Financing for DevelopmentFrom Billions to Trillions: The Challenge of Domestic Resource Mobilization in Jamaica

Tanya Henry BrooksFinancing for Development World Bank Group MOOCDecember 2015

Development Background Population 2.8 Million (2011 census)

Poverty rate 19.9%

Per capita income (USD) $7.074.00

Gini Coefficient (2004) 45.5

Population growth rate 0.7%

Life expectancy in years 73.4

Total literacy rate 87%

Human Development Index 0.73

Successes Categorized as a upper middle income country

Ranked in the 'high human development" category of the UN's 2014 Human Development Index

Adult 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 1,000 81% of households have access to safe water almost 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 is rich in natural resources with strong tourism and cultural industries

but has struggled with low levels of economic growth for decades high debt to GDP ratio (one of the highest in the developing world ,estimated

public debt to GDP ratio of 140%) - severely hampers economic growth high levels of crime, poverty, and unemployment

and as a small island developing state (SID) is heavily reliant on natural resources prone 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 SIDSJamaica’s case for review of eligibility criteria for access to concessional financing

Jamaica’s 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 decisions

The risk of participation in the international capital markets (loans at higher interest rates) The vulnerability to external economic and environmental shocks The capacity to mobilize domestic and international finance The high level of debt to GDP and debt servicing ratios The 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 Scotiabank JDX 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 people…It just isn’t 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 Fund

2010: A 27-month Stand-By Arrangement of SDR 820.5 million (about US$1.27 billion) to support the country’s economic reforms and help it cope with the consequences of the 2008 global downturn

2013: 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 system eliminate discretionary tax exemptions and waivers achieve an annual surplus of 7.5% (excluding debt payments) Reduce its debt below 100% of GDP by 2020

World 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 resilience

International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) continued support of private sector development.

Response to FFD Challenges Business Reform Program Being undertaken across Government Ministries,

Departments and Agencies (MDAs) spearheaded by the National Competitiveness Council (NCC) Includes

The Omnibus Fiscal Incentives Regime Insolvency Act Security Interest in Personal Property Act, 2013 Establishment of a National Collateral Registry The MSME and Entrepreneurship Policy Business registration streamlining incorporating the use of a single

“super-form” The Jamaica Customs Agency’s Automated System for Customs

Data (ASYCUDA) Legislation to establish the Special Economic Zone (SEZ) regime to

replace free zones Implementation of online tax payment systems

The Results: A mixed bagSome positives: Significant improvement in local and global business confidence in Jamaica’s

economy Increased FDI and local investments in economy (BPO and tourism) Moved seven places up, to 64, in the World Bank’s 2016 Doing

Business Report Ranked among the top 10 most improved economies globally

Improved 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-July Tax revenues have exceeded expectations

The Results: A mixed bagSome negatives:According to the IMF Executive Board’s most recent review, the Jamaican government’s 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 world’s 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 world’s 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 years In the last quarter of 2014, Jamaica’s 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 programs  Wages remain stagnant and per capita income is not on an upward trajectory Inequality has widened Productivity 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 country’s 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 indicators This would likely free up more resources than new loans

The international community should consider inherent vulnerability when allocating overseas development assistance and determining access to affordable finance.

Innovative Financing for Development Climate Change and Adaptation

Multilateral Debt for Climate Swaps Initiative Unlock funds to finance climate change adaptation and mitigation projects Safeguard against climate change whilst simultaneously reducing debt burden

Facilities which allows suspension of debt payments while facing economic shocks or natural disasters

Counter-cyclical loans that better consider the realities of small and vulnerable states.

Education, Health & Debt Retirement Crowd Funding and Maximizing Development Potential of Remittances

Remittances represent a key external financial flow for Jamaica: 30% of GDP/ US$2 billion annually

Diaspora Bond Tap into the US$5.4 billion ($470 billion) annual savings of diaspora in the US, Canada and UK Leverage patriotism to offer a rate greater than the yield on bank saving but lower than

sovereign rates Sold in small denominations to a large number of people and fully regulated in markets World Bank - facilitate the issuance of the bond by providing technical advice

Innovative Financing for Development Business Development (MSMEs)

Jamaica Stock Exchange (JSE) and junior market Structured route for diaspora to support micro and small enterprises Accreditation of the JSE by authorities in Canada to facilitate online trading

targeting Jamaicans, and other interests, in that country could be replicated in other diaspora centers

Supporting tax credits offered in Canada to encourage uptake could also be replicated in other diaspora centers

Source: http://thecommonwealth.org/media/news/advancing-sustainable-development-goals-need-innovative-financing

http://jis.gov.jm/diaspora-bond-still-considered/