KINGSTON, Jamaica: The International Monetary Fund (IMF) has approved Jamaica’s application for a US$1.27 billion loan.
The IMF Board approved the 27-month Stand-By agreement at a meeting last week following months of negotiation with the administration of Prime Minister Bruce Golding.
A statement from the IMF said US$640 million would be made immediately available to ensure that the local financial institutions in which most of Jamaica’s debt is held have access to cash to help shore up their liquidity.
It said the loan is aimed at supporting Jamaica’s plan to recover from mounting government debt, weak economic growth, and the effects of the global economic crisis. The funds will be used to implement a two-year plan that includes reform of the public sector to substantially reduce the large budget deficit, a debt strategy to reduce debt servicing costs and reforms to the financial sector to reduce risks.
With the plan in place, the IMF predicts growth rates in Jamaica to increase from -3.5 per cent in 2009 to 0.5 per cent by late 2010, and then rise to two per cent in 2011.
“Jamaica’s large debt burden has magnified the fallout of the global crisis by limiting the scope for a counter-cyclical domestic policy response. Fundamental economic reforms are needed to restore fiscal sustainability, safeguard economic and financial sector stability and enhance Jamaica’s growth potential,” said IMF Deputy Managing Director Takatoshi Kato after the Board’s decision. “The ambitious economic program demonstrates that the authorities are committed to meeting these challenges.”
Jamaica’s economy has deteriorated in recent years, in part due to the global economic crisis. In addition, the country’s large debt burden has magnified the fallout from the global crisis by limiting the scope of government to implement policies to cushion the negative impact.
Sharp falls of 60 per cent in bauxite and aluminum production and exports, and a decline in the amount of funds sent by Jamaicans living abroad, have led to a contraction in the economy. At the same time, with limited financing options, the government has had to raise taxes to offset falling revenues.
The IMF said economic reforms are needed to put the public finances on sound footing, and establish the basis for sustained strong economic growth.
While certain kinds of government spending, such as wages in the public sector, will be reined in, the government plans to increase spending on better targeted social programs by 25 per cent. A school feeding program, which provides breakfast and lunches to children, will benefit from this increase.
The government will also increase the amount of cash transfers to lower-income groups through the Program of Advancement through Health and Education (PATH) initiative.
Approval of the Stand-By Arrangement is expected to generate about US$1.1 billion in funding from other international financial institutions.