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Policy Reforms for Economic Growth: The Jamaican Experience March 2015 Jamaica Fact Sheet Strategic Geographic Location Overview 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) Key Highlights 2 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 Growth Transformation Strategy in Brief Unlocking latent wealth tied up in idle assets Resiliency of the built and natural environment Modernize business climate Fiscal Consolidation & Public Sector Transformation Human Capital Development & Social Protection Social inclusion through community renewal Building partnerships between public & private sector 3 Growth Agenda- Key Factors Component Role Core Economic Components 4 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; Growth Strategy – Core Components 1. Fiscal Consolidation i. Deficit Reduction ii. Debt Management iii. Tax Reform iv. Fiscal Accountability v. Public Sector Rationalization vi. Pension Reform vii. Inflation 2. Business Environment i. ii. iii. iv. v. Improved Access to Credit including for MSMEs Streamlining Approvals and Business Registration Legal Processes Customs Processes Energy Sector Reforms 3. Strategic Investments i. ii. iii. iv. Logistics Hub Agro Parks ICT Parks 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. ii. iii. iv. v. Enhanced Social Protection Education & Skills Training Primary Health Care Youth Employment Citizens Security & Community Renewal initiatives Economic Programme Key elements of the Economic programme which is far advanced in its execution Public Financial Management Tax Reform Financial System Stability Key Elements Debt Reduction Strategy Growth and Competitiveness Ease of Doing Business 7 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 securities 8 Monetary Policy and Financial System 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 9 Significant Achievements under Programme Public Financial Management & Debt Reduction Strategy Tax Reform Financial System Stability 10 • 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 • 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 • 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 Significant Achievements under Programme 11 Enhancing Ease of Doing Business • 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 Focus on Specific Sectors • Logistics • Agriculture • Tourism • ICT / BPO Operations • MSME 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 December 2013 Secured Transactions Framework enacted Dec 2013 March 2014 Fiscal Rules Framework adopted December 2013 Fiscal Incentive Legislation enacted March 2014 April 2014 September 2014 GCT Amendment Act passed June 2104 Sept. 2014 December 2014 The Securities (Amendment) Act was enacted Oct 2014 Dec 2014 March 2015 June 2014 December 2014 Lower House of Reforms to Parliament passes Development September new Banking Applications Process 2014 Services Bill approved by Cabinet The Customs (Amendment) April 2014 Act enacted Cabinet approves the New October 2014 establishment of a Procurement Insolvency Act Growth Committee Manual approved by Completed Parliament March 2014 Social Protection Strategy Approved by Cabinet January 2014 A combined quarterly Statutory Payment form (S03) launched (Amalgam. of payroll taxes) 12 April 2014 Amendment to Proceeds of Crime Act effected (limits of $1m in cash) – saves millions at ports January 2014 Collateral registry goes live Jan 2014 October 2014 FIRM Expo (financial matchmaking ) held. $1.94B in funding for MSME’s determined Risk Profile and Sustainability Strategies Risk Uncertainty in the global economy Impact of fiscal consolidation Likelihood Likely Likely Impact High High Delays in aid flows Unlikely Delays in implementation of reforms and projects Likely Impact of natural hazards Likely Reform fatigue Likely Loss of social cohesion/ political will Business and consumer confidence 13 Moderate High Moderate - Severe Moderate Likely Moderate Likely Moderate Mitigating Strategies 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 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 Improve coordination of aid flows from international development partners 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 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 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 Engage key stakeholders in the implementation and monitoring of the growth agenda through a range of mechanisms including the Economic Programme Oversight Committee (EPOC) Implement communication strategy to inform the private sector and consumers of the progress and benefits of improvements in the economy and business environment Thank You Appendices Appendix 1: A Diversified Economy GDP by Sector 2013 (Current Prices) Electricity and Water Supply Mining and 3% Quarrying Hotels & 2% Restaurants 6% Agriculture, Forestry and Fishing: 7% Wholesale & Retail Trade; Repairs; Installation of Machinery and Equipment 18% Other Services 7% Producers of Government Services 13% Exports by Region FY 2013 Inedible Materials 2% Other Countries 13% USA 49% Canada 14% Agriculture 1% Manufacturing 7% Mining & Quarring 42% Food & Beverage 12% Finance & Insurance Services 7% Manufacture 8% Real Estate, Renting & Business Activities 11% Source: Ministry of Finance and Planning Transport, Storage & Communication 11% European Union 19% Apparel 0.09% Other Exports 2% Re-Exports 5% Ethanol 6% Japan 1% CARICOM 4% Construction 7% 16 Exports by Sector FY 2013 Minerals, Fuels and Related Products 23% Appendix 2: Debt Analysis Ratios (%) Public Debt/GDP1 Interest/Expenditure Debt Service /Tax Revenue Ext. Debt Service/XGST 1 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 118.6 131.6 133.9 131.9 135.6 131.9 35.6 44.8 33.0 29.9 31.8 27.4 111.3 134.7 82.4 85.9 67.3 63.0 14.8 12.6 12.2 18.5 15.4 16.3 Public Debt includes Bank of Jamaica, Central Government and External Guaranteed Debt Debt as of March 2014 Type of Debt as of March 2014 Other External Debt 7% Domestic Debt Holders Other Government Funds & Statutory Individuals 2% 6% Building Societies 5% Multilateral 20% Domestic Debt 53% Other Institutions 11% Fixed-rate 65% Global Bonds 20% Source: Ministry of Finance and Planning 17 Variablerate 35% Bank of Jamaica 12% National Insurance Fund 4% Superann & Pension Funds 9% BOJ Superannuation Fund 1% Commercial Banks 8% Merchant Banks, Trust Cos. & Brokers 24% Insurance Companies 18% Appendix 3: Monetary Policy and Financial System Remittances Current Account Deficit as a percentage of GDP 2,100 0.0% 2005 US$ Million 2,000 2006 2007 2008 2009 2010 2011 2012 2013 -5.0% 1,900 -10.0% 1,800 -15.0% 1,700 -20.0% 1,600 2006 2007 2008 2009 2010 2011 2012 2013 Gross Reserves Coverage of Imports and Services -25.0% Net International Reserves and F/X Rate 25.0 2,500 110.0 105.0 20.0 2,000 100.0 Weeks 95.0 15.0 1,500 90.0 85.0 10.0 1,000 80.0 75.0 5.0 500 70.0 65.0 0.0 Jan-11 Jul-11 Jan-12 Source: Bank of Jamaica 18 Jul-12 Jan-13 Jul-13 Jan-14 0 60.0 2006 2007 NIR (US$MN) 2008 2009 2010 2011 2012 2013 End-Point Exchange Rate J$/US$ (right-axis) 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 19 Appendix 5: Agriculture 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 20 Appendix 6: Tourism 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 21 Appendix 7: Information Communication Technologies 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 fulltime 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 22