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Wednesday, July 22, 2009
Jamaica could be charged roughly 1.31 per cent on the US$1.2 billion loan it wants to be able to access from the International Monetary Fund (IMF) with up to five years to repay, based on the lending agency's data.
In fact, Jamaica can apply to borrow up to twice the Government's proposed US$1.2 billion based on recently amended IMF guidelines, according to an IMF Spokesperson.
IMF headquarters in Washington, DC
The IMF charges a rate equal to the sum of the currency interest rate (currently at 0.3 per cent), plus a margin equal to 100 basis points, according to IMF data.
The IMF's unit of currency is called a special drawing rights (SDR), which can be converted into US dollars. The SDR interest rates are adjusted every week and are currently at 0.3 per cent. In the April quarter, the average rate of charge was 1.52 per cent (SDR interest rate of 0.51 per cent). It signals that the rate is currently lowering, however, there are additional charges and penalties for arrears.
The Jamaican Government hopes to enter into a Stand-By Arrangement (SBA) which addresses short-term balance of payment problems. SBAs may be provided on a precautionary basis - where countries choose not to draw upon approved amounts, but retain the option to do so if conditions deteriorate.
"The length of a SBA is typically 12-24 months, and repayment is due within three-to-five years of disbursement," the IMF stated on its website.
IMF guidelines now allow countries to borrow up to 600 per cent of their quota, rather than 300 per cent as previous conditions dictated, which would be equivalent to US$2.4 billion for Jamaica. Previously the IMF limit was 300 per cent of a country's quota.
"Under recently revised standard guidelines, a member can borrow up to 200 per cent of quota annually and 600 per cent cumulatively. Under certain circumstances and certain credit lines, the amount to be drawn could be higher," stated the IMF in a written response to the Business Observer. "If you look at some of the agreements signed recently and compare them with the countries' quotas, you'll realise that, in many cases, the total amount of the programme is much higher than the quota."
The IMF stated that Jamaica is still in negotiations with
the fund.
"At this point of discussions with the Jamaican authorities, we are not in a position yet to confirm any amount. The Jamaican authorities are still working on the programme's goals and objectives, and specific targets have not been defined yet," stated the IMF.
Jamaica's quota is 273.5 million units of SDR. The SDR is equivalent to US$426 million up to July 20, 2009 based on the IMF's exchange board. Each member country of the IMF is assigned a quota, based broadly on its relative size in the world economy (the US has the largest). A member's quota determines its maximum financial commitment to the IMF and its voting power, and has a bearing on its access to IMF financing.
Jamaica currently has no outstanding purchases and loans with the IMF. In the 1990s Jamaica was approved for three arrangements: it drew 77.7 million SDR from an available 109.1 million SDR on December 11, 1992; 43.65 million SDR on June 28, 1991 of which all was drawn; and 82 million SDR on March 23, 1990, of which all was drawn as well.
The latest data show that export earnings in January dropped 80 per cent over January 2008. Alumina earned US$1.23 billion or 44 per cent of US$2.76 billion in total exports last calendar year. In contrast, alumina exports in January this year are down 56.9 per cent relative to January 2008. Conditions could still worsen, however, as Windalco ceased exporting refined ore in March, followed by Alumina Partners of Jamaica (Alpart) in April. Alpart suspended all operations in Jamaica for at least one year, effective May 15, displacing approximately 900 permanent employees. The company's plant closing followed a 60 per cent price decline since July 2008 and a decision to put operations on hold pending future improvements in industry fundamentals.
The Government is challenged to negotiate a deal with the IMF without detrimental austerity measures being imposed, as reported. The Government's primary balance however is moving counter to the recommendations of the multilateral lending agency.
In June 2008, the IMF in its Article IV Consultation report stated as a key policy recommendation that Jamaica should "reduce the public debt/GDP ratio to about 100 per cent of GDP over five years or by 2013 by raising the primary surplus gradually by four to 4.5 percentage points of GDP over the same period".
As a percentage of GDP, however, Jamaica's primary surplus has gradually declined from 11.9 per cent in the 2004/2005 fiscal year to 8.2 per cent in 2007/2008. Furthermore, the central government reported a primary surplus of 4.5 per cent last fiscal year.
The latest data shows that the Government had to undertake significant fiscal manoeuvring in the month of May as it didn't earn enough to pay its workers while meeting its other non-debt obligations.
Even before making interest payments, government revenue was still $2.47 billion short of the $20.78 billion it spent on non-debt expenditure, which included public sector wages, Government programmes and capital expenditure.
Now that the Government has reported a primary deficit, it is not clear when it might reach its debt target, nor is it clear what the IMF will demand of the Jamaican Government in return for its support.
The debt-to-GDP ratio target has, on the face of it, been revised within closer reach after the Government revised the System of National Accounts and the GDP rebased through the Statistical Institute of Jamaica (Statin) during last fiscal year.
As a percentage of GDP, the total public debt at the end of March 2008 was revised to 108.2 per cent from 126.1 per cent, while at the end of March 2009 the ratio had increased marginally to 108.9 per cent.
Shrinking primary surpluses over the last few years have also been pressured by loose fiscal discipline, another component of the IMF's policy recommendation that should have been moving in the opposite direction.
For more information on IMF Interest rates and conditions, visit: http://www.imf.org/
Jamaica could be charged roughly 1.31 per cent on the US$1.2 billion loan it wants to be able to access from the International Monetary Fund (IMF) with up to five years to repay, based on the lending agency's data.
In fact, Jamaica can apply to borrow up to twice the Government's proposed US$1.2 billion based on recently amended IMF guidelines, according to an IMF Spokesperson.
IMF headquarters in Washington, DCThe IMF charges a rate equal to the sum of the currency interest rate (currently at 0.3 per cent), plus a margin equal to 100 basis points, according to IMF data.
The IMF's unit of currency is called a special drawing rights (SDR), which can be converted into US dollars. The SDR interest rates are adjusted every week and are currently at 0.3 per cent. In the April quarter, the average rate of charge was 1.52 per cent (SDR interest rate of 0.51 per cent). It signals that the rate is currently lowering, however, there are additional charges and penalties for arrears.
The Jamaican Government hopes to enter into a Stand-By Arrangement (SBA) which addresses short-term balance of payment problems. SBAs may be provided on a precautionary basis - where countries choose not to draw upon approved amounts, but retain the option to do so if conditions deteriorate.
"The length of a SBA is typically 12-24 months, and repayment is due within three-to-five years of disbursement," the IMF stated on its website.
IMF guidelines now allow countries to borrow up to 600 per cent of their quota, rather than 300 per cent as previous conditions dictated, which would be equivalent to US$2.4 billion for Jamaica. Previously the IMF limit was 300 per cent of a country's quota.
"Under recently revised standard guidelines, a member can borrow up to 200 per cent of quota annually and 600 per cent cumulatively. Under certain circumstances and certain credit lines, the amount to be drawn could be higher," stated the IMF in a written response to the Business Observer. "If you look at some of the agreements signed recently and compare them with the countries' quotas, you'll realise that, in many cases, the total amount of the programme is much higher than the quota."
The IMF stated that Jamaica is still in negotiations with
the fund.
"At this point of discussions with the Jamaican authorities, we are not in a position yet to confirm any amount. The Jamaican authorities are still working on the programme's goals and objectives, and specific targets have not been defined yet," stated the IMF.
Jamaica's quota is 273.5 million units of SDR. The SDR is equivalent to US$426 million up to July 20, 2009 based on the IMF's exchange board. Each member country of the IMF is assigned a quota, based broadly on its relative size in the world economy (the US has the largest). A member's quota determines its maximum financial commitment to the IMF and its voting power, and has a bearing on its access to IMF financing.
Jamaica currently has no outstanding purchases and loans with the IMF. In the 1990s Jamaica was approved for three arrangements: it drew 77.7 million SDR from an available 109.1 million SDR on December 11, 1992; 43.65 million SDR on June 28, 1991 of which all was drawn; and 82 million SDR on March 23, 1990, of which all was drawn as well.
The latest data show that export earnings in January dropped 80 per cent over January 2008. Alumina earned US$1.23 billion or 44 per cent of US$2.76 billion in total exports last calendar year. In contrast, alumina exports in January this year are down 56.9 per cent relative to January 2008. Conditions could still worsen, however, as Windalco ceased exporting refined ore in March, followed by Alumina Partners of Jamaica (Alpart) in April. Alpart suspended all operations in Jamaica for at least one year, effective May 15, displacing approximately 900 permanent employees. The company's plant closing followed a 60 per cent price decline since July 2008 and a decision to put operations on hold pending future improvements in industry fundamentals.
The Government is challenged to negotiate a deal with the IMF without detrimental austerity measures being imposed, as reported. The Government's primary balance however is moving counter to the recommendations of the multilateral lending agency.
In June 2008, the IMF in its Article IV Consultation report stated as a key policy recommendation that Jamaica should "reduce the public debt/GDP ratio to about 100 per cent of GDP over five years or by 2013 by raising the primary surplus gradually by four to 4.5 percentage points of GDP over the same period".
As a percentage of GDP, however, Jamaica's primary surplus has gradually declined from 11.9 per cent in the 2004/2005 fiscal year to 8.2 per cent in 2007/2008. Furthermore, the central government reported a primary surplus of 4.5 per cent last fiscal year.
The latest data shows that the Government had to undertake significant fiscal manoeuvring in the month of May as it didn't earn enough to pay its workers while meeting its other non-debt obligations.
Even before making interest payments, government revenue was still $2.47 billion short of the $20.78 billion it spent on non-debt expenditure, which included public sector wages, Government programmes and capital expenditure.
Now that the Government has reported a primary deficit, it is not clear when it might reach its debt target, nor is it clear what the IMF will demand of the Jamaican Government in return for its support.
The debt-to-GDP ratio target has, on the face of it, been revised within closer reach after the Government revised the System of National Accounts and the GDP rebased through the Statistical Institute of Jamaica (Statin) during last fiscal year.
As a percentage of GDP, the total public debt at the end of March 2008 was revised to 108.2 per cent from 126.1 per cent, while at the end of March 2009 the ratio had increased marginally to 108.9 per cent.
Shrinking primary surpluses over the last few years have also been pressured by loose fiscal discipline, another component of the IMF's policy recommendation that should have been moving in the opposite direction.
For more information on IMF Interest rates and conditions, visit: http://www.imf.org/