Mar 2012 Financial News

IMF projects low growth, agrees tax reform will help Ja

Mar 23, 2012

The International Monetary Fund (IMF) yesterday projected a one per cent growth in the Jamaican economy for the next fiscal year, a widening of the country's current account deficits and an increase in the public debt.

At the same time, IMF and Jamaican Government officials agreed, after a series of meetings over the last two weeks, that correction of the significant challenges facing the country will require actions on three fronts, among them swift implementation of tax reform and improvements in tax administration.

"A key challenge is to attain higher and sustainable rates of economic growth, while reducing macroeconomic risks, including the high public debt and high unemployment," the IMF mission to Jamaica said in a statement.

The Jamaican authorities and the IMF team, the statement said, agreed that this will require actions on three fronts, developed within a medium-term framework of national priorities.

"First, a growth-oriented environment aimed at improving productivity and competitiveness, while raising efficiency; second, strong macroeconomic policies through significantly higher primary fiscal surpluses, fiscal and financial reforms, and further strengthening financial sector regulation and supervision; third, a framework to ensure social cohesion. In this regard, prompt implementation of tax reform and improvements in tax administration will allow the Government to focus spending in priority areas while raising productivity," the IMF said.

The IMF mission was in Jamaica from March 8-21 to conduct the Article IV Consultation and initiate discussions on a possible fund-supported economic programme.

The mission met with Prime Minister Portia Simpson Miller, Finance Minister Dr Peter Phillips, Bank of Jamaica Governor Brian Wynter, Financial Secretary Wesley Hughes, senior government officials, and representatives of the private sector and civil society.

"Recent macroeconomic developments have been mixed," Luis Breuer, the IMF's mission chief for Jamaica, was quoted in the statement.

"Following three consecutive years of negative growth, real GDP grew by 1.5 per cent in 2011, primarily from increases in agriculture and bauxite/alumina production. Inflation abated to 6.6 per cent (year-on-year) at end-January, reflecting both moderate food and oil prices increases and real exchange rate appreciation. Interest rates continued to fall and the exchange rate remained broadly stable," the IMF said.

"However, unemployment remained high at 12.8 per cent, and the fiscal situation deteriorated. The primary surplus for FY2011/12 is projected to drop to three per cent of GDP (compared with a budget target of 5.2 per cent); the deficit of the public sector is estimated to increase to 7.3 per cent of GDP and the ratio of the debt to GDP to remain high, at 140 per cent of GDP. The developments in public finances reflect both lower tax revenues and higher government expenditures in 2011. In addition, delays in the implementation of the structural reform programme adversely affected fiscal performance," the fund added.

It said that higher oil prices contributed to a projected increase in the external current account deficit to over 10 per cent of GDP, and sluggish official inflows and foreign direct investment, combined with central bank foreign exchange sales, led to the decline in net international reserves to US$1.8 billion at the end of February.

The fund also said that the non-performing loan ratio in the banking system rose to nine per cent, while credit to the private sector rose by 12 per cent, primarily on account of consumer credit.

"The recovery is fragile, and there are strong downside risks. Growth in FY2012/13 is projected to remain low at about one per cent and, on present trends, the public sector and external current account deficits are projected to widen and the public debt to rise," the IMF said.

"On the external side, risks to external stability and growth can arise from volatile commodity import prices (including oil) and a slowdown in global growth, in particular in the United States."

Noting that Jamaica is also susceptible to natural disasters, the IMF said that the country faces significant challenges.

"The mission and the authorities agreed that the tough challenges facing the country call for prompt policy actions. The authorities are working on a programme of measures and reforms to address these challenges, and intend to continue discussions with the IMF team during the spring meetings (April 20-22) in Washington, DC," the IMF said.


Source:
Jamaica Observer
Friday March 23, 2012

http://www.jamaicaobserver.com/business/IMF-projects-low-growth--agrees-tax-reform-will-help-Ja_11095482#ixzz1pwnsRNfZ