THE International Monetary Fund (IMF) said yesterday that Jamaica’s economic reform programme is still on track.

“The ongoing phased reform of the personal income tax is a bold step to rebalance the tax system towards indirect taxation. The shift from direct to indirect taxes will reduce the marginal and average tax rates for the majority of the income tax taxpayers, improve work incentives, and encourage workers and employers to move out of the informal economy,” the fund said in its latest concluding statement on Jamaica’s 2016 Article IV Consultation and the 11th and 12th Extended Fund Facility (EFF) reviews.

“The decision to take offsetting measures to safeguard revenues and avoid undermining debt sustainability was both bold and essential,” the statement added.

It said, however, that prior to undertaking the second step in raising the minimum threshold for income tax, attention should be directed to strengthening conditional cash transfers and improving targets in order to protect the poor and vulnerable from the shift from direct to indirect taxes.

Other reforms to further reduce distortive taxes (such as asset taxes, stamp duties and transfer taxes) will also help support private sector growth, the IMF said.

The fund also noted that all quantitative performance criteria for the period extending from the end of December 2015 to the end of March 2016 were met.

“Tax revenues reached the budget target for the first time since the global financial crisis in 2007. The central government primary surplus for financial year 2015/16 (April to March) slightly exceeded the programme target of 7.25 per cent of GDP. Capital expenditures accelerated during December to March, fully utilising the additional fiscal space for growth-enhancing capital spending that was approved at the 10th review,” the statement pointed out.

“Structural reforms are broadly on track, albeit with some minor delays due to the February elections and Government transition,” the fund pointed out.

It also noted that the mission reached preliminary staff-level agreement with the authorities on a package of measures that aim to complete the combined 11th and 12th reviews under the EFF.

It noted that consideration by the IMF’s Executive Board is tentatively scheduled for June 2016. Upon approval, SDR 56.7 million (about US$80 million) will be made available to Jamaica.

“Economic recovery continues, but growth remains weak. Confidence indicators are at an all-time high, inflation declined to 2.4 per cent in April, and the current account deficit has significantly decreased, aided by low oil prices,” the IMF reported.

“The unemployment rate dropped to 13.3 per cent in January 2016, down from 14.2 per cent a year earlier. Foreign direct investment inflows increased by nearly 30 per cent during the first three quarters of financial year 2015/16. Nevertheless, real GDP is estimated to have expanded by only 0.8 per cent; with ongoing agricultural recovery and higher investment, growth for financial year 2016/17 is projected to rise to 1.7 per cent,” it observed.

The fund insisted that achieving sustained higher growth and job creation required continued reforms. Fiscal discipline, it added, is critical for further reducing debt and creating space for productive capital spending. Combating crime, reducing the costs of energy and tax compliance, and improving infrastructure are essential to attracting private investment.

It also advised that greater banking sector competition, reforming financial sector taxation, reducing collateral requirements, improving credit risk assessment, and developing non-traditional financial services will help improve access to financial services and reduce the interest rate spread.