Jamaica feeling fiscal blues

New Kingston skyline.

KINGSTON — No deadline for finalising an International Monetary Fund deal has been made public. However, come February 24 the government will have to find US $320 million in hard currency to pay its creditors, along with $88 billion in local currency.

The debts are mostly owed to Jamaican banks and investors, so it is likely that the funds to be repaid could be raised from the same pool that would be paid out locally.

But the lack of a clear IMF agreement, or at the least, a final letter of intent to be taken to the multilateral lending agency’s board before the debts become due, may further push up interest rates and lead to an even weaker dollar.

A deal is expected to release locked up foreign currency inflows from other multilaterals, like the World Bank, and bilateral partners, such as the EU, but the window for the Government to secure an arrangement before it faces a potential fiscal cliff is closing.

Meetings of the IMF’s executive board are already scheduled up to next Wednesday, when the fund will look at the first and second reviews under the Extended Arrangement for Greece, which was approved last March.

That gives Jamaica five weeks to lay everything on the table and get the important stamp of approval, which will signal to the market that a feasible economic programme will be undertaken over the next four years.

On the other hand, a few issues are still left to be sorted out.

Chief among them are how the Government plans to deal with tax waivers and incentives and achieve higher primary surpluses and sharper cuts to the public debt, according to Finance Minister Peter Phillips.

Even then, when they have agreed on those terms, certain actions will have to be undertaken “subject to that approval of the Cabinet and the necessary consultations with local stakeholders” before the IMF board will give its approval.

The lack of a deal thus far has fed into lower investor confidence and economic uncertainty, which was reflected in the decline on the local stock market and devalued dollar last year. (Observer)

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