Policy Reforms for Economic Growth: The Jamaican Experience

March 2015

Jamaica Fact Sheet

Population · 2.7 mn (2010)

Territory · 10,991 km2

GDP per Capita · US$5,464.44 (2013)

FX Rate (EOP) · J$115.32/US$1 (January 2015)

Annual Inflation · 6.4% (CY 2014)

6 month T-Bill Rate · 7.14 (December 2014)

Net Int’l Reserves · US$2,001.1 million (December 2014)

Sovereign rating · Caa3 / B- / B- (Moody's/S&P/ Fitch)

Economic programme on track: successfully passed all seven IMF reviews of the programme to date

Major legislative achievements in tax, fiscal and other reform measures

For the period April–December 2014 central government operations generated a fiscal deficit of $26 013.5 million and a primary surplus of $66 825.8 million. The fiscal deficit was $7 856.3 million (23.2 per cent) lower than budgeted.

Debt to GDP reduced from 145.3% at end FY2012/13 to 135.2% at end FY2013/14

Reduction in balance of payments deficit from 11.5% of GDP in FY2012/13 to 9.5% in FY2013/14

Gross foreign direct investment (FDI) in CY2013 was US$567 mn up from US$380 mn in CY2012

Strategic Geographic Location Overview

Key Highlights

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Building partnerships between public & private sector

Growth Transformation Strategy in Brief

Resiliency of the built and natural environment

Fiscal Consolidation & Public Sector Transformation

Modernize business climate

Human Capital Development & Social Protection

Unlocking latent wealth tied up in idle assets

Social inclusion through community renewal

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Growth Agenda- Key Factors

Component Role

Core Economic Components

1. Fiscal Consolidation Provides Macroeconomic Stability

2. Structural Reforms Addresses Constraints in the Business Environment; Improve competitiveness/efficiency

3. Strategic Investments Provide Catalytic Capital Investments and Employment; Improve Business Environment; Disaster mitigation projects

4. Social Protection Builds Labour Productivity; Provides Social Protection; Human and Community Security;

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Growth Strategy – Core Components

1. Fiscal Consolidation

2. Business Environment

3. Strategic Investments

i. Deficit Reduction

ii. Debt Management

iii. Tax Reformiv. Fiscal

Accountabilityv. Public Sector

Rationalizationvi. Pension

Reformvii. Inflation

Control

i. Improved Access to Credit including for MSMEs

ii. Streamlining Approvals and Business Registration

iii. Legal Processesiv. Customs

Processesv. Energy Sector

Reforms

i. Logistics Hubii. Agro Parksiii. ICT Parksiv. Road

Infrastructure Projects

v. Hotel Development Projects

vi. Energy Diversification

vii. Urban Renewal

Growth Agenda – Supporting Components

4. Human Capital Development and Social Protection

i. Enhanced Social Protectionii. Education & Skills Trainingiii. Primary Health Careiv. Youth Employmentv. Citizens Security & Community Renewal

initiatives

Key Elements

Public Financial Management

Tax Reform

Debt Reduction Strategy

Financial SystemStability

Growth and Competitiveness

Ease of Doing Business

Key elements of the Economic programme which is far advanced in its execution

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Economic Programme

Social Protection

Debt Reduction Strategy

Public Debt targeted to decline to 96% of GDP by 2020; to decline to sustainable level (60% of GDP) by 2026

Management of Contingent Liabilities as a percentage of GDP as guided by the PDMA; 12.6% of GDP in FY2012/13. Target: 3.0 % by FY 2026/27

Continued implementation of structural reforms to support sustained fiscal performance

Fiscal Rule Legislation enacted in 2014 by way of amendments to several laws geared towards minimizing fiscal overspending while locking-in fiscal gains garnered thus far and expected

Public Debt Management Act (PDMA) passed in 2012 : - increases oversight of debt management and governance.

Funding from multilaterals

low cost funding from the IDB/World Bank/CDB.

Active market friendly liability management

US$150 mn budgeted for FY 2014/15 to buy back high yield securities8

Maintain Single-digit Inflation

Consumer price inflation to gradually converge towards trading partners

BOJ short term rate key market signal to guide inflation towards target

Maintain Flexible Exchange Rate System

Important to maintaining price competitiveness of exports

Enhance market information

Increase Reserves

Current account deficit set to halve by FY 2016/17

Import coverage of gross reserves to rise from 3 months to 4 months

Strengthen Financial System

Increase BOJ regulatory and supervisory powers and responsibility for financial system stability

Support growth by providing liquidity to the Financial System

Monetary Policy and Financial System

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Significant Achievements under Programme

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• 7.5% primary budget surplus from 3.2% in FY2011/12• Consistent fiscal surplus from deficit of 6.4% in FY2011/12• Budget cycle altered to be congruent with the start of the Fiscal Year• Implemented the CTMS (Central Treasury Management System)• Fiscal rules established and fiscal policy paper tabled• Implementation of a debt reduction strategy

Public Financial Management & Debt Reduction

Strategy

• Charities Act• Fiscal Incentives Legislation• Amendments to the Customs Act to reduce Tariff Dispersion• Property Tax Reform• Amalgamation of Payroll Taxes and Tax Administration • GCT and Corporate Income Tax Reform

Tax Reform

• Enactment of the Banking Services Bill to enhance supervisory and regulatory framework for Banks

• Amendments to the Financial Services Commission Act • Amendments to the Securities Act, December 2013• Framework (remove legal restrictions) for collective investment schemes (CIS)• Legal and institutional reforms regarding unlawful financial operations

Financial System Stability

Significant Achievements under Programme

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• Establishment of a One Stop Shop for import/export inspection service • Probate reform• Established a National Collateral Registry to improve access to credit• Enacted Insolvency Act• Mobile Banking • Public sector transformation• Procurement Management Reform

Enhancing Ease of Doing Business

• Logistics• Agriculture• Tourism• ICT / BPO Operations• MSME

Focus on Specific Sectors

Human Capital Development &

Social Protection

• Labour Market Reform• Poverty Alleviation Coordinating Body established• PATH Programme • Community Renewal • National Training & Certification Programme – HEART

Other Selected Milestones and Developments

April 2014 Sept. 2014Jan 2014

December 2013Fiscal Incentive

Legislation enacted

March 2014

January 2014

Collateral registry goes

live

Dec 2013

March 2014Social Protection

Strategy Approved by

Cabinet

April 2014Amendment to

Proceeds of Crime Act

effected (limits of $1m in cash) – saves millions

at ports

October 2014Insolvency Act approved by Parliament

June 2104

March 2014Fiscal Rules Framework

adopted

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Oct 2014 Dec 2014 March 2015

December 2014The Securities

(Amendment) Act was enacted

December 2014Reforms to

Development Applications Process approved by Cabinet

June 2014Lower House of

Parliament passes new Banking Services Bill

April 2014Cabinet approves the

establishment of a Growth Committee

December 2013

Secured Transactions Framework

enacted

New Procurement

Manual Completed

January 2014A combined quarterly

Statutory Payment form (S03) launched(Amalgam. of payroll

taxes)

September 2014GCT

Amendment Act passed

September 2014

The Customs (Amendment) Act enacted

October 2014FIRM Expo (financial matchmaking ) held. $1.94B in funding for MSME’s determined

Risk Likelihood Impact Mitigating StrategiesUncertainty in the global economy

Likely High Implement programme of fiscal consolidation and debt reduction with growth-inducing measures designed to reduce the vulnerability of the Jamaican economy to external shocks from the global economy

In order to protect the vulnerable, the government has strengthened the social protection system Undertake diversification of products and markets, including marketing to emerging economies

Impact of fiscal consolidation

Likely High Prioritize growth-enhancing capital expenditure through the Public Sector Investment Programme (PSIP)

Implement structural reforms to improve the competitiveness of the business environment to increase the mobility of factors of production (land, labour and capital), stimulate investment and improve total factor productivity

Delays in aid flows Unlikely Moderate Improve coordination of aid flows from international development partners

Delays in implementation of reforms and projects

Likely High Strengthen the operation of the Public Investment Management System (PIMS) Seek to ensure that the absorptive capacity of the private sector is congruent with the pace of

reform Undertake improvement in project management of capital projects, including through capacity

development and training of project managers and improved systems of project monitoring and evaluation

Establishment of a rigorous M&E framework

Impact of natural hazards

Likely Moderate - Severe

Implement projects to strengthen resilience of the built and natural environment Mainstream hazard risk reduction and climate change adaptation in national development planning

across sectors

Reform fatigue Likely Moderate Ensure proper planning and sequencing of structural reforms Undertake capacity development of implementing agencies and provide technical assistance for

reforms as required Implement public campaign on achievements and their implications

Loss of social cohesion/ political will

Likely Moderate Engage key stakeholders in the implementation and monitoring of the growth agenda through a range of mechanisms including the Economic Programme Oversight Committee (EPOC)

Business and consumer confidence

Likely Moderate Implement communication strategy to inform the private sector and consumers of the progress and benefits of improvements in the economy and business environment

Risk Profile and Sustainability Strategies

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Thank You

Appendices

Appendix 1: A Diversified Economy

Exports by Sector FY 2013GDP by Sector 2013

(Current Prices)Exports by Region FY 2013

Source: Ministry of Finance and Planning

Wholesale & Re-tail Trade; Re-

pairs; Installation of Machinery and

Equipment18%

Producers of Government

Services13%

Transport, Stor-age & Commu-

nication11%

Real Estate, Renting & Business Activities

11%

Manufacture8%

Finance & In-surance Ser-

vices  7%

Construction7%

Other Services7%

Agriculture, Forestry and Fish-

ing:7%

Hotels & Restau-rants6%

Electricity and Water Supply   3% Mining and Quarrying

2%

USA49%

European Union18%

Canada14%

CARICOM4%

Japan1%

Other Coun-tries13%

Mining & Quarring42%

Minerals, Fuels and Related Products

23%

Food & Beverage12%

Manufacturing7%

Ethanol6%

Re-Exports5%

Inedible Materials2%

Agriculture1%

Apparel0.09%

Other Exports2%

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Appendix 2: Debt Analysis

Debt as of March 2014

Ratios (%)2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

Public Debt/GDP1

118.6 131.6 133.9 131.9 135.6 131.9

Interest/Expenditure35.6 44.8 33.0 29.9 31.8 27.4

Debt Service /Tax Revenue111.3 134.7 82.4 85.9 67.3 63.0

Ext. Debt Service/XGST 14.8 12.6 12.2 18.5 15.4 16.3

Type of Debt as of March 2014

Source: Ministry of Finance and Planning

Domestic Debt Holders

Other External Debt7%

Multilateral20%

Global Bonds20%

Do-mestic Debt53% Fixed-

rate66%

Variable-rate35%

Bank of Jamaica 12%

BOJ Superannuation Fund

1%

Commercial Banks8%

Merchant Banks, Trust Cos. & Brokers

24%

Insurance Companies18%

Superann & Pension Funds

8%

National Insurance Fund4%

Other Institutions11%

Building Societies5%

Other Government Funds & Statu-tory6%

Individuals2%

1 Public Debt includes Bank of Jamaica, Central Government and External Guaranteed Debt

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Appendix 3: Monetary Policy and Financial System

Net International Reserves and F/X RateGross Reserves Coverage of Imports and Services

Remittances

Source: Bank of Jamaica

2006 2007 2008 2009 2010 2011 2012 20131,600

1,700

1,800

1,900

2,000

2,100

US

$ M

illi

on

2006 2007 2008 2009 2010 2011 2012 20130

500

1,000

1,500

2,000

2,500

60.0

65.0

70.0

75.0

80.0

85.0

90.0

95.0

100.0

105.0

110.0

NIR (US$MN) End-Point Exchange Rate J$/US$ (right-axis)

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-140.0

5.0

10.0

15.0

20.0

25.0

Wee

ks

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2005 2006 2007 2008 2009 2010 2011 2012 2013

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

Current Account Deficit as a percentage of GDP

Appendix 4: Logistics Hub Initiative (LHI)

Overview

Position Jamaica as a global logistics hub - capitalise on the expansion of the Panama Canal

Strategic location and perfectly positioned to receive Post-Panamax ships

The Kingston Harbour is the seventh largest natural harbour in the world

Planned investments in dredging of the harbour

Achievements

Divestment of Kingston Container Terminal (one of the region’s leading container transshipment ports) – well advanced in bid process, 3 bidding companies: Singapore (PSA), Dubai World, and Consortium CMA/CGM, completion anticipated presently

Portland Bight – a non-binding framework agreement with China Harbour and Engineering Company (CHEC) signed for the development of a transshipment port and industrial and commercial zone; Project valued at US$1.5bn

Special Economic Zones (SEZ) – Green paper now developed to facilitate public engagement. New SEZ legislation by yearend

Divestment of Norman Manley International Airport and Aerodromes – Cabinet has approved the transaction structure and an enterprise team is overseeing the divestment

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Overview

Agriculture sector is significant to the economy in terms of employment, foreign exchange earnings, food security and rural development

Fastest growing sector over the past two quarters

Aim is to stimulate food exports and accelerate the pace of import substitution through change in processes and scale of operations

Ongoing Agricultural Development Projects and Achievements

Promote expansion of Agro-Parks (7 Agro-Parks currently in operation; 2 more to be commissioned in 2015)

COMPLANT has commenced investment of US$100 mn to expand sugar cane planting and refurbish sugar factories in two locations

Appendix 5: Agriculture

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Jamaica offers a mix of attractions and activities across the island for both visitors and cruise ship passengers

Tourism is a key economic sector for Jamaica: Visitor expenditure totaled approximately

US$2.1 B in 2013 Tourism is a primary source of employment

Recent developments Integrated Resorts Development (casino

gaming / hotels) – minimum of 2,000 rooms Significant boost in the tourism product from the

completion of a phase of the North/South Coast Highway

10 hotels (approximately 2,300 hotel rooms) amounting to US$700 mn will be refurbished or constructed by end 2015

Appendix 6: Tourism

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Overview - Competitive Advantages in ICT / BPO

Ideal time-zone and proximity to the US, the world’s biggest originator of outsourcing

Large, educated English speaking workforce with low attrition rates

Sophisticated telecommunications infrastructure

Competitive business costs

Jamaica:

Has established track record in ICT / BPO

Ranks 3rd in the Caribbean and Central America destination for outsourcing

In 2012, was ranked 4th in terms of investment in ICT/BPO by a recent global survey

Recent Developments

Currently 30 ICT/BPO firms operating in Jamaica, employing ~14,000 workers full-time

JAMPRO facilitated five new entrants to the Jamaican market in 2013 – two software development firms and three outsourcing companies

Barnett Tech Park –when fully developed will provide approximately 30,000 jobs.

Development of bi-lingual ICT / BPO facilities (one already operational)

The Development Bank of Jamaica has already approved 6 projects and is considering 2 additional applications with an estimated investment of US$33 mn to create ~ 8,000 new jobs

Pro-Free Zone investment initiatives by the GOJ include:

Operations in Economic Free Zones pay 0% tax on profits

Qualify for exemption from General Consumption Tax and Common External Tariff

Appendix 7: Information Communication Technologies

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