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Financial News

May 2013 Financial News

Phillips, IMF defend 'strenuous' fiscal target for Jamaica

May 22, 2013

The fiscal conditionalities of the new International Monetary Fund (IMF) agreement are strenuous, but necessary, IMF mission head Jan Kees Martijn and Finance minister Dr Peter Phillips argued Tuesday, amid scepticism that Jamaica can hold to its targets this time.

The IMF team also introduced the new IMF Resident Representative for Jamaica, Bert Van Selm who will replace Dr Gene Leon.

"We fully agree that meeting the target of a primary surplus is challenging, but it is critical," said Martijn in response to a query at a press briefing held at the Ministry of Finance in Kingston on Tuesday.

The briefing came at the end of a six-day IMF Mission visit led by Martijn, which concluded with an entreaty to the Jamaica Government to maintain a strong resolve in the execution of its fiscal programmes amid signs of progress.

"Recent economic developments confirm both Jamaica's economic challenges and the improved fiscal outcomes. The authorities estimate that economic activity contracted by 0.5 per cent in FY2012/13 (April to March), as confidence remained low, and unemployment remained high at 14 per cent at end-January 2013, despite an increase in jobs," the IMF said in a statement.

EXPECTATIONS SURPASSED

"Fiscal performance for FY2012/13 outperformed projections, with the central government primary surplus improving to 5.4 per cent of GDP, mainly owing to a decline in primary expenditure. The cash balance of the public bodies is also estimated to have performed better than projected, underpinning progress toward the target of maintaining a near-balanced budget."

External watchers of Jamaica have said that a 7.5 per cent primary surplus target is a heavy lift for Jamaica, requiring new levels of fiscal discipline, according to foreign media reports.

"The island's debt burden is far too high and it is a major handicap for the economy and keeps investors out of the country, which would promote growth," Phillips.

Government must generate more cash than it has in years by maintaining a 7.5 per cent primary surplus in order to meet IMF repayment conditionalities.

The government plans to borrow about US$950 million in an extended fund facility spanning four years. The EFF will support the Government's comprehensive economic reform agenda and forms a critical part of a total funding package of US$2 billion from Jamaica's multilateral partners.

The World Bank and the Inter-American Development Bank are each providing US$510 million.

"So to reduce the debt burden, fiscal discipline is a critical element. But the measures to make it happen are already in place or are largely in place," Martijn said.

These measures include a J$17 billion tax package announced in February, J$11 billion sourced from the National Housing Trust annually for four years, and the National Debt Exchange which reduced interest on bonds aimed at saving some J$17 billion in annual interest payments.

"There is no doubt that it is a strenuous programme. There is no doubt that it will involve sacrifice. What has been demonstrated thus far from all stakeholders including the public sector, bondholders, as well as ministries and agencies is that for [us] to meet the requirements, it will involve a high level of resolve and discipline," argued Philips in response to the same query posed to Martijn.

Scepticism

Critics argue that the fiscal targets are too lofty and that the authorities lack the discipline to maintain them. Partially underlying the scepticism is the derailed IMF agreement of 2010, which went off-course after the then JLP-led government agreed to salary payouts not included in the agreement.

"It is doable. It is going to take the collective responsibility of all of us to ensure that the targets are met - difficult as they are," Phillips insisted at Tuesday's press conference.

The 2010 programme projected that Jamaica would achieve a 100 per cent debt to gross domestic product by the 2014 fiscal year. However the 2013 Letter of Intent revised that target by some six years.

"The Government is committed to adopting further measures as needed, to deliver the target debt ratio of 96 per cent of GDP by end-March 2020. With the policies mentioned above, public debt is projected to decline to less than 100 per cent of GDP by March 2020," stated the Letter of Intent.

The 2013 Letter of Intent now posted to the IMF website indicated that Jamaica is committed to improving the central government's primary surplus from 5.2 per cent of GDP in 2012/13 to 7.5 per cent in 2013/14 and onwards during the programme period.

The deficit of the public bodies is projected to be balanced by fiscal year 2013/14 and in subsequent years during the programme period.


Source:
steven.jackson@gleanerjm.com
Jamaica Gleaner
Wednesday May 22, 2013

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