Mr. Trevor Alleyne, head of the IMF mission to Jamaica, issued the following statement today in Kingston: An IMF team visited Kingston during August 18-27 to conduct the second review of the economic program under the Stand-By Arrangement (SBA) approved by the Fund's Executive Board on February 4, 2010.
The focus of the mission was to assess the quantitative performance at end-June 2010 under the SBA and review the ongoing macroeconomic and structural policies. The structural reforms aim at strengthening fiscal management and the financial regulatory and supervisory frameworks. The team met with the Prime Minister Hon. Bruce Golding, the Minister of Finance Hon. Audley Shaw, Bank of Jamaica Governor Brian Wynter, and senior officials. The team thanks the authorities and technical staff for their excellent cooperation.
All end-June quantitative performance targets were met. A faster-than-expected improvement in macroeconomic conditions, especially the decline in interest rates on government securities, has had a net positive effect on the overall fiscal deficit. Strong GCT collections, reflecting improved tax administration efforts, and the continued cautious execution of expenditure were key to meeting the primary surplus target.
The exchange rate has stabilized at an appreciated level and the NIR floor was exceeded by a large margin. Overall, the structural reform agenda appears to be moving forward on schedule. The authorities have prepared amendments to strengthen the effectiveness of the fiscal responsibility framework; drafted a public sector master rationalization plan; started implementation of a tax administration reform; and made further progress in the divestment of public enterprises.
In the financial sector, the phasing in of enhanced capital requirements has begun with the implementation of the first installment of risk weights applied to foreign currency denominated securities. The preparation of reforms to key legislation aimed at further strengthening the supervisory and regulatory framework of the financial system is also on track.
The mission and the authorities have agreed on an updated draft Letter of Intent, which will still need to be approved by the Cabinet and IMF's management. Based on the performance of the economic program, the mission will recommend that the IMF Executive Board completes the Second Review of the SBA, which will result in the disbursement of SDR 31.9 million.
The Board is expected to meet around the end of September. The authorities have reiterated their strong commitment to the program's policies and objectives, which aim at correcting long standing economic distortions and structural imbalances. However, ownership of the program by all sectors remains vital to its success, including the sharing of the burden of fiscal adjustment.
Going forward, the risks to the program remain high, including from the external economic environment, Jamaica's very high debt, and the economy's vulnerability to shocks. However, the mission is confident that the continued strong implementation of the program will foster a stable macroeconomic environment and a marked improvement in the overall investment climate which will lay the foundations for long-term sustained economic growth.