IMF Team Agrees To Lowering Of Primary Surplus Target

Photo: Yhomo Hutchinson Finance and Planning Minister, Dr. the Hon. Peter Phillips (left), greets Head of the International Monetary Fund’s (IMF) Staff Mission Team to Jamaica, Dr. Uma Ramakrishnan, prior to the start of the 10th IMF quarterly review media briefing, at the Ministry’s offices in Kingston, on Friday, November 13.

Story Highlights

  • The International Monetary Fund’s (IMF) Executive Board is expected to consider a Staff Level Agreement reached with the Government of Jamaica, to lower the primary surplus target by 0.5 per cent of the Gross Domestic Product (GDP) by the 2016/17 fiscal year.
  • Once approved, when the Board meets in December, this would result in an additional $4 billion for 2015/16, consequent on the target being reduced from 7.5 per cent to 7.25 per cent, and another $8 billion, on being further lowered to seven per cent, in 2016/17.
  • This will create additional fiscal space to undertake growth enhancing capital projects, without undermining the current downward debt trajectory and debt sustainability objective.

The International Monetary Fund’s (IMF) Executive Board is expected to consider a Staff Level Agreement reached with the Government of Jamaica, to lower the primary surplus target by 0.5 per cent of the Gross Domestic Product (GDP) by the 2016/17 fiscal year.

Once approved, when the Board meets in December, this would result in an additional $4 billion for 2015/16, consequent on the target being reduced from 7.5 per cent to 7.25 per cent, and another $8 billion, on being further lowered to seven per cent, in 2016/17.

This will create additional fiscal space to undertake growth enhancing capital projects, without undermining the current downward debt trajectory and debt sustainability objective.

The Board is also slated to consider the 10th review of the Staff Mission to Jamaica on the country’s performance under the Economic Reform Programme (ERP) for the July to September quarter, which, based on the positive outcome, places the country on course to secure an 11th drawdown, totalling US$39 million, under the IMF’s Extended Fund Facility (EFF).

The agreement to lower the primary surplus target was announced at Friday’s (November 13) media briefing at the Ministry of Finance and Planning in Kingston, where details of the week-long quarterly review were outlined.

Head of the IMF Mission Team, Dr. Uma Ramakrishnan, said the Staff Level Agreement is based on consensus that with macroeconomic stability now being “well entrenched” and debt dynamics improving, a loosening of the fiscal policy and realignment of the monetary policy were both “warranted, to better support the real economy.”

She said the additional fiscal space that will result from revision of the primary surplus “will provide an opportunity to increase public spending on capital outlays that boost growth and job creation, as well as to continue social spending.”

Additionally, she said a more “expansionary” monetary stance will also help to complement fiscal expansion, “by supporting credit expansion and private sector activities.”

Finance and Planning Minister, Dr. the Hon. Peter Phillips, who also spoke at the briefing, indicated said the objective is to facilitate the capital investments that will enable the growth momentum to be “intensified.”

“Also, to ensure that this growth will result in a reduction in our debt-to-GDP ratio because, ultimately, if we are to be in a strong position to deal with the uncertainties of the world market situation, which continues to be fragile…we cannot continue to carry the weight of…debt,” he contended.

Regarding the quarterly review, Dr. Phillips, said it was the “smoothest’ undertaken since the ERP’s implementation in 2012. “Our shared assessment is that Jamaica’s…economic recovery is well underway, given the projections for growth,” he said.

In noting that significant achievements have been recorded “in a relatively short period of time,” Dr. Phillips said, in just over two years, Jamaica’s economic transformation has seen inflation falling to 1.8 per cent in September, “the lowest since 1967.”

He also cited a sharp reduction in the Current Account Balance of Payments deficit; tripling of the Net International Reserves (NIRs) which, he said, stood at US$2.9 billion at the end of October; increased local and foreign direct investments; declining debt to GDP; an improved business environment; declining unemployment; improved credit ratings from international rating agencies; and record levels of performance by the stock market index, among the most notable achievements.

“Both the Fund team and the Government of Jamaica team agree that increased levels of growth will solidify the gains that have already been made. The expectation of the Planning Institute of Jamaica (PIOJ) is that the July to September quarter will see growth of approximately 1.5 per cent,” the Minister stated.

Dr. Phillips reaffirmed the Administration’s commitment to continued implementation of the ERP and expressed confidence that “we will successfully complete the 10th review.”

For her part, Dr. Ramakrishnan said the programme’s implementation remains “strong”, adding that all performance targets through to the end of September were met and that structural reforms “are also on track.”

“The (Jamaican) authorities and the Mission agreed that the focus should now be to ensure that Jamaica moves quickly to a position of strong sustainable dynamic growth and job creation. Continued strong programme implementation will remain important to achieving fiscal and debt sustainability,” she added.

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