The IMF has concluded Jamaica’s 11th and 12th tests under the Extended Fund Facility (EFF) agreement. As previously reported, the 11th and 12th tests were done jointly due to delays caused by the February 25th general election.
Here are 5 facts as presented by the IMF Mission to Jamaica in its Concluding Statement on the 11th and 12th reviews:
- Jamaica’s implementation of the EFF agreement remains on track. All quantitative targets were met for the 11th test (reviewing targets up to the end of December 2015) and the 12th test (reviewing targets up to the end of March 2016).
- The country’s improved macroeconomic environment coexists with weak economic growth. As the performance of key indicators such as inflation and current account deficit have shown tremendous improvement, advances in economic growth remain small.
- The IMF encourages continued exchange rate flexibility, allowing further depreciation of the Jamaican dollar to protect the country’s global competitiveness. The statement mentions that the dollar appears to be mostly in line with appropriate levels, but in fact may still be modestly overvalued. Specifically: “To avoid eroding external competitiveness, the currency should be allowed to depreciate to offset the inflation differential with trading partners.”
- The IMF recommends strengthening conditional cash transfers and improving the targeting of vulnerable groups to minimize any possible negative impact of the government’s personal income tax plan. The IMF suggests attention be paid to solutions for these vulnerable groups prior to the implementation of the plan’s second phase (increasing the personal income tax threshold). Specifically: “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 targeting in order to protect the poor and vulnerable from the shift from direct to indirect taxes.”
- According to the IMF, the public sector wage bill must be reduced as it remains a hindrance to crucial expenditures. Emphasis is placed on the need for definite action to reduce the wage bill to 9% of GDP by FY 2018/19. Specifically: “As such, concrete measures are needed to achieve a wage to GDP ratio of 9 percent by FY18/19.”
Special note: What exactly did the IMF consider as”bold and essential”? “The decision to take offsetting measures to safeguard revenues and avoid undermining debt sustainability was both bold and essential.”
Read the “2016 Article IV Consultation and the 11th and 12th EFF Reviews Concluding Statement of the Mission” from the IMF here.