Jamaica Reaches Staff Level Agreement with the IMF

Jamaica is experiencing a robust economic recovery from the COVID-19 pandemic. After economic growth of 8.2% in the last fiscal year and a projection of 4.5% for this fiscal year, economic output is expected to attain pre-COVID levels by 2023.

Unemployment is lower today than it was prior to the pandemic and our debt to GDP ratio is also lower today than prior to the pandemic. With a possible exception of Guyana, no other country in this hemisphere can claim a similar experience.

Despite this encouraging recovery, however, global uncertainties loom on multiple fronts. The War in Ukraine continues to have a global impact and with no sign of ending. Europe is forecasted to experience an economic recession next year and some analysts say that there is an appreciable risk that the United States may also experience an economic recession as well.

In addition, global inflationary pressures are likely to remain for some time. Furthermore, international financial conditions are tightening as central banks around the world raise interests to battle inflation.

From our historical experience we know that building resilience and creating policy buffers in advance are important strategies for successful navigation of, and recovery from economic shocks should they materialise.

Looking across the horizon, therefore, is important that we act in advance and ahead of time in always seeking to increase fiscal space, broaden our options and make Jamaica stronger.

Over the next two fiscal years – in 2023/24 and 2024/25 Jamaica has over US$ 1 billion of external debt maturing that needs to be refinanced at what could possibly be interest rates that are higher than today.

Earlier this year the International Monetary Fund launched a new product, the Resilience and Sustainability Facility (RSF) that would allow Jamaica to access up to US$763 million at an interest rate of approximately 3.8% and a repayment period of 20 years with no principal repayment for the first 10 years.

This is a compelling instrument that if we access would not only support our climate resilience building strategy but also potentially save Jamaica approximately US$35M per year over 20 years in interest costs as against accessing financing in capital markets, using our current average blended market borrowing costs as a comparison, even before we consider that market interest rates may rise further.

This combination of building resilience while also achieving fiscal savings would come at a critical time.

It would allow us to invest in job creating and resilient infrastructure, enhance our transition to renewable energy, reducing our energy vulnerability even as we continue to prioritise human capital development.

Jamaica must take advantage of this opportunity.

At the same time, at this time of uncertainty, though we have over US$4.3 billion in gross foreign exchange reserves, in order to ensure that we are not overly exposed to external developments that could derail foreign exchange inflows, we will access the Precautionary Liquidity Line where approximately US$1 billion would become available to us should we need it.

The Precautionary Liquidity Line is an instrument at the International Monetary Fund for countries with strong economic fundamentals and Jamaica’s qualification for this credit line is a signal of our economic strength and stability.

These arrangements will not interfere with our already planned programmes and activities. It is and will be business as usual with the ability to access financing if the global outlook worsens.

My fellow Jamaicans, we are at a different era of our economic development, one where we anticipate events in advance and provide for them. We have put in place a natural disaster strategy, capitalised a national disaster fund and launched the world’s first catastrophe bond independently sponsored by a small country. These financing arrangements are designed to protect us from natural disaster shock.

Similarly, today, thinking ahead, we reached a Staff Level Agreement with the International Monetary Fund for the Resilience and Sustainability Facility and a Precautionary Liquidity Line to ensure that our development can proceed and continue even in the event of possible external shock.

This is an engagement of choice. These are not arrangements that we have to make but rather financings we are choosing to take advantage of to keep us strong, to build our economic and climate resilience, to create buffers, to expand our fiscal space, to broaden our options, and to help us prepare in advance for any adverse external development that may arise.

My fellow Jamaicans, with God’s continued guidance we are taking charge of our economic future, and even in a time of great economic recovery and expansion and job creation, we are making preparations for possible shocks in the same way that strong and empowered countries do.

Thank you.