IMF Watch: Examining The September NIR Target

Following on our blogpost regarding the increase in the Net International Reserves (NIR) for June, diGJamaica zooms in on the upcoming NIR targets and critically, the September target.

Why the NIR? We look at the NIR because in more than 50% of Jamaica’s historical agreements with the IMF that have ended by being cancelled or continued with the granting of a waiver,  they have been deemed in breach by the IMF in part or in full because Jamaica breached its NIR targets.

What are the NIR Targets? The document issued by the IMF had specific NIR targets seen below:

IMF Doc NIR Target

The Economic Programme Oversight Committe (EPOC), after its first meeting, issued what seems to be revised targets for the NIR. Below is EPOC’s revised targets:

EPOC 1 HeadersEPOC 1 NIR Targets

The important lesson to learn from this is that the IMF themselves labelled this agreement as a “Living Document”. As such the website is a “Living Website” that is able to adapt to whatever changes arise from discussions between the IMF and the government and to assist the EPOC in relaying that information to the public.

Let’s translate the EPOC’s targets into normal numbers, using December 2012’s actual NIR figure of US$1,125.6Million:

diG Analysis NIR Target

June’s NIR ended at US$1,003.2Million, handily exceeding the minimum criteria by more than US$150Million. This “safety net” will be required if we are to exceed the minimum performance criteria for September 2013.

Why? Since the 2010 Stand By Arrangement was agreed with the IMF and funds were placed in Jamaica’s account in February 2010, Jamaica’s NIR has lost, on average, US$13.7Million per month through June 2013. Assuming this holds true, which is a very big assumption, the NIR would decrease by ~US$41.1Million by the end of September.

That would leave US$1003.21 – US$41.1 = US$962.1Million. Still clearing the performance criteria of US$883.3Million set for September 2013.

But wait, Jamaica is also required to repay the IMF for its 2010 Stand By Arrangement Loan on August 1 and again on August 8. The total payment to the IMF will be approximately US$80.2Million.

That will take the NIR to US$962.1 – US$80.2 = US$881.9Million! This is less than the performance criteria of US$883.3 Million for September 2013.

However, the IMF already has in place a disbursement for the month of September. So, if the IMF deems that we have passed the June tests, Jamaica will receive almost US$30Million on the 20th of September.

These loan funds will come just in time to repay another portion of the 2010 Stand By Arrangement which is due on September 25th! That repayment should amount to just less than US$12Million.

Whew! In all by the end of September, we should end up with US$881.9 + US$30 – US$12 = ~US$900Million. Safely passing the IMF’s NIR criteria for September 2013 with the next eye on December.

The real question is where will the Jamaican dollar end up in September? Please remember that one of the key tenets of the IMF’s structural reform was to have the Bank of Jamaica performing the function of inflation targeting instead of informally trying to manage currency depreciations.