Minister Shaw Confirms Jamaica to Renew Borrowing Relationship with IMF

Jamaica has no real option, at this time, but to return to a borrowing relationship with the International Monetary Fund (IMF), Minister of Finance and the Public Service, the Hon. Audley Shaw, told the House of Representatives in a statement this afternoon.
He added that, accordingly, the Cabinet, yesterday, authorised him, as Minister of Finance and the Public Service, to make a formal application to the IMF to borrow up to 300% of quota (approximately US$1.2 billion) in a Stand-By Arrangement.
“We propose to have further discussions on these issues with the staff of the Fund during the course of next week, and to keep Jamaica informed on the substance of these talks,” Mr. Shaw said.
The Minister informed the House that the Government expects to complete the preparatory work and documentation by mid-August, and to make a formal submission to the Executive Board of the IMF when it resumes in September.
“We are acutely aware of the apprehension that many feel in our approaching the IMF, and we will continue to consult with our stakeholders as far as practicable, so that we can all be assured that we move together as one toward a more prosperous future,” he stated.
Earlier in his statement, Mr. Shaw said that the immediate challenges that face the country are the financing gaps in the fiscal and external accounts.
“The revenue targets for FY (Financial Year) 2009/10 are going to be difficult to attain in the context of a shrinking economy, while the achievement of the expenditure targets depends, crucially, on a reduction in debt service costs,” he explained.
He said that any additional domestic borrowing, arising from a slippage in either revenue or expenditure, will place upward pressure on interest rates. The current situation points to the need for some alteration to the fiscal programme, as well as an urgent infusion of foreign capital.
Mr. Shaw stated that “passive” balance of payment projections point to a financing gap of US$600-US$800 million in 2009/10. The conclusion of a Stand-By Arrangement by September, in which the Fund is expected to commit the equivalent of 300 percent of quota (US$1200 million) over two years, would provide Jamaica with the wherewithal to meet all its external commitments.
In terms of IMF conditionalities, he said that, resulting from the recent exploratory talks with the IMF, there are three essential areas that the Fund would like to see strengthened as part of a foundation for medium term sustainability: a consolidation of public enterprises, including divestments, mergers and improvements to governance to reduce financial losses; formulation of a debt strategy for the medium term to relieve the high debt service burden; and steps toward limiting the size of future deficits.