Challenge
Jamaica’s economy experienced significant economic shocks after the 2009 global financial crisis that undermined progress on poverty and shared prosperity. A highly indebted country with large financing needs, Jamaica faced significant vulnerabilities which resulted in many years of low growth and periodic challenges that brought the country close to an economic crisis in early 2013. Investor confidence eroded partly due to the delays in concluding a new arrangement with the International Monetary Fund (IMF). Continued macroeconomic challenges, as well as the lingering effects of Hurricane Sandy, which hit the island in October 2012, negatively impacted economic performance. By February 2013, the Jamaican dollar had depreciated by 15 percent over the previous 12 months, foreign exchange reserves were barely US$900 million (less than half their level in 2010), and Jamaica’s ability to refinance the large debt service payments due that month became a subject of speculation. Jamaica was in need of substantial financial support as it undertook difficult reforms to stabilize the economy.
Approach
Reversing Jamaica’s low growth trajectory required the implementation of tough reforms that simultaneously (i) addressed the macro imbalances that led to an unsustainable debt level, (ii) improved the business environment to attract strategic investments, and (iii) established mechanisms to manage the costs of natural disasters and build social resilience by improving the delivery of critical social services. Supported by the multilateral organizations, the Government embarked on a broad reform program and took impressive first steps towards macroeconomic stability and debt sustainability. This Development Policy Operation (DPO) provided much needed budget support, in the context of a multilateral financing package that supported the Government’s efforts to stabilize the economy. The DPO is a standard World Bank lending product which provides financing for government budgets while supports a set of policy and institutional reforms agreed by the Bank and the borrower.
Results
The main results achieved by the DPO were to help stabilize the Jamaican economy and support a set of structural reforms that that enhanced fiscal sustainability and improved the investment climate. Specific results achieved as part of this program included:
- Progress in completing pension reform legislation, as evidenced by the drafting of the civil service pension reform bill by 2014
- A shift from a discretionary to a more rules based tax regime, as evidenced by the reduction in the number of sector based tax incentive programs from 15 in 2013 to four in 2014.
- Improved monitoring of public sector employment, as evidenced by the percent of central government personnel captured in the public service database from 60 percent in 2013 to 100 percent by early 2015.
- Improved cash management of central government entities, as evidenced by the percent of payments done by electronic funds transfer to 98 percent by 2014.
- Improved planning and monitoring of public investments, as evidenced by the percent of public investment projects in the online database increasing from 0 in 2013 to 90 in 2014.