IMF to tweak programme Jamaica hurdles first test
Published:Wednesday | May 19, 2010 | 12:00 AM
Sabrina Gordon, Business Reporter
Jamaica has faced its first test by its multilateral creditors with relative ease and is to be rewarded with a drawdown of special drawing rights of 63.7 million or 23.3 per cent of quota, equivalent to about J$8.649 billion at current conversion rates.
The International Monetary Fund (IMF) board of directors, the final arbiter on dealings with members, is expected to put its seal of approval on the disbursement in June.
"All quantitative performance criteria for the end-March 2010 test date were met, without the need for waivers, and substantial progress was made on the structural reform agenda," Trevor Alleyne, IMF mission chief to Jamaica, told journalists at a press briefing on the findings of the March quarter review.
The IMF team, led by Alleyne, has been in Jamaica for the past two weeks reviewing the performance criteria under the Government of Jamaica's economic programme, as set out in its letter of intent presented to the IMF in January.
The team has decided to tweak the programme to add new benchmarks, but Alleyne downplayed the revision as minor.
So far, all fiscal targets including the primary balance of the central administration, central government direct debt, overall balance of public entities and central government accumulation of domestic arrears, as well as the monetary targets of net domestic assets and cumulative change in net international reserves (NIR) have been met.
According to Alleyne, stepped up tax administration measures and expenditure restraints were key elements in the meeting of fiscal targets.
With the stability in the foreign exchange rate and a downward trajectory in interest rates, Alleyne also noted that the NIR floor was exceeded by a comfortable margin.
The Bank of Jamaica has long used the NIR to defend the JMD, selling cash to its primary dealers in volatile trading periods for sale to end-users at a stipulated price. The central bank has sparsely had to go this route in recent months, with the dollar now trading steady at or around J$89 to the USD.
Structural reforms
In relation to structural reforms, Alleyne commended the Jamaican Government on the passage of the new fiscal responsibility framework, the divestment of Air Jamaica and progress made in preparing for tax reform and strengthening of the supervisory and regulatory framework of the financial system.
"The performance of the IMF standby arrangement is on track," declared Audley Shaw, minister of finance and the public service, who said the performance at the end of March has been even better than expected.
Among the positives Shaw highlighted was the higher than anticipated participation rate in the domestic debt exchange which closed in February, resulting in an upgrade in Jamaica's sovereign debt rating by credit-rating agencies.
He also trumpeted the rally in GOJ eurobond prices, falling Treasury bill rates to a 28-year low of 10 per cent as well as the ability of financial institutions to smoothly absorb the income and valuation losses related to the JDX.
"There have not been any reports of entities facing capital or liquidity shortages, which would have required access to the FSSF," said Shaw.
The fund currently has US$640 million in it, all from the IMF, BOJ Governor Brian Wynter told Wednesday Business.
Shaw said it is yet to be determined whether the FSSF would remain in place for the duration of the 27-month programme, noting that part of the discussion going forward is the likelihood of redirecting the funds to other areas.
Going forward, Shaw noted that continued vigilance will be required to ensure that the objectives under the IMF standby agreement are achieved.
So far, the IMF is pleased.
"The mission has been impressed by the level of commitment by the authorities to the economic programme and by the broad social consensus that was crucial to making the JDX a success. Going forward, this partnership between the public and private sectors will be vital to the programme's continued success," said Alleyne.
More test to pass
Jamaica is still to face and pass seven other IMF tests up to the end of February 2012 to access in tranches the remaining 125.4 per cent of the 300 per cent of its SDR quota which was approved under the SBA.
The results of the next review for the three-month period ending June will be disclosed in August 2010.
But at this time, it will be under a revised letter of intent which is to be approved by the Cabinet and the IMF board.
Alleyne declined comment on the details of the revision, but said there was no new issue, just a tweaking of the targets and the adding of more benchmarks.
In the meantime, he noted that the mission remains confident in the further implementation of the programme, but said it was still vulnerable to high risks from both domestic and external factors.
"Risks to the programme remain high, including from external and domestic shocks. Growth and employment are expected to remain weak during the current year as the economy transitions to an improved, fundamentally stronger basis," said Alleyne.
"However, the mission is confident that continued implementation of the programme will help boost investor confidence, and establish the conditions that will permit an increase in growth and employment, and improved living standards for all Jamaicans."
IMF Targets (J$B) Quarter ending March 2010
Fiscal:
OutcomeTarget
Primary balance of Central Gov't (floor) 67.5 66.9 Overall balance of public entities (floor)-17.5 -29.6Central government direct debt (ceiling)1,256.6 1,260.4
Cum. net increase in Central Gov't
guaranteed debt (ceiling) 32.6 32.8Central Gov't accumulation of domestic arrears (ceiling) -0.40.0Central Gov't accumulation of tax arrears (ceiling)-0.3 0.0
Consolidated Gov't accumulation of external
arrears (ceiling) 0.0 0.0
Monetary:
Cum. change in net international reserves (floor)22.5-672.7Net domestic assets (ceiling)-79.2-49