Kingston, Jamaica – 9 July 2018: In its June Update on Jamaica’s 3-Year Precautionary Stand-by Agreement (PSBA) with the International Monetary Fund (IMF), the Economic Programme Oversight Committee (EPOC) notes the Jamaican Government’s continued adherence to all Fiscal, Monetary Policy and Financial Sector Structural Benchmarks. Based on the preliminary findings, Jamaica is on track to meet the targets for the Quantitative Performance criteria (QPCs) and Indicative Targets (ITs) for the IMF SBA for the end of June, with the exception of the inflation target which had been set at 4.0 % to 6.0 %.
All seven macro-fiscal structural benchmarks have been met and all 14 structural benchmarks for public sector transformation, public bodies and public service reform have been met through the end of June 2018
Following strong fiscal performance in 2017/18 where Jamaica met all its quantitative and indicative performance criteria, performance in the first month of 2018/19 is encouraging.
The Bank of Jamaica (BOJ) continues in its accommodative stance to loosen monetary policy by lowering the policy rate by an uncharacteristically aggressive 50 basis points to 2.00 %, effective 28 June 2018. This was done in response to their projections that inflation will remain below its targeted 4-6% up to end December 2018. The Bank of Jamaica (BOJ) has indicated that the decision to loosen the policy stance is aimed at fostering greater credit expansion and a faster pace of Gross Domestic Product (GDP) growth which will support inflation returning to the target of 4.0 % to 6.0 %.
The EPOC supports the decision to lower policy rates and believes it should stimulate credit expansion and economic growth.
With the Fiscal space opening up, the GOJ central government spending on social programmes for Fiscal Year 2017/18 as at the end of March 2018 was $32.2B, compared to a programme target of $26.6B. EPOC welcomes the increased expenditure in this area to cushion the most vulnerable in our society.
PROGRAMME RISKS AND MITIGATING STRATEGIES
The Committee would, however, like to note areas of risk and the mitigating strategies that have been put in place by the GOJ and the BOJ to address these:
“Bank of Jamaica expects that inflation for the June 2018 test date will be below the 3.5% to 6.5% range as set out in the Monetary Policy Consultation Clause in the SBA. This would trigger a consultation with the IMF’s Executive Board whereby the Bank will be required to explain in writing the rationale for the deviation and planned corrective actions.”
A low inflation out-turn can be received as positive, but it does have implications for Programme targets, specifically fiscal targets linked to Nominal GDP such as the Debt to GDP targets and 9 % Wage to GDP Fiscal Rule (2018/19).
The Planning Institute of Jamaica (PIOJ) is projecting that real GDP growth for the fiscal year 2018/2019 will fall within the range of 2.0% to 3.0% relative to FY 2017/18. EPOC, along with all well-thinking Jamaicans, would be very concerned that growth continues to be anaemic and, in spite of encouraging signs, continues to underperform the Programme projections.
The wage negotiations between the GOJ and the Public Sector workers continue quietly and remain an outstanding item in the new Financial Year 2018-19. EPOC continues to be hopeful that an agreement will be concluded with all the remaining stakeholders, including the Police and Nurses, in keeping with Jamaica’s legislated 9.0 % wage to GDP Fiscal Rule for 2018-19.