sector appeared to be generally sound and profitable, although with significant exposure to the Government. It also said that at the end of 2004 the ratio of non-performing loans to total loans stood at 3 per cent, “well within the prudential limit of 10 per cent”.
The Fund commended the Government for having taken the “important step” of implementing the first stage of tax reform in a manner that would produce a significant net gain for the budget.
But the Fund cautioned that the country’s exceptionally high public debt would mean that even a modest deviation from policy objectives could undermine confidence. The report said the projected reduction of public-debt-to-GDP of 100 per cent over the next four years, would be challenging and would demand sustained fiscal discipline. The Fund also expressed the view that “exceptional restraint” would be needed to maintain primary surpluses in excess of 13 per cent of GDP.
Summing up its position, the IMF said it agreed with the Government that the macro-economic targets were achievable, provided the Government maintained tight discipline on the expenditure side and fully implement the approved tax reform measures as well as continue with its efforts to raise taxpayer compliance.