THE International Monetary Fund's (IMF) mission chief for Jamaica, Jan Kees Martijn, says the two main criteria on which Jamaica's first quarter performance under the current Extended Fund Facility (EFF) was tested, were implementation and investor confidence.
"The two are closely related because, with steadfast implementation, we believe that confidence will return and, at that stage, the benefits of these reforms will become truly apparent," Martijn told a press briefing at the Ministry of Finance and Planning, Heroes Circle, Kingston, last Thursday.
Martijn was responding to a question about the critical issues on which Jamaica's performance was judged in the first quarterly test, which covered up to June 30.
"Jamaica did not get where it is now, overnight, and it will not get out of it, overnight," Martijn said.
"The reason we have a four-year programme is because we know that there is a series of reforms, in many areas,to be implemented," he explained.
He said that while the ongoing implementation was the first thing, there is need for a return of confidence among private sector investors, both inside and outside Jamaica.
"That return of confidence is the second element I would see as absolutely critical," Martijn stated.
He said that recent developments have confirmed the challenges facing the Jamaican economy, noting that "the economy is still weak".
He reported that economic activity is estimated to have contracted by 0.7 per cent in financial year 2012/2013, with a further decline from April to June.
On the issue of the recent labour force/unemployment figures, produced by the Statistical Institute of Jamaica, he accepted that the increase in unemployment was driven by a sharp rise in the labour force.
He noted that inflation reached 9.7 per cent (year-over-year) in July. The Net International Reserves increased to US$1 billion by the end of June, and gross reserves estimated at about three months of imports, have declined since June, but the decline was seen as in line with the seasonal pattern.
More positive was the fiscal performance for 2012/2013 and up to the first quarter of 2013/2014, which "outperformed projections", with central government primary surplus improving to 5.4 per cent of GDP for 2012/2013. The 2013/2014 budget targets a central government primary surplus of 7.5 per cent of GDP.
Martijn says that the next big challenge will be to create "a conceptual framework", for a fiscal rule that will help lock in the gains from fiscal consolidation over the longer term, which should be ready by next week.
The key elements of that programme being: fundamental tax reform by next March, to broaden the tax base, simplification of the tax system, reduction of tax rates and economic distortions and support growth; strategies to improve the business environment and pursue strategic investments; actions to make the financial sector more resilient, including phased reforms of the securities dealers sector; and strengthening the social protection framework.
These staff level understandings between the IMF and the Government will have to be approved by the IMF management and board before the country will be able to access the next drawdown of US$30 million from the EFF.