Tweet
Lavern Clarke, Business Editor
Officially, Jamaica's borrowing agreement with the International Monetary Fund ends in six months, but technically, the pact has been stalled for more than a year while Jamaica tries to cobble deals over the sale of a loss-making asset, the public wage bill and job cuts, and tax policy.
None of the three have made sufficient progress to get the IMF back to the table to complete the quarterly reviews that Jamaica must pass to unlock external funding.
Still central bank governor Brian Wynter insists there is no drop-dead date to show progress on these issues, even as the IMF has quantified the size of the unadvised wage increase as an added 2.3 per cent of GDP, which Jamaica must now show how it will fund as a condition of the IMF reviews.
"No one is setting any ultimatums," Wynter said Monday in a sit-down interview with the Financial Gleaner.
What should be driving Jamaica to urgent action, he says, is the recognition that it must deal with its wage bill and debt dynamics - the latter, a reference to cutting the debt relative to GDP - to position the economy for growth and jobs.
Wynter, who is governor and chairman of the Bank of Jamaica, was pushing back at suggestions that unfolding political events could disrupt policy and that pre-general election posturing could further delay the reviews.
Dr Gene Leon, the resident IMF representative in Kingston, said it was not the nature of the Fund to set deadlines; it is more concerned with policy deliverables that match medium-term goals, he said, in a separate interview on Wednesday.
Jamaica should have had six of a total eight quarterly reviews by now, otherwise called IMF tests, but has faced and passed only three assessments ending with the September 2010 quarter, at which point the Golding administration had already added unbudgeted purchase of buses and emergency spending on storm recovery and the West Kingston unrest to its credit card.
No IMF reviews have been done for December 2010, March 2011, and now June 2011, which was due to be finalised last Friday, September 30.
None of this means the agreement has unravelled, according to deputy director of the IMF Western Hemisphere Department, Gilbert Terrier; but his assurance came with a rider.
"No, the agreement has not been breached, in the sense that we have just not completed the reviews," [COLOR=blue !important][COLOR=blue !important]Terrier[/color][/color] told the Financial Gleaner during the IMF/World Bank annual meetings in Washington. "And you have to, perhaps, know that some of these aspects of a programme review are looking backward, but some of them are also looking forward."
Wynter called that response a clear no on the question of a breach, saying the reviews tend to place greater weight on the forward-looking component — that is, policy actions to be taken rather than past performance.
Still, the result is the hold-up of some US$635 million of external financing earmarked for budgetary and balance of payments support, US$100 million of which was unfrozen by the World Bank in mid-September.
Wynter said the unlocked World Bank funds were previously approved project financing; but Leon acknowledged that the distribution had led to erroneous conclusions that Jamaica had passed the IMF tests. "It had some signalling effect," he said.
Leon said the IMF found no alarm bells in the December backward-review numbers, and that it was the Fund which opted in January to bundle the fourth and fifth tests to give Jamaica room to compile data for its upcoming budget presentation, and to show progress on the public-sector rationalisation plan and tax reform.
IMF staff began working with a date of June to place its review before the IMF board, whose approval would then unlock agreed funding relevant to the combined test periods. Jamaica also got serious about putting sanctions in place to control profligate public officials.
Pay raise concerns
But even as Finance Minister Audley Shaw was finalising the 'fiscal accountability framework', he was getting ready to concede to a budget-busting seven per cent increase in the wage bill in breach of the freeze agreed with the IMF.
Leon said the pay raise, over which the IMF had raised concerns, will have a "permanent" effect on the country's finances equivalent to about 2.3 per cent of GDP in additional spending; and requires Jamaica to demonstrate how it plans to fund the liability and still get to its benchmark wage bill equivalent to 9.0 per cent of GDP by March 2016.
"You cannot be growing wages faster than you are growing GDP," said Leon.
"The point we would like to stress is there must be on the revenue side a permanent increase to match the permanent increase in wages," he said.
The wage bill is expected to climb to about J$145 billion this year with the increase.
"The question now is how do you finance it; everything has to be financed," said Leon. That's where tax policy and public-sector rationalisation either through divestments and/or mergers of public bodies come in, he said.
Leon's words were emphatic but there was no urgency to his tone. He also appeared sanguine about the missed review dates, saying "slippages" are fairly common in programme countries, "so you take that in stride," he said.
The IMF, in its handling of Jamaica, now comes across as less the world's financial policeman and more the patient adviser.
"Well, it is true that the discussions with the [Jamaican] authorities have been, I would say, quite lengthy, but they continue," said Terrier, when asked about the status of the agreement.
"So, very soon, it will be three reviews that haven't been completed, but I can tell you that we are still talking to the authorities even during these. So, I cannot prejudge what the outcomes will be," he told the Financial Gleaner.
Some of the dynamics at play in the IMF-Jamaica relationship appears to be the substantial 'trust-capital' carried over from the successful debt-exchange programme, which cut about three per cent of GDP off the debt. Its success was raised by Leon, Terrier and Wynter, with the BOJ governor coining anew phrase - "positive debt-shock" - to capture its impact.
Terrier said the IMF was focused on whether Jamaica's policy prescriptions were "sufficiently strong" to maintain fiscal and medium-term goals ending March 2014.
Those targets relative to GDP include the cut in the wage bill from its present 11 per cent; budgetary revenue maintained within a band of 26.2 per cent to 26.7 per cent; a change in the trajectory of spending from its high of 38 per cent down to 25.6 per cent by March 2014; a primary surplus of 8.2 per cent; gross reserves maintained above US$3 billion and net reserves above US$2 billion; and a steep fall in the debt ratio from 140 per cent to 114 per cent by 2014, or 100 per cent by 2016.
Internationally, debt is considered sustainable at 60-70 per cent of GDP, but Leon says the 114 per cent target is a reasonable benchmark for Jamaica.
The medium-term targets assume nominal GDP climbing from J$1 trillion now to J$1.46 trillion at the end period, translated to real growth of about two per cent per year.
Jamaica has framed its plans within the context of, Wynter said, a self-imposed deadline of fiscal 2016 to balance its budget.
Measuring progress
The reviews are stalled, he said, until Jamaica demonstrates progress on the sale of Clarendon Alumina Partner (CAP); strategies to reform the public sector that convincingly put the debt bill on a trajectory to hit 9.5 per cent of GDP at 2013-14; and tax reform - all requiring third-party negotiations with alumina investors, trade unions and businesses, respectively.
Pressed on when Jamaica had to show progress, Wynter was evasive, but eventually said the tax policy reforms would need to make headway long before yearend. Leon was not convinced it would.
The parliamentary timetable suggests the white policy paper may be tabled in November if Shaw wraps up, as he has signalled, committee deliberations by the end of October. Getting to the policy paper, which would form the basis of the law to be drafted, may not be enough.
"Progress is simply what would make us confident about the end goal," said the IMF country rep. "The key to progress is implementation."
The central bank chief, who is a primary team member for Jamaica in the IMF talks, evaded a response on whether there was an alternative or off-setting measure to CAP if a deal does not materialise.
Delays in selling CAP is projected to cost government US$175 million in 2011 and 2012, the IMF said in its last report on Jamaica published January 2011.
The Government has moved from describing progress on the sale of the company, which holds its 45 per cent stake in Jamalco, as being 'advanced' to now saying a deal with one of the two interested buyers is 'imminent'.
Sources have said the potential buyers are Glencore and majority partner in Jamalco, Alcoa.
Jamaica has already acknowledged that its deliverables on the primary balance — the metric that measures the state of the country's finances as if it had no debt-servicing or debt-raising obligations — were off the mark by J$3.5 billion at fiscal 2011-12, which Wynter said Monday amounted to about 0.3 per cent of GDP.
Wynter spent the first part of the interview pressing back against what he said were suggestions that the FSSF funds had artificially boosted the NIR, which amounted to US$2.13 billion at the end of August.
"The NIR is not improved by the IMF funds," he said.
The IMF's contribution to the FSSF amounted to US$450 million, World Bank US$200 million, and IDB US$300 million.
Jamaica's reserves
The BOJ August report on its reserves counts special drawing rights equivalent to US$334.36 million among its foreign assets and debt of US$872 million to the IMF as the larger portion of its liabilities. Gross reserves stand at US$3 billion, or about 20 weeks coverage of goods and services imports.
The comfort level is about 12 weeks of imports, a position Jamaica fell to in January 2010, but was rescued from further decline when the IMF bailout kicked in the next month, immediately growing the reserves to coverage of 17 weeks at end February 2010.
Jamaica and the IMF determined early that the need for FSSF rescue fund, put in place especially for securities companies that at the time were 70 per cent exposed to government debt, was grossly overestimated. Wynter reaffirmed again on Monday that not one financial company applied for FSSF assistance post-JDX.
By holding on to the funds, Jamaica is building up future liabilities even as Wynter stressed how important it was for Jamaica to deal with its debt dynamics, and despite finance minister Shaw having declared he wants to be rid of the obligation.
Wynter opposes an immediate give back of the funds, saying for him they represent "a cheap source" of reserves.
Terrier said all ongoing discussions with Jamaica is based on the current 27-month programme. Wynter said Jamaica would not consider requesting an extension or replacement of the agreement until the current reviews are back on track.
lavern.clarke@gleanerjm.com
Officially, Jamaica's borrowing agreement with the International Monetary Fund ends in six months, but technically, the pact has been stalled for more than a year while Jamaica tries to cobble deals over the sale of a loss-making asset, the public wage bill and job cuts, and tax policy.
None of the three have made sufficient progress to get the IMF back to the table to complete the quarterly reviews that Jamaica must pass to unlock external funding.
Still central bank governor Brian Wynter insists there is no drop-dead date to show progress on these issues, even as the IMF has quantified the size of the unadvised wage increase as an added 2.3 per cent of GDP, which Jamaica must now show how it will fund as a condition of the IMF reviews.
"No one is setting any ultimatums," Wynter said Monday in a sit-down interview with the Financial Gleaner.
What should be driving Jamaica to urgent action, he says, is the recognition that it must deal with its wage bill and debt dynamics - the latter, a reference to cutting the debt relative to GDP - to position the economy for growth and jobs.
Wynter, who is governor and chairman of the Bank of Jamaica, was pushing back at suggestions that unfolding political events could disrupt policy and that pre-general election posturing could further delay the reviews.
Dr Gene Leon, the resident IMF representative in Kingston, said it was not the nature of the Fund to set deadlines; it is more concerned with policy deliverables that match medium-term goals, he said, in a separate interview on Wednesday.
Jamaica should have had six of a total eight quarterly reviews by now, otherwise called IMF tests, but has faced and passed only three assessments ending with the September 2010 quarter, at which point the Golding administration had already added unbudgeted purchase of buses and emergency spending on storm recovery and the West Kingston unrest to its credit card.
No IMF reviews have been done for December 2010, March 2011, and now June 2011, which was due to be finalised last Friday, September 30.
None of this means the agreement has unravelled, according to deputy director of the IMF Western Hemisphere Department, Gilbert Terrier; but his assurance came with a rider.
"No, the agreement has not been breached, in the sense that we have just not completed the reviews," [COLOR=blue !important][COLOR=blue !important]Terrier[/color][/color] told the Financial Gleaner during the IMF/World Bank annual meetings in Washington. "And you have to, perhaps, know that some of these aspects of a programme review are looking backward, but some of them are also looking forward."
Wynter called that response a clear no on the question of a breach, saying the reviews tend to place greater weight on the forward-looking component — that is, policy actions to be taken rather than past performance.
Still, the result is the hold-up of some US$635 million of external financing earmarked for budgetary and balance of payments support, US$100 million of which was unfrozen by the World Bank in mid-September.
Wynter said the unlocked World Bank funds were previously approved project financing; but Leon acknowledged that the distribution had led to erroneous conclusions that Jamaica had passed the IMF tests. "It had some signalling effect," he said.
Leon said the IMF found no alarm bells in the December backward-review numbers, and that it was the Fund which opted in January to bundle the fourth and fifth tests to give Jamaica room to compile data for its upcoming budget presentation, and to show progress on the public-sector rationalisation plan and tax reform.
IMF staff began working with a date of June to place its review before the IMF board, whose approval would then unlock agreed funding relevant to the combined test periods. Jamaica also got serious about putting sanctions in place to control profligate public officials.
Pay raise concerns
But even as Finance Minister Audley Shaw was finalising the 'fiscal accountability framework', he was getting ready to concede to a budget-busting seven per cent increase in the wage bill in breach of the freeze agreed with the IMF.
Leon said the pay raise, over which the IMF had raised concerns, will have a "permanent" effect on the country's finances equivalent to about 2.3 per cent of GDP in additional spending; and requires Jamaica to demonstrate how it plans to fund the liability and still get to its benchmark wage bill equivalent to 9.0 per cent of GDP by March 2016.
"You cannot be growing wages faster than you are growing GDP," said Leon.
"The point we would like to stress is there must be on the revenue side a permanent increase to match the permanent increase in wages," he said.
The wage bill is expected to climb to about J$145 billion this year with the increase.
"The question now is how do you finance it; everything has to be financed," said Leon. That's where tax policy and public-sector rationalisation either through divestments and/or mergers of public bodies come in, he said.
Leon's words were emphatic but there was no urgency to his tone. He also appeared sanguine about the missed review dates, saying "slippages" are fairly common in programme countries, "so you take that in stride," he said.
The IMF, in its handling of Jamaica, now comes across as less the world's financial policeman and more the patient adviser.
"Well, it is true that the discussions with the [Jamaican] authorities have been, I would say, quite lengthy, but they continue," said Terrier, when asked about the status of the agreement.
"So, very soon, it will be three reviews that haven't been completed, but I can tell you that we are still talking to the authorities even during these. So, I cannot prejudge what the outcomes will be," he told the Financial Gleaner.
Some of the dynamics at play in the IMF-Jamaica relationship appears to be the substantial 'trust-capital' carried over from the successful debt-exchange programme, which cut about three per cent of GDP off the debt. Its success was raised by Leon, Terrier and Wynter, with the BOJ governor coining anew phrase - "positive debt-shock" - to capture its impact.
Terrier said the IMF was focused on whether Jamaica's policy prescriptions were "sufficiently strong" to maintain fiscal and medium-term goals ending March 2014.
Those targets relative to GDP include the cut in the wage bill from its present 11 per cent; budgetary revenue maintained within a band of 26.2 per cent to 26.7 per cent; a change in the trajectory of spending from its high of 38 per cent down to 25.6 per cent by March 2014; a primary surplus of 8.2 per cent; gross reserves maintained above US$3 billion and net reserves above US$2 billion; and a steep fall in the debt ratio from 140 per cent to 114 per cent by 2014, or 100 per cent by 2016.
Internationally, debt is considered sustainable at 60-70 per cent of GDP, but Leon says the 114 per cent target is a reasonable benchmark for Jamaica.
The medium-term targets assume nominal GDP climbing from J$1 trillion now to J$1.46 trillion at the end period, translated to real growth of about two per cent per year.
Jamaica has framed its plans within the context of, Wynter said, a self-imposed deadline of fiscal 2016 to balance its budget.
Measuring progress
The reviews are stalled, he said, until Jamaica demonstrates progress on the sale of Clarendon Alumina Partner (CAP); strategies to reform the public sector that convincingly put the debt bill on a trajectory to hit 9.5 per cent of GDP at 2013-14; and tax reform - all requiring third-party negotiations with alumina investors, trade unions and businesses, respectively.
Pressed on when Jamaica had to show progress, Wynter was evasive, but eventually said the tax policy reforms would need to make headway long before yearend. Leon was not convinced it would.
The parliamentary timetable suggests the white policy paper may be tabled in November if Shaw wraps up, as he has signalled, committee deliberations by the end of October. Getting to the policy paper, which would form the basis of the law to be drafted, may not be enough.
"Progress is simply what would make us confident about the end goal," said the IMF country rep. "The key to progress is implementation."
The central bank chief, who is a primary team member for Jamaica in the IMF talks, evaded a response on whether there was an alternative or off-setting measure to CAP if a deal does not materialise.
Delays in selling CAP is projected to cost government US$175 million in 2011 and 2012, the IMF said in its last report on Jamaica published January 2011.
The Government has moved from describing progress on the sale of the company, which holds its 45 per cent stake in Jamalco, as being 'advanced' to now saying a deal with one of the two interested buyers is 'imminent'.
Sources have said the potential buyers are Glencore and majority partner in Jamalco, Alcoa.
Jamaica has already acknowledged that its deliverables on the primary balance — the metric that measures the state of the country's finances as if it had no debt-servicing or debt-raising obligations — were off the mark by J$3.5 billion at fiscal 2011-12, which Wynter said Monday amounted to about 0.3 per cent of GDP.
Wynter spent the first part of the interview pressing back against what he said were suggestions that the FSSF funds had artificially boosted the NIR, which amounted to US$2.13 billion at the end of August.
"The NIR is not improved by the IMF funds," he said.
The IMF's contribution to the FSSF amounted to US$450 million, World Bank US$200 million, and IDB US$300 million.
Jamaica's reserves
The BOJ August report on its reserves counts special drawing rights equivalent to US$334.36 million among its foreign assets and debt of US$872 million to the IMF as the larger portion of its liabilities. Gross reserves stand at US$3 billion, or about 20 weeks coverage of goods and services imports.
The comfort level is about 12 weeks of imports, a position Jamaica fell to in January 2010, but was rescued from further decline when the IMF bailout kicked in the next month, immediately growing the reserves to coverage of 17 weeks at end February 2010.
Jamaica and the IMF determined early that the need for FSSF rescue fund, put in place especially for securities companies that at the time were 70 per cent exposed to government debt, was grossly overestimated. Wynter reaffirmed again on Monday that not one financial company applied for FSSF assistance post-JDX.
By holding on to the funds, Jamaica is building up future liabilities even as Wynter stressed how important it was for Jamaica to deal with its debt dynamics, and despite finance minister Shaw having declared he wants to be rid of the obligation.
Wynter opposes an immediate give back of the funds, saying for him they represent "a cheap source" of reserves.
Terrier said all ongoing discussions with Jamaica is based on the current 27-month programme. Wynter said Jamaica would not consider requesting an extension or replacement of the agreement until the current reviews are back on track.
lavern.clarke@gleanerjm.com
Comment