Supporting Jamaica’s Policy and Institutional Reforms to Avoid Crisis

October 3, 2016

Jamaica successfully navigated a difficult economic crisis that threatened macroeconomic stability. With IBRD funding and support, this budget support operation supported the Government of Jamaica’s implementation of a set of policy and institutional reforms to increase competitiveness and improve fiscal management. Reforms focused on: (i) establishing conditions to facilitate higher levels of private sector investment and increase the productivity of investments; and (ii) strengthening fiscal consolidation through enhanced expenditure management, and higher revenue mobilization.


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.


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.


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. 

Bank Group Contribution

The operation provided US$ 130 million in IBRD financing. It was part of an IMF-led financing package that also included financial support from the Inter-American Development Bank (IDB).  IMF financing was provided through an  Extended Fund Facility (EFF) for SDR 615.4 million (about US$932.3 million) for the period April 2013 to March 2017, while the Inter-American Development Bank (IDB) provided financial support equivalent to that provided by the Bank.


There was a strong partnership with other multilateral agencies, not only with respect to the financing package provided to Jamaica, but also in terms of coordination on the reform program. Together, three multilaterals - the IMF, World Bank and the IDB, which have a long record of partnership in Jamaica - supported a wide range of structural reforms designed to stabilize the economy, reduce debt, restore confidence, and build the foundations for growth and resilience. The Fund-supported program focused on debt restructuring, fiscal consolidation and financial sector reforms. The IDB focused on tax reform, including the legislation to reform the incentive system. The Bank is playing an important role supporting structural and institutional reforms to lay the foundations for future growth, enhance competitiveness, social protection and resilience, and improve public sector management, which are critical to the goals of debt reduction and sustainable growth.

Moving Forward

The Jamaican economy has come a long way on its road to economic recovery since 2012, when this operation was prepared. It has stayed the course on a challenging set of reforms supported by an IMF EFF. The World Bank and IDB have also continued their financial support for Jamaica, and the Bank followed up this operation with a programmatic development policy loan series in early 2015. The Programmatic operation built on the achievements of this DPL, by continuing to strengthen reforms in the areas of public financial management and private sector development. Economic growth in Jamaica is recovering, private investment, is increasing and tourism and agriculture continue to see robust growth. While problems remain, especially the high level of youth unemployment, the Jamaican economy has decisively turned the corner from the difficult days of early 2013 when this operation was delivered

of central government payments were done via electronic transfer to improve cash management