POLICY-BASED LOAN DESCRIPTION

The years following the 2008-09 global financial crisis and leading up to the approval of the Fiscal Consolidation, Growth, and Social Stability Policy-Based Loan (PBL) in late 2014 were marked by difficult economic conditions in Jamaica, including worsening fiscal imbalances and a growing debt overhang, stagnating output, and deteriorating social conditions. Despite efforts to contain public expenditure, notably via a debt exchange in 2010 that resulted in major interest savings, public revenue declined as a result of the contraction in economic activity. As a result, public debt continued to rise steadily, peaking at 146 per cent (%) of Gross Domestic Product (GDP) at the end of Fiscal Year (FY) 2012/13. Real GDP declined at an average rate of 0.8%, contracting every year except 2011. Output performance was reflected in labor market indicators as unemployment rose steadily through the period 2008-2013, reaching 14.9% (10.6% for males and 18.3% for females) by October 2013. Among other social challenges, the national poverty rate, at 9.9% in 2007, had more than doubled to 20% by 2014.

The PBL was a two-tranche 35 million (mn) United States dollars (USD) operation approved by the Board of Directors (BOD) on December 11, 2014 and became effective on December 19, 2014. The first tranche amounted to USD25 mn, consisting of USD15 mn from the Caribbean Development Bank’s (CDB) Special Fund Reserves (SFR) and USD10 mn from CDB’s Ordinary Capital Resources (OCR), and was disbursed at end-December 2014. The second tranche of USD10 mn from CDB’s SFR was disbursed in December 2015, three months ahead of the scheduled date of March 2016. The PBL was part of a coordinated effort by several partners (International Monetary Fund (IMF), InterAmerican Development Bank (IDB), and World Bank (WB) together with CDB) to support the Government’s stabilization program, as part of a coordinated development partner response to Jamaica’s economic context. Its objectives were threefold: support reforms that were geared towards: (a) achieving fiscal and debt sustainability; (b) improving the business environment with a view to achieving sustainable growth rates above 2%; and (c) mitigating the potential adverse impacts of the program on the more vulnerable groups in society.

EXPECTED OUTCOMES

1. PBL-supported reforms aimed at achieving fiscal and debt sustainability were expected to result in the following outcomes:

(a) Achievement of a primary surplus on average 7.5% of GDP annually to 2019/2020.

(b) Progressive reduction in the Public Debt-to-GDP ratio consistent with path toward 60% by 2025/26; 96% by FY 2019/2020.

2. Reforms aimed at improving the business environment were expected to result in the following outcomes:

(a) Real GDP growth of at least 2% of GDP annually over the period 2014/15 to 2019/2020.

(b) Improve Doing Business Indicator-Distance to Frontier score from 62.2 in 2013/14 to at least 67.79 over the period 2014/15 to 2019/2020. 

3. Finally, reforms aimed at mitigating the potential adverse effects of the program on the more vulnerable groups in society were expected to result in the following outcomes:

(a) Implementation of the Steps-to-Work Program, ensuring that at least 1000 Programme for Advancement through Health and Education (PATH)/Step-to-work beneficiaries are trained/in training by December 2015.

(b) Improved Social Welfare targeting (PATH) in keeping with identified levels of poverty.

(c) Increase in registration rates of Persons with Disabilities (PWDs) from 6% in December 2013 to 20% of PWDs population in December 2016.

(d) Incremental reduction in poverty from 19.9% in 2012 to 17% by 2016.