IMF COUNTRY FOCUS
The COVID-19 crisis is having a significant impact on Jamaica. The pandemic, which is severely hurting tourism and remittances, reached the Caribbean country just a few months after the successful conclusion of its economic reform program — which was supported by a $1.66 billion Stand-By Arrangement from the IMF.
In response, the government has ramped up its recovery efforts and established a special task force to effectively respond to the economic impact of the crisis. In this context, Jamaica has also requested emergency financing from the IMF in the amount of $520 million.
In an interview with IMF Country Focus, Jamaica’s Minister of Finance and the Public Service, Nigel Clarke, explains what measures the country is taking to protect lives and livelihoods from the impact of the pandemic.
What has been the economic impact of COVID-19 on Jamaica?
As with most economies around the world, the Jamaican economy has been significantly impacted by the effects of the COVID-19 pandemic. The economy is expected to contract by over 5 percent this fiscal year. Furthermore, government revenues are expected to decline by double digits even as emergency health expenditures, as well as social and economic support expenditures, rise. Our balance of payments will also be negatively impacted by our considerably lower inflows from tourism and remittances, which prior to the pandemic represented approximately 20 and 15 percent of GDP, respectively. As such, the COVID-19 pandemic is having a multi-dimensional impact.
What economic measures has Jamaica taken so far to combat the effects of the pandemic?
As with most economies around the world, the Jamaican economy has been significantly impacted by the effects of the COVID-19 pandemic. The economy is expected to contract by over 5 percent this fiscal year. Furthermore, government revenues are expected to decline by double digits even as emergency health expenditures, as well as social and economic support expenditures, rise. Our balance of payments will also be negatively impacted by our considerably lower inflows from tourism and remittances, which prior to the pandemic represented approximately 20 and 15 percent of GDP, respectively. As such, the COVID-19 pandemic is having a multi-dimensional impact.
What economic measures has Jamaica taken so far to combat the effects of the pandemic?
The government implemented a social and economic support program called the CARE Programme, which provides assistance to vulnerable individuals and small businesses through innovative and existing delivery channels.
More specifically, the program provides:
- compassionate grants to those who were unemployed or informally employed pre-pandemic;
- temporary unemployment benefits to the previously employed who have been laid off or terminated since the pandemic; and
- grants to the self-employed whose regular earnings have been disrupted in addition to grants to small businesses.
The CARE Programme also incentivizes employers in targeted sectors to remain connected to their employees. Transfers are made to businesses that retain employees (who are below a particular income level) on their payroll. Among other measures, the CARE Programme provides support for the sick, the elderly, the disabled, and those who were economically vulnerable pre-pandemic by supplementing existing programs.
In addition, we have supported new health expenditures. The fiscal year 2020⁄21 budget is being adjusted to accommodate lower revenues, new expenditures, re-prioritizing of previously planned expenditures, and utilization of cash resources.
It is also worth noting that, even during these unprecedented times, the government has taken, and will continue to take, steps to ensure transparency and good governance in spending and procurement associated with our COVID-19 policy responses. For example, we plan to publish key information on procurement contracts and, as we have already done with the CARE Programme, will request that the Auditor General’s Department undertake and publish an audit of COVID-19 related spending.
Jamaica’s strong ownership throughout its economic program and track record implementing reforms resulted in a stronger and more resilient economy. How have these reforms helped during this challenging time?
The most obvious way is that we have encountered the pandemic with significantly lower debt than we had when we entered the global financial crisis ten years ago. This has provided some flexibility.
In addition, we had accumulated cash resources of over 3 percent of GDP through public body reform, inclusive of divestment of state enterprises, and fiscal over-performance. We were planning to use these resources to accelerate debt repayment.
Due to the COVID-19 pandemic, however, we will instead need to draw down on these resources to assist in financing budgetary expenditures in light of the decline in revenues and the new emergency expenditures that have arisen. The reforms that gave rise to these cash resources have put Jamaica in a much stronger position with a wider pool of options.
Finally, Jamaica’s monetary policy framework was strengthened over the course of the Stand-By Arrangement with price stability becoming the central goal of monetary policy under a flexible exchange rate régime. This allowed for significant reserve accumulation with non-borrowed net international reserves increased by over $1 billion. Work continues to further develop foreign exchange and debt markets, which will be critical in sustaining efficient intermediation of capital to support increased investment in Jamaica.
How has the ongoing work in developing the Natural Disaster Risk Management policy framework helped in responding to the COVID-19 shock?
We made a historic transfer to our Natural Disaster Contingencies Fund, which was created to provide for unforeseen disaster-related expenditures of any kind two fiscal years ago. We were able to draw down from this contingency to finance some of the emergency social spending.
It was extremely useful to have this option. The amount drawn will be replaced as part of the appropriation process. However, we would not have been able to respond to the COVID-19 related emergencies as quickly and as nimbly as we did without the resources available in the Natural Disaster Contingencies Fund.
How will Jamaica make use of the emergency assistance from the Rapid Financing Instrument?
Given the severe shock from the pandemic, the proceeds of the Rapid Financing Instrument will be used to strengthen the reserves at the Bank of Jamaica. As of now, we do not need the financing facility for budgetary support. We are using our own cash resources and other programmed budgetary inflows.