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Financing for Development

Financing for DevelopmentFrom Billions to Trillions: The Challenge of Domestic Resource Mobilization in JamaicaTanya Henry BrooksFinancing for Development World Bank Group MOOCDecember 2015

Development Background

Population2.8 Million (2011 census)

Poverty rate19.9%

Per capita income (USD)$7.074.00

Gini Coefficient (2004)45.5

Population growth rate0.7%

Life expectancy in years73.4

Total literacy rate87%

Human Development Index0.73

SuccessesCategorized as a upper middle income country Ranked in the 'high human development" category of the UN's 2014 Human Development IndexAdult literacy rate is 87%Almost 100% enrollment in primary school 93% enrollment in secondary schools Life expectancy is 73 years Infant mortality rates have improved to 20 per 1,00081% of households have access to safe wateralmost all households have access to sanitary facilities Based on national estimates, it is expected that Jamaica will achieve most of its MDGs and meet targets for poverty reduction, infant and child nutrition, primary education and access to safe drinking water

Source: http://www.jm.undp.org/content/jamaica/en/home/countryinfo/

ChallengesJamaica isrich in natural resources with strong tourism and cultural industries

but has struggled with low levels of economic growth for decadeshigh debt to GDP ratio (one of the highest in the developing world ,estimated public debt to GDP ratio of 140%) - severely hampers economic growthhigh levels of crime, poverty, and unemployment

and as a small island developing state (SID) isheavily reliant on natural resourcesprone to a number of natural hazards(exacerbated by climate change)challenged in the sustainable management of its environmental resources

Financing for Development (FFD) Challenges in SIDSJamaicas case for review of eligibility criteria for access to concessional financingJamaicas success has led to challenges (see previous slides)Classification as a Upper-middle income country has paradoxically made it ineligible for concessional finance and a low aid priority for donors Jamaica encourages consideration of:Re-assessing and removing the statistical measure of GDP Per Capita in determining which countries receive access to concessional financing from multilateral and bilateral lenders (use income per capita)The United Nations Development Index data in concessional financing assessment and decisionsThe risk of participation in the international capital markets(loans at higher interest rates)The vulnerability to external economic and environmental shocksThe capacity to mobilize domestic and international financeThe high level of debt to GDP and debt servicing ratiosThe type of program being funded

Response to FFD Challenges Jamaica recognizes that these measures need to be combined with efforts at the national level to strengthen revenue collection and debt management capacities as well as improve the quality of public expenditures.

Response to FFD Challenges Jamaica Debt Exchange (JDX) (2010 and 2013)$1.7 trillion owed in total - $1 trillion is domestic debt, owed predominantly to major local financial institutions, including National Commercial Bank (NCB) and ScotiabankJDX aims to retire high-priced domestic bonds and reduce annual debt-servicing payments gradually, thereby increasing fiscal room for further development projects. This should free resources for infrastructural development projects, including highway construction and expansion of wharfs and port facilities. These will improve transportation of goods and services, as well as prepare Jamaica as a trans-shipment hub given its strategic location, so that the country may benefit from the expansion of the Panama Canal.

The numbers say it all: for every dollar of the budget that we spend approximately 55 cents goes to pay the debt, another 25 cents to pay wages which leaves just 20 cents to fix roads, maintain schools and hospitals and provide other critical services for the Jamaican peopleIt just isnt enough. Minister of Finance of Jamaica, Peter Phillips

Response to FFD Challenges Improving the macroeconomic environmentJamaica has embarked on a comprehensive and ambitious program of reforms for which it has garnered national and international support: International Monetary Fund2010: A 27-month Stand-By Arrangement of SDR 820.5 million (about US$1.27 billion) to support the countrys economic reforms and help it cope with the consequences of the 2008 global downturn2013: A 4 year Extended Fund Facility (EFF) by the IMF providing a support package of US$932 million The IMF deals, of which the debt exchange was pre-requisite, requires the government to: reform its tax systemeliminate discretionary tax exemptions and waiversachieve an annual surplus of 7.5% (excluding debt payments)Reduce its debt below 100% of GDP by 2020World Bank Group and the Inter-American Development Bank (IDB) programs providing US$510 million each to facilitate the economic reform agenda to stabilize the economy, reduce debt and create the conditions for growth and resilienceInternational Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) continued support of private sector development.

Response to FFD Challenges Business Reform ProgramBeing undertaken across Government Ministries, Departments and Agencies (MDAs) spearheaded by the National Competitiveness Council (NCC)Includes The Omnibus Fiscal Incentives RegimeInsolvency ActSecurity Interest in Personal Property Act, 2013Establishment of a National Collateral RegistryThe MSME and Entrepreneurship PolicyBusiness registration streamlining incorporating the use of a single super-formThe Jamaica Customs Agencys Automated System for Customs Data (ASYCUDA)Legislation to establish the Special Economic Zone (SEZ) regime to replace free zonesImplementation of online tax payment systems

The Results: A mixed bagSome positives:Significant improvement in local and global business confidence in Jamaicas economyIncreased FDI and local investments in economy (BPO and tourism)Moved seven places up, to 64, in the World Banks 2016 Doing Business ReportRanked among the top 10 most improved economies globallyImproved credit rating has enabled the country to raise more than US$ 2 billion in the international capital in the markets in 2014 and 2015.Growth is now projected at 1.4% in 2015-16. Unemployment declined to 13.2% in April 2015 (strong employment growth in tourism and BPO Sector)Inflation remained at a historic low of 4% in July 2015 (in spite of higher food prices caused by drought)International reserves have continued to increase, standing at US$2.4 billion at end-JulyTax revenues have exceeded expectations

The Results: A mixed bagSome negatives:According to the IMF Executive Boards most recent review, the Jamaican governments performance under the IMF program is on track and has remained strong. But The policies implemented under the program have dampened rather than spurred growth. Jamaica now has the worlds most austere national budget with a 7.5% primary surplus last year and for at least the next three years as part of the current IMF program Its interest burden is among the worlds highest (8% of GDP). Interest payments to multilateral financial institutions surpassed multilateral loan disbursements in 2012 & 2013. In 2014 Jamaica paid $136 million more to the IMF than it received from it.The economy has not grown more than 1% in any year in the last 30 yearsIn the last quarter of 2014, Jamaicas growth rate fell 1.4%The unemployment rate is higher than during the global recession The poverty rate has doubled since 2007 Austerity measures have led to deep cuts in critical health and education programsWages remain stagnant and per capita income is not on an upward trajectory Inequality has widenedProductivity remains low

Creating Fiscal Space for Domestic Resource Mobilization Jamaica may yet achieve a balanced budget and the primary surplus of 7.5% but it would seem likely at the expense of capital projects and a risk to social stability - deteriorating its ability to meet the Sustainable Development Goals.What is required?IMF to loosen its austerity measures on Jamaica Multilateral debt relief by the IMF, the World Bank, and the Inter-American Development Bank - the countrys primary external public creditors to create the fiscal space needed to boost growth and address continued high unemployment, poverty, health care, education, crime and other social indicatorsThis would likely free up more resources than new loansThe international community should consider inherent vulnerability when allocating overseas development assistance and determining access to affordable finance.

Innovative Financing for Development Climate Change and AdaptationMultilateral Debt for Climate Swaps Initiative Unlock funds to finance climate change adaptation and mitigation projects Safeguard against climate change whilst simultaneously reducing debt burdenFacilities which allows suspension of debt payments while facing economic shocks or natural disastersCounter-cyclical loans that better consider the realities of small and vulnerable states. Education, Health & Debt RetirementCrowd Funding and Maximizing Development Potential of RemittancesRemittances represent a key external financial flow for Jamaica: 30% of GDP/ US$2 billion annually Diaspora BondTap into the US$5.4 billion ($470 billion) annual savings of diaspora in the US, Canada and UKLeverage patriotism to offer a rate greater than the yield on bank saving but lower than sovereign ratesSold in small denominations to a large number of people and fully regulated in marketsWorld Bank - facilitate the issuance of the bond by providing technical advice

Innovative Financing for Development