The Government and the International Monetary Fund (IMF) have brokered an agreement on key elements of a US$1.3 billion Standby Loan Arrangement (SBA) for budgetary support for the economy, Finance and Public Service Minister, Hon. Audley Shaw, has announced.
Funding is being sought by the administration in light of declines in revenue and foreign exchange earnings, due to the global economic downturn which has impacted several of Jamaica’s key sectors such as bauxite and tourism and a fall-off in remittances.
It is anticipated that the Standby Arrangement application will be given consideration by the IMF’s Executive Board in early 2010.
Speaking in the House of Representatives on Thursday (December 17), Mr. Shaw disclosed that the agreement was reached following the conclusion of the latest round of talks, earlier this week, between representatives of the Government and the Fund.
The Finance Minister said that the key elements discussed and agreed on for pursuit were: strong fiscal consolidation over the next four years; comprehensive tax reform; major institutional reforms; consolidation of public enterprises; containment of recurrent expenditure; a debt management strategy; and an overall stable macroeconomic environment.
Outlining details of the conditionalities, Mr. Shaw said fiscal consolidation would entail a gradual rise in the primary balance to between seven and nine per cent of the country’s Gross Domestic Product (GDP), and a “con-commitant decline” in central government deficit to below four per cent of GDP.
Regarding comprehensive tax reform, the Finance Minister informed that this would seek to broaden the tax base, resulting in a more equitable tax structure.
“In implementing the programme of tax reform, we are going to review and streamline the complex structure of tax incentives and…concessions, some of which date back to a long distant era, whose circumstances no longer exist,” he outlined.
Mr. Shaw told the House, that major institutional reforms, capable of underpinning the achievement of fiscal and debt sustainability over the medium term, would be pursued. These include legislating guidelines for fiscal responsibility, streamlining the public service and embracing tax administration, stressing that “the key issue is the containment of the fiscal deficit.”
“Credibility requires that government intentions be backed by concrete action. Legislation to provide for a fiscal responsibility framework, to set parameters for fiscal performance and enhance transparency and accountability, will be promulgated,” he indicated.
He added that steps are also being taken to establish a Central Treasury Management System (CTMS), to curtail government “borrowing its own money” through expensive intermediaries at huge costs to the taxpayers.
Regarding consolidation of public enterprises, Mr. Shaw pointed out that this would entail structured approach to minimizing the impact of these entities on the accumulation of debt.
“This will include : divestment, mergers and improvements to their governance that will minimize financial losses. Government assets that are critical to the discharge of its core functions will be divested,” he emphasized.
The Minister said that while containment of recurrent expenditure on utilities, purchase of goods and services, and travel, was necessary, expenditure on social safety net programmes will increase to ensure protection of the most vulnerable groups.
“The IMF, notwithstanding a track record that we have heard of over the years, have themselves been very insistent on the preservation and the expansion and the enhancement of the social safety net,” he advised.
Mr. Shaw also underscored the need for a “proactive’ debt management strategy that would, over time, continue to reduce interests cost to the Government and increase access to capital for private sector investment. Additionally, the creation of a stable macroeconomic environment, underpinned by fiscal consolidation, is expected to translate into lower and more predictable interest rates over the short to medium term, he said.
Head of the IMF Mission to Jamaica, Trevor Alleyene, in a statement on Thursday, confirmed the agreement reached on the key elements, pointing out that the institution would keep the administration abreast of developments with the application.
“We will remain in close contact with the authorities over the coming days, as they finalize their economic programme in a Letter of Intent, which would then be reviewed by (the) IMF management. The current timetable envisages that the IMF’s Executive Board would consider Jamaica’s SBA early in the New Year,” Mr. Alleyene confirmed.