ACCORDING to the IMF public information notice of June 7th, which summarises Jamaica’s article 4 consultation — approved by the IMF executive board on May 30th — Jamaica’s primary surplus of 3.1 per cent for fiscal year 2011/2012 (meaning its fiscal surplus excluding interest costs), was less than half the 6.8 per cent of GDP projected in the original IMF programme.

As a result, the central government deficit remained at 6.4 per cent of GDP, and the ratio of government debt to GDP remained high, at about 140 per cent (or precisely 138.8 per cent), compared with an objective of 134 per cent under the programme. Significantly, the IMF notes that financing requirements of the public sector rose, as the effects of the 2010 debt exchange on reducing debt repayments has now waned.

Without strong fiscal and structural reforms, the IMF projects growth hovering around one per cent of GDP up to 2015/2016 (but only 0.9 per cent in 2012/2013), that the public sector deficit will increase to about nine per cent by 2014/2015, and the debt would exceed 150 per cent over the medium term, meaning specifically by 2015/2016.

The latter 2015/2016 date contrasts with a Bloomberg terminal (used by institutional investors) release on Friday, titled “Jamaica Debt may be 150 per cent of GDP; Growth one per cent this year, IMF”, which states specifically that “the island’s debt as a percentage of gross domestic product may climb past 150 per cent this year, the International Monetary Fund said in a statement”. However, it must be noted that Bloomberg’s website only shows the full IMF release, and no story.

This debt trajectory is even more different from the one outlined in the government’s own fiscal policy paper, which has debt to GDP rising to 130.5 per cent of GDP in fiscal year 2012/2013 (a full 20 per cent difference from Bloomberg), and then falling to 104.2 per cent in 2015/2016. Clearly, the latter ratio is also a very sharp contrast with the IMF’s debt to GDP projection of 150 per cent in 2015/16, which however assumes no upfront fiscal adjustment (unlike what has happened in the budget), and primary surpluses averaging less than three per cent of GDP over the period.

As Minister Phillips noted in his closing budget speech, the IMF directors “were generally of the view that a strong upfront fiscal adjustment would provide credibility” to the programme. It should be noted that, according to the release, a “number of directors, however, supported a balanced pace of adjustment to safeguard the fragile recovery and social cohesion” suggesting that the upfront “austerity” view was not monolithic.

Nevertheless, it is likely that a majority of directors may have wanted an even higher primary surplus, say seven per cent, as implied by the minister in his closing speech. They have certainly called for the Government to press ahead with fiscal reforms, including comprehensive tax measures to expand the tax base, improvements in public financial management, public sector reform (aimed at restraining the public sector wage bill), advancing pension reform and enhancing the quality of public spending, with all of these fiscal consolidation efforts being complemented by an improved debt management strategy. These issues will all clearly have to be part of a new IMF agreement, for the most part representing unfinished business from the previous administration.

One of the more important other issues is likely to be the exchange rate. The release notes that while most directors encouraged the authorities to consider “greater exchange rate flexibility” as part of a comprehensive policy package to boost competitiveness and build international reserves, some directors were not convinced of the merits of “enhanced flexibility”. They noted, however, that the planned transition to an inflation targeting regime would help sustain exchange rate fluctuations without adversely affecting inflation expectations.

Finally, according to the release, reducing the high level of public debt and boosting growth and competitiveness, while improving social conditions are key priorities. It must be hoped that the full IMF article 4 document will be released shortly to allow the Jamaican population to understand better the implied trade-offs, between say growth and austerity, that will be required under any new IMF agreement.