Jamaica: IMF Executive Board Concludes 2016 Article IV Consultation
Since May 2013, Jamaica’s implementation of the economic reform program supported by the EFF has been exceptional by international standards. After three years of difficult economic reforms, inflation is at historical lows, the current account deficit has more than halved, net international reserves have doubled, and access to domestic and international financial markets has been restored, supported by upgrades in credit ratings and historically high business confidence indicators. Comprehensive reforms in tax policy and administration have been and continue to be undertaken, while strict adherence to fiscal discipline together with a PetroCaribe debt buyback have helped place debt on a downward trajectory. Financial sector resilience has been strengthened and supply-side growth constraints have been eased. Elections in February 2016 resulted in a change in government. The new government remains committed to continuing reforms under the program, with a focus on maintaining fiscal discipline while achieving equitable growth through increased capital spending and the strengthening of the social safety net.
Executive Board Assessment2
Executive Directors commended the authorities’ strong implementation of their Fund-supported program since its inception. Macroeconomic stability has been restored, marked by historic low inflation, halving of the current account deficit, reduction of public debt, and regained access to international and domestic bond markets. Nonetheless, growth and employment have remained weak, and Directors underscored the need to accelerate efforts to address deep-rooted structural impediments to strong private-sector led growth. In this regard, they welcomed the new administration’s commitment to the reform objectives.
Directors commended the authorities’ significant fiscal reforms and their commitment to continued fiscal discipline. They welcomed their bold effort to reorient the tax system from direct to indirect taxation, and emphasized the importance of implementing measures to offset the revenue losses from the personal income tax reform, and protecting the poor from the impact of the higher indirect taxes. Directors also highlighted the need to improve public resource allocation in favor of priority social and infrastructure spending. They considered reducing the wage bill and enhancing public employment efficiency to be priorities. They also encouraged the authorities to continue to take steps to improve revenue administration and compliance, broaden the tax base, undertake pension reforms, and enhance public financial and debt management.
Directors noted that the monetary stance is broadly appropriate, and encouraged the central bank to continue to focus on price stability. They stressed the need to strengthen central bank autonomy and improve monetary transmission. In this context, the authorities should continue to refine monetary operations and reduce the high spread in banks’ interest rates by increasing banking sector competition and reforming financial sector taxation. Directors also emphasized the importance of continued exchange rate flexibility.
Directors welcomed the progress in enhancing financial sector resilience. They concurred that the financial sector should be strengthened through further retail repo reforms and enhanced financial sector supervision and crisis management, including establishing a legal framework for the resolution of banks and securities dealers. Directors also highlighted the importance of promoting further development of the domestic debt market. They welcomed the Fund’s commitment to better understand and address the issues related to the loss of correspondent banking relationships, and urged the authorities to work with the Fund and other partners in this area, in tandem with efforts to strengthen the AML/CFT framework.
Directors stressed that continued structural reforms are needed to boost growth and employment. They highlighted, in particular, the need to reduce energy costs, increase access to finance, enhance public sector efficiency, expedite labor market reforms, and continue to improve the overall business environment to attract private investment. Proper communication will be important to secure continued support by the population for the reform efforts.