So Far So Good, IMF Praises Jamaica

Friday, June 25, 2010

THE Executive Board of the International Monetary Fund (IMF) Wednesday concluded the first review of Jamaica's economic performance under the Stand-By Arrangement (SBA) and said that the island appeared set to meet targets and benchmarks for the end of this month.

"Jamaica has performed very well under the program," the IMF said in a news release posted on its website. "All quantitative performance targets and structural benchmarks for end-March were met and prospects for meeting the end-June targets and benchmarks appear favorable."

The Washington DC-based organization said that completion of the review enables the immediate disbursement of an amount equivalent to about US$93.9 million, bringing total disbursements under the arrangement to about US$704.6 million.

The IMF approved a 27-month SBA in an amount equivalent to 300 per cent of quota (about US$1.21 billion) on February 4 this year.

The pillars of the program include:

* fiscal consolidation and institutional reform, including fiscal responsibility legislation and central treasury management;

* public debt restructuring, which was completed as a prior action under the program; and

* financial sector reform, including the improvement of consolidated supervision and the regulation of non-banks.

Following the Executive Board discussion on Jamaica, Naoyuki Shinohara, deputy managing director and acting chair, said: "Overall macroeconomic performance under the program has been encouraging.

All end-March quantitative targets and structural benchmarks were met.

Since the approval of the SBA and completion of the debt exchange, financial market conditions have improved substantially: market interest rates have fallen to levels not seen since the 1980s and the foreign exchange market has stabilized, with the exchange rate appreciating in recent months.

" Shinohara also said that financial institutions in Jamaica have been able to absorb losses from the Debt Exchange and there have been no requests for access to the Financial System Support Fund, which has played an important role in fostering confidence and supporting financial system stability.

"Notwithstanding an overall weak economic context, the authorities preserved program targets on the basis of strengthened tax administration and expenditure restraint," Shinohara said.

However, he added that "despite these early successes, growth and employment are expected to remain weak this year and vigilance is needed as risks are high".

He said that advancing planned fiscal structural reforms is necessary to improve debt dynamics and strengthen the basis for growth. "This involves amendments to strengthen the fiscal responsibility framework, strengthening tax administration, and introducing a central treasury management system," he said.

Shinohara argued that reforming the system of tax incentives will also help reduce economic distortions and described the sale of Air Jamaica as "an important milestone". "It will now be necessary to focus on moving the public sector reform program forward," Shinohara said, and added: "In the financial sector, efforts to strengthen the supervisory and regulatory framework are advancing in line with program expectations. This includes work to enhance capital and margin rules for securities dealers and the introduction of risk-weight rules for foreign-currency denominated government securities."