Debt-ridden Jamaica agrees to terms to obtain US$750mn funding from IMF

Debt-ridden Jamaica has accepted the terms of an agreement with the IMF to gain access to a much needed US$750mn funding arrangement, according to an IMF statement released on Friday. The island's Prime Minister Portia Simpson Miller made a televised speech on February 11 in which she urged the nation to join forces to implement a series of deep and difficult reforms in order to obtain the IMF financing and reduce the country's mountain of debt, which stands at over 140% of GDP. Simpson Miller said that the current level of debt makes it virtually impossible for Jamaica to grow and invest in services like education, healthcare and infrastructure. In her speech Simpson Miller also announced a debt exchange, which was launched the day after and was a condition for obtaining the financing from the IMF. "The mission has reached a staff-level agreement with the Jamaican authorities on the key elements of an economic program that can be supported by a 48-month arrangement under the Extended Fund Facility (EFF), in the amount equivalent to SDR479 million [about US$750 million or 175 percent of quota]," said Jan Kees Martijn, head of the IMF's mission to Jamaica. Jamaica has a current IMF quota of about US$434mn. Martijn estimated that the IMF's executive board would consider the proposed arrangement under the EFF by the end of March, "subject to the timely completion of prior actions to be taken by the Jamaican government and obtaining necessary financing assurances." LOW GROWTH AND HIGH DEBT During no less than three decades Jamaica's economy has showed "very low" GDP growth, with falling productivity and reduced international competitiveness. "An important factor behind these problems has been Jamaica's unsustainable debt burden, which has undermined confidence and elevated risks to economic stability," said Martijn. "Additionally, Jamaica's high debt service has limited the government's potential to provide the services needed to achieve sustained rates of growth and increased welfare for its citizens." The Jamaican economy is estimated by the IMF to have expanded by only 0.9% last year and the forecast for this year is GDP growth of a mere 1%. In comparison, Latin America and the Caribbean recorded an average expansion of 3.2% in 2012 and growth this year is estimated by the IMF to be 4%. Martijn said that the main objective of the economic reform program is to "contain the country's rising economic and external vulnerabilities and address economic imbalances, while putting Jamaica on a path of sustainable growth." Other program objectives are increased macroeconomic and financial stability, more private-sector led economic growth and the promotion of social stability. These objectives will be attained through achieving and sustaining higher primary fiscal surpluses, the implementation of a comprehensive set of structural reforms and enhanced social protection for the most vulnerable, he said. The IMF official also noted that the success of the debt exchange would "depend critically on a high rate of participation of private creditors" in the exchange, which is asking these creditors to swap their current bonds for bonds with lower interest rates and longer maturities. The Jamaican authorities made an attempt in 2010 to reduce the country's high level of debt through a similar debt exchange, which saw a very high investor participation rate of 99.2%.