IMF watch: Government Passing the Test but Recession is Deepening

Jamaica has passed the first three quarterly performance tests required by the 27-month Stand-By Agreement with the International Monetary Fund (IMF) signed in January 2010. The US$1.27-billion loan is disbursed in tranches subject to meeting the conditionalities of the Agreement. To get the loan request approved and receive the first drawdown of approximately US$610-million, the government had to take “prior actions” in the form of imposing a tax package equivalent to 2% of GDP in December 2009, completing the Jamaica Debt Exchange (JDX), and selling Air Jamaica, both by January 2010.

The Agreement sets out a schedule of eight quarterly reviews with explicit quantitative performance tests and two sets of structural benchmarks. The nine performance tests are based on seven quantitative fiscal criteria and two monetary criteria which set ceilings or floors for the relevant indicators at the end of each quarter. For example, at the end of each quarter, there is a floor (minimum) set for the primary balance of the central government, and ceilings (maximums) set for central government’s direct debt and accumulated arrears. Similarly, there is a minimum set for the net international reserves and a maximum set for the net domestic assets as the two monetary quantitative criteria. In addition to the “prior actions” and the quantitative performance tests, there are six “structural benchmarks” consisting of three institutional fiscal reforms and three financial sector reforms as set out in Table 1.

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