IMF says public sec­tor re­form needs ur­gent at­ten­tion

Weekend Mirror - - CHILDREN’S CORNER -

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In­ter­na­tional Mon­e­tary Fund (IMF) team, which ended its review of Ja­maica's per­for­mance un­der the cur­rent Stand-by Agree­ment Thurs­day, has warned that re­form of the public sec­tor can­not be de­layed any longer.

The team said that there was broad agree­ment on the need to ac­cel­er­ate the public sec­tor's wage ne­go­ti­a­tions, and that fur­ther de­lays pose sig­nif­i­cant risks and un­cer­tainty to the gov­ern­ment's fis­cal ac­counts.

Team leader Uma Ra­makr­ish­nan told a brief­ing at Ja­maica House on Tues­day that it was also ac­knowl­edged that wage ne­go­ti­a­tions should be an­chored on a for­ward-look­ing medium-term com­pen­sa­tion frame­work, to sus­tain­ably re­duce the wage bill and re­lease re­sources for the much needed so­cial and growth-en­hanc­ing spend­ing. “Go­ing for­ward, it is im­por­tant to re­think the ex­ten­sive and in­equitable sys­tem of al­lowances and the over­all pay struc­ture in the public sec­tor,” she said.

“More fun­da­men­tally, re­forms to a large and in­ef­fi­cient public sec­tor can­not be de­layed any fur­ther. Achiev­ing greater ef­fi­ciency re­quires a scale back of the roles, re­spon­si­bil­i­ties, and over­all size of the public sec­tor. Strength­en­ing the pro­cure­ment process would also en­sure a timely ex­e­cu­tion of cap­i­tal projects,” the IMF rep­re­sen­ta­tive said.

In her state­ment at Thurs­day's press brief­ing, Ra­makr­ish­nan said:

“The IMF team reached a pre­lim­i­nary agree­ment with the au­thor­i­ties on a set of poli­cies that aims at com­plet­ing the sec­ond review un­der the SBA. Con­sid­er­a­tion by the IMF's Ex­ec­u­tive Board is ten­ta­tively sched­uled for Oc­to­ber 2017. Upon ap­proval, an ad­di­tional SDR 126 mil­lion (about US$180 mil­lion) will be made avail­able for Ja­maica, bring­ing the total ac­ces­si­ble credit to about US$790 mil­lion. The Ja­maican au­thor­i­ties con­tinue to view the SBA as pre­cau­tion­ary, and use it as an in­surance pol­icy against un­fore­seen ex­ter­nal eco­nomic shocks be­yond Ja­maica's con­trol.

“Ja­maica's eco­nomic pro­gramme con­tin­ues to de­liver strong results, sup­port­ing high con­fi­dence and in­creas­ing job cre­ation. All quan­ti­ta­tive per­for­mance cri­te­ria and struc­tural bench­marks at end-June 2017 were met. The cen­tral gov­ern­ment's pri­mary bal­ance sur­plus ex­ceeded the pro­gramme tar­get by a healthy margin, mainly from buoy­ant cor­po­rate in­come tax. Non- bor­rowed in­ter­na­tional re­serves also over-per­formed, and in­fla­tion is an­chored within the Bank of Ja­maica's tar­get range of four to six per cent.

“The Ja­maican econ­omy is re­bound­ing, de­spite the im­pact of weather swings in 2017. Growth has been pos­i­tive for nine con­sec­u­tive quar­ters, with strong per­for­mances es­pe­cially in tourism, con­struc­tion, and man­u­fac­tur­ing. Un­em­ploy­ment reached 12.2 per cent in April 2017 – a 7-year low – along with a sus­tained ex­pan­sion in the labour force. For FY17/18, eco­nomic ac­tiv­ity is pro­jected to ex­pand by 1.6 per cent, slightly lower than an­tic­i­pated, as flooding ad­versely im­pacted agriculture. Over the medium term, eco­nomic ex­pan­sion is ex­pected to be around 2.5 to 3.0 per cent, as sus­tained re­forms yield higher in­vest­ment and pro­duc­tiv­ity div­i­dends.

“There was broad agree­ment on the need to ac­cel­er­ate the public sec­tor's wage ne­go­ti­a­tions; fur­ther de­lays pose sig­nif­i­cant risks and un­cer­tainty to the gov­ern­ment's fis­cal ac­counts. It was also ac­knowl­edged that wage ne­go­ti­a­tions should be an­chored on a for­ward-look­ing medium-term com­pen­sa­tion frame­work to sus­tain­ably re­duce the wage bill and re­lease re­sources for the much needed so­cial and growth-en­hanc­ing spend­ing. Go­ing for­ward, it is im­por­tant to re­think the ex­ten­sive and in­equitable sys­tem of al­lowances and the over­all pay struc­ture in the public sec­tor.

“More fun­da­men­tally, re­forms to a large and in- ef­fi­cient public sec­tor can­not be de­layed any fur­ther. Achiev­ing greater ef­fi­ciency re­quires a scale back of the roles, re­spon­si­bil­i­ties, and over­all size of the public sec­tor. Strength­en­ing the pro­cure­ment process would also en­sure a timely ex­e­cu­tion of cap­i­tal projects.

“There was broad con­sen­sus on an­chor­ing mon­e­tary pol­icy on price sta­bil­ity, with a flex­i­ble and market- de­ter­mined ex­change rate. In this re­gard, the team com­mends the BOJ for the suc­cess­ful in­tro­duc­tion of the BOJ For­eign Ex­change In­ter­ven­tion and Trad­ing Tool ( B- FXITT) in June, creat­ing a trans­par­ent and market-based ex­change rate price dis­cov­ery mech­a­nism. Go­ing for­ward, the BOJ in­tends to limit FX in­ter­ven­tions to smooth­ing volatil­ity and coun­ter­ing dis­or­derly FX market con­di­tions. On­go­ing im­prove­ments in the mon­e­tary pol­icy tool­kit and in­tro­duc­ing FX buy auc­tions to build re­serves, com­bined with clar­ity in the BOJ's pol­icy and com­mu­ni­ca­tion, will im­prove liq­uid­ity man­age­ment and pol­icy sig­nal­ing.

“Ma­jor in­sti­tu­tional re­forms in the fi­nan­cial sec­tor are un­der way. In ad­di­tion to the res­o­lu­tion regime for fi­nan­cial in­sti­tu­tions, re­vi­sions to the BOJ Act are un­der con­sid­er­a­tion to crys­talise the cen­tral bank's man­date around price sta­bil­ity, along with a gov­er­nance frame­work and bal­ance sheet strength that sup­port that man­date.

“The IMF team met with Prime Min­is­ter An­drew Hol­ness, Fi­nance Min­is­ter Aud­ley Shaw, Bank of Ja­maica Gov­er­nor Brian Wyn­ter, State Min­is­ter Fay­val Wil­liams, State Min­is­ter Rud­yard Spencer, Am­bas­sador Nigel Clarke, Act­ing Fi­nan­cial Sec­re­tary Darlene Mor­ri­son, Plan­ning In­sti­tute Di­rec­tor Gen­eral, Wayne Henry, se­nior gov­ern­ment of­fi­cials, as well as mem­bers of the pri­vate sec­tor, labour unions and civil so­ci­ety. The team would like to thank the Ja­maican au­thor­i­ties for their hos­pi­tal­ity and col­lab­o­ra­tion.”

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