Jamaica: Staff Report for the 2007 Article IV Consultation Supplementary Information
Author: International Monetary Fund
Publication Date:
07 May 2007
eISBN:
9781451820201
Language:
English
Keywords:
ISCR; CR; debt; fiscal year; GDP; BoJ special issue bond; BoJ cash loss; budget recording; PetroCaribe debt; increase in capital spending; expenditure measure; Budget planning and preparation; Capital spending; Fiscal stance
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This 2007 Article IV Consultation highlights that Jamaica’s economy is estimated to have achieved its best growth performance in over a decade during FY2006/07, which ended on March 31, 2007. Notwithstanding some recent moderation of momentum, the economy is estimated to have expanded by just below 3 percent in real terms, up from 2 percent the previous year and 0.4 percent the year before. Monetary policy remains focused on containing inflation while seeking to engender a sustainable reduction in interest rates.

Abstract

This 2007 Article IV Consultation highlights that Jamaica’s economy is estimated to have achieved its best growth performance in over a decade during FY2006/07, which ended on March 31, 2007. Notwithstanding some recent moderation of momentum, the economy is estimated to have expanded by just below 3 percent in real terms, up from 2 percent the previous year and 0.4 percent the year before. Monetary policy remains focused on containing inflation while seeking to engender a sustainable reduction in interest rates.

1. This supplement provides an update on the fiscal outturn for FY 2006/07 and the authorities’ budget proposal for FY 2007/08. The new information reinforces the thrust of the staff appraisal contained in the staff report (4/11/07).

2. Recent data releases suggest that the growth momentum may be slowing but inflation remains on target. Real manufacturing activity appears to have weakened toward the end of 2006. Tourist arrivals for the first three months of 2007 have also been lower than anticipated. Real economic growth for FY 2006/07 may, therefore, be somewhat lower than the 3 percent expected earlier. Annual consumer price inflation, meanwhile, ended the fiscal year at 6½ percent, down from 11½ percent the previous year. International reserves recovered in March to reach US$2.3 billion, just shy of the all time high reached at end-2006.

3. As anticipated in the staff report (4/11/07), the budgetary outturn for FY 2006/07 was weaker than indicated by data available earlier. The authorities now estimate that J$5.5 billion (0.8 percent of GDP) in capital spending occurred in FY 2006/07 on central government projects funded by donors and PetroCaribe that were not picked up by the normal reporting process for spending. Preliminary information also suggests that revenues are likely to have ended the year somewhat lower than expected earlier. All in all, the overall budget deficit for FY 2006/07 is now estimated at 5.7 percent of GDP, compared to 4.7 percent of GDP indicated by earlier data (see tables 1 & 2). The primary balance is also now correspondingly lower. The earlier debt data had, however, already picked up the obligations associated with the higher capital spending and, therefore, debt estimates remain broadly unchanged from the staff report (4/11/07).

Table 1.

Jamaica: Summary of Central Government Operations

(In billions of Jamaican dollars)

article image
Sources: Jamaican authorities; Fund staff estimates and projections.

Accrued interest on previous year’s BoJ Special Issue bonds is contractually paid to the BoJ through debt issuance the following year.

Refers to operating losses of the Bank of Jamaica, not covered by the BOJ Special Issue Bonds.

Debt issued upon assuming public investment projects carried out by the private sector under the deferred financing facility. The government has been authorizing amounts under this facility since 1997. Staff presentations have been including the debt incurred as “off budget spending” at the time of debt issuance. Starting in FY 2005/06, the authorities also started including (in their own budget presentations, to which adjustments are made here to avoid double-counting) amounts under capital expenditure at the time debt service first begins. The schedule according to which the authorities incorporate this spending in their budget presentation was recently revised and they are undertaking a review of the historical data to help ensure continuing consistency between different presentations.

Staff presentation of authorities’ draft budget.

Table 2.

Jamaica: Summary of Central Government Operations

(In percent of GDP)

article image
Sources: Jamaican authorities; Fund staff estimates and projections.

Accrued interest on previous year’s BoJ Special Issue bonds is contractually paid to the BoJ through debt issuance the following year.

Refers to operating losses of the Bank of Jamaica, not covered by the BOJ Special Issue Bonds.

Debt issued upon assuming public investment projects carried out by the private sector under the deferred financing facility. The government has been authorizing amounts under this facility since 1997. Staff presentations have been including the debt incurred as “off budget spending” at the time of debt issuance. Starting in FY 2005/06, the authorities also started including (in their own budget presentations, to which adjustments are made here to avoid double-counting) amounts under capital expenditure at the time debt service first begins. The schedule according to which the authorities incorporate this spending in their budget presentation was recently revised and they are undertaking a review of the historical data to help ensure continuing consistency between different presentations.

Central Government debt including debt assumed from public entities, plus guaranteed public entity debt, plus PetroCaribe debt. Includes US$350 million bond issued in March 2007 for prefinancing. Cash-flow savings from the PetroCaribe agreement with Venezuela are managed by an extrabudgetary Fund that lends to both budgetary and off-budget entities.

Staff presentation of authorities’ draft budget.

4. The draft FY 2007/08 budget submitted to parliament recently envisages an improvement in the primary balance by about 2 percent of GDP, to 10¼ percent of GDP under staff definitions. Parliamentary debate on the government’s budget proposal commenced on April 12. In their presentation of the FY 2007/08 budget, the authorities are recognizing under capital spending J$12.5 billion associated with previous years.1 Staff presentations in the attached tables have allocated these amounts to the appropriate earlier years and, therefore, capital spending as well as the overall balance differ from the authorities’ official budget presentations.

5. The FY 2007/08 budget sets a high bar for tax administration and envisages new capital expenditures to replace one-off spending in FY 2006/07. The budget includes two tax measures (cigarette tax and environmental levy on imports) expected to yield 0.2 percent of GDP. At the same time, a new exemption to the existing Customs User Fee will lead to some loss in revenue. Nevertheless, the authorities are hoping to increase total tax revenues by 1 ½ percentage points of GDP, to 28½ percent in FY 2007/08 by strengthening tax administration, including improving procedures to verify refunds. The budget envisages the expenditure-to-GDP ratio at 34¼ percent in FY 2007/08, down by about 1¼ percentage points from FY 2006/07. Budgeted amounts, however, still allow for an increase in capital spending if the one-off nature of the FY 2006/07 Cricket World Cup spending (estimated at around 1.1 percent of GDP) is taken into account. The new capital spending is broad-based but with some concentration in the areas of transportation, public works, and education.

6. The staff welcomes the planned improvement in the primary balance but considers that achieving it will require additional tax policy or expenditure measures. Such measures (see staff report of 4/11/07, paragraph 19) will need to be implemented earlier rather than later in FY 2007/08 to secure the planned adjustment within the fiscal year. While strengthened tax administration has already delivered measurable successes in FY 2006/07, generating sufficient additional resources from this source alone will likely become increasingly difficult.

7. The authorities’ efforts to regularize the budget recording and reporting procedures are welcome and should continue. The provision made in the FY 2007/08 budget for past expenditures undertaken through special financing schemes exemplifies the authorities’ existing commitment to fiscal transparency. At the same time, it also highlights the potential benefits of carrying out a thorough review of fiscal standards and codes, creating a framework to identify risk from off-budget entities, and putting in place a stronger consolidated public sector accounting framework.

1

This figure includes the J$5.5 billion referred to in paragraph 3 and J$0.4 billion in FY 2005/06, as well as other amounts for deferred financing (see footnote 3 in table 2) and the take-over of public entity debt.

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Cover IMF Staff Country Reports
Jamaica: 2007 Article IV Consultation: Staff Report; Staff Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Jamaica
Author: International Monetary Fund
Volume/Issue:
Volume 2007: Issue 152
Publisher:
International Monetary Fund
ISBN:
9781451820201
ISSN:
1934-7685
Pages:
58
DOI:
https://doi.org/10.5089/9781451820201.002