On assuming office, one of the most urgent priorities of this Administration was to reopen the line of communication with the IMF and negotiate a new agreement that would satisfy the interest of Jamaica’s economic recovery as well as the board of the IMF.
At the outset, my stated objective was to bring these negotiations to a satisfactory conclusion by the end of December 2012, and my negotiating team has worked assiduously to meet this deadline.
With the approach of this deadline I regard it as an obligation to provide the nation with an update. The primary objective of these negotiations with the IMF is to develop a multi-year economic programme that could be supported by the board of the Fund and other multilateral institutions. This multi-year programme is intended to address the lack of long-term growth and provide the best options for Jamaica.
Discussions have moved from diagnosis by way of an Article IV consultation, which was concluded in May 2012, to agreement on the key challenges to growth that need to be overcome, the areas of economic policy available to the Government, and some broad measures of success over a four- to five-year period.
Over the past two months, discussions have intensified with the visit of senior officials to Washington and, while many of us enjoyed the holidays, the negotiating team worked throughout the Christmas period including e-mail and telephone exchanges with Fund staff as recently as 28th December.
The Government is working to bring the negotiations to a conclusion that is mutually satisfactory to Jamaica and the board of the IMF. This agreement must be in the best interest of Jamaica and provide protection for the most vulnerable.
The final stage of the discussion centered on the challenges of halting the debt accumulation process, raising economic efficiency in both the private and public sectors, and creating the conditions for self-sustaining growth. Consequently, there has been extensive and thorough exploration of the size, range and scope of the public sector and all the elements that contribute to the persistent fiscal deficits.
These include :
a) tax policy (which activities are taxed, at what rate, and which are exempted);
b) staff costs (wage rates, pension obligations and staff size);
c) interest costs (borrowing terms, sources and management);
d) efficiency in procurement and cash management;
e) capital expenditure (prioritisation, partnership, divestment); and
f) how best to protect the most vulnerable in the face of the changes to prices and incomes that flow from every adjustment in economic policy.
The discussions have therefore required technical studies of the repercussions of policy changes and have meant intensive deliberations to overcome differences of view on appropriate measures, impact, exceptions, timing, and significance. The process of arriving at agreement has also had to contend with fairly recent memories among Jamaica’s multilateral partners of dishonoured commitments and disappointing performance.
Thus, even where we agree in principle about what has to be achieved by the end of the first year of a programme, there is an instinctive insistence on the part of the IMF that as much as possible should be done up front. For example, the implementation of major tax reform was a large down payment that signalled the commitment of the Government to raise the primary surplus (revenue less non-interest expenditure) by more than three per cent of GDP, an unprecedented single-year adjustment, even though it meant delaying the budget presentation to allow for time to prepare.
Similarly, up-front implementation is being sought for a number of other proposed reforms. The Government has therefore invested great effort in advancing pension reform, wage negotiations, reducing the effective size of the public sector establishment, tax administration, introduction of a centralised treasury management system and various pieces of enabling legislation such as the Public Debt Management Act and regulations governing the Fiscal Responsibility Framework.
The discussions with the Fund’s technical staff are virtually at an end. In light of the Fund’s negative assessment of the world’s economy, there is a need for Jamaica to programme steeper debt reduction and buffers in order to maintain a robust downward trajectory in the debt ratio through to 2020.
The last issues on which we are now actively focused include :
1) the approach and timetable for a comprehensive policy on tax waivers and incentives, and
2) safeguards against fiscal slippage in this fiscal year and the examination of even higher primary surpluses, in the medium term, to underpin targets for debt reduction.
Following conclusion of the negotiations, there will be prior actions to be undertaken subject to the approval the Cabinet and the necessary consultations with local stakeholders. The completion of these will determine the timing of the IMF Board’s approval.
The time that is being taken to reach agreement is not unusual, and there are complex and weighty issues at stake which will determine the future prospects of our country. There is no doubt also that the continued implementation of economic reform is going to require commitment and sacrifice by all Jamaicans.
Progress along this pathway will require fundamental changes in our normal operational patterns. We will have to be more efficient and more diligent in how the State operates and how we facilitate investors in order to create the better jobs and higher levels of economic growth which together promise a better future for Jamaica and its people.
Even as we issue this update, negotiations are continuing with the IMF to arrive at an agreement that is beneficial to the people of Jamaica.