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New IMF agreement to focus on inflation. But primary surplus remains at 7%

Nov 16, 2016

Jamaica’s new stand-by arrangement with the International Monetary Fund (IMF) has been adjusted to better target inflation.

In a news conference at the IMF Offices at the Bank of Jamaica in downtown Kingston yesterday, Uma Ramakrishnan, IMF mission chief to Jamaica, said the 36-month agreement will see Jamaica shift away from two targets — the Net Domestic Asset and Net International Reserves — to maintain exchange rate flexibility, as well as to build up reserves via market-based purchases of foreign exchange.

The new framework, dubbed the Monetary Policy Consultation Clause, is expected to further support the strengthening of the country’s monetary framework . It also serves as an option for Jamaica to have the capacity to adjust policy settings in a flexible way to achieve its monetary policy objectives.

“This provides an inflation target with deviations targets that would be allowed under the programme. and should inflation significantly deviate from that target range, then the BOJ would have to explain to the executive board of the IMF what were the reasons for the deviation, what are the policies and the way to correct it, and what is the expected inflation going forward,” Ramakrishnan said.

The programme, which starts next April, will support a shift in the BOJ’s policy rate from the 30-day CD to an overnight rate, the narrowing the interest rate corridor and the use of fixed-volume auctions for sterilisation operations.

The programme will also mean oversight for the promotion of operational autonomy of the BOJ, which means ensuring the adequacy of its balance sheet for sustaining economic shocks, and the undertaking more efficient liquidity management and monetary policy implementation, the IMF said.

“What we are doing in the new programme is shifting from looking at the floor of the Net International Reserves (NIR) to looking at a floor on non-borrowed NIR. And the idea behind that is to encourage the BOJ to reduce its stock of borrowed reserves and move more towards buying its own reserves from the market,” Ramakrishnan stated.

She added that this is expected to gradually phase out the stock of borrowed reserves.


Nonetheless, the fiscal responsibility law that was passed in the context of the previous arrangement with IMF, which mandates that the public debt to GDP ratio reaches 60 per cent of GDP in the fiscal year 2025/26 remains the anchor for the current arrangement.

“So the primary surplus targets remain at seven per cent,” the IMF chief stated.

Jamaica’s current four-year extended arrangement under the extended Fund Facility expires in April 2017.

The country’s commendable track record of programme ownership and implementation has resulted in significant strides in restoring macroeconomic stability, reducing public debt, and addressing a multitude of structural issues.

But the IMF noted that growth has fallen short of expectations, poverty and unemployment remain high, and crime and security are increasingly binding impediments to growth and prosperity.

The recently elected Government of Jamaica says it is fully focused on addressing these challenges and as such has opted to replace the existing arrangement with a precautionary agreement equivalent to US$1.7 billion, providing an insurance against unanticipated external shocks such as a natural disaster and sharp increases in oil prices.


Business reporter
Jamaica Observer

Wednesday November 16, 2016    



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