IMF praises Jamaica for ‘strong performance’
...but wage bill challenge remains
Jamaica’s programme implementation under the Stand-By Arrangement with the IMF was yesterday described as a "strong performance" by the executives as the board concluded its first review on the country’s performance.
According to the International Monetary Fund (IMF) Mission Chief for Jamaica Uma Ramakrishnan, all structural benchmarks and all but one performance criteria for the first review under the new arrangement were met, allowing the country another US$170 million for drawdown from total access of US$1.64 billion over a 36-month period.
Nevertheless, the IMF highlighted the preservation of social consensus for reform as a risk that will be critical in sustaining gains to macroeconomic stability and resilience that have been achieved by Jamaica over the past four years.
In fact, the IMF is now cautioning the Government to "carefully plan, manage and communicate upcoming public sector changes, especially in light of ongoing public sector wage negotiations".
Jamaica’s fiscal responsibility law allows for a wage bill of nine per cent of gross domestic product (GDP) by fiscal year 18/19. However, Minister of Finance Audley Shaw, in his budget presentations last month, indicated an estimated two to three per cent increase in the salary of public sector workers.
The proposed increase in public sector wages already pushes the budget over the required wage bill to GDP.
"With that in mind, the path needs to be agreed on by the Unions about how to meet that nine per cent, because the two-year wage negotiation is going to happen. So the question is what the path is going to look like; the budget has made certain assumptions on what wages could be for this year.
"That budget is based on calculations of 9.6 per cent of GDP, and the question is how to get to nine per cent within the time frame required on what is required by law," Ramakrishnan told media representatives during an IMF video press conference at the Bank of Jamaica yesterday.
She added that Jamaica’s law on wage-to-GDP levels must be taken into consideration during the negotiation process in order to maintain macroeconomic stability.
Currently, Jamaica has debt of 120 per cent of GDP and as such maintains a primary surplus of seven per cent to lower the debt levels.
"Jamaica’s wage bill and the interest bill together are about two-thirds of the total spending of the Government. The remaining third of the budget is what is left for total spending on priority areas," she said, adding that what is important for the country to keep in mind is that Jamaica is by no means out of the woods.
"In the context of wage negotiations and other discussions, this broader perspective has to be borne in mind and to recognise the fiscal reality for Jamaica, which is not an easy run.
"Times are still tough, because the fiscal consolidation has continued in order to reach the debt targets and to reallocate spending into growth-enhancing expenditure. Therefore, the wage bill is part of that discussion on how to manage," she said.
According to Ramakrishnan, Jamaica’s wage bill is still high by international standards and progress is needed in that direction in order to reprioritise the spending and to remain on track with structural benchmarks and performance criterion.
Under the first review of the Stand-By Arrangement, Jamaica requested a waiver on the breach by US$2.2 million ($300 million) by one public body on the accumulation of external debt-payment arrears.
The IMF noted, however, that the breach was small and does not reflect deterioration in the commitment of policies that the Government has undertaken under the Stand-By Arrangement. Ramakrishnan added that corrective measures were taken and based on the Government’s steadfast programme implementation and forward-looking policy commitments, the staff recommended completion of the first review for Jamaica.