The deliberations follow the recently concluded Article IV Consultation and discussions in Kingston, on a possible Fund-supported economic programme for Jamaica.
In a statement following the conclusion of the visit, the Fund’s Mission Chief for Jamaica, Luis Breuer, indicated a mixed picture of “recent macro-economic developments” in the country.
The statement observes that following three consecutive years of negative growth, real Gross Domestic Product (GDP) grew by 1.5 percent in 2011, primarily from increases in agriculture and bauxite/alumina production. Inflation abated to 6.6 percent (year- on-year) at end of January, “reflecting both moderate food and oil price increases and real exchange rate appreciation. Interest rates continued to fall and the exchange rate remained broadly stable.”
“However, unemployment remained high at 12.8 percent, and the fiscal situation deteriorated. The primary surplus for the 2011/12 financial year is projected to drop to 3 percent of GDP (compared with a budget target of 5.2 percent); the deficit of the public sector is estimated to increase to 7.3 percent of GDP; and the ratio of the debt to GDP to remain high, at 140 percent of GDP,” the statement notes.
It describes the country’s modest recovery as “fragile (with) strong downside risks” and projected that growth in the 2012/13 financial year is projected to remain low at about 1 percent. On present trends, the public sector and external current account deficits are projected to widen and the public debt to rise.
On the external side, the IMF states that risks to external stability and growth can arise from volatile commodity import prices (including oil) and a slowdown in global growth, in particular in the United States.
Jamaica, the statement says, is also susceptible to natural disasters and thus faces significant challenges, of which a major one is to “attain higher and sustainable rates of economic growth, while reducing macro-economic risks, including high public debt and high unemployment.”
The authorities and the IMF team agree that this will require actions on three fronts, developed within a medium-term framework of national priorities: “First – a growth-oriented environment aimed at improving productivity and competitiveness, while raising efficiency. Second – strong macroeconomic policies through significantly higher primary fiscal surpluses, fiscal and financial reforms, and further strengthening financial sector regulation and supervision; and third – a framework to ensure social cohesion,” the statement adds.
Against this background, the Fund states that prompt implementation of tax reform and improvements in tax administration will allow the Government “to focus spending in priority areas while raising productivity.”
The IMF communiqué says the Mission and the Jamaican authorities agreed that the tough challenges facing the country call for prompt policy actions, and expresses its “deep appreciation to the authorities and technical staff for their excellent co-operation,” during the March consultations.
During the March 8 to 21 meetings, the IMF Mission met with Prime Minister Portia Simpson Miller; Minister of Finance, Planning and the Public Service, Dr Peter Phillips; Bank of Jamaica Governor, Brian Wynter; Financial Secretary, Dr Wesley Hughes; as well as senior government officials, and representatives of the private sector and civil society.