IMF hails Jamaica’s management of debt, inflation
KINGSTON, Jamaica— A team from the International Monetary Fund (IMF) has hailed the country’s management of debt and inflation following the second review of the country’s performance under two IMF programmes.
The team, led by Esteban Vesperoni, held meetings in Kingston and carried a virtual mission from January 8 to 18 as part of a review of the implementation of reforms under the Precautionary Liquidity Line (PLL) and Resilience and Sustainability Facility (RSF). The agreement will now be submitted for approval of the IMF board, which will determine if Jamaica receives a disbursement of US$255 million under the RSF.
“Over the last years, Jamaica has successfully reduced public debt, anchored inflation, and strengthened its external position. It has built a strong track record of investing in institutions and prioritising macroeconomic stability. This allowed Jamaica’s response to recent global shocks to be prudent, agile, and supportive of growth,” the review outlined.
“The economy continued to recover in 2023. After two years of rapid post-pandemic recovery, GDP [gross domestic product] growth is projected at 1.7 per cent in FY2023/24, with tourism well above pre-pandemic levels and unemployment falling to a record low of 4.5 per cent by mid-2023. Inflation is converging to the Bank of Jamaica’s target band, though it was recently impacted by an increase in transport prices, whose effects are expected to dissipate towards the end of the year,” it continued.
Based on the IMF team’s projections, inflows from tourism should result in a current account surplus for FY2023/24 that will boost the country’s international reserves position. In addition, the IMF team pointed out that the financial system is well capitalised and liquid, and the public debt continues to fall.
In fact, the IMF estimates that debt will fall to 72 per cent of GDP at the end of the fiscal year, reaching its lowest level in 25 years.
While the IMF team anticipates sustained growth and inflation falling within the Bank of Jamaica’s target range of 4.0 per cent to 6.0 per cent, it warned against headwinds that could derail the central bank’s efforts and slow the economy.
“A rise in global risk aversion may increase financing costs and lower projected global growth, and regional conflicts could increase global commodity prices. Finally, climate-related events could weaken economic activity,” the IMF cautioned.
Commending the Jamaican authorities, the IMF report highlighted the implementation of “sound macroeconomic policies, aided by sound policy frameworks”. It also praised the BOJ for maintaining a data-driven monetary policy framework that continues to treat with inflation.
“This policy mix is placing Jamaica in a good position to respond to shocks, counteract inflationary pressures, and secure debt sustainability,” the review noted.
The IMF also indicated that the Jamaican authorities have made progress implementing policy reforms under the PLL and RSF to improve fiscal supervision and resilience against climatic events. However, it looks forward to more critical reforms.
“The Fiscal Commission will become operational in FY2024/25, and will assess macroeconomic and fiscal forecasts and the consistency of the budget with fiscal rules. The wage bill reform eliminates distortions in public sector compensation, making it more transparent and instrumental to retain qualified civil servants. Proactive debt management continues to improve the public debt profile — for the first time in history, Jamaica placed domestic currency debt in international markets last November. Progress continues with adoption of the Basel III framework, initiatives to expand the Bank of Jamaica’s supervisory perimeter, and enhanced consolidated supervision,” the assessment read.
The IMF team recommends a careful management of the wage bill to prevent crowding out of other priorities, improvements in public finance management so as to increase the quality of public expenditure, and further work to enhance the procedures for resolving unviable financial institutions and build on recent efforts to improve the AML/CFT framework. Additionally, the team called for medium-term policies to foster potential growth, tackle supply side constraints adding that raise productivity should unleash Jamaica’s potential in the long run.