policy reforms for economic growth: the jamaican experience march 2015
TRANSCRIPT
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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