Jamaica faced intense macroeconomic imbalances that threatened its macroeconomic stability. Executive Directors emphasized the need for credible policy actions and strong fiscal adjustment to reduce imbalances and lower vulnerability. They welcomed the strong fiscal adjustment in the budget and encouraged the Bank of Jamaica to reorient monetary policy. They stressed the need for a policy mix that would restore macroeconomic stability, achieve higher growth, lower external imbalances, and emphasized for anti-crime measures, infrastructure building, and sector-specific policies to promote growth.


Jamaica faced intense macroeconomic imbalances that threatened its macroeconomic stability. Executive Directors emphasized the need for credible policy actions and strong fiscal adjustment to reduce imbalances and lower vulnerability. They welcomed the strong fiscal adjustment in the budget and encouraged the Bank of Jamaica to reorient monetary policy. They stressed the need for a policy mix that would restore macroeconomic stability, achieve higher growth, lower external imbalances, and emphasized for anti-crime measures, infrastructure building, and sector-specific policies to promote growth.

On June 9, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Jamaica.1


Over the past decade, the Jamaican economy has undergone significant structural changes. Economic liberalization and structural reform have resulted in a more open and market-oriented economy with reduced government intervention. However, economic growth has been disappointing, with average growth less than 1 percent for 1990–2001, below the rate of population growth. High public sector debt, partly a result of the resolution of the financial crisis that erupted in 1996/97, has heavily burdened the public finances. From mid–1996, the government’s exchange rate-based disinflation strategy has successfully delivered single digit inflation, but interest rates remain high and real exchange rate appreciated about 30 percent between 1996 and 2001. Social problems such as crime and unemployment persist.

In FY 2000/01-FY 2001/02, the Jamaican authorities undertook a staff-monitored program (SMP) designed to tackle the heavy public sector debt burden and restore economic growth. Results were mixed: while growth became positive in FY 2000/01 and the fiscal balance improved that year, fiscal slippages reemerged in FY 2001/02. No significant progress was achieved in lowering the debt-to-GDP ratio.

The authorities undertook an SMP for FY 2002/03 intended to promote fiscal consolidation and a strengthening of growth-oriented policies to reduce the public sector debt burden, and to provide a framework for financial assistance from the World Bank and Inter-American Development Bank. In the event, the FY 2002/03 SMP did not achieve its goals. The fiscal targets were missed by wide margins and net international reserves (NIR) declined more than expected as confidence deteriorated. Fiscal slippages and a worsening current account position led to instability in the financial markets in the latter half of the fiscal year and significant pressure on the Jamaican dollar. Little progress was made on structural reforms.

Growth during FY 2002/03 was around 114 percent (reflecting flooding and lingering impact of September 11 attack on tourism), although there was some pick up during the second half of the year in tourism, agricultural production, and mining. The twelve-month inflation rate to March 2003 was around 6 percent, slightly lower than in the previous year.

Public finances were much worse than expected in FY 2002/03 due to expenditure overruns in wages and other expenditures partly reflecting floods, as well as higher interest costs. Proposed tax measures were not implemented, although lower tax revenues were offset by higher capital receipts. The central government deficit is estimated at around 8 percent of GDP and the primary surplus at around 7½ percent of GDP, compared with budget targets of 4.4 percent of GDP and 10.4 percent of GDP, respectively. The public debt ratio is estimated to have increased significantly in FY 2002/03 to around 150 percent of GDP by March 2003. Around one half of the increase reflected the depreciation of Jamaican dollar; the remainder reflected higher fiscal deficits partly reflecting higher interest rates, and the assumption of loans from public entities.

The current account deficit widened by 3 percentage points of GDP to 12 percent of GDP, and there was a major deterioration in the capital account (due largely to official debt service). NIR fell by nearly one third to US$1.34 billion. Weaker export earnings (due mainly to depressed alumina prices and continued decline in the garment industry), higher levels of debt servicing, and sharply higher import costs (partly reflecting higher oil prices) underlie the deterioration in the external sector balance.

Reflecting declining confidence in the macroeconomic situation, the Jamaican dollar has depreciated sharply since November 2002, despite large interest rate increases by the Bank of Jamaica (BOJ) and foreign exchange market intervention. In real terms, the Jamaican dollar depreciated by around 11 percent during FY 2002/03 (based on IMF’s Information Notice System). As of end-March 2003, the 6-month Treasury-bill rate was 33½ percent, twice as high as the level of six months earlier, and has remained around 30 percent in early June. Spreads on Government of Jamaica global bonds over U.S. Treasuries increased significantly and are currently at around 950 basis points. In late May, Moody’s Investors Service downgraded Jamaica’s foreign- and local-currency ratings citing heightened credit risks posed by the government’s defense of the exchange rate in the context of weak tourism receipts and vulnerabilities in public finances reflected in increasing debt burden.

The authorities have proposed a policy package intended to restore macroeconomic stability. The FY2003/04 budget targets an overall central government deficit of 5–6 percent of GDP with a primary surplus of 12.4 percent of GDP. The 4¼ percent of GDP increase in the primary surplus is to be achieved primarily by revenue increases (4 percent of GDP), while total expenditure rises because of higher interest payments (3 percent of GDP). The overall public sector deficit would decline to around 8 percent of GDP.

Executive Board Assessment

Executive Directors noted that inflation remains subdued, remittance inflows continue to be strong, and the progress made in the last decade in reducing poverty is largely intact. However, economic growth has slowed to below the rate of population growth, unemployment has been stable at a relatively high rate, and crime and security considerations discourage private sector initiative. Directors expressed particular concern about the sharp deterioration in macroeconomic imbalances during FY 2002/03 and the significantly higher public debt to GDP ratio. The recent large fiscal and current account deficits are unsustainable and risk serious future financing difficulties. The risks are accentuated by Jamaica’s high degree of vulnerability to exogenous and weather-related shocks. The authorities will need to move forcefully to contain the public debt, aiming at the same time to strengthen the social consensus in support of sustainable growth and poverty reduction policies.

Directors welcomed the authorities’ commitment to effect a strong fiscal adjustment, as reflected in the FY 2003/04 budget and the objective of attaining fiscal balance by FY 2005/06. Reaching the planned substantial fiscal adjustment will be challenging, but is necessary to restore a sustainable fiscal position. It will require timely implementation of revenue-enhancing measures, but the emphasis ought to be on rigorous restraint of expenditures, particularly wages and unproductive outlays. In such an environment, measures to ensure the quality and efficiency of public spending will also be crucial. Directors encouraged the government to identify contingency measures, particularly on the expenditure side, in case the revenue projections and expected decline in interest rates do not materialize or other shocks emerge, and to incorporate medium-term fiscal consolidation targets into legislation.

Directors observed that monetary and exchange rate policy has sought to steer a difficult course between the balance of payments and inflation objectives. Using the exchange rate as an anchor for inflation expectations succeeded in keeping inflation low, but at the cost of a widening current account deficit and an overall decline in competitiveness since 1995. Directors considered that greater exchange rate flexibility would better safeguard competitiveness and respond to shocks. An acceleration of structural reforms would also help improve productivity and growth prospects. Directors noted that deepening the foreign exchange market could also improve its stability.

Directors encouraged the Bank of Jamaica to reorient monetary policy toward a greater focus on inflation, operating through shorter-term interest rates. Focusing on changes in shorter-term interest rates could help reduce the need for large movements in longer-term rates. Directors emphasized that a reduction in the public debt would be needed to reach a sustained lower level of interest rates.

Directors underscored the importance of complementing fiscal retrenchment with a more comprehensive program of structural reforms to generate faster growth, preferably based on a national consensus developed through dialogue with civil society. Such a program should include flexible working arrangements, and an economy-wide agreement to promote wage restraint and productivity growth, reduce regulatory barriers to small enterprises, and lower agricultural protection. At the same time, a few Directors noted that it would be helpful for Jamaica’s poverty reduction efforts for industrial countries to increase access to their markets for Jamaican exports by, inter alia, reducing their subsidies, particularly in the agricultural sector. Directors viewed further anti-crime measures as necessary to strengthen security and the investment climate.

Directors noted with concern the large exposure of the financial system to public sector debt and the need to keep the situation under close review, given the macroeconomic situation. They welcomed the authorities’ plan to strengthen the supervision of non-bank financial institutions, particularly of securities broker-dealers, who hold large amounts of government securities. Strengthened supervision should improve the effectiveness of monetary policy and reduce risks of market instability. At the same time, Directors considered that needed changes should be introduced carefully and with a view to maintaining stability in the government securities market. Directors also stressed the need to foster a level playing field between competing institutions and to avoid creating opportunities to engage in regulatory arbitrage. Directors encouraged the authorities to move forward with implementation of measures to combat money laundering and the financing of terrorism.

Directors expressed concern about the fragility of the current macroeconomic situation. Even with determined implementation of the strongest policies, the situation remains difficult, with the economy vulnerable to shocks. Directors underscored that the authorities have a limited margin for maneuver, given the high and rising public debt levels—which have been exacerbated by exchange rate depreciation and a financial system with large holdings of public domestic debt, and the effect of sustained high interest rates on the debt burden. They encouraged the staff to collaborate closely with the authorities on these issues in the period ahead.

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF’s assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board. The Staff Report for the 2003 Article IV Consultation with Jamaica is also available.

Jamaica: Selected Economic and Financial Indicators 1/

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Sources: Bank of Jamaica; Ministry of Finance; FINSAC; STATIN; and IMF staff estimates and projections.

Fiscal years run from April 1 to March 31.

Flow as percent of liabilities to the private sector at the beginning of the period.

Includes accrued interest on FINSAC bonds.

Includes selected public enterprises, accrued interest on FINSAC bonds, and Bank of Jamaica operating balance.

Nonfinancial sector debt, excluding FINSAC liabilities and government securities held by the nonfinancial public sector.


Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities.

Jamaica: Staff Report for the 2003 Article IV Consultation
Author: International Monetary Fund