EPOC Press Statement – Quarterly Media Briefing

Kingston, Jamaica – 26 February 2019

The Economic Programme Oversight Committee (EPOC) met on February 15, 2019 and reviewed the latest available results for the period ending December 2018.

The fifth formal review mission by the IMF under the
current Precautionary Standby Arrangement (PSBA) is scheduled for the period
February 25 – March 8, 2019. This review mission assesses the performance of
the Government of Jamaica (GOJ) in meeting the targets for the end-December
2018 period, and to discuss the performance to date in meeting the structural
benchmarks and commitments under the programme.

Based on the preliminary results for performance to date
through the end of December 2018, the GOJ is on track to meet the targets for
the Quantitative Performance Criteria and indicative targets for the IMF PSBA,
with the exception of the inflation target which triggers a staff consultation
clause whereby the BOJ will consult with IMF Staff on the outlook for inflation
and the proposed policy response.

For the review period April to December 2018, the Fiscal
Performance continued its positive trend.

Tax
Revenues Outperform Budget

Revenue & Grants of $448.8b for the first nine months
of the fiscal year (April-December) exceeded the budgeted amount of $437.3b
(+2.6%). Tax Revenues of $388.7b outperformed IMF PSBA target of $360b and GOJ
1st Supplementary budget target of $378.1b.

Tax Revenues year over year increased by $35.6b (10.1%)
from $353.1b for the period April through December 2017 to $388.7b for the
comparable period in 2018.

Expenditures
behind Budget by $11.6b

Expenditure for the first nine months of the fiscal year
(April-December) was $11.6b below budget (-2.6%). Of this amount, Recurrent
Expenditure was $11.0b below budget (-2.8%), while Capital Expenditure was
$0.6b below budget (-1.3%).

Capital
Expenditure up 46.6% year over year

Capital Expenditure year over year increased by $14.4b from
$31.0b for April through December 2017, to $45.4b for the comparable period in
2018.This represents a 46.6% increase year over year.

Primary
Balance

As a result of the Revenue and Grants performance and the
under-expenditure for the first nine months of the fiscal year, the Primary
Balance of $107.7b exceeded the $68.0b IMF PSBA programme target and the GOJ’s
$89.0b 1st Supplementary Budget target for April-December 2018.

International
Reserves

Non-Borrowed Reserves as at the end of December 2018 stood
at US$2,522m, significantly exceeding the IMF PBSA Programme Target of US$2.2b,
while Net International Reserves stood at US$3,005m.

Inflation
dips to 2.4% in December 2018; triggers IMF Staff consultation clause

The 12-month point-to-point inflation rate at December 2018
was 2.4%, below Bank of Jamaica’s target of 4.0% to 6.0% and lower than the
same measure at December 2017 (5.2%).

In line with the Governance Process, Bank of Jamaica (BOJ)
will send a report to the Minister of Finance and the Public Service within 60
days on why the target was missed in December and proposed remedial actions, as
deemed necessary.

Foreign
Exchange Market

On 25 February 2019, the value of the Jamaican Dollar
vis-à-vis the US dollar was J$131.02= US$1.00, reflecting an appreciation of
1.90% ($2.54) for the Month to Date. This follows depreciation of 6.56% ($8.38)
for January 2019.

The appreciation in the value of the Jamaica Dollar for the
review period was influenced by: (1) the BOJ injecting liquidity of US$80m
through its B-FXITT flash operations as well as (2) low demand for US dollars
as end users anticipate lower rates.

The BOJ continues to use the transparent B-FXITT mechanism
to sell or buy USD when the market reflects a projected shortage or surplus
respectively. FX interventions are intended to address excess volatility and
disorderly market conditions.

PIOJ
estimated growth of 1.7% for October to December 2018

The PIOJ estimated a 4.2% increase in in the Goods
Producing industry and a 0.8% outturn in the Services sector. Mining and
Quarrying was estimated to have grown by 22.9%, Construction estimated at 3.5%
and Agriculture and Fishing estimated at 2.6%.

Employment
levels continue to increase

As reported by STATIN, the unemployment rate for October
2018 was 8.7%, a 1.8 percentage point decline compared to the rate of 10.5% for
October 2017. The employed Labour force was 1,219,700 which was 14,400 higher
than in October 2017.

BOJ reports that Private Sector Credit through Deposit
Taking Institutions (DTIs) Increases Year over Year.

Lending to the Private Sector by Deposit Taking
Institutions (DTIs) grew by 14.6% at November 2018; an acceleration relative to
the growth of 12.7% at November 2017. Lending to the productive sector by DTIs
reflected annual growth of 17.7% at November 2018 relative to 8.4% for the
corresponding period of 2017.

Inflation
continues decline to 2.3% for January 2019

The CPI declined by 0.2% in January 2019. The point to
point inflation was 2.3% which continues to be below the IMF Precautionary
Standby Arrangement (PSBA) inner band of 3.5% and the BOJ’s target of 4-6%.

BOJ
responds to missed inflation target by lowering policy Interest rates to 1.5%

On February 20, 2019 the Bank of Jamaica announced its
decision to lower its signal interest rate by 25 basis points to 1.50%. This
decision was driven by the continued out-turn of inflation below the BOJ target
of 4-6% and its forecast that inflation over the medium term in the context of
low core inflation “will fall below the target at various points”.

The BOJ’s decision to lower interest rates “is aimed at
increasing the rate of expansion in private sector credit and is not aimed at
influencing the exchange rate.”

BOJ
reduces Cash Reserve Requirement for Deposit Taking Institutions (DTIs)-March
1, 2019

The Cash Reserve Ratio for DTIs is to be reduced effective
March 1, 2019 from 12% to 9%. This reduction will release $16.8b to the DTIs,
which the BOJ states “will improve their ability to provide more credit to
households and businesses at lower rates and on better terms.”

The
Bank of Jamaica committed to further reductions in the cash reserve ratio over
the year

EPOC continues to be supportive of the BOJ’s accommodative
stance as it uses its monetary policy tools to stimulate private credit,
through lower interest rates and lower cash reserve ratios which should lead to
increased domestic demand and strengthening of the Jamaican Economy.

FX
Trading Platform to strengthen Market Infrastructure and Price Transparency

The Minister of Finance, Dr. Nigel Clarke, reiterated a GOJ
commitment under the IMF PBSA Programme for the implementation of a FX Trading
Platform by the end of 2019. This FX Platform will be integrated with the
existing payments and settlements systems and regulations will be issued by
September 2019.

EPOC is of the view that this will lead to greater
transparency and price discovery which could result in reduced volatility and
trading margins which would be a major positive for market participants.

Steady
upward Trajectory in Tax Revenues, Growth projections below 2% for 2019/20

The selected highlights of Fiscal Policy Paper of Budget
Estimates for FY2019/20 Issued February 14, 2019 are as follows:

Tax
Revenues are projected to increase by 7% from $537b in 2018/19 to $576b in
2019/20Capital
Expenditures will see a marginal increase from a projected $68.8b for 2018/19
to $72.1b in 2019/20The
Primary Balance which is projected to close Fiscal Year 2018/19 at $142.1b is
estimated to close the Fiscal Year 2019/20 at $150.9b

Debt
to GDP ratio is projected to fall to 96.4% at the end of the Fiscal Year
2018/19 and is projected to fall to 90.9% at the end of Fiscal Year 2019/20Net
International Reserves (NIR) is projected to close Fiscal Year 2018/19 at
US$2.914b and is estimated to increase to US$3.045b at the end of 2019/20The
inflation for 2019/20 is projected at 4.3%.GDP
growth is projected to be 1.8% for Fiscal Year 2018/19 but is projected to fall
to 1.5% in 2019/20.

Mining and Quarrying is projected to grow by 2% in 2019/20,
which is significantly down from the projected 27% growth for 2018/19 for this
industry.

This baseline forecast for GDP growth for 2019/20 is
impacted negatively by the assumption that production is likely to be disrupted
at the Alpart Plant for a total of 3 months due to the installation of various
pieces of equipment.

Despite the missed inflation target and growth level persisting below the 2% growth levels, the economy despite its continued challenges seems poised for growth in the medium term.

EPOC is of the view that the Economic Programme remains on
track.

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October 2019: UPDATE ON 3-YEAR IMF PRECAUTIONARY STAND-BY ARRANGEMENT (PSBA)

The EPOC met on November 1, 2019 and reviewed the latest available results for the period ending August 2019. 
Based on the preliminary results for performance to date through the end of August 2019, Jamaica is on track to meet the indicative targets for end-September 2019, with the exception of the inflation target. The sixth and final review under the SBA was completed at the meeting of the Executive Board of the IMF held on November 4, 2019, and the SBA will expire on Sunday, November 10, 2019.

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Jamaica steps towards Economic Independence!

Kingston, Jamaica – October 4, 2019:  The EPOC met on September 27, 2019 and reviewed the latest available results for the period ending June 2019.
The sixth and final review mission by the International Monetary Fund (IMF) under the current precautionary Stand-By Arrangement (SBA) was conducted over the period September 9–19, 2019.  Based on the preliminary results for performance through the end of June 2019, the Government of Jamaica (GOJ) has met the targets for the quantitative performance criteria (QPCs) and indicative targets (ITs) for the IMF SBA as at end-June 2019.
The sixth review will be completed at the meeting of the IMF Executive Board tentatively scheduled for November 2019, and marks the successful conclusion of the SBA. The SBA will expire on November 8, 2019.
Structural Benchmarks
 The GOJ has also met all twenty-two (22) structural benchmarks (SBs) for the November 2016 to September 2019 period, including eight (8) macro-fiscal SBs, and fourteen (14) SBs for public sector transformation, public bodies and public service reform. It should be noted that there is only one (1) structural benchmark currently remaining under the SBA, namely the capping of the total stock of domestic arrears of seven public bodies at J$6.4 billion during the programme period, which is being met on a monthly basis to date by GOJ. 
PROGRAMME REVIEW THROUGH JULY 2019
SELECTED FISCAL INDICATORS
Fiscal and Primary Surpluses exceed April – July 2019 Target
Revenue & Grants of $202.1B for the first four months of the fiscal year (April-July) exceeded the budgeted amount of $198.1B (+2.0%). 
Tax collections of $179.8B outperformed budget (+$3.8B).
EXPENDITURES
Expenditure for the first four months of the fiscal year (April-July) was $5.1B below budget (-2.5%). Of this amount Capital Expenditure was $15.6B which was $4.2B below budget (-21.4%).
The slower than programmed implementation of some capital projects, most notably the South Coast Highway Improvement Project, was responsible for the below target performance.
FISCAL BALANCE
The fiscal balance for the period April – July 2019 showed a surplus of $7.3B which was $9.0B above the deficit of $1.7B that was budgeted.
PRIMARY BALANCE EXCEEDS BUDGET TARGET BY $5.6B
As a result of the Revenue and Grants performance for the first four months of the fiscal year, the Primary Balance of $49.3B exceeded the $43.7B budget target for April-July 2019.
MONETARY TARGETS
International Reserves
As at September 26, 2019, Jamaica’s Net International Reserves stood at US$3,080.7 million.
Non-Borrowed Reserves
Non-borrowed reserves (NBR) are projected to close end September 2019 at US$2,763.3m, which is US$576.1 million above the target of US$2,187.2m.
Inflation
The 12-month point-to-point inflation rate at August 2019 was 4.1 per cent, within Bank of Jamaica’s (BOJ’s) target range of 4.0 per cent to 6.0 per cent.
Lending to the Productive Sector
Lending to the productive sector by Deposit Taking Institutions (DTIs) reflected annual growth of 16.5% at June 2019 relative to 15.8% at June 2018.
Foreign Exchange Market
On September 30, 2019, the value of the Jamaican Dollar vis-à-vis the US dollar was J$135.16 = US$1.00.
On an annual basis, the Jamaica Dollar at 30 September 2019 depreciated OF 0.3%.
 
EPOC’S OVERVIEW AND RECENT DEVELOPMENTS
GDP Growth
STATIN recorded growth of 1.3% for April through June 2019. The economy outperformed the PIOJ projection of 1% for the quarter. This was impacted by a downturn in Agriculture, Forestry and Fishing of -1.7% which was offset by growth of 4.6% in Mining and Quarrying and 5.8% growth in the Hotels and Restaurants Industry.
Interim Fiscal Policy Paper
An Interim Fiscal Policy Paper was released to the public on September 24, 2019. Of note was the reduction in the GDP Growth target from 1.5% to 0.7% due to the announced closure of the Alpart alumina plant for 18-24 months to facilitate upgrading of the plant facilities. However, the GOJ is committed to accelerating the growth in real GDP to 2% in the medium term.
First Supplementary Budget
The First Supplementary estimates for 2019/20 were tabled in September 2019, which take into account the fiscal performance to date, including higher debt service costs arising from a debt management transaction. The supplementary estimates include:

Recurrent additional expenditures of $9.9b

The additional expenditure of $9.9b was primarily for housekeeping matters.

Amortization which is related to the debt management operation increases by $40.2b.

This debt management operation actually reduces the debt stock by US$34.2 million and reduces future annual interest cost by US$18.2m. The MOFPS should be congratulated on this operation.

BOJ holds policy rate
On September 30, 2019, the BOJ announced its decision to hold the policy rate at 0.5%. The BOJ’s Monetary Policy stance continues to be accommodative.
Tax Revenues
Tax Revenues continue to outperform targets and are up by 6.8% or $11.4b year to date over the same period last year, despite the Tax give backs in the removal of distortionary taxes and reduction of ad valorem taxes of $14b in the Budget presented for 2019/20.
Productive Sector
EPOC notes the positive trajectory in the growth in credit to the Productive Sector which is a good leading indicator. However, for growth levels to accelerate, greater levels of borrowing are required.
MSME Sector
The MSME Sector which represents greater than 50% of GDP and 70-80% but only receives 10.7% (December 2018) of credit from the Banking Sector is fertile ground for inclusive  growth. There is significant effort being made by the Private Sector, the Bank of Jamaica and the Government of Jamaica in addressing the access to finance issues which have plagued the sector.
Inflation
The BOJ projects that inflation will average 4.3 per cent over the next eight quarters before gradually approaching the Bank’s 5.0 per cent target in the medium term.
EPOC Post IMF
As the current three-year Precautionary Stand-By Arrangement (PSBA) with the IMF comes to an end in November 2019, EPOC is happy to continue to serve at the pleasure of the Minister of Finance, the Hon. Dr. Nigel Clarke for one (1) year in the first instance, under a new Memorandum of Understanding. This extended period of service will be aligned with completion of the Institutional strengthening of the Fiscal Council and completion of activities related to the Central Bank achieving Independent status.
Fiscal Council and Central Bank Independence
It is anticipated that legislation and regulations establishing the Fiscal Council and an Independent Central Bank will be completed within the next fiscal year. 
OUTLOOK
Jamaica’s macroeconomic indicators remain strong. However, growth levels continue to hover below 2% and growth projections for the current fiscal year have been lowered to 0.7%. This is occurring within the context of ongoing trade tensions globally, and the fear of a further slowdown in global growth especially amongst Jamaica’s main trading partners.
Jamaica has to remain resolute and continue the economic reforms which have worked well for macroeconomic stability, and continue to drive towards the GOJ’s medium term growth target of 2%. Jamaica needs all hands on deck. 
EPOC CONGRATULATES JAMAICA! BIG UP!
As this IMF programme closes out, EPOC would like to acknowledge the achievement of both political administrations in demonstrating the strong political will to successfully execute the Economic Reform programme over the past almost 7 years.
While we still have great challenges ahead, EPOC acknowledges and celebrates the ownership, patience and sacrifice shown by all Jamaicans in ensuring that Jamaica is in a better place today.
We are positive that Jamaica can achieve its true potential, as we embark on this new phase of our journey to true economic independence, which should see real inclusive and equitable growth for all Jamaicans.
-END-

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September 2019: UPDATE ON 3-YEAR IMF PRECAUTIONARY STAND-BY ARRANGEMENT (PSBA)

The EPOC met on September 27, 2019 and reviewed the latest available results for the period ending June 2019. 
The sixth and final review mission by the International Monetary Fund (IMF) under the current precautionary Stand-By Arrangement (SBA) was conducted over the period September 9–19, 2019.  Based on the preliminary results for performance through the end of June 2019, the Government of Jamaica (GOJ) has met the targets for the quantitative performance criteria (QPCs) and indicative targets (ITs) for the IMF SBA as at end-June 2019.
The sixth review will be completed at the meeting of the IMF Executive Board tentatively scheduled for November 2019, and marks the successful conclusion of the SBA. As stated in the IMF press release issued at the end of the sixth review mission, the SBA will expire on November 8, 2019.

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IMF Staff Completes Review Mission to Jamaica

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF’s Executive Board for discussion and decision.

The IMF team congratulates Jamaica for the successful completion of the country’s economic reform program supported by the IMF’s Stand-By Arrangement. The authorities’ exemplary program implementation has resulted in a stronger economy with significant reduction in vulnerabilities, and increased job creation.
Broad-based ownership across stakeholders and the continued commitment to public accountability through the Economic Programme Oversight Committee (EPOC), have been hallmarks of Jamaica’s approach to economic reform.
Sustaining resilient and inclusive growth will require addressing deep-rooted societal challenges such as crime, governance, access to finance, disaster preparedness and resilience, and providing greater social support for the vulnerable.

An International Monetary Fund (IMF) staff team led by Ms. Uma Ramakrishnan visited Kingston from September 9–19, to conduct discussions on the sixth and final review of Jamaica’s financial and economic program supported by the IMF’s precautionary Stand-By Arrangement (SBA). At the end of this review, Prime Minister Andrew Holness of Jamaica and Mr. Alejandro Werner, Director of IMF’s Western Hemisphere Department, issued the following statement in Kingston:
“We are happy to announce that the IMF staff team and the Jamaican authorities agreed on the steps needed to complete the sixth and final review under the SBA, as Jamaica prepares to exit from IMF financial support. Consideration by the IMF’s Executive Board of the review is tentatively scheduled for November 2019. Upon approval, an additional SDR 160.8 million (about US$220 million) will be made available for Jamaica, bringing the total accessible credit to about US$1.63 billion. The Jamaican authorities continue to view the SBA as precautionary. The SBA will expire on November 8, 2019.
“Over the last three years, Jamaica’s sustained commitment to a home-grown economic reform program has resulted in significant dividends for the people of Jamaica. Unemployment is at an all-time low of 7.8 percent, taxes have been reduced, business confidence is high, inflation and the external current account deficits are low, and the level of foreign currency reserves is comfortable at about US$3.5 billion.
“The economy is estimated to have expanded by 1.9 percent in FY18/19, buoyed by mining, construction and tourism. However, the short-term growth outlook is, unfortunately, clouded by the pending 18 to 24 months closure of Alpart to facilitate investment upgrades.
“Budget discipline combined with a reorientation of the fiscal system, including the shift from direct to indirect taxes pioneered by this government, has helped put public debt on a sustained downward path. Proactive liability management—as evidenced by the latest successful swap of existing bonds at relatively low yield—has also helped Jamaica maintain the path towards reducing debt to 60 percent of GDP by FY2025/26, in line with the provisions of the Fiscal Responsibility Law.
“Significant efforts have been made to build monetary institutions and improve the workings of the foreign exchange market. These steps have put the Bank of Jamaica firmly on a path toward operational independence within an inflation targeting framework that conforms with international best practice.
“Nonetheless, to fully achieve Jamaica’s considerable potential will require renewed attention to supply side reforms to address crime, support agricultural resilience, and invest in education and healthcare. The government is also committed to expanding social assistance for those in need through better coverage of the PATH program and support for the elderly.
“To make these reforms a reality will require the freeing-up of fiscal resources through a meaningful transformation of the public sector that prioritizes government functions and redesigns public sector compensation. This will necessarily entail the Jamaican society confronting tough choices, the resolution of which will require broad social consensus. More also needs to be done to build public trust in the governance of public institutions.
“As part of its commitment to building durable domestic policy institutions, the government will table legislation to establish a Fiscal Council by April 2020. In the interim, the Economic Programme Oversight Committee has been asked to ensure continued public accountability for the government’s economic policy commitments.
“The government is also working to strengthen financial sector oversight through better risk-based and consolidated supervision and a special resolution regime for financial institutions.
“We are convinced that all these policies will support private sector development and increase investment opportunities in Jamaica. It is expected that the partnership between the public and private sector to expand access to finance for small- and medium-sized enterprises will help finance such investments.
“The IMF team and the Jamaican authorities look forward to a continued productive collaboration and partnership as Jamaica exits from the precautionary SBA. As always, the IMF stands ready to support Jamaica with policy advice, a cross-country perspective, technical assistance and investments to train Jamaican government officials.
“The IMF team would like to thank the Jamaican authorities, including all the technical teams involved, for making the SBA an unqualified success for Jamaica.”
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