Jamaica: 2022 Article IV Consultation-Press Release; Staff Report and Staff Statement
Author:
International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
10 Feb 2023
eISBN:
9798400233173
ISBN:
9798400233173
Language:
English
Keywords:
headline inflation; transmission mechanism; BOJ stress tests; transfer program; supervision authority; Climate change; Global
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1. Efforts to entrench macroeconomic stability and improve policy frameworks have helped Jamaica navigate the pandemic. In the last years, Jamaica reduced public debt, inflation, and external deficits. It institutionalized fiscal discipline through a Fiscal Responsibility Law (FRL), adopted inflation targeting and a floating exchange rate regime, and strengthened financial oversight. The response to the COVID shock was nimble and pragmatic, supporting the economy in the depth of the pandemic but then quickly returning to prioritize debt reduction as the impact of the pandemic faded. The economy is now recovering from the pandemic and inflation is moderating, supported by sound macroeconomic policies and a strong commitment to fiscal sustainability. Nonetheless, the recent global shocks have created hardship given Jamaica's dependence on international tourism, and on energy and food imports.

Abstract

1. Efforts to entrench macroeconomic stability and improve policy frameworks have helped Jamaica navigate the pandemic. In the last years, Jamaica reduced public debt, inflation, and external deficits. It institutionalized fiscal discipline through a Fiscal Responsibility Law (FRL), adopted inflation targeting and a floating exchange rate regime, and strengthened financial oversight. The response to the COVID shock was nimble and pragmatic, supporting the economy in the depth of the pandemic but then quickly returning to prioritize debt reduction as the impact of the pandemic faded. The economy is now recovering from the pandemic and inflation is moderating, supported by sound macroeconomic policies and a strong commitment to fiscal sustainability. Nonetheless, the recent global shocks have created hardship given Jamaica's dependence on international tourism, and on energy and food imports.

A Challenging Global Environment

1. Efforts to entrench macroeconomic stability and improve policy frameworks have helped Jamaica navigate the pandemic. In the last years, Jamaica reduced public debt, inflation, and external deficits. It institutionalized fiscal discipline through a Fiscal Responsibility Law (FRL), adopted inflation targeting and a floating exchange rate regime, and strengthened financial oversight. The response to the COVID shock was nimble and pragmatic, supporting the economy in the depth of the pandemic but then quickly returning to prioritize debt reduction as the impact of the pandemic faded. The economy is now recovering from the pandemic and inflation is moderating, supported by sound macroeconomic policies and a strong commitment to fiscal sustainability. Nonetheless, the recent global shocks have created hardship given Jamaica's dependence on international tourism, and on energy and food imports.

2. Jamaica remains vulnerable to the effects of climate change. Jamaica's geographical and socio-economic characteristics make it vulnerable to climate risks. While its contribution to global greenhouse gases is insignificant, vulnerabilities create challenges in terms of adaptation, mitigation, and transition issues. The Article IV consultation assesses policies and reforms needed to foster investments to increase resilience to climate change and reduce reliance on fossil fuels.

Recent Developments

3. The economy is continuing a gradual recovery, supported by a rebound in tourism. As COVID waned, the authorities accelerated the reopening and, by mid-2022, stopover flight arrivals had rebounded to pre-crisis levels. FY2022/23 growth is likely to be around 31/2 percent, with GDP close to pre-pandemic levels.1 The recovery, though, has been hindered by a prolonged outage in one of the largest alumina plant in the country, as well as the effects of the negative terms of trade shock arising from the war in Ukraine.

4. Inflation has risen above the central bank (BOJ) target band of 4-6 percent. Global developments led to higher food and energy prices—whose weights account for about 50 percent of the CPI basket—pushing headline inflation to 11.8 percent in April. As external shocks lessened and monetary policy tightened, headline inflation has fallen to 9.4 percent in December. Core inflation, which peaked at 10 percent in June, has yet to return decisively downwards from around 8 3/4 percent.

uA001fig01

CPI Inflation by Major Components

(In percent, year-on-year and contributions)

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Sources: STATIN and IMF staff calculations.

5. High commodity prices also impacted the external accounts, with the current account deficit projected at 2½ percent of GDP in FY2022/23. The positive impact from the recovery in tourism would be more-than-offset by high freight, energy, and food prices and the shortfall in alumina exports. Remittances have moderated and imports remain high. International reserves are expected to remain adequate, at 115 percent of the ARA metric by end-2022. The external position is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies (Annex IV). Jamaica's capacity to repay the Fund remains adequate, with risks mitigated by its strong track record of policy implementation and past use of Fund resources (Table 6).

6. The financial system remains well-capitalized and liquid. Even as COVID liquidity support and regulatory forbearance were phased out, banks' balance sheets have been supported by deposit growth and the suspension of dividend payments. Capital adequacy of Deposit Taking Institutions (DTIs) was at about 14 percent in September 2022, well above the regulatory minimum of 10 percent. The NPL ratio at 2.5 percent was below the 5-year pre-pandemic average. The sector of non-deposit taking financial institutions (NDTI) also appear stable with capital adequacy ratios above the minimum thresholds and stable liquidity ratios. BOJ stress tests show the financial system to be resilient to rising global interest rates and tail events.

7. Public debt continues to fall as a share of GDP. The overall fiscal balance in FY2021/22 was 0.9 percent of GDP, supported by buoyant revenues, a reduction of the wage bill, and a reversal of pandemic related spending. Public debt has fallen to 94 percent of GDP, fully reversing the increase seen during COVID. Despite global shocks, budget execution during the first half of FY2022/23 suggests the 0.3 percent of GDP budget surplus target for the fiscal year may be exceeded.

Outlook and Risks

8. Growth is expected to converge to potential and inflation to the BOJ's target range. Growth should remain above potential this year and next—supported by operations resuming at the alumina plant—and converge to about 11/4 percent over the medium term. Tighter monetary policy and falling commodity prices should allow inflation to fall. Despite strong FX inflows from tourism, the current account deficit is expected to remain high in 2023—given still-high commodity prices and remittances further falling from historical heights—before converging to around 1 percent of GDP over the medium term. FDI is projected to return to its historical average. Fiscal consolidation, which the authorities are committed to sustain going forward, should bring public debt to 60 percent of GDP by FY2027/28.

9. There are important risks facing the economy (Annex II). The war in Ukraine may push commodity prices higher, resulting in inflationary pressures and higher interest rates, worsening the fiscal accounts and weakening growth. A stronger-than-envisaged tightening of global financial conditions may curb capital flows, reduce remittances, put pressure on the currency, raise the costs of budget financing, and weaken profitability in the financial sector. Finally, new COVID variants could amplify these risks and disrupt tourism, trade, and capital flows.

Medium-Term Macroeconomic Framework

(In percent of GDP unless otherwise specified)

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

10. Climate risks can undermine the strength of Jamaica's external position (Annex III):

uA001fig02

Frequency and Damages from Natural Disasters

(In US$ Million)

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Source: Emergency Events Database and IMF Staff Calculations
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Energy Supply by Source

(In percent of total)

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Source: IEA World Energy Balances and IMF Staff Calculations

  • Natural disasters have inflicted significant damage on the economy over the past decades. Hydrometeorological events have been the most prominent, with two hurricanes in the early 2000s causing cumulative losses of 11 percent of GDP. The tourism sector—which provides about 20 percent of GDP in FX inflows—is highly sensitive to the increased severity and frequency of natural disasters. Such events also erode nature-based assets and negatively impact the agricultural sector (which is already coping with rising temperatures and sea levels and more volatile precipitation patterns).

  • Jamaica's contribution to global emissions is negligible. However, the country is dependent on imported petroleum products to meet over 85 percent of its electricity generation needs. This makes Jamaica susceptible to volatility in commodity prices, undermining the strength of Jamaica's external position. Therefore, macroeconomic stability would be helped by transitioning away from hydrocarbons, even with the required up-front investment in imported equipment.

Authorities' Views

11. The authorities agreed with staff on outlook and risks. They noted that the staff's 2022 growth forecast is on the conservative side of their range and agreed with the outlook for inflation. They emphasized that major downside risks are associated with external factors and remain confident that their policies will continue to secure macroeconomic stability in the medium-term. They agreed with the staff's assessment that the external position was broadly in line with fundamentals.

Policy Discussions

Policy discussions focused on the optimal response to new global shocks and the reforms to continue enhancing policy frameworks, strengthening financial stability, and fostering inclusive growth. Discussions emphasized policies to adapt to climate change, reduce emissions, and transition to a low carbon economy.

A. Short-Term Policies

12. The fiscal position has returned to a sizeable primary surplus, which will bring public debt to below pre-pandemic levels. Buoyant consumption taxes, high dividend transfers, and sluggish capital spending prompted an overperformance relative to the budget in FY2021/22. Despite global shocks, a recovery in investment, and the up-front cost of reforming the public sector pay structure (see ¶19), FY2022/23 is expected to record an overall fiscal surplus of 0.3 percent of GDP—as stipulated in the MTFF—bringing public debt to 84 percent of GDP. The authorities have allowed higher global commodity prices to pass-through to domestic prices while providing around 1/4 percent of GDP in temporary transfers to needy families—mainly through vouchers and transfers to students under social programs.

13. The budget for FY2023/24 targets a primary surplus close to 51/2 percent of GDP. It would bring public debt to 78 percent of GDP by FY2023/24. The budget is predicated on strict control of primary spending—maintaining the ongoing reduction of program expenditure—while maintaining revenues through improved tax administration. Public debt is forecast to fall to 60 percent of GDP by FY 2027/28, in line with the Fiscal Responsibility Law (FRL, Annex V).

14. The BOJ has increased the policy rate to 7 percent as of November 2022. It is also mopping up liquidity and maintaining a market-determined exchange rate, supported by occasional FX intervention to limit volatility. The BOJ has stated that adjustments in the monetary policy stance will depend on seeing a persistent downward inflation path. Staff's inflation projections imply that the real policy rate is broadly neutral. Based on the current staff's assessment, the continuing data dependent tightening cycle combined with the prudent fiscal stance would bring inflation back to the target range by end-2023.

15. Debt sustainability and inflation pressures call for sustained primary surpluses and tight monetary policy. Following the prompt post-COVID consolidation, a large primary surplus is appropriate to secure sustainability without sacrificing ability to respond to shocks. Over the medium term, maintaining the primary surpluses will raise the overall balance, lower public debt and restore the fiscal space to respond to potential new downside shocks. Similarly, downside risks to inflation argue for maintaining a relatively tight monetary stance until inflation is firmly on the path to the BOJ's target range. Jamaica's public debt is sustainable, and fiscal surpluses and prudent debt management are keeping gross financing needs low. Debt dynamics remain vulnerable to the impact of global shocks on growth and interest rates (Annex V).

Authorities' Views

16. The authorities believe that the tightening of monetary policy and high primary surpluses are needed to secure internal and external balance. The central bank remains committed to data dependent monetary policy tightening to bring inflation back to the target range within the policy horizon. They noted that the monetary policy transmission mechanism is weak and has worked faster in the non-bank financial sector. They intend to continue efforts to strengthen monetary policy transmission in the banking sector. On fiscal policy, high primary surpluses will lead to a further fiscal consolidation without losing sight of critical expenditure.

B. Underpinning a Prudent Medium-Term Fiscal Path

17. Jamaica has continued to improve its sound fiscal framework. Parliament recently established an independent Fiscal Commission (FC) to assess the realism of the government's fiscal plans and its consistency with the FRL—a reform initiated under the last Fund-supported program. The government is now undertaking the last steps to staff the FC. The authorities have actively managed the debt structure—undertaking buybacks of expensive liabilities and lengthening maturities through the issuance of global bonds—instrumental to mitigate envisaged tighter financial conditions.

18. Efforts to further strengthen tax and customs administration continue. At 26 percent of GDP, tax revenue compares favorably with peers, and the authorities are not introducing tax policy changes. To support revenue collection, tax administration has transitioned to a new information system to improve compliance, cross-check data, and track taxpayers. Recent efforts are appropriately focused on improving the timeliness of filings and strengthening tax arrears reporting. Customs administration is being modernized through IT improvements and better risk management and post-clearance audits. The rollout of an automated System for Customs Data (ASYCUDA) and a single window for trade operations (JSWIFT) will improve efficiency and performance. A new Customs Act—currently before Parliament—is expected to further enhance customs clearance, improve revenue collection, and simplify business procedures.

19. Jamaica has improved public financial management but further efforts are needed. Recent improvements include expanding the coverage of fiscal accounts by integrating public bodies into reporting systems, strengthening cash management, and reporting fiscal risks. However, the recording and management of expenditure and revenue arrears remains weak and commitment controls and medium-term budgeting for program spending need to be strengthened.2 Ex-post audits of COVID-related spending have been completed and information on companies that were awarded procurement contracts during COVID—including beneficial ownership—has been published.3

20. The authorities are working to improve the structure of public wages. Allowances are being eliminated, creating a standardized pay structure that rewards performance and helps retain skilled employees. The authorities stressed that the cost of this reform will be accommodated within the MTFF, consistent with FRL's objectives. The changes—initiated during the last Fund-supported program—will be phased in over three years. About two-thirds of the fiscal cost will be met by reducing wage allowances (which were previously recorded as program spending). The remaining will be offset by reduced travel expenditures, savings due to digitalization of budgetary procedures, and lower tax expenditures (also associated with the elimination of allowances).

21. Over the medium term, spending on security, health, education, and climate-change adaptation should be prioritized. Reducing crime requires more spending on law enforcement and community responses; and the healthcare infrastructure needs an upgrade (¶31). Natural disasters caused damage to infrastructure in the past and pose fiscal risks going forward. This calls for more resources for climate change adaptation, including infrastructure resilient to natural disasters. The authorities intend to meet these needs by further improving tax collection through better tax administration and by reallocating resources within the budget.

Authorities' Views

22. The authorities underscored their commitment to debt sustainability. They emphasized that high primary balances aided by sound tax administration and proactive debt management will further reduce financing costs and aid the fiscal consolidation. They expect that with macroeconomic stability firmly in place, the reduction in debt ratios will open policy space to increase human and infrastructure investment. The wage bill is reformed with a view to create an equitable, efficient, and competitive wage structure within the existing budget envelope consistent with the MTFF—its accommodation will be facilitated by the fact that a significant portion of the wage bill is already captured by other lines in the budget, as wage allowances. PFM reforms will continue going forward, with the view to strengthen Jamaica's fiscal framework.

C. Strengthening the Monetary Policy Framework

23. The recent amendments to the BOJ Act have strengthened central bank autonomy. The changes improved its governance arrangements and provided a clear mandate of price stability.4 The BOJ has implemented all the recommendations of the 2017 Safeguards Assessment and a new assessment is currently underway. There is scope to improve the BOJ's inflation expectations survey—which currently covers the 12-month ahead expectations—to better guide policy.

24. The FX trading platform has supported a smoother functioning of FX markets through enhanced price discovery.5 Approved participants place orders to buy and sell foreign exchange (FX) on the platform, though in the context of still shallow markets, which may occasionally submit to excess volatility. Going forward, there is scope to improve the functioning of FX markets by reducing surrender requirements, orienting Net Open Position limits to macroprudential objectives and allowing greater latitude for private entities meeting appropriate prudential requirements to issue FX bonds.

D. Financial Stability

25. The authorities are implementing the Basel III capital requirements under Pillar 1 and have revised the definition of regulatory capital. A system of parallel reporting including the current framework and Basel III requirements is expected to run for a year, after which the latter will become mandatory for DTIs.6 Implementation of Basel III's Pillar 2 is underway including the Internal Capital Adequacy Assessment Process, the Supervisory Review and Evaluation Process, and the framework for designating Domestic Systemically Important Financial Institutions (SIFIs). A quantitative impact study of these changes will be undertaken for designated institutions. Pillar 3 will focus on market disclosures and implementation of additional capital and liquidity requirements (including capital buffers and the Net Stable Funding Ratio).

26. BOJ's supervision authority will be expanded to incorporate credit unions. Following the approval of related legislation by parliament, credit unions will be supervised by the BOJ and subject to comprehensive prudential requirements—on licensing, capital, reserves, prohibited business, and intervention and resolution.

27. The regime for the resolution for non-viable financial institutions should be strengthened. A Technical Working Group intends to establish a methodology to identify which financial institutions are systemically important and then prepare a draft law to establish administrative resolution powers for SIFIs and modify the insolvency process for non-systemic institutions.

28. The BOJ is intensifying its supervisory efforts for Financial Holding Companies, including through a regional Consolidated Supervision Group. Risks linked to concentrated ownership call for more efforts on consolidated supervision. The Banking Services Act requires financial groups with DTIs to establish a Financial Holding Company (FHC) that is licensed and supervised by the BOJ, which is undertaking a pilot of the first licensed FHC and recently licensed a second FHC. In addition, the authorities intend to submit legislative amendments that will empower the Financial Services Commission (FSC) to undertake consolidated supervision of financial groups not including DTIs.

29. The authorities are committed to address strategic deficiencies in their AML/CFT regime. In February 2020, Jamaica was placed under increased monitoring by the Financial Action Task Force (FATF). Subsequently, an action plan was developed to address deficiencies in the AML/CFT framework and in 2021, Jamaica published a National Risk Assessment. The authorities have improved their framework but as of December 2022 remain under increased monitoring. The FATF extended the deadline for completion of outstanding measures to February 2023 (Box 1).

AML/CFT Framework

Jamaica is on FATF's list of jurisdictions under increased monitoring (grey list). In February 2020, FATF and Jamaica agreed on an action plan to address strategic deficiencies, which comprises 13 action items for the five immediate outcomes (IO) rated at moderate/low effectiveness in the 2017 Mutual Evaluation Report. The IOs are: IO1—completion and dissemination of a National Risk Assessment (NRA); IO3—adoption of risk-based supervision (RBS), monitoring and regulation of financial institutions (FI) and the Designated Non-Financial Businesses and Professions (DNFBP) for compliance with the AML/CFT framework; IO5— preventing legal persons from misuse for ML/TF and ensuring beneficial ownership (BO) information is available to competent authorities; IO7—investigation and prosecution of ML offences and application of effective, proportionate and dissuasive sanctions; and IO10—addressing technical deficiencies of recommendation R6 (targeted financial sanctions (TFS) for terrorist financing), ensuring implementation of TFS without delay, issuing regulations for monitoring non-profit organizations (NPO), and applying targeted measures to higher risk NPOs.

FATF plenary in October 2022 acknowledged progress but noted that the action plan requires further work. FATF agreed that seven action items for IO1, IO5.1, IO7, and IO10.1 have been completed. For IO1 the NRA was published in August 2021, for IO5.1 the risk assessment for legal persons and arrangements was included in the NRA, for IO7 and IO10.1 the investigation and prosecution of ML offences and application of sanctions as well as the implementation of TFS have been strengthened with increased coordination between the Financial Investigation Division, the Ministry of Foreign Affairs and Foreign Trade, the Office of the Director of Public Prosecutions, the Office of the Chief Justice, and regulatory authorities. But FATF assessed six actions in IO3, IO5 and IO10 as incomplete and urged Jamaica to demonstrate progress before the evaluation in February 2023 to prevent further steps within the increased monitoring procedure.

Following the October plenary, Jamaica continued to make progress on the action plan. In December 2022, parliament approved the Charities Regulations authorizing the regulator—which received training from the EU Global Facility—to commence RBS of the NPO sector in line with IO10. The work on IO3 calling for adoption of RBS of the FIs and DNFBPs—which had advanced per the microfinance institutions placement under BOJ's supervision and the Trust and Corporate Service Providers placement under the Financial Services Commission's (FSC) supervision—continues. The BOJ expects to finish processing applications for microcredit institutions by Q3 2023 and the FSC is engaging with prospective licensees to ensure early applications ahead of the April application deadline. The placement of the legal profession under AML/CFT standards is pending a ruling by the Privy Council, which heard the lawyers' appeal last November. Regarding the BO regime (IO5), amendments to the Companies Act are expected to be tabled before parliament in Q1 2023. Jamaica's application for re-rating of technical compliance with six recommendations was approved by CFATF last October. Jamaica is now compliant/largely compliant with 33 out of 40 FATF recommendations and will ask for rerating of the remaining seven after completion of action items for the outstanding IOs.

30. BOJ is issuing a central bank digital currency (JAM-DEX), which constitutes a legal tender. The goal is to boost financial inclusion and enhance the payment system by reducing currency management costs and facilitating interoperability with existing electronic payment systems, though its use is still limited—0.1 percent of currency in circulation. To protect privacy and mitigate cybersecurity risks, it utilizes encryption techniques, digital signatures, and multi-factor authentication. Financial integrity risks are mitigated by the Proceeds of Crime Act—transactions can be tracked and wallet providers are regulated by the BOJ. An independent assessment commissioned by the BOJ concluded that adequate controls are in place. The Fund continues to provide assistance on central bank risk management, fintech and cybersecurity.

31. The financial sector is also exposed to risks from climate change. Financial institutions have credit exposure to sectors affected by weather-related events (agriculture, tourism and the distribution sector, together 17 percent of the loan portfolio). Decarbonization could also increase credit risks in other sectors and broader global asset price volatility arising from climate change has the potential to negatively affect the balance sheets of Jamaican financial institutions (see ¶43).

Authorities' Views

32. The authorities emphasized that further strengthening the sound policy framework remains important. They noted that reforms to the foreign exchange trading infrastructure have deepened the market and improved price discovery. They expressed their commitment to pursuing further reforms at appropriate points in time in the future and agreed that continuous monitoring of financial sector risks is important. They emphasized plans to further strengthen policy frameworks with the ongoing adoption of the Basel framework, approval of the special resolution regime for financial institutions, expansion of the supervisory perimeter of the BOJ, and progress with consolidated financial supervision. They emphasized that advancing with adoption of the AML/CFT reforms agreed with FATF remains a priority.

E. Supporting Inclusive Growth

33. Increasing total factor productivity would address long-standing impediments to growth. Deficiencies in physical and human capital, the business environment, and access to international markets constraint growth. These, in turn, are linked to: (i) crime that increase security costs and deter tourism, foreign investment and investments in education; (ii) insufficient years of schooling and outward migration of university graduates; (iii) poor infrastructure, particularly in logistics and energy; (iv) complex business procedures and insufficient access to financing for small and medium enterprises; and (v) competition from countries with easier access to North American markets.

34. The supply side challenges facing Jamaica call for a multipronged approach:

  • Poverty and inequality. The pandemic led to an increase in poverty. To further improve social inclusion, the conditional cash transfer program (PATH) is being appropriately strengthened by improving the targeting of beneficiaries. PATH continues to support vulnerable groups through cash transfers, education grants, and job training.

  • Reduce crime. The government has developed a strategy that prioritizes: (i) effective policing; (ii) swift justice processes; (iii) social development to address risk factors; (iv) crime prevention; (v) community reintegration for offenders. Persevering with these efforts will be critical. The government has requested U.S. support, including intelligence sharing and joint investigation of criminal networks operating in both countries.

  • Improve education and training. Improving school attendance, skills training, and early childhood education can foster opportunities for the young. The authorities are expanding the school meals program and improving rural transportation. Investment is also needed to improve the quality of teachers and increase the use of information technology.

  • Strengthen infrastructure. There is a need to improve resilience of transportation and water infrastructure. In the electricity sector, investments are needed to reduce generation and transmission costs and losses, improve reliability, and advance a transition to renewables in power generation.

  • Lessen business costs and barriers to international trade. The ongoing streamlining of custom procedures is encouraging. Reducing trade barriers, including through free trade agreements, would also help. Recent amendments to the tax code to make Special Economic Zones rules compatible with international standards are expected to foster investment in business process outsourcing.

35. Jamaica has a relatively good standing on institutional quality, though it can still progress in some governance areas. The Worldwide Governance Indicators show relatively strong scores on Voice and Accountability and Government Effectiveness. On other governance areas, Jamaica scores at the world median. Following the approval of the new procurement law, further reforms to its regulations to require publication of beneficial ownership information of awarded companies would enhance transparency.

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Governance Components Jamaica and Comparators

(Index -1 to 1, in 2021)

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Source: Worldwide Governance Indicators (WGI) project by D. Kaufmann (Natural Resource Governance Institute and Brookings Institution) and A. Kraay (World Bank).Note: Country acronyms are ISO3. CAM = Central America and Mexico; CAR = Caribbean Countries; EAEM = East Asia Emerging Markets; WM = World Median. The WGI reports aggregate individual governance indicators over the period 1996–2021 for six dimensions of governance. The aggregate indicators combine the views of enterprises, citizens, and expert survey respondents. Results leverage confidence intervals to reflect uncertainty. Most inputs are perception based and thus more subjective than other economic indicators.

36. On data adequacy, Jamaica should take steps to subscribe to SDDS. This would involve addressing remaining deficiencies in data provision and standards, such as industrial production, labor market wages and earnings, and coverage of fiscal accounts at the general government level. A diagnosis on these necessary steps will be conducted jointly with the IMF's Statistics Department.

F. Addressing Climate Change Challenges

37. Jamaica is strongly committed to building climate resilience. The National Development Plan provides the framework for climate change initiatives; the energy sector plan focuses on mitigation, and the water sector strategy on shifting to resilient water infrastructure. The Nationally Determined Contribution (NDC)—and sectoral plans underpinning it—outlines a strategy for adaptation and mitigation7. The authorities are also developing a National Adaptation Plan to enhance capacity to withstand the impacts of climate change. In addition, they plan to develop a strategy for Low Carbon Emissions and Climate Resilient Development (LTS) that will design options for mitigation and adaptation in an integrated framework to 2050.

38. While progress has been made, further efforts will be needed on key strategic areas. These areas comprise adaptation, mitigation, and greening the financial sector, which are summarized below and detailed in Annex III.

Adaptation: Building Physical and Fiscal Resilience

39. The authorities developed a Comprehensive Disaster Management program (CDM). The CDM introduced measures to minimize damage and amplify relief response, design recovery and rehabilitation activities; and limit the adverse impact of natural disasters and environmental degradation. The social safety net has been designed to allow a quick response to humanitarian needs after a natural disaster.

40. The fiscal policy framework to manage natural disasters has been improved. This comprises enhancements in Public Financial Management (PFM), embedding transparency and accountability in budget preparation and execution including through:

  • Legal and institutional arrangements for a swift and cost-effective financial response to natural disasters, while minimizing budget reallocations and protecting the fiscal balance.

  • A tracking system for disaster-related expenditures. The Ministry of Finance and Public Service (MOFPS) issued post-disaster budget execution guidelines for proper and timely access and allocation of funds in responding to natural disasters. With support from the IDB, the MOFPS is developing a road map to implement the climate budget tagging reform.

41. A comprehensive financing framework to provide liquidity during natural disasters has been put in place (see Annex III). The Contingencies Fund, the National Disaster Fund (NDF), the Caribbean Catastrophic Risk Insurance Facility Segregated Portfolio Company (CCRIF-SPC), the catastrophe (CAT) bond and rapid credit facilities are the key instruments to respond to natural disasters. The coverage provided of approximately 5 percent of GDP appears adequate—losses from previous natural disasters have spanned 3-8 percent of GDP.

42. The 2018 National Building Code has the potential to support green and resilient investments. It provides for construction material and practices that resist weather events such as hurricanes, storms, floods, and landslide. The government also initiated a Green Coastal Urban Renewal plan focusing on waterfront renewal to provide habitable public spaces.

43. Going forward, Jamaica would benefit from improvements in the fiscal policy framework to increase public investment and catalyze private financing for climate-resilient infrastructure. This would enhance resilience of the macro-fiscal stance to climate change and natural disaster shocks—including by adopting a fiscally sustainable disaster risks financing strategy—and foster private investment. Key steps would include:

  • Integrating climate risks into fiscal planning. The fiscal framework would benefit from quantitative appraisals of disaster risks to assess sustainability under different climate change scenarios.

  • Private participation in bearing climate risks. Jamaica has made extensive use of public-private partnership arrangements (PPP). In collaboration with the IDB and the World Bank, the PPP policy can be revised to include climate requirements from project identification to contract management, including ways to distribute the burden of contingent liabilities from natural disasters through comprehensive insurance policies.

  • Disaster Risk Financing (DRF) Policy. A new disaster risk financing policy can complement efforts on the insurance framework and inform the selection of cost-effective ex-ante financing mechanisms.

  • Natural Disaster Reserve Fund (NDRF). The NDRF should be constituted under the consolidated fund and used for catastrophic national events.8

  • Integrating climate considerations in the appraisal and selection of public investments. The MOFPS Public Investment Appraisal Branch (PIAB) should assess the inclusion of climate risks assessment at project pre-appraisal (concept) and appraisal (proposal) stage, for those infrastructure projects identified at pre-appraisal phase as medium/high risk.

Strengthening Mitigation, Promoting Renewables

44. Jamaica has made progress implementing its NDC. The government is shifting street lighting to energy efficient LED bulbs and deploying low-carbon public buses—supported by the IDB. The National Tree Planting Program has started but requires further financing. Finally, the Energy Efficiency and Conservation Program (EECP) has supported retrofitting of government facilities and the Energy Management and Efficiency Programme (EMEP) promotes energy efficiency and conservation. Finally, legislation has been approved to simplify permitting for renewable power generation and the sale of surpluses to the national grid (net billing).

45. Going forward, increasing renewable sources of energy appears as a critical element toward reducing emissions. Appropriate policies would help attracting private investment to support the transition to renewables and increase efficiency in the energy sector.

  • Incentives for investment in renewables. This will require legislation to incentivize investment in renewables through fiscal measures.

  • Electric vehicles policy. This would expand recent government policies and activities to incentivize electric vehicle usage to reduce emissions and the dependence on fossil fuels.9

  • Energy efficiency. Establishing procedures to reduce theft of streetlights and replace lightbulbs in schools and hospitals with low energy alternatives would be instrumental. This could be supplemented with measures to support efficient energy consumption, including extending the successful energy conservation program in public buildings to the private sector.

Greening the Financial Sector

46. The authorities have actively engaged in international initiatives to green the financial sector. The BOJ has engaged with: (i) the International Sustainable Banking and Finance Network to develop capacity to monitor climate risks; (ii) the Basel Consultative Group to expedite adoption of supervision of climate risks; and (iii) the Association of Supervisors of Banks of the Americas to benefit from shared experiences. The authorities also intend to develop a green bond market.

47. Developing green financial instruments and climate-related risks management can catalyze private financing and strengthen financial sector resilience. A green bond market will require a solid institutional framework to catalyze private sector and other financing for climate projects and signal commitment to reforms, while increased monitoring of climate-related risks in the financial system would help support lending to green investments. There is a need to strengthen capacity for supervision and develop risk-management guidelines for financial institutions (including scenario analysis and stress testing) while requiring systematic disclosure of climate-risks—including through better data collection.

48. Overall, reforms to address climate challenges would create additional import needs in the short term but can address external vulnerabilities over the long term. A preliminary costing exercise of climate-related projects suggests that compared with the outlook in this consultation, a scenario including reforms would depict a somewhat higher current account deficit over the next few years (about 1 percent of GDP annually) due to a larger import bill and trade deficit. It would also have a positive impact on growth, though limited by the import content of potential investments prompted by reforms. Reforms have the potential to catalyze further multilateral and private capital through FDI and other climate investment (not included in the outlook of this report).

Authorities' Views

49. The authorities agreed on the multifaceted nature of challenges to growth and noted that fostering growth is a priority. They emphasized that pursuing policies that prioritize macroeconomic stability by securing debt sustainability will contribute to the strengthening of growth prospects. Their view is that structural reforms will eventually change the growth trend, but looking at lessons from history, the challenges they faced in terms of growth are notably related to its volatility, associated with recurrent crises. Hence, while they cannot control shocks, the authorities are working towards reducing vulnerabilities that will make them resilient to these shocks— lessening volatility—and reducing financing cost for the economy. On climate change issues, the authorities noted that staff's analysis is consistent with their diagnosis, as well as their policies and goals. Furthermore, they emphasized that reforms to address climate challenges also have the potential to reduce growth volatility.

Staff Appraisal

50. Jamaica's strong track record of building institutions and prioritizing macroeconomic stability is helping the country face a difficult global environment. Jamaica has reduced public debt, inflation, and external deficits. It has institutionalized fiscal discipline through a Fiscal Responsibility Law (FRL), moved to inflation targeting and a floating exchange rate regime, built international reserves, and strengthened financial oversight. These efforts have helped Jamaica to navigate successfully the pandemic and other recent global shocks.

51. The economy continues a gradual post-pandemic recovery. The recovery is supported by a rebound in tourism and its spillovers to other sectors. The external position is assessed to be broadly in line with the level implied by medium-term fundamentals and desirable policies, and international reserves are adequate. Risks from higher commodity prices, tighter-than-envisaged global financial conditions, and new COVID outbreaks loom large while natural disasters pose ever-present risks.

52. Maintaining the currently planned path for the primary balance remains essential to decreasing public debt over the medium term. The prompt post-COVID fiscal consolidation has successfully brought public debt back to pre-pandemic levels. The large primary surpluses in the MTFF coupled with the authorities' commitment to the ongoing monetary policy tightening should further enhance debt sustainability, curb inflation, and create space to respond to future shocks. Within this prudent fiscal envelope, resources will need to be identified for climate-resilient infrastructure, and investments in health, security and education.

53. The authorities continue to improve the fiscal policy framework. The recently established Fiscal Commission will strengthen the fiscal responsibility framework through an independent assessment of the consistency of policies with the FRL. Reforms of the wage structure—financed within the existing fiscal envelope—will create a standardized and equitable pay structure that rewards performance and helps retain skilled workers. The authorities should continue strengthening tax and customs administration and public financial management systems.

54. Important progress is being made in adopting Basel III and the expanding the supervisory perimeter to credit unions. Efforts to improve crisis management, consolidated supervision, and the AML/CFT framework should continue. Going forward, Jamaica would benefit from further efforts to deepen FX markets by gradually reducing surrender requirements and aligning Net Open Position limits with macroprudential objectives. The benefits of Jamaica's CBDC are still nascent. The authorities have requested approval of the existing MCP. Staff supports the request, as the measure is imposed for non-balance of payments reasons and does not materially impede balance of payment adjustments, harm the interest of other members, or discriminate among members.

55. A multipronged approach is required to overcome supply side constraints to growth. Education and training need to become more effective and attuned to labor market needs; infrastructure, logistics, and digitalization of government services would benefit from an upgrade. Energy generation should shift towards renewables. Continuing to focus on policing and community engagement would help reduce crime; and barriers to trade could be lowered. To promote social inclusion, efforts to strengthen the cash transfer program should continue. Evidence-based policy making would benefit from improvements in data quality and timeliness, which would require addressing remaining issues in data standards to subscribe to SDDS.

56. Reforms to address the challenges posed by climate change can reduce long-term vulnerabilities. Building on Jamaica's NDCs and a preliminary work on a national adaptation strategy, reforms should aim to enhance policy frameworks to strengthen physical and fiscal resilience, create incentives to increase renewable sources of energy and reduce energy consumption, develop markets for green financial instruments, and ensure that climate risks are properly recognized and managed by financial intermediaries. Reducing Jamaica's susceptibility to natural disasters and other negative effects of climate change would help catalyze private sector financing for climate-related investment in many areas.

57. It is recommended that the next Article IV consultation takes place on the standard 12-month cycle.

Figure 1.
Figure 1.

Jamaica: Real Sector Developments

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Figure 2.
Figure 2.

Jamaica: Fiscal Sector Developments

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Sources: Jamaican and IMF staff calculations.
Figure 3.
Figure 3.

Jamaica: External Sector Developments

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Figure 4.
Figure 4.

Jamaica: Monetary and Financial Sector Developments

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Sources: Jamaican and IMF staff calculations.
Table 1a.

Jamaica: Selected Economic Indicators (Fiscal Year) 1/

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

Fiscal years run from April 1 to March 31. Authorities' budgets presented according to IMF definitions.

As of January in each period.

Consolidated central government and public bodies' debt, consistent with the Fiscal Responsibility Law.

Table 1b.

Jamaica: Selected Economic Indicators (Calendar Year) 1/

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

Government operations presented on a fiscal-year basis. Fiscal year runs from April 1 to March 31.

Consolidated central government and public bodies' debt, consistent with the Fiscal Responsibility Law.

Table 2a.

Jamaica: Summary of Central Government Operations

(In millions of Jamaican dollars)

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Sources: Jamaican authorities and Fund staff estimates and projections.

Gross financing needs and sources are for the central government.

Consolidated central government and public bodies' debt, consistent with the Fiscal Responsibility Law.

Table 2b.

Jamaica: Summary of Central Government Operations

(In percent of GDP)

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Sources: Jamaican authorities and Fund staff estimates and projections.

Consolidated central government and public bodies' debt, consistent with the Fiscal Responsibility Law.

Table 3.

Jamaica: Summary of Balance of Payments

(In millions of U.S. dollars)

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Sources: Jamaican authorities; and Fund staff estimates.
Table 4.

Jamaica: Summary Monetary Survey 1/2/

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Sources: Bank of Jamaica; and Fund staff estimates and projections.

The authorities also compile and diseminate monetary data on the basis of the 2016 MFSMCG.

Fiscal year runs from April 1 to March 31. The authorities compile and disseminate monetary data on the basis of the 2000 MFS manual.

Table 5.

Jamaica: Financial Soundness Indicators 1/

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Source: Bank of Jamaica.

Commercial banks, building societies, and merchant banks.

Percent of prescribed liabilities.

The significant increase in profitability for 2011 is due to an up-stream dividend from one insurance subsidiary to its parent bank. Without such dividend pre-tax profit margin and return on average assets would be 18.1 and 2.3 percent, respectively. For March, June, September: calendar quarter values.

Table 6.

Jamaica: Indicators of Fund Credit 2022–30 1/

(In millions of SDRs, unless otherwise indicated)

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Source: IMF staff estimates and projections.

Based on the GRA rate of charge of [3.155] percent as of [November 13, 2022].

Annex I. Progress on 2021 Article IV Policy Recommendations

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Annex II. Risk Assessment Matrix1

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Annex III. Building Resilience to Natural Disasters and Climate Change

Jamaica is implementing a multipronged strategy to address climate risks by reducing vulnerabilities in physical infrastructure, the financial system, and the fiscal and external positions to the effects of climate change. The strategy includes both adaptation and mitigation measures.

A. Jamaica's Exposure to Climate Change Risks

1. Jamaica's geographical and socio-economic characteristics make it highly vulnerable to the impacts of climate change. Jamaica ranks 47th out of 191 countries in the 2023 Inform Risk index. Average temperature levels in the country have risen steadily over the last several decades and are projected to increase further in the future. In a business-as-usual (BAU) global emission scenario (RCP 4.5)1, Jamaica is projected to face a 1.54°C increase of mean temperature by 2100 relative to the 1986–2005 baseline2. This would likely result in increased frequency of prolonged high heat and drought. The frequency of tropical storms or hurricanes is expected to remain steady while their intensity will increase with extreme rainfalls, high wind speed, flooding, and increased damages3. Additionally, sea level is rising and threatening Jamaica's infrastructure and population that are concentrated in the coastal areas. According to the 2020 ND-GAIN Vulnerability Index4, climate change and natural disasters in Jamaica affect the costal, energy and transport infrastructure, as well as urban areas (buildings, water supply and sanitation, etc.).

2. Jamaica's high vulnerability to natural disasters poses substantial risk to the country's economic outlook. Jamaica has suffered high and sustained damages from natural disasters over the past several decades.5 Hydrometeorological events (floods, tropical storms, hurricanes etc.) have been the most prominent hazards in Jamaica. The number of storms passing by or directly affecting Jamaica in the 2000s has been at its highest since 1940-19596. Hurricanes Ivan (2004) and Dean (2007) caused damages of US$580 million and US$329 million each (or 8 and 3 percent of GDP, respectively). In 2010, tropical storm Nicole was an important reminder of a persisting vulnerability to natural disasters, causing damages of US$239 million (or 2 percent of GDP).7 Looking ahead, the expected damages from the hydrometeorological events would also be significant. For one in 100 years type of event, the fiscal losses are expected to exceed US$ 1,729 million (roughly about 10 percent of GDP); in other words, there is one percent probability in any year that losses will exceed US$ 1,729 million from such an event.

3. Climate change and natural disasters threaten Jamaica's external sustainability. The tourism sector is highly sensitive to the effects of climate change and tourism-related BOP inflows are equivalent to some 20 percent of GDP. Tourism dynamics also weigh heavily on economic outcomes given its interconnectedness with other sectors, such as the retail trade, construction, agriculture, and other services. Frequent, severe, and persistent natural disasters would likely sharply reduce tourist arrivals, devalue the capital base of the industry, affect the nature-based tourism assets on the island, disrupt the inflows of foreign exchange, and trigger unplanned fiscal expenditures. They would also impact other sectors of the economy, especially agriculture which already is coping with higher temperatures, rising sea levels, and volatile precipitation patterns.8 Those impacts may result in lower agricultural productivity, further constraining availability and quality of food, energy, and water.

4. Jamaica's contribution to the world-wide greenhouse gases (GHG) emissions is insignificant but its dependence on fossil fuels imports for energy generation calls for a transition to renewables. In 2020, Jamaica contributed to less than 0.03 percent of total GHG emissions and below other Caribbean comparators. However, Jamaica's dependence on fossil fuel imports exposes it to volatility in international commodity prices. This vulnerability can exacerbate balance of payment shocks and compromise fiscal sustainability. In FY 2021/22, fuel commodity imports represented 11 percent of GDP and were twice the level of Jamaica's goods exports. Over 85 percent of Jamaica's electricity production is derived from fossil fuel mostly heavy fuel oil. Mass public transportation is underdeveloped and there is over-reliance on cars and taxis, which leads to high per capita petrol consumption compared to regional peers. The high fuel import bill and the related inflationary pressures following the war in Ukraine highlight the need to expeditiously transition to renewable energy.

B. Jamaica's National Climate Change Strategy

5. Over the past few decades Jamaica has developed a comprehensive policy framework which sets out a set of measures and targets to mitigate and adapt to climate change. The Vision 2030 Jamaica-National Development Plan defines the country's long-term strategic development goals towards inclusive and sustainable growth. The 2030 Vision rests on the foundation of three dimensions of sustainable development—social, economic, and environmental—as well as on equity and inclusiveness considerations.9 The Climate Change Policy Framework for Jamaica was promulgated in 2015 and recently updated in 2021, with the goal of creating a sustainable mechanism for integrating climate change considerations in governance systems (institution arrangement, polices, plans, etc.)10. The country submitted its Intended Nationally Determined Contribution (NDC) in November 2016 and ratified the Paris Agreement in April 2017, further signaling its commitment to enhance climate action. The initial NDC which was enshrined in the National Energy Policy (2009-2030) highlighting the importance of national adaptation planning. In 2019, the government adopted the Integrated Resource Plan (IRP)—a comprehensive decision support tool and a road map for achieving Jamaica's objectives to transition to renewable energy over a 20-year period. In June 2020, Jamaica submitted an updated and more ambitious NDC (Table 1 below)11. In August 2021, Jamaica launched its NDC Implementation Plan12.

6. Jamaica is advancing with the adaptation and disaster financing policy as well. Jamaica is developing its first National Adaptation Plan (NAP) comprising a comprehensive adaptation implementation roadmap and investment plan. In addition, the authorities are developing a National Disaster Risk Financing Policy that provides a menu of financing options the Government can draw upon to respond readily to natural disasters.

7. The NDC targets emissions reductions of between 25.4 percent and 28.5 percent (with external assistance) relative to business-as-usual by 2030. About 80 percent of the reductions are expected to come from the energy sector through a large-scale ramp of renewables in the power sector as well as improved energy efficiency across all major energy consuming sectors. The rest will come from the land use change and forestry sector when measures such as the 'No Net Loss of Forestry' commitment and the tree planting are completed.

uA001fig10

Emission Trends (2020-2030)

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Source: 2020 NDC

C. Jamaica's Climate Change Agenda: Implementation to Date and Priorities Going Forward

Building Fiscal and Physical Resilience to Natural Disasters and Climate Change

8. Implementation to Date. Jamaica has made progress in addressing natural disasters and strengthening climate resilience through measures designed to reinforce fiscal stability, mitigate financial risks, create more responsive budgetary mechanisms, and strengthen the public investment management.

  • The institutional framework and high-level provisions for the management and mitigation of disasters are well laid out in the 2015 Disaster Risk Management (DRM) Act. The Act establishes the National Disaster Risks Management Council, chaired by the Prime Minister, as the overseeing body. The Office of Disaster Preparedness and Emergency Management (ODPEM), located in the Ministry of Local Government and Development, is the executive arm in charge of coordinating the development and implementation of the integrated disaster preparedness and management systems. The Act also establishes the National Disaster Fund— managed by the ODPEM—to be used for upgrading and maintenance of resilient infrastructure, as well as provincial-level lower impact disasters.

  • In line with the DRM Act, the authorities developed a Comprehensive Disaster Management program (CDM). The CDM is directed by the ODPEM13. It comprises preparation and execution of: (i) activities to minimize damage and amplify relief response; (ii) recovery and rehabilitation plans; and (iii) a mitigation phase when structural and non-structural measures are undertaken to limit the adverse impact of natural disasters, environmental degradation, and technological hazards. The social safety net is fairly developed and allows for a quick response to humanitarian needs after a natural disaster. During COVID, Jamaica demonstrated sound procedures and relatively efficient institutions in providing support for the population.

  • In November 2018, Jamaica's Cabinet approved a Public Financial Management (PFM) policy framework for natural disaster risk financing. The framework aims to bolster financial resilience by developing sound legal and institutional arrangements for mounting a swift and cost-effective financial response to natural disasters, while minimizing budget reallocations and protecting the fiscal balance. The framework also addresses the need to identify, monitor, and mitigate all sources of contingent liabilities associated with Public Private Partnerships (PPP), as well as fiscal risks due to natural disasters.

  • A comprehensive financing framework to provide liquidity during natural disasters has been put in place. A combination of budget instruments, disaster risk insurance and contingent line of credit from International Financial Institutions (IFIs) provides a safety net Jamaica can rely upon when a disaster strikes: (i) the Contingencies Fund has been established under the Constitution and operationalized in Section 13 of the Fiscal Administration and Audit Act (FAA) to provide for unforeseen expenditure of any kind, including but not limited to disasters14. This is the main budget instrument for the government to finance post-disaster expenditures. The aggregate ceiling of the Contingencies Fund was raised from J$100 million (US$652 thousand) to J$10 billion in 2019 (US$ 65.12 million), to provide space for expenses related to natural-disaster risk coverage; (ii) the National Disaster Fund (NDF) has been established under Part IX of the DRM Act. The NDF is intended for projects that mitigate, prevent, prepare for, respond to, and recover from emergencies and disasters and that provide financial assistance to households for relief and recovery from a disaster. The NDF is currently capitalized at US$ 2.2 million and has historically received an annual injection of around J$500 million (US$3.2 million). The authorities are considering shifting the focus of the NDF to local events and making prominently the ex-ante use of the Fund; (iii) Jamaica is a member of the regional catastrophe insurance platform, the Caribbean Catastrophic Risk Insurance Facility (CCRIF)15. CCRIF offers its members quick-disbursing, parameter-based insurance cover against disaster hazards. Annual CCRIF insurance premia of around US$16mn/year, are mostly financed through the development partners (for instance USAID) with the GOJ contributing a small but over time increasing share of the premia. In 2021, insured hazards were earthquakes, tropical cyclones, and floods, with coverage up to US$ 248.7million; (iv) the country is the first small island state to independently sponsor a catastrophe bond (CAT bond) with the assistance of the World Bank's Capital-At-Risk notes program.16 The bond was placed in July 2021, securing US$185 million of disaster insurance protection from capital markets17; and (v) Rapid credit facilities have been also made available to the country. Liquidity needs have been met through the IFIs in the past, including by relying on the IDB (US$ 285 million remain available) and the IMF's Rapid Financing Instrument.

  • Transparency and accountability for natural disaster and climate resilience spending is embeded in budget preparation and execution. While not used uniformly and consistently across the government agencies, the budget program—disaster management—allows to track disaster-related expenditures incurred by budget units. In 2019, the Ministry of Finance and Public Service (MOFPS) issued post-disaster budget execution guidelines for proper and timely access and allocation of funds in post-disaster situations. The guidelines specify instruments, disbursement modalities, and the financial procedures to be followed in accordanace with the existing disaster-related legislation and the Financial Administration and Audit Act. These guidelines are a key aspect of the PFM Policy Framework for Natural Disaster Risk Financing. The MOFPS is also planning to adopt climate budget tagging with the support of the IDB.

  • Green and resilient public investments have been included on the agenda to facilitate adaptation and mitigation to climate change. Sectoral plans and strategies are well aligned with the objectives and priorities of the NDC. While Vision 2030 Jamaica—the National Development Plan—is the overarching framework for sustainable development and climate change in Jamaica, the energy sector plan focuses largely on climate change mitigation and the transport sector strategy addresses green and resilient transport infrastructure.18 One important measure was also the promulgation of the 2018 Building Act and the related Code. The National Building Code was adopted in 2018 and came into operation in January 2019. The code comprises the International Building Code (IBC) together with 11 documents describing standards of specification. The IBC provides for construction material and construction practices that resist extreme weather events such as hurricanes, storm surges, floods, and landslide. The code also addresses concerns related to energy mitigation through improving energy efficiency in public buildings. However, many settlements remain outside the formal planning system and likley do not meet building standards19. The government also initiated a Green Coastal Urban Renewal plan focusing on waterfront renewal that provides sustainable habitable public spaces for recreation along prominent waterfront areas, coastal revetments and sea walls that protect against erosion and flooding from wave action, storm surges, and currents, and relocation of vulnerable communities.

9. Priority Measures Going Forward. The authorities aim to increase resilience of the country 's macro-fiscal stance to climate change and natural disaster shocks including by adopting a fiscally sustainable disaster risks financing strategy and mechanisms and by fostering climate smart public investment.

  • Integrate climate risks into fiscal planning. The examination of risk management at MOFPS is primarily focused on control and governance arrangement for public entities such as public corporations and extra-budgetary units. The MOFPS plans to introduce quantitative assessments of disaster risks in the fiscal policy paper by assessing long-term fiscal sustainability under different climate change scenarios.

  • Add climate change requirements into the PPP legal framework. Jamaica has made extensive use of public-private partnership (PPP) arrangements since 201120. In collaboration with the Inter-American Development Bank (IADB) and the World Bank (WB), work is advancing to amend the existing policy and regulatory framework to include climate requirements in PPP project agreements from project identification to contract management including comprehensive insurance policies to distribute among the PPP partners the burden of contingent liabilities related to natural disasters.

  • Adopt the National Natural Disaster Risk Financing (DRF) Policy. The diversity of financial coverage tools available in Jamaica in case of disasters reflects its strategic approach to DRM financing but it appears to be based more on opportunities than on a robust assessment of explicit and implicit contingent liabilities. Work is ongoing to develop a policy framework for disaster risk financing, with assistance from the WB to inform the selection of the most cost-effective ex-ante financing mechanisms.

  • Establishment and operationalization of a National Natural Disaster Reserve Fund (NDRF). The NDRF will be constituted under the consolidated fund and used for relief financing in case of catastrophic national level events. It will also be eligible for external financing.

  • Integrating climate considerations in the appraisal and selection of public investments. The PIAB in the MOFPS developed template for the MDAs submission of the project concept and proposal. The templates require a screening of climate hazards—using the Caribbean Climate Online Risk & Adaptation Tool (CCORAL)—at project concept stage. The PIAB is planning to adopt a methodology for inclusion of climate impact assessments at a project pre-appraisal (concept) and appraisal (proposal) stage, for infrastructure projects identified at a screening phase as medium or high risk. Inclusion of climate considerations at the pre-appraisal and the appraisal stage will improve the prioritization and allocation of fiscal resources.

A Climate Public Investment Management Assessment (C-PIMA) is ongoing to further assessment of the reforms' progress and the feasibility and robustness of the priority measures.

Strengthening Mitigation, Promoting Renewables

10. Implementation to Date. Jamaica has made some progress in the implementation of the NDC, including introducing electric buses, enhancing energy efficiency, and advancing tree planting.

  • LED street lighting installation—targets replacement of the streetlights with energy efficient LED. In 2021, the replacement reached 80 percent of streetlights. There were upfront costs of some US$30 million, and international support provided by the Caribbean Development Bank through TA and a US$25 million funding. The initiative is to be extended to the underlit areas and through a development of a smart city roadmap with assistance from the US Trade and Development Agency.

  • Deployment of low-carbon public buses (2020-2025) in the Montego Bay and St. James Parish— 20 buses deployed as of 2021. By 2025, 136 buses are to be in service. The project requires US$30 million financing yet to be secured plus a financing for supportive infrastructure. The project is supported by IDB's TA.

  • National Tree Planting—about 1/2 million seedlings were planted by end-2021. The US$2 million project is advancing with pledges to plant another 3/4 million seedlings. Further support from private sector and/or international sponsors is needed for the success of the project.

  • Several externally funded projects are progressing well. The Energy Efficiency & Conservation Program (EECP) has supported retrofitting of many government facilities—including public health, administrative and educational buildings—and facilitated training in best practices for energy efficiency and conservation. It concluded in 2018. The Energy Management and Efficiency Programme in Jamaica (EMEP) promotes energy efficiency and conservation.21 The EMEP is a key element of the National Development Plan Vision 2030 and the guide for government's energy efficiency and conservation policies. The EMEP Urban Traffic Management System was launched in May 2021.22 It is expected to ease urban mobility and raise fuel efficiency in the Kingston Metropolitan Area, Spanish Town, and Portmore. This should decrease demand for gasoline and lower oil imports.

11. Priorities Going Forward. The authorities plan to attract private sector investment to support the transition to renewables and increase efficiency in both energy generation, transmission, and consumption.

  • Incentives for investment in renewables. The authorities intend to develop legislation to incentivize investment in renewables through fiscal measures like feebates or support for renewables.

  • Electric vehicles. The Cabinet approved the Strategic framework for electric mobility developed in conjunction with the IDB. On the base of the framework, the authorities intend to develop an electric vehicle policy that sets functional standards and regulations for electric mobility, defines energy sector guidelines for electric mobility accommodation, develop operational codes to promote adoption of electric vehicles, and sets guidelines for the development of an electric mobility ecosystem.23

  • Energy efficiency. Policies and procedures to reduce theft of streetlights, replace existing lightbulbs in schools and hospitals with low energy alternatives24 and secure inventory of energy-efficient lightbulbs. The government will introduce new reporting, monitoring, and evaluation procedures to ensure efficient application of the replacement process. This initiative would be supplemented with measures to support efficient energy consumption, which could include extending the successful energy conservation program in public buildings to the private sector through incentives to replace air-conditioning equipment with heat exchange units such as heat-pumps and other green oriented technology.

Greening the Financial Sector

12. Implementation to Date. In 2022 the Central Bank of Jamaica (BOJ) joined the International Sustainable Banking and Finance Network (SBFN)25 to better develop capacity to monitor climate change risks in line with best practices. The BOJ has been engaged by the Basel Consultative Group to participate in its proportionality workstream with a view to expedite adoption of the supervision of the climate adoption risks.26 The BOJ is also a member of the Association of Supervisors of Banks of the Americas27 and it will consider becoming a member of the Network for Greening the Financial System (NGFS).28, 29 The Financial Stability Commission, at end-2021, adopted a risk-based supervision framework which recognizes the importance of accounting for the climate related risks. The FSC expect to be able, where relevant, to consider such risk when profiling an entity. The FSC encourages its licensees and registrants to adopt the recommendations of the Financial Stability Board's Task Force on Climate related Financial Disclosures (TCFD). It expects that financial institutions should have in place frameworks to factor in the governance, strategy, risk management, and metrics and targets related to climate risk issues.

13. Priorities Going Forward. The authorities plan to develop green financial instruments and the capacity for management of climate-related risks to enhance financial sector resilience and help scale up climate financing. Critical elements in this process will involve: (i) allocation of adequate resources and the building of internal capacity for supervision of climate risks; (ii) setting expectations (guidelines) for financial institutions on governance and strategy, risk management, scenario analysis and stress testing, and disclosure of climate-risks; and (iii) improvements in data collection from financial institutions to better monitor their exposure to climate-related risks.

  • Green bonds30. The authorities intend to develop a green bond market to mobilize private sector financing for climate adaptation and emission reduction projects—these bonds would also signal commitment to address the impact of climate change and may catalyze other financing. The authorities will assess the convenience of issuance at an early stage in the adoption of reforms or when the conceptualization reaches its mature stage—an early issuance might be helpful if it locks in private sector interest in the projects and stresses the authorities' own commitment to them.

  • The authorities will build capacity to monitor climate change risks in the financial system. BOJ has partnered with the Agence Française de Développement (AFD) to green the Jamaican Financial System. The project comprises two phases, with funding provided by the AFD (phase 1) and the European Union Caribbean Investment Fund (CIF) (phase 2):

    • The first phase will focus on building capacity at the BOJ and the FSC to incorporate Climate-Related Financial Risks (CRFR) into their risk-based supervision, risk monitoring, and evaluation practices. The BOJ will engage a consultant to assess the climate-related financial risks. The consultant's report will outline the national policies/regulatory framework and provide a diagnostic of climate risk considerations in the Jamaican financial system. This will be followed by an adoption of a monitoring framework, including identification of key risks and related monitorable indicators. Supported by the monitoring framework, a detailed guidance on the data required to measure exposures and conduct stress tests will be developed. Finally, a report outlining the recommendations for the implementation of climate stress testing, and the governance and regulatory regime in the Jamaican financial system will be completed.

    • Phase 2 will focus on the integration of climate risks in supervision and macroprudential policy formulation, which is expected to continue over the next four years. These activities will comprise conducting climate related stress tests, developing a monitoring framework to manage risks, and building capacity at the BOJ and the FSC for on-going assessment of climate-related risks.

Table 1.

Jamaica: NDC (2020–30) at a Glance

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Source: World Bank, Jamaica's NDC Implementation Plan, Washington DC, August 2021.

References

Annex IV. External Sector Assessment

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Annex V. Debt Sustainability Analysis

Jamaica's public debt is sustainable. Underpinned by the authorities' sustained efforts in fiscal consolidation, public debt declined to 94 percent of GDP in FY2021/22 and is on a downward trajectory in line with the Fiscal Responsibility Law debt target of 60 percent of GDP by FY2027/28. The authorities have been proactive in reducing near-term gross financing needs with prudent debt management policies and debt buybacks. Debt dynamics remain vulnerable to the uncertainties surrounding the global commodity shocks, natural disasters, and the realization of contingent liabilities from public bodies.1

1. Jamaica's public debt has been declining steadily as a result of strong fiscal consolidation efforts, and prudent debt management. Jamaica's public debt fell from 110 percent of GDP in FY 2020/21 to 94 percent in FY2021/22. Debt reduction efforts resumed promptly following the pandemic. The authorities are committed to bringing public debt below 60 percent of GDP by FY2027/28, although with a modest (two-year) delay from the original FY2025/26 target date under the Fiscal Responsibility Law.

2. The baseline scenario of the DSA reflects the medium-term macroeconomic assumptions, and fiscal targets stipulated under the fiscal rule. Following the recovery from the pandemic, growth is expected to converge to its potential over the medium-term, and inflation to the target range amid fading commodity markets. While inflation has risen above the central bank's target range as a result of result of rising global food and energy prices, and global supply-chain shortages, it is expected to recede to 5 percent over the medium-term. Fiscal balance is expected to be around 0.5 percent of GDP in the near term, in line with the MTFF and FRL targets. Over the medium-term fiscal balances are projected to rise to 1.5-2 percent of GDP to bring debt down to the FRL target of 60 percent of GDP by FY 2027/28. Interest rates are assumed to increase by 100 basis points in FY 2022/23. Interest payments are projected to fall in line with retiring of maturing bonds. External debt projections are based on projected increases in the current account deficit of around 11/4 percent of GDP over the medium term and planned disbursements of project loans by multilateral and bilateral creditors.

3. Jamaica faces modest near-term gross financing needs. External debt stood at 61 percent of GDP at end of FY2021/22 and is predominantly owed to private creditors (58 percent). Most of the external debt is denominated in US dollars (98 percent). In terms of maturity profile, 35 percent of the external debt is medium term (1-5 years) and 55 percent is long-term (over 5 years), and as such the rollover risks remain contained and gross financing needs over the medium-term are modest.

4. The authorities have been proactive in their debt management strategy to mitigate market-related costs and risks. In 2019, the Government of Jamaica conducted buybacks of outstanding global bonds coming due in 2022, 2025, and 2028, totaling around US$1 billion. These buybacks together with new bond issuances through the reopening of the global bond coming due in 2045 led to substantial maturity extension. As part of their medium- term debt strategy, the authorities plan to continue to conduct opportunistic liability management operations (LMOs) to further mitigate costs and risks in public debt portfolio. The public debt risk profile would also benefit from plans to reduce reliance on FX-denominated borrowing, while further developing the local currency bond market over the medium term.

5. The profile of public debt poses limited risk. Domestic debt (mostly treasury bills and bonds) accounted for about 35 percent of the central government debt. External debt consisted of multilateral loans (22 percent of the central government debt), bilateral loans (5 percent), international sovereign bonds (38 percent), and nonresidents' holdings of treasury bills and bonds (3 percent). The evolution of public debt holders has shifted towards a more evenly distributed creditor base, and the sovereign-financial sector interconnectedness has been reduced over the years. The 2010 and 2013 debt restructurings resulted in a large reduction in debt service as short- term debt was swapped with long-term debt or discounted, and the restructured securities have longer grace period and maturity accompanied by low interest rates. In addition, the debt buybacks of outstanding global bonds coming due in 2022, 2025, and 2028, have also drastically lowered the gross financing needs over the medium-term. Principal payments associated with restructured external debt will resume only from 2025 onwards.

Medium-Term Risk Analyses

6. The medium-term risk analysis is low consistent with mechanical signals.

  • Fan chart. Debt fan chart index–measuring medium-term solvency risks –indicates a high risk with the score at 1.5, which is moderate. The baseline debt trajectory and the fan are on a downward trend, and the probability of debt not stabilizing is assessed to be limited. Overall, solvency risks should be contained with continuous fiscal consolidation and a gradual economic recovery. However, this assessment is susceptible to other economic shocks, including the re- emergence of COVID-19, natural disasters, and a global economic downturn.

  • Gross Financing Needs (GFN). The GFN finance ability index—measuring medium-term liquidity risks—indicates a low risk with the score of 6.4 (below the low-risk threshold of 7.6). Medium-term GFN is expected to gradually come down as fiscal consolidation progresses. Additionally, there are limited roll-over risks in the medium-term since the authorities have extended maturity of the existing debt though issuance of 2045 bonds.

Long-Term Risk Analyses

7. Long-term risk is assessed to be moderate. The large amortization module shows gradual declines in GFN and debt relative to GDP both under the baseline and custom scenarios. Climate- related expenditure are manageable and would not significantly impact debt sustainability in the long run even under the customized scenario where an additional 0.5 percent of GDP expenditure is added in the baseline, which is preliminarily estimated to address both adaptation and mitigation investment needs. While the current healthcare expenditure policies would not pose significant sustainability concerns, pension expenditures under the current system would lead to larger GFNs and an upwards debt trajectory in the long run. This points to the need to undertake parametric reforms of the current public pension system.

8. Jamaica's public debt is assessed to be sustainable with a high probability. The projected debt trajectory remains vulnerable to the high degree of uncertainty from the size and duration of the ensuing global shocks and the associated risks to growth, interest rates, exchange rate and fiscal revenues. However, the strong policy track record, the authorities' commitment to meet the medium-term debt target sooner should growth overperform, and prudent debt management mitigate potential risks.

Table 1.

Jamaica: Decomposition of Public Debt and Debt Service by Creditor, 2022–2024 1/

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As reported by Country authorities according to their classification of creditors, including by official and commercial. Debt coverage is the same as the DSA.

Some public debt is not shown in the table due to [confidentiality clauses/capacity constraints].(Include for all creditor groups where applicable)

Multilateral creditors” are simply institutions with more than one official shareholder and may not necessarily align with creditor classification under other IMF policies (e.g. Lending

Debt is collateralized when the creditor has rights over an asset or revenue stream that would allow it, if the borrower defaults on its payment obligations, to rely on the asset or revenue stream to secure repayment of the debt. Collateralization entails a borrower granting liens over specific existing assets or future receivables to a lender as security against repayment of the loan. Collateral is “unrelated” when it has no relationship to a project financed by the loan. An example would be borrowing to finance the budget deficit, collateralized by oil revenue receipts. See the joint IMF-World Bank note for the G20 “Collateralized Transactions: Key Considerations for Public Lenders and Borrowers” for a discussion of issues

Includes other-one off guarantees not included in publicly guaranteed debt (e.g. credit lines) and other explicit contingent liabilities not elsewhere classified (e.g. potential legal claims, payments resulting from PPP arrangements).

Table 2.

Jamaica: Risk of Sovereign Stress

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Source: Fund staff. Note: The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress w ithout its debt necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and new financing.

The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published.

A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted bef ore publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt (“with high probability” or “but not with high probability”) is deleted bef ore publication.

Figure 1.
Figure 1.

Jamaica: Debt Coverage and Disclosures

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

1/ CG=Central government; GG=General government; NFPS=Nonfinancial public sector; PS=Public sector.2/ Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.3/ Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities.4/ Includes accrual recording, commitment basis, due for payment, etc.5/ Nominal value at any moment in time is the amount the debtor owes to the creditor. It reflects the value of the instrument at creation and subsequent economic flows (such as transactions, exchange rate, and other valuation changes other than market price changes, and other volume changes).6/ The face value of a debt instrument is the undiscounted amount of principal to be paid at (or before) maturity.7/ Market value of debt instruments is the value as if they were acquired in market transactions on the balance sheet reporting date (reference date). Only traded debt securities have observed market values.Commentary: The DSA covers debt issued by central government, public bodies and debt guaranteed by central governemnt. The authorites are improving coverage and quality of public debt data, including expanding the coverage to general government.
Figure 2.
Figure 2.

Jamaica: Public Debt Structure Indicators

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Table 3.

Jamaica: Baseline Scenario

(Percent of GDP unless indicated otherwise)

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Figure 3.
Figure 3.

Jamaica: Realism of Baseline Assumptions

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Source : IMF Staff.1/ Projections made in the October and April WEO vintage.2/ Data cover annual obervations from 1990 to 2019 for MAC advanced and emerging economies. Percent of sample on vertical axis.3/ Starting point reflects the team's assessment of the initial overvaluation from EBA (or EBA-Lite).
Figure 4.
Figure 4.

Jamaica: Medium-Term Risk Analysis

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Figure 5.
Figure 5.
Figure 5.

Jamaica: Long-Term Risk Analysis

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Table 4.

Jamaica: External Debt Sustainability Framework, 2017–2027

(In fiscal year in percent of GDP, unless otherwise indicated)

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Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Figure 6.
Figure 6.

Jamaica: External Debt Sustainability: Bound Tests 1/ 2/

Citation: IMF Staff Country Reports 2023, 083; 10.5089/9798400233173.002.A001

Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2023.

Annex VI. Capacity Development Strategy

Further developing institutional and analytical capacity and building on the progress made under two successful IMF-supported programs are key priorities for Jamaica over the medium term. This includes strengthening the governance framework (notably in AML/CFT), supporting the implementation of Jamaica's inflation targeting framework and fiscal rule, and strengthening financial sector supervision and regulation. The authorities' engagement on these issues remains strong, although capacity constraints—including at the Statistical Agency of Jamaica (STATIN) and Ministry of Finance and the Public Service (MOFPS)—have slowed progress in some areas.

Context

1. In November 2019, Jamaica graduated from 61/2 years of Fund-supported programs over two successive arrangements. CD from the Fund was extensive over this period and supported the achievement of the program's objectives. Improvements in revenue administration and tax policy contributed to a steady increase in the tax-to-GDP ratio, enhanced cash and financial management and improved treasury operations. Key reform milestones included a revised Bank of Jamaica Act and approval of legislation for an independent Fiscal Council. Customized training, including on Forecasting and Policy Analysis System (FPAS) and Financial Programming and Policies (FPP), was also provided to strengthen the analytical capacity of multiple institutions. Table 2 shows CD missions that took place since January 2018 and tentatively planned missions for 2021/22, highlighting how Jamaica will remain a heavy user of CD going forward, calling for close integration between CD and Fund's engagement. CD will continue to play a key role, with the authorities to advance implementation of key reforms.

Collaboration

2. Fund's CD Engagement with Jamaica. Historically, Jamaica has had a strong CD engagement with the Fund, with critical public buy in for the reforms supported by effective communication from the authorities as well as support from civil society organizations such as the Economic Program Oversight Committee (EPOC). High staff turnover and understaffing at the MOFPS and STATIN pose risks to reform progress in key CD areas. The IMF team will remain the main channel of engagement on CD going forward, in close coordination with CARTAC and CD providers at headquarters.

3. Integration of CD in Fund's surveillance. During the program period, CD delivery was fully aligned with the authorities' reform objectives, with the country team coordinating activities. This is expected to continue, with objectives being guided by surveillance and program priorities. Country team economists and CD providers will continue to work closely together, including through joint missions, to ensure CD is effectively integrated in the overarching reform process, program reviews and Article IV consultations. Appropriate sequencing of CD across reform streams will be coordinated by the country team, in consultation with the authorities and CD providers, as necessary.

4. Collaboration with other partners remains strong, especially in the areas of disaster risk financing and social protection, where efforts with the World Bank have been coordinated closely. To support the authorities' goal of strengthening their AML/CFT framework, staff continues to engage with multilateral and bilateral donors—including with the World Bank on the National Risk Assessment and with the IDB on governance issues.

CD Priorities

5. At the conclusion of the Stand-by Arrangement in November 2019, the authorities outlined a set of priority actions focused on strengthening institutions to guard against policy reversals. These priorities, fully supported by the country team, included establishing a Fiscal Council, placing price stability at the core of BOJ legislation and operations, strengthening macro- fiscal analytical and forecasting capacity, maintaining a stable financial sector with improved risk- based supervision, and adopting a natural disaster financing strategy. Improving the effectiveness of the AML/CFT regime is now a key reform priority following Jamaica's placement on FATF list of countries under increased monitoring in June 2020. Fund's CD is expected to support these main reform areas as follows:

6. Make legislative and operational changes to enhance AML/CFT regulatory framework in line with FATF recommendations. In February 2020, Jamaica was placed by FATF on the list of countries under increasing monitoring (grey list). While progress has been made on addressing identified deficiencies—notably passage of a revised Proceeds of Crime Act and Terrorism Prevention Act and publication of the National Risk Assessment (NRA) in August 2021— that address many compliance issues, gaps remain on the technical and effectiveness front, including but not limited to bring all financial institutions and non-financial institutions under the AML/CFT regime, ensure adequate risk-based supervision of banks and non-banks, ensure that accurate and up to date beneficial ownership information is available on a timely basis, and increase the use of financial intelligence and money laundering investigations and prosecutions.

  • LEG: Financial Integrity (AML/CFT). Planned CD will continue to support the authorities' efforts to address identified deficiencies in the area of AML/CFT supervision for banks and non-banks (Cambios and microfinance sector). Fund CD has also been assisting the authorities in the review of the legal and regulatory framework, primarily addressing the preventive and supervisory AML/CFT regime, and work will continue as needed. The World Bank and the IDB have assisted the authorities with preparation of the NRA and other anti-money laundering issues.

7. Maintain fiscal discipline and strengthen institutions to achieve fiscal rule targets. Jamaica has succeeded in maintaining fiscal discipline, partly due to the fiscal rule and the strong public accountability from the civil society oversight. Going forward, achieving the debt target under the fiscal rule will require robust fiscal institutions with strong analytical capacity.

  • FAD: Public Financial Management. CD has prioritized supporting the operationalization of the Fiscal council in addition to providing guidance on potential amendments to the bill during the legislative process. The legislation was approved in 2021. And the authorities are working on the composition of the council to make it operational.

  • FAD: Revenue Administration. Recent FAD TADAT TA is assisting the authorities in improving compliance, tracking taxpayers, and in prioritizing their efforts on timeliness in filing rates and accuracy in reporting tax arrears.

  • ICD: Macro-Fiscal Frameworks. This workstream will support efforts to strengthen macro-fiscal management through enhanced analytical and forecasting capacity of the MOFPS and Planning Institute of Jamaica (PIOJ) by building on progress made through delivery of customized on-line and face-to-face Financial Programing and Policies (FPP) and Fiscal Sustainability (FS) courses— including the implementation of a Debt Dynamics Tool to inform debt management. Through a process of additional training and hands-on support, an Excel-based framework will be developed to allow MOFPS and PIOJ to develop their own comprehensive set of macroeconomic forecasts that should strengthen policy analysis and enrich discussions of projections amongst public sector entities including STATIN, and the BOJ.

8. Modernize monetary and foreign exchange frameworks and improve financial sector oversight. With the revised BOJ Act approved by Parliament, modernization efforts and improvements of data quality will be critical for BOJ to deliver on its core mandate of price stability.

  • MCM: Central bank operations and Monetary and Macroprudential Policy. CD will support the central bank to operationalize the new monetary policy committee (based on best practices from other inflation-targeting central banks), assist with policies to manage capital flows, develop tools to enhance consolidated supervision, and analyze and control cyber and fintech risks including in the context of adoption in late 2022 of the CBDC by the BOJ.

  • STA: Real sector. This workstream will support the production of high-quality and timely data that is essential for policy analysis. Supply and use tables (SUT) are significantly out of date and expenditure-based GDP estimates are only produced on an annual basis with significant lag. While the CPI expenditure weights have been updated with the 2017 Household Expenditure Survey results and published with the index series starting in January 2020. There are plans to improve the scope of the PPI by covering other industries like electricity, gas, services, among others.

Other Reform Areas

9. Other reform areas, which have benefited from important CD support in the past but are expected to require less extensive support going forward, include developing a tax administration reform strategy, strengthening the international and natural resource taxation regimes. Given the deficiencies in data dissemination including timeliness, more Fund support would be needed to improve the statistical capacity (at STATIN and MOFPS) to meet the SDDS subscription requirements.

Challenges and Mitigation Options

10. CD engagement declined during the pandemic, but the authorities have started to reengage with the team as the crisis slowly subsides. CD priorities remain unchanged and key workstreams aimed at strengthening policy frameworks and institutions are even more important now to support the recovery and the achievements of the authorities' medium-term objectives.

11. Staff and the authorities generally agree on the CD priorities, although specific workstreams have experienced some delays in the past. For example, even before the COVID-19 crisis, the macro-fiscal analysis reform area experienced frequent delays due to lack of resources and prioritization at the working level despite full support from the Minister of Finance. This has been compounded by high staff turnover and delays in integrating macroeconomic analysis units at the PIOJ and MOFPS.

12. Staff supports the BOJ efforts towards the implementation of the Basel II/III framework and risk-based supervision, including enhanced supervisory oversight of Domestically-Systemically Important Banks (DSIBs), with greater priority assigned to strengthen the regulatory and supervisory oversight of financial conglomerates and insurance groups. Staff continue to play an important role to address these issues and liaise with CD providers. Improving the effectiveness of the AML/CFT regime is a key reform priority following Jamaica's placement on the list of countries under increased monitoring.

Annex VII. Capacity Development Integration Matrix (As of August 2022)1

Table 1.

Jamaica: Reform Progress and IMF Capacity Development

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Table 2.

Jamaica: IMF Capacity Development Missions Since 2018

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1

Fiscal Year (FY) runs from April 1 to March 31.

2

The authorities developed a 4-year implementation plan for the adoption of the climate budget tagging with the support of the IDB.

3

The Auditor General's Department published audit reports of Jamaica's COVID-related spending programs: Audit of the COVID-19 Allocation of Resources for Employees (CARE) Program May 2020–Auditor General's Department; Audit of the COVID-19 Allocation of Resources for Employees (CARE) Programme June 2020 – Auditor General's Department. The integrity commission database lists all contracts (including Covid-19) awarded to companies since 2006. This can be found under: Quarterly Contract Awards (QCA) Searchable Database | Integrity Commission. The information on beneficial ownership of companies can be found under: http://procureja.gov.jm/wp-content/uploads/2022/10/COVID-19-Related-Contracts-Report.pdf.

4

Amendments to the BOJ Act took effect in April 2021, and operationalized two statutory committees, namely the Monetary Policy Committee and the Financial Policy Committee. The latter was established to enhance the BOJ's corporate governance framework, accountability, and transparency.

5

Jamaica maintains a multiple currency practice (MCP) due to the absence of a mechanism to prevent exchange rates used for the resale of FX auction funds (capped by a specified spread) by participants and the exchange rates at which such participants sell foreign exchange other than from the FX auction funds, from deviating by more than 2 percent. The IMF Executive Board granted temporary approval of this measure in February 2022 for 12 months or until the next Article IV consultation, whichever is sooner. Furthermore, according to the revised MCP policy adopted by the Board on July 1, 2022, MCPs associated with potential spreads deviation, including in Jamaica, will be considered eliminated as of April 1, 2023 (i.e., the effective date of the new policy). Staff will monitor whether official action (as defined under the new policy) gives rise to impermissible spreads under the new MCP policy.

6

BOJ will, in parallel, replace the existing requirement with Basel III mandated CARs.

7

In August 2021 the authorities—with support from the WB and the NDC partnership—developed an NDC implementation plan against which updates on commitments will be duly reported by the Climate Change Division (CCD) in the Ministry of Economic Growth and Job Creation (MEGJC). The sectoral plans embedding climate change mitigation consideration are quite recent and at early stage of implementation. Therefore, the outputs and impact of the climate change policy architecture are not measurable yet.

8

The Consolidated Fund is the principal Government account to which all government revenues must be deposited and from which expenditure, via warrants, is withdrawn. Considering that NDRF is also eligible for external financing, as for instance the CAT-bond, it is appropriate to structure the NDRF as a subaccount of the consolidated fund. The catastrophic national events would be defined in the Fiscal Administration and Audit Act (FAA).

9

Road and rail transportation represented close to 30 percent of petroleum consumption in 2017 (2020 IDB Electric Mobility Strategic Framework)

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is the staff's subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenario highlight risks that may materialize over a shorter horizon (between 12 to 18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon.

1

Representative Concentration Pathway 4.5 (RCP4.5) is one of the GHG concentration trajectories adopted by the Intergovernmental Panel on Climate Change (IPCC) that corresponds to a realistic BAU GHG emission pathway.

2

Planning Institute of Jamaica. The State of the Jamaican Climate 2019: Historical and Future Climate Changes for Jamaica, draft March 2021.

3

Planning Institute of Jamaica. The State of the Jamaican Climate 2019: Historical and Future Climate Changes for Jamaica, draft March 2021. The Intergovernmental Panel on Climate Change (IPCC). 2012. Managing the risks of extreme events and disasters to advance climate change adaptation.

4

ND-GAIN Vulnerability Index assesses the vulnerability of a country to climate change risks by considering six life- supporting sectors: food, water, health, ecosystem services, human habitat, and infrastructure.

5

To illustrate trend of damages we use the Centre for Research on the Epidemiology of Disasters' (CRED) Emergency Events Database (EM-DAT; https://www.emdat.be/) which contains data on the occurrence and effects of over 22,000 mass disasters in the world from 1900 to the present day. The database is compiled from various sources, including UN agencies, non-governmental organizations, insurance companies, research institutes and press agencies. The trends shown need to be interpreted with caution due to possible data gaps for the early decades of the last century.

6

The number of storms passing by or directly affecting Jamaica in the 2000s was 22. Planning Institute of Jamaica. The State of the Jamaican Climate 2019: Historical and Future Climate Changes for Jamaica, draft March 2021. The Intergovernmental Panel on Climate Change (IPCC). 2012. Managing the risks of extreme events and disasters to advance climate change adaptation.

7

Macro Socio-economic and Environmental Impact Assessment of Damage and Loss caused by the March to June Rains 2017, Planning Institute of Jamaica (PIOJ), PIOJ Economic and Social Survey (2017), Third National Communication (2018).

8

The Climate Change Policy Framework for Jamaica (2015) identifies agriculture as critically important for both mitigation and adaptation.

10

The 2021 Climate Change Policy has not yet been approved.

11

The updated submission aims to reduce emissions by 25-28% relative to a business-as-usual scenario by 2030. The updated NDC submission covers emissions from forestry and land use change, reflecting the importance of the forestry sector to Jamaica, which accounts for more than half of the island's total land use. In addition, the updated NDC reflects an increase in emissions reduction ambition in in the energy sector.

12

In August 2021 the authorities developed in collaboration with the WB and the NDC partnership, the NDC implementation plan. The Climate Change Division (CCD) in the Ministry of Economic Growth and Job Creation (MEGJC) will provide an update on commitments based on the NDC implementation plan. The next NDC implementation status is expected in FY2024.

14

According to article 96 of the Constitution, and Section 13 of the 2012 FAA.

15

CCRIF's parametric insurance is different from traditional indemnity insurance as it makes payments based on the intensity of a natural hazard event (e.g., hurricane wind speed, earthquake intensity, and volume of rainfall), the exposure or assets affected, and the amount of loss calculated in a pre-agreed model. CCRIF does not need to wait for on-the-ground assessments of loss and damage–unlike with indemnity insurance–to make payouts. This enables the Facility to disburse funds to governments within 14 days of an event. A CCRIF policy is triggered when the modelled loss for a hazard event equals or exceeds the attachment point selected by the country and specified in the policy contract (like a deductible in a traditional insurance contract).

16

https://www.worldbank.org/en/news/press-release/2021/07/19/world-bank-catastrophe-bond-provides-jamaica-185-million-in-storm-protection. The USAID provided US$5 million grant and US$14 million was leveraged from other donors.

17

Under this program, the World Bank issues notes where some or all of the investors' principal may be at risk, such as catastrophe bonds (cat bonds) and pandemic bonds. https://treasury.worldbank.org/en/about/unit/treasury/ibrd/ibrd-capital-at-risk-notes

18

Climate change is primarily addressed under National Outcome #14 'Hazard Risk Reduction and Adaptation to Climate Change' but is recognized as cross-cutting for other outcomes and strategies of the Plan.

20

Compared to other Caribbean countries, Jamaica has been very proactive in developing PPPs. While the PPP capital stock in Belize stood at 8.4 percent of GDP in 2019, and in Dominican Republic at 3.4 percent, in Jamaica the PPP capital stock was 16 percent.

22

https://www.mset.gov.jm/2021/12/08/test-emep-post/ Funding for EMEP is secured through the energy loan from the IDB (US$15 million), the Japan International Cooperation Agency (US$15 million) and the European Union Caribbean Investment Facility (US$ 10 million tbd). The Energy Efficiency has allocation of US$22.8 million, and Urban Traffic has US$3.43 million.

24

A ban on incandescent light bulbs is to take effect from April 1, 2023. https://jamaica-gleaner.com/article/news/20221007/jamaica-ban-incandescent-bulbs-come-april

25

The SBFN (https://www.sbfnetwork.org/) is a platform for knowledge sharing and capacity building on sustainable finance for financial sector regulators and industry associations across emerging markets.

26

The BOJ has been engaged by the Basel Consultative Group to participate in its proportionality workstream in which the BOJ and other central banks will provide support to the Basel Committee on Banking Supervision (BCBS) to develop proportional and tailored guidelines to the current Basel framework with respect to market risk, credit risk, operational risk, climate-related risk, cyber risk, as well as corporate governance and risk management. This work will improve practices and provide a common baseline for internationally active banks and supervisors (https://www.bis.org/press/p220615.htm). The principles retain flexibility in recognition of the evolving practices in this area. The BOJ is likely to benefit from this engagement with a view to expedite adoption of the supervision of the climate adoption risks https://www.bis.org/bcbs/membership.htm.

28

https://www.ngfs.net/en is a platform for the central banks and supervisors to share practices for climate risk management in the financial sector and to mobilize support for a transition to a sustainable economy.

29

For an assessment of how climate change risks can affect the financial system in Jamaica, see https://www.ngfs.net/en/ngfs-climate-scenarios-central-banks-and-supervisors-september-2022.

30

Green bonds are fixed-income instruments that allow issuers to raise money for projects with environmental benefits, such as renewable energy, energy efficiency or clean transport.

1

The analysis refers to the consolidated public sector debt, which includes direct debt by the central government, guaranteed debt and debt of public bodies guaranteed by the government, excluding the central bank.

1

This matrix illustrates the integration of capacity development and program objectives, guided by key recommendations in the IMF Board Paper 2018 Review of the Fund's Capacity Development Strategy. The acronyms in the table refer to the following IMF CD providers: Fiscal Affairs Department (FAD), Institute for Capacity Development (ICD); Legal Department (LEG), Monetary and Capital Markets Department (MCM); Caribbean Regional Training and Technical Assistance Center (CARTAC); Statistics Department (STA); World Bank (WB).

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Cover IMF Staff Country Reports
Jamaica: 2022 Article IV Consultation-Press Release; Staff Report and Staff Statement
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2023: Issue 083
Publisher:
International Monetary Fund
ISBN:
9798400233173
ISSN:
1934-7685
Pages:
93
DOI:
https://doi.org/10.5089/9798400233173.002

CPI Inflation by Major Components

(In percent, year-on-year and contributions)

Frequency and Damages from Natural Disasters

(In US$ Million)

Energy Supply by Source

(In percent of total)

Governance Components Jamaica and Comparators

(Index -1 to 1, in 2021)
Figure 1.

Jamaica: Real Sector Developments
Figure 2.

Jamaica: Fiscal Sector Developments
Figure 3.

Jamaica: External Sector Developments
Figure 4.

Jamaica: Monetary and Financial Sector Developments

Emission Trends (2020-2030)
Figure 1.

Jamaica: Debt Coverage and Disclosures
Figure 2.

Jamaica: Public Debt Structure Indicators
Figure 3.

Jamaica: Realism of Baseline Assumptions
Figure 4.

Jamaica: Medium-Term Risk Analysis
Figure 5.

Jamaica: Long-Term Risk Analysis
Figure 5.

Jamaica: Long-Term Risk Analysis
Figure 6.

Jamaica: External Debt Sustainability: Bound Tests 1/ 2/