Jamaica passes first IMF test
The International Monetary Fund (IMF) accepted a lower-than-actual exchange rate on the US dollar to shave $22 billion off the Government of Jamaica's (GOJ's) direct debt and drop the total $40 million below the ceiling, which helped Jamaica to pass the first test under the Stand-By Arrangement (SBA) to free up another US$100 million disbursement.
Yesterday, finance minister Audley Shaw announced that Jamaica had met all nine quantitative targets for the end-March test at a press conference held at the ministry's headquarters in Kingston, where IMF mission chief of the Caribbean Division, Trevor Alleyne confirmed that the Government passed the test "without the need for waivers, and substantial progress was made on the structural reform agenda".
Last month, Shaw had already indicated that the Government had surpassed the $66.9 billion primary balance target -- which came in at $67.5 billion at end-March -- and the steered clear away from the floor set for the changes to the net international reserves.
But the finance ministry had tabled, in Parliament, $1,277.7 billion as its total direct debt as at March 31, 2010, or $17.3 billion more than the ceiling set under the SBA, while the test results showed $1,256.6 billion as the amount.
"There is a difference between the published numbers and the numbers defined in the programme," Alleyne said. "Two things are notable here. In the programme we use a constant exchange rate. In other words, if you refer to the Letter of Intent (LOI), you will note that it says there will be an exchange rate at which all foreign currency transactions will be adjusted. One aspect of that adjustment was for the fact that the programme uses a particular exchange rate."
Bank of Jamaica (BOJ) placed exchange rates for the US dollar at $89.51 at the end of March versus the $89.35 the IMF used in its test. Similarly, the IMF used $81.40 to one Canadian dollar, while using higher rates for the British Pound Sterling and the Euro -- $143.11:£1 and $127.57:euro1 versus $135.07:£1 and $120.16:euro1 that were the prevailing market rates.
Alleyne explained that, given its fixed rate, fluctuations in the exchange rates would not affect the calculation of the value of the debt by the IMF.
He also said that the agency recognises only the debt disbursed within the period under review, not debt contracted for, which further explains the $21 billion discrepancy.
"The other aspect of the adjustment was that there were some cases in which debt that was actually contracted in fiscal year 2008/09 only turned up to be registered in 2009/10 because of delays in paperwork. So what we did was under the programme we have debt that is registered as to when it was actually contracted and disbursed rather than when the paperwork finally arrived," Alleyne said.
"And so on the basis of those two adjustments, I think the number that we have, or the officially published number would be $1.278 trillion, and for the IMF or programme definition that number would be $1.257 trillion which will be below the $1.26 (trillion) ceiling that was in the programme," the IMF chief outlined.
Debt aside, the Business Observer was informed by reliable sources that the Government has been accruing arrears owed to contractors while the SBA requires that the central government does not accumulate arrears on contractural obligations.
Alleyne said that as long as the stock of arrears has not increased beyond the point initially recognised by agency in December last year, the government should be in a good position to pass.
Shaw added that "the commitment was that we would not build up arrears beyond where they were already. We have stayed within the ceiling and in several cases we have gone lower than the ceiling. It is our mission to get our payment system into the statutory limit of 30 days to settle our contractual payment obligation within that period. However it's a process and it will take us time to get to the perfect payment position."
Added Alleyne: "The mission and the authorities have agreed on an updated draft Letter of Intent, which will still need to be approved by the Cabinet and IMF's management. Based on the performance of the economic program, the mission will recommend that at the IMF Executive Board completes the First Review of the SBA, which will result in the disbursement of SDR 63.7 million (US$100 million). The Board is expected to meet before the end of June."