Jamaica: Staff Report for the 2009 Article IV Consultation and Request for Stand-By Arrangement—Informational Annex

Jamaica has been stuck in a cycle of low growth and high debt dynamics. It has been severely impacted by the global economic slowdown, and finances have deteriorated. Jamaica’s objective of virtually eliminating the overall public sector deficit is appropriate. Embedding the medium-term fiscal consolidation effort in a comprehensive set of fiscal structural reforms is the key. Strengthening regulatory and supervisory frameworks along with legislative and structural reforms will reduce systemic risks to the financial system. The proposed program carries risks but these risks are manageable.

Abstract

Jamaica has been stuck in a cycle of low growth and high debt dynamics. It has been severely impacted by the global economic slowdown, and finances have deteriorated. Jamaica’s objective of virtually eliminating the overall public sector deficit is appropriate. Embedding the medium-term fiscal consolidation effort in a comprehensive set of fiscal structural reforms is the key. Strengthening regulatory and supervisory frameworks along with legislative and structural reforms will reduce systemic risks to the financial system. The proposed program carries risks but these risks are manageable.

Appendix I. Jamaica—Fund Relations

(As of December 31, 2009)

I. Membership Status: Joined: February 21, 1963; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans: None

V. Latest Financial Arrangements:

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VI. Projected Payments to Fund1:

(SDR Million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative: Not Applicable

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

IX. Exchange Rate Arrangements:

The external value of the Jamaican dollar has been determined in an interbank market operated by commercial banks beginning September 17, 1990. The Jamaican dollar has depreciated significantly since that time. At January 26, 2010 it was trading at around J$89½ to the U.S. dollar.

X. Last Article IV Consultation and Program Relations:

Jamaica is under intensified surveillance whereby staff monitors the implementation of the economic strategy formulated by the authorities without reaching prior understandings with the Fund. The last Article IV consultation was completed by the Executive Board on April 21, 2008 (Country Report No. 08/199). Interim staff reports are prepared for information of the Executive Board in-between Article IV consultations (Country Report No. 06/324, Country Report No. 05/61, and Country Report No. 05/219).

XI. Technical Assistance:

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XII. Resident Representative:

The post of the resident representative was closed on August 1997.

Appendix II. Jamaica—Relations with the World Bank

(As of January 21, 2010)

A new Jamaica-World Bank Group Country Partnership Strategy (CPS) is being prepared for Board presentation on, or about, February 23, 2010, following extensive consultations with key stakeholders. This CPS, which will guide support from the Bank Group during 2010-2013, supersedes the Country Assistance Program that ended in June 2009. The new strategy is fully aligned with the government’s outcome-oriented medium-term framework and broadens potential Bank support compared with the last four-year country strategy. The last strategy focused mostly on human development, including support for the Program of Advancement through Health and Education (PATH) and projects in inner-city communities. The Bank considers it important to continue this focus, in addition to the work it has started on fiscal and debt sustainability issues in 2009, and to address more directly the growth agenda through approaches to improve competitiveness and skills development. The IFC will work with the private sector and collaborate with the Bank on the regulatory and private public partnership issues to strengthen Bank Group synergies in Jamaica.

A. Projects

The Second Jamaica HIV/AIDS Project was approved in May 2008 for US$10 million. The project development objective is to assist in the implementation of the Government’s National HIV/AIDS Program by: a) supporting the deepening of prevention interventions targeted at high risk groups and the general population; b) increasing of access to treatment, care and support services for infected and affected individuals; c) strengthening the program management and analysis to identify priorities for building the capacity of the health sector to respond to the HIV/AIDS epidemic and other priority health problems. Specifically, the principal project is designed to: (i) support the scaling up of HIV/AIDS prevention interventions so as to halt and reverse the spread of HIV/AIDS; (ii) provide financing to strengthen the diagnostic capacity, enhance services (HIV/AIDS, sexually transmitted infections, tuberculosis and prevention of mother-to-child transmission of HIV) and support for those infected and affected by HIV/AIDS; (iii) strengthen institutional capacity in supporting policy formulation for an enabling legal and regulatory environment, program management and monitoring and evaluation; and (iv) support health sector development through the strengthening of biomedical waste management and capacity assessment.

The Jamaica Social Protection Project (SPP) was approved in May 2008 for US$40 million. The Jamaica Social Protection Project will: (i) further improve the effectiveness of the Program of Advancement through Health and Education (PATH) in order to foster investment by poor families in human capital accumulation; (ii) develop a structured system for assisting working-age members of PATH eligible households seek and retain employment; (iii) enable the formulation of a reform program for the public sector pension schemes; and (iv) develop a holistic social protection strategy. The first component, improving effectiveness of the PATH, will support the PATH through: (a) co-financing for conditional cash transfers to children 0 to 19 years-old (child grants); and (b) technical improvements to the program. The second component, building capacity for the Steps-to- Work (StW) program, will support capacity building within the Ministry of Labor and Social Security (MLSS) to implement a new initiative. The StW program will target working age members of PATH eligible households for referral to the relevant support services to enable them to seek and retain employment. The third component, improving the public sector pension system administration and building capacity for reform, will support two core sets of activities focused on the schemes for public sector workers: (i) preparation of a reform program; and (ii) improving administration and information systems. The final component is the development of a holistic social protection strategy. This component will support the Government in developing a holistic social protection strategy to inform decision-making on the appropriate policies and programs to address social risks and vulnerabilities within the population.

The Jamaica Hurricane Dean Recovery Project was approved in December 2008 for US$10 million. The objective of the project is to provide funding to support the restoration of levels of service in selected community infrastructure. Specifically, basic, primary and all-age schools, health clinics and critical feeder roads, at a minimum to pre-hurricane levels, and to increase the Government’s ability to respond to natural hazards. The proposed loan incorporates three project components: 1) repair and reconstruction of basic infrastructure; 2) capacity building for hazard risk reduction; and 3) project management. Component one has four subcomponents: basic school finance restoration of early childhood schools infrastructure; restoration of primary and all-age schools infrastructure; finance restoration of community clinics including type I, II and III facilities; and finance restoration of feeder roads. Component two has two subcomponents which include financing support for training on disaster preparedness and mitigation for local government and relevant stakeholders and to finance studies and activities to strengthen the capacity to better respond to natural hazards taking into account lessons learned from past events.

The Jamaica Rural Education Transformation Development Initiative (REDI) was approved in September 2009 for US$15 million. The objective of REDI is to improve market access for rural micro and small-scale producers of agriculture and tourism products, as well as, other service providers. There are three components to the project. The first component, which is support for rural subprojects in agriculture and tourism, will see the Bank financing two types of subprojects: type A will support revenue generating activities in agriculture and tourism, and type B will support provision of critical infrastructure, marketing, and management in the agriculture and tourism sectors. The second component of the project gives support through national technical assistance and capacity building. The main goal of this component is to strengthen relevant national organizations to enhance their capacity to continue assisting the rural enterprises and other project partners and ensure the sustainability of the rural enterprises. Hence, the component will finance technical assistance and capacity building for key organizations and agencies that deliver support services in agriculture and rural tourism at the local level. The third component of the project is project management. This component will finance project management, technical expertise (tourism and agricultural specialists, monitoring and evaluation) staff training, the annual audit, vehicles, office equipment, and other operating costs. This component will also ensure that effective fiduciary arrangements are in place during implementation.

The Jamaica Early Childhood Development Project was approved in May 2008 for US$15 million. The objectives are to: (i) improve the monitoring of children’s development, the screening of household-level risks affecting such development, and early intervention systems of the borrower to promote such development (ii) enhance the quality of early childhood schools and care facilities; and (iii) strengthen early childhood organizations and institutions. There are two components to the project. The first component is co-financing the implementation of the National Strategic Plan under Sector-Wide Approach modalities. This component area foresees the strengthening of the Early Childhood Commissions (ECC’s) parenting Sub-Committee, the development and implementation of a national Early Childhood Development parenting education and support sub-strategy, and a public awareness campaign. It includes the creation of an accreditation system for early childhood parenting education and support programs and a grant facility to support service providers in meeting accreditation standards. This component area also includes the development of a national policy for screening, referral and early intervention. The development of a screening system for household-level risks and its application to all households enrolled in the Government of Jamaica’s income support program is also provide for under this component. The second component will finance selected consultant services critical to achieve the project development objective. This component will support the development of a national policy on screening, referral and early intervention, including the design of a screening system for risks at the household level, and the development of a public education strategy about risks for children. It will finance development of sub-strategies for parenting of children aged of 0-3 and 4-6 years, including the mapping of existing parenting education and support programs, the development of an accreditation system for parenting programs, and awareness and advocacy strategies for parenting support programs. It will finance the development of service delivery models for nutritional programs, targeted at different age groups and a strategy for the reorganization and strengthening of well-child clinics.

The Jamaica Education Transformation Capacity Building project was approved in November 2009 for US$15 million. The objective of the Education Transformation Capacity Building Project for Jamaica is to build the capacity of the emerging key agencies (National Education Inspectorate (NEI), Jamaica Teaching Council (JTC), Regional Education Authorities (REA), and National Education Trust (NET) that are being established to support the national Education System Transformation Program (ESTP). There are three components to the project. The first component is the enhanced performance and accountability. Enhanced performance and accountability will contribute to the implementation of the Government of Jamaica ESTP by making operational the following key agencies to form a coherent system to monitor progress and improve accountability and quality: NEI, JTC, and REA. The second component is the mechanisms to mobilize resources to the NET. The NET will be the vehicle through which the Ministry of Education (MoE) will secure a consistent and reliable source of funds to support capital programs in education with a particular focus on, but not limited to, infrastructure. Mechanisms will be established to attract funding from the Diaspora, the private sector, and other sources. Finally, the third component is the communications, project management, and monitoring and evaluation. This component will support the implementation of a strategic communications strategy; provision of staffing, training, purchase of necessary equipment and materials, and operating costs for the MoE change management unit, responsible for overseeing implementation of the ESTP; and support to carry out evaluations of the ESTP, and annual external audits of project financing.

The Jamaica Inner City Basic Services for the Poor Project was approved in March 2006 for US$29.3 million. The project development objective is to improve quality of life in 12 Jamaican inner-city areas and poor urban informal settlements through improved access to basic urban infrastructure, financial services, land tenure regularization, enhanced community capacity and improvements in public safety. Specifically, the project will: (a) increase access and improve the quality of water, sanitation, solid waste collection systems, electricity, roads, drainage and related community infrastructure for over 60,000 residents of poor urban informal settlements through capital investments and innovative arrangements for operations and maintenance; (b) facilitate access to microfinance for enterprise development and incremental home improvement for entrepreneurs and residents in project areas; (c) increase security of tenure for eligible households in project areas; and (d) enhance public safety through mediation services, community capacity building, skills training and related social services. In addition, the Bank has number of technical assistance initiatives focused on statistics, crime and violence and disaster risk reduction and management.

B. Economic and Sector Work

The Bank is in the process of preparing the second Development Policy Loan operation to assist the Government of Jamaica in improving fiscal and debt sustainability during FY10-13. The proposed operation is rooted in the CPS of Jamaica and the World Bank Group and will support policy actions in the following areas: (i) promoting fiscal sustainability through and the establishment of a Fiscal Responsibility Framework, rationalization and modernization of Public Bodies, and developing a strategic framework for improved debt management; (ii) increasing the efficiency of public financial management and budgeting processes; and (iii) reducing distortions and enhancing the efficiency and fairness of the tax system. The program’s analytical underpinnings includes a Country Economic Memorandum (CEM), a Public Expenditure Review (PER), and a Poverty Assessment, as well as, work by the Government, local think-tanks, and universities.

The Bank is also preparing a new Country Economic Memorandum (CEM) focused on growth obstacles in Jamaica. The objective of the study is to identify the most critical factors behind the low growth history of Jamaica and develop policy recommendations for unlocking the potential for high growth.

C. Financial Relations1

(In millions of U.S. dollars)

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Amounts may not add up to Original Principal due to changes in the SDR/US exchange rate since signing.

Disbursements and Debt Service

(Fiscal Year Ending June 30)

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Appendix III. Jamaica—Relations with the Inter-American Development Bank

Jamaica joined the Inter-American Development Bank (IDB) in 1969. Since then, the IDB has approved 109 loans (94 projects) to Jamaica amounting to US$2.4 billion and 211 technical cooperation operations totaling US$67.5 million. IDB financial assistance has supported a wide range of infrastructural, environmental and social sector projects with a view to enhancing Jamaica’s human resource and absorptive capacity and strengthening the foundation for private sector-led growth. In addition, the IDB has supported reforms aimed at strengthening the institutional and regulatory environment.

The IDB is the leading lender to Jamaica among multilateral development partners. As of December 2009, Jamaica’s outstanding debt to the IDB stood at US$ 734.6 million, of which US$581.8 million were public sector loans and US$1.4 million were loans to the private sector. The total represents 11 percent of public external debt and 52 percent of multilateral debt.

Table 1.

IDB Outstanding Debt

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Starting in 2004 there was a drastic reduction in the fiscal space needed to disburse existing Bank loans. As a result over US$50m of the portfolio had to be cancelled and no new loans were approved from 2004 to 2008. The new administration that took office in 2007 intensified Jamaica’s reform program and emphasized a policy of expanding IFI financing for its development program. In response, the IDB updated the 2006-2009 country strategy renewing the lending program based on three basic principles:

This ushered in a new generation of Bank lending to Jamaica. The IDB approved eight new loans for a total of US$ 405 million for Jamaica in 2008, including a US$200m loan to increase private bank lending to the real sector; a US$60 million policy based loan for improving public financial management; US$50 million for road rehabilitation; US$30 million for education reform; a US$30 million policy based loan for competitiveness; US$14 million for primary schools; US$11 million for youth at risk; and US$10 million for rebuilding infrastructure damaged by floods.

This upward trend continued in January 2009 when the Bank approved two more loan operations: a US$300 million liquidity program to protect the real sector from lost credit lines; and a US$15m social safety net program. In September 2009, a US$70m loan was approved to expand the highway network. Two more loans were expected to be approved before the end of 2009: US$21 million for a citizen security and justice program and US$10 million for road improvement.

The IDB is currently preparing the Country Strategy with Jamaica for 2010-2012. Since the policy-based loans described above are programmatic in nature, it is expected that the Bank will provide new loans to support subsequent phases of the reforms they target. This lending modality is expected to dominate the Bank’s program with Jamaica in the new strategy period.

As of December 2009, the Bank’s portfolio consisted of 13 investment loans2 valued at US$512 million, and 41 non-reimbursable technical cooperations valued at US$19.8 million. Thirty-four percent of the IDB project funds and fifty-two percent of the TC funds have been disbursed, leaving US$ 346.1 million available for disbursement.

Table 2.

Major Ongoing Projects

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Approved amount.

Three policy-based loans and one hybrid PBL/Investment loan totaling US$200 million are slated for approval in the first half of 2010. These represent the continuation of the support for specific reforms that started in 2008. The policy areas include: education, human capital protection, competitiveness, and public financial management. In addition to the specific reforms in each operation the PBL program is also conditional upon Jamaica maintaining a stable economic environment conducive to the continuation of the reform process. Jamaica also has the option of requesting support from the Bank’s Emergency Program. It is important to note that the scope of the IDB’s support for Jamaica’s reform agenda and its efforts to ensure macroeconomic stability are fully coordinated with other multilateral development banks.

Table 3.

Number of Projects by implementation Progress Category

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Disbursements reached a low point of US$12.5 million in 2005, but have rebounded ever since. They doubled to US$25 million in 2006, and reached US$34 million in 2007. Due in large part policy-based lending in 2008 and the approval of the liquidity program in 2009, total disbursements rose dramatically to US$144.2 million, and US$151.5 million in those years respectively.

Table 4.

Net Flow of IDB Convertible Currencies

(US$ million)

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In keeping with the agenda to improve and use national systems the Government of Jamaica, with the support of multilateral institutions and bilateral donors has prepared a wide range of studies in different areas, including a joint World Bank and IDB, Country Financial Accountability Assessment and Country Procurement Assessment Report (CFAA/CPAR) in 2005, and a Public Expenditure and Financial Accountability Report (PEFA) in May 2007. Following the recommended actions of those reports, the IDB and the Government agreed on the main areas of the local fiduciary systems for financial control and procurement procedures that needed to be strengthened, and the IDB went on to provide resources to finance development and reform activities stemming from the CFAA/CPAR, with non reimbursable technical cooperation funds. Furthermore, in order to ascertain progress made in recent years and to determine eligibility to audit IDB-funded projects a follow-up assessment of the Office of the Auditor General of Jamaica is due for completion in early 2010.

Since 2007, Jamaica has developed a comprehensive handbook, more concrete regulations defining its public procurement including a procedure for managing contractual disputes, enhanced accessibility of information, separation of the Office of Contractor General and the National Contracts Committee, as well as creating national standard bidding documents. Although the national procurement system conforms to established principles of procurement based on international standards, some outstanding issues remain to be resolved. With the agreement of the Government of Jamaica, the IDB would undertake an update of the latest country assessment of the national procurement system to identify (a) the improvements in the pertinent aspects of the country procurement system, and (b) the readiness to rely on Jamaica’s national procurement systems for Bank-financed projects with a view to adoption of procurement country systems. Ideally, this work can be accomplished together with the World Bank. In addition, the IDB PRODEV facility and the PFPM Programmatic PBL will also support the introduction of performance-based budgets and accrual accounting. The Multi-lateral Investment Fund (MIF) will also promote better access by Small and Medium Enterprises (SMEs) to public procurement.

Table 5.

Total Projected Debt Service, 2010-2014

(Millions of U.S. dollars equivalent)

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Appendix IV. Jamaica—Statistical Issues

Effective surveillance is hampered by data gaps for the financial sector outside of commercial banks, and for public entities outside of the central government. In early 2003, Jamaica started participating in the Fund’s General Data Dissemination System (GDDS), which provides participants with a framework for the development of the statistical system. Jamaica should now focus its efforts on improving its data and dissemination practices by moving towards the goal of subscribing to the Special Data Dissemination Standard (SDDS) over the medium term. No data on industrial production, wholesale or producer prices, import volumes, or export and import prices have been reported for publication in the International Financial Statistics (IFS) in recent years.

Key websites for statistics on Jamaica:

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There are significant weaknesses in the national accounts and other real sector data. In regard to GDP estimates, concerns relate both to level and growth rate. Addressing these shortcomings has been hindered, inter alia, by insufficient legal authority granted to the Statistical Institute of Jamaica (STATIN) to collect source data, as well as by institutional weaknesses, and a lack of resources. However, efforts are being made to improve the national accounts, including through updating the base year (currently dating back to 1996) and implementing the 1993 System of National Accounts (SNA93). Assistance on national accounts methodology has been provided by Statistics Canada and STA. The first publication of quarterly national accounts took place in August 2002.

Prices

Jamaica (with assistance from the IMF Caribbean Regional Technical Assistance Center, CARTAC) revised its consumer price index (CPI) series in 2007. The CPI revision updated expenditure weights of the CPI that had dated from 1984. The new CPI weights are based on a household survey conducted in 2004—05.

Government finance statistics

Central government operations and debt data are updated on a monthly basis. Some expenditures, however, are not recorded during the period they actually occur, making it difficult to asses the fiscal policy stance. Also, data on public entities outside the central government, although regularly published, are not reported consistently across entities and in a way that is amenable to assessing and formulating the overall direction of fiscal policy.

There is a paucity of data on the external debt stocks and maturities falling due for the nonfinancial public sector.

Government finance statistics are available at:

Debt: http://www.mof.gov.jm/dmu/

Budget: http://www.mof.gov.jm/programmes/em/fpmu/default.shtml

However, fiscal data are not currently reported for publication in the IFS. In 2007, the authorities reported data for 2006, in GFSM 2001 format, for publication in the 2007 GFS Yearbook.

Monetary and financial statistics

Monetary statistics published by the Bank of Jamaica (BOJ) are sectorized, classified, and valued in accordance with international standards, and are provided to the Fund in a timely manner. Currently, information on deposit money banks and monetary authorities is being reported on a regular basis. The BOJ initiated the submission of monetary and financial statistics based on standardized report forms in March 2007. Financial sector statistics outside of the banking system are weak. The absence of adequate data on security dealers is particularly problematic, as dealers’ liabilities to the public are larger than those of banks. Consequently, related systemic implications are difficult to assess without timely and comprehensive statistics.

Balance of payments

The BOJ compiles and disseminates balance of payments statistics on a monthly and annual basis. Detailed annual balance of payments and international investment position (IIP) data are reported by the BOJ for publication in the Balance of Payments Statistics Yearbook (BOPSY) and the IFS. In September 2007, Jamaica reported for the first time IIP data to STA; annual IIP data since 2005 are now available in BOPSY and IFS.

Jamaica: Table of Common Indicators Required for Surveillance As of March 21, 2008

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Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds), and state and local governments.

Including currency and maturity composition.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

1

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

2

Including private sector loan but excluding IIC