IMF approves deal
Allowing Gov't billion-dollar-a-month breathing room for public bodies' deficit next fiscal year
BY CAMILO THAME Business co-ordinator thamec@jamaicaobserver.com
Friday, February 05, 2010
THE International Monetary Fund (IMF) yesterday approved a 27-month, US$1.27-billion Stand-by Arrangement with Jamaica, which, among other things, will allow the Government to run $1-billion-a-month deficits for public sector entities over the next year.
According to an IMF document obtained by the Observer, the Government revealed that public entities will rack up a combined deficit of $29.6 billion for the current fiscal year.
This was comparable with the preceding two years when overall deficits ran at $31.5 billion and $26.3 billion in 2007/2008 and 2008/2009 respectively.
But projections for public entities' deficit were placed at $11.9 billion and $8.3 billion for 2010/2011 and 2011/2012 respectively, before reaching an overall surplus in the three years.
Air Jamaica was targeted as a chief concern for the Government's commitment to rationalise and reform its public bodies over the medium term, given that the airline racked up a $9-billion loss last year.
The national carrier is to be sold or undergo liquidation proceedings starting in June 2010.
Stipulations of the IMF deal also include the leasing or putting a strict zero-deficit budget on the factories of the Sugar Company of Jamaica by March 2010 and reducing the net operational loss of the Jamaica Urban Transit Company by 40 per cent.
But the breathing room for deficits provided under the economic programme going forward implies that entities not yet targeted, collectively, run higher deficits than the ailing airline.
Up to press time, the Observer did not get a response to queries made to the IMF on why austerity measures to be taken on the matter of Air Jamaica were not required of all loss-making entities.
Furthermore, given that the airline's profitability has largely been impaired by heavy finance costs associated with the huge debt that the Government plans to absorb -- whether it divests the airline or liquidate it -- it still remains unclear why the Government would commit to a truncated deadline.
According to the IMF document, the Government expects to incur $27.4 billion in debt associated with divestment at the beginning of the next fiscal year.
Meanwhile, by Prime Minister Bruce Golding's pronouncement, Clarendon Alumina Production -- part owner of the Jamalco alumina refinery -- is draining $1 billion a month from the Government's coffers.
Overall, the key objectives of the IMF arrangement are to "support the Jamaican authorities' ample reform programme to address deep-seated structural weaknesses in the country's economy, increase its growth potential, and make it less vulnerable to external shocks", according to an IMF release issued yesterday.
"Jamaica's large debt burden has magnified the fallout of the global crisis by limiting the scope for a counter-cyclical domestic policy response," said IMF's deputy managing director and acting chair, Takatoshi Kato. "Fundamental economic reforms are needed to restore fiscal sustainability, safeguard economic and financial sector stability, and enhance Jamaica's growth potential. The ambitious economic programme demonstrates that the authorities are committed to meeting these challenges."
The Government has committed to balancing its budget and reducing the debt-to-GDP ratio to 115 per cent by 2013/2014.
