Managing director of the International Monetary Fund, Rodrigo de Rato - REUTERS
JAMAICA'S' FISCAL objectives should be more ambitious than is currently planned, says the latest International Monetary Fund (IMF) assessment of the economy.
If the economy shows more improvement than is expected, the IMF directors suggested that the authorities target a balanced budget for this financial year.
They said it was critical to achieve a balanced budget as soon as possible and to avoid recurring fiscal slippages.
They welcomed the govern-ment's commitment, to limit the size of deviations from fiscal targets and to eliminate deficits over the medium term.
UNDERPERFORMED
The Ministry of Finance and Planning had projected a balanced budget in the last financial year, but the economy underperformed in the face of very bad weather and a harsh external environment with rising world oil prices.
Jamaica's economy experienced a series of major natural disasters, as well as external shocks arising from increases in oil prices and global interest rates since 2004, the IMF stated.
Output growth had slowed, inflation had risen more than envisaged, and the external current account balance had weakened. At the same time, revenue collection had also fallen sharply.
The directors noted that the near-term economic outlook remains vulnerable to shocks, and that the debt dynamics remain highly sensitive to macroeconomic volatility and market sentiment.
Meeting the budgetary objectives for financial year 2006/07 and beyond will require both revenue measures and expenditure discipline, while the medium-term fiscal outlook depends critically on the outcome of wage negotiations, the report said.
REFORMING PUBLIC ENTERPRISES
The directors encouraged the authorities to consider measures to broaden the tax base, eliminate exemptions and preferences, and pursue tax delinquents in a more vigorous manner.
The report pointed to the importance of reforming public enterprises to limit the debt burden arising from off-budget entities.
It urged the authorities to use new concessional debt to replace costlier financing, instead of expanding the overall expen-diture envelope.
The directors underscored the importance of maintaining a flexible exchange rate regime, aimed at safeguarding the external competitiveness of the economy.
They said there is not much scope for postponing infra-structure investment and social and poverty-reducing programmess and encouraged the authorities to develop contin-gency plans to deal with possible further economic shocks.
Structural reforms need to be accelerated, to ensure that the current high levels of investment translate into greater productivity and efficiency, the report said.
TAX REFORMS
Comprehensive tax reforms should also be implemented to create a level playing field and increasing transparency.
The IMF no longer provides its seal of approval for Jamaica's economic programme, but still monitors and comments on it under its Article IV Consul-tations.
