IMF happy with implementation of Extended Fund Facility, but worried about investments
THE International Monetary Fund's (IMF) review mission yesterday expressed support for Government's 'strong start' in implementing the Extended Fund Facility (EFF) programme, but expressed concern about the lack of enthusiasm among investors.
"Many investors remain unconvinced that the programme will truly take off," head of the IMF staff review team, Jan Kees Martijn, told a press conference at the Ministry of Finance and Planning in Kingston.
Minister of Finance and Planning Dr Peter Phillips said, however, that the private sector was beginning to respond to opportunities being created under the programme.
"We are seeing, for example, an expansion in the level of private credit, and we have received reports of welcoming investment activities and expansion in agriculture, tourism and among small businesses," Phillips said.
The press conference was called to update the local media on the visit of the 10-member IMF team, which is conducting the first quarterly test and having discussions with the public and private sector, as well as civil society.
Martijn said that his team has reached an understanding with the Government on an updated supplementary memorandum of economic and financial policy, which will spell out the next steps in the EFF programme, which should be the main focus as of September.
He said that the important elements of the understanding with the Government were:
* Adoption of fundamental tax reform, designed to broaden the tax base, a simplify the tax system, reduce tax rates and reduce economic distortion and support growth. This tax reform programme will commence with the Omnibus Incentive Tax and the Charities Bills, which should be tabled in Parliament by the end of September;
* Steadfast implementation of the Government's strategy to increase growth, by improving the business environment and pursuing strategic investments;
* Further actions to make the financial sector more resilient, through enhanced supervision and monitoring, and with phased reforms of the securities dealers' sector; and
* Strengthening of the social protection framework, with enhanced efforts to move recipients from welfare.
Martijn said that these staff level understandings between the Jamaican Government and his team are subject to approval by the IMF's management and executive board. However, he was convinced that, provided performance remains strong, the board's consideration of the first review of the EFF programme could take place late September and, upon approval, would allow Jamaica a drawdown of about US$30 million or just over J$3 billion.
In the meantime, the IMF team leader pointed out that the economy was "still weak" and that recent economic developments have confirmed "the challenges of the Jamaican economy".
He noted that economic activity contracted approximately 0.7 per cent in 2012/13, with a further decline from April to June; unemployment had jumped to 16.3 per cent at the end of April, driven by a sharp increase in the labour force; and inflation reached 9.7 per cent (year-over-year) in July. However, he said that structural benchmarks have been met in a timely manner, and a conceptual framework for a fiscal rule that will help lock in the gains from fiscal consolidation over the long term, which should be ready by the end of the month.
The executive board of the IMF approved, on May 1, a four-year (EFF) arrangement for Jamaica to support a comprehensive economic reform agenda.
The EFF arrangement amounts to about US$932.3 million, the equivalent of 225 per cent of Jamaica's quota in the IMF. The financing arrangement forms a critical part of a total funding package of US$2 billion from Jamaica's multilateral partners, including the World Bank and the Inter-American Development Bank, with each having preliminarily agreed to allocate US$510 million over the next four years.
The IMF board's approval enabled an initial disbursement of an amount equivalent to about US$207.2 million.