IMF

Jamaica

Executive Board Concludes 2018 Financial System Stability Assessment

November 30, 2018

On November 5, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the IMF’s latest Financial System Stability Assessment (FSSA) of Jamaica. [1]

The financial sector has significantly expanded since the last FSSA in 2006. Financial sector assets now stand at about 180 percent of GDP. The financial sector is dominated by large and complex financial conglomerates that span many activities, including banking, insurance, pension fund management, and collective investment fund management.

Since the 2006 FSSA, the authorities have considerably strengthened macroeconomic policies, including under IMF-supported programs. Decades of high fiscal deficits, combined with the financial sector crisis of the late 1990s, had led to rapid government debt accumulation and financial dollarization. The high public borrowing needs, in turn, had crowded out private credit and stifled economic growth. Fiscal discipline has been central to the reduction in the public debt since 2013.

With the stock of debt declining (to 60 percent of GDP by FY2025/26 under the Fiscal Responsibility Law), the financial sector is confronted with new challenges, as it seeks to play a major role as an engine of economic growth. One significant challenge is the search for non-government investment opportunities. Even though commercial banks appear to be profitable and well capitalized, the loan-to-deposit remains low.

The main risks to the financial system arise from exposure to natural disasters (including climate-related disasters), tightening global financial conditions, and economic reform fatigue. Delays in the economic reform agenda could erode confidence and impact financial institutions’ balance sheets. A tightening of global financial conditions could reduce foreign inflows, which would dampen economic growth (through consumption and investment) and lead to rising nonperforming loans. A natural disaster could cause protracted negative growth and large losses for banks and other financial institutions.

The FSAP stress tests suggest broad resilience to solvency shocks; however, highly interconnected financial conglomerates make the financial sector particularly vulnerable to contagion. Vulnerabilities arise from concentrated ownership, related party and large group exposures, and off-balance sheet positions. Also, several conglomerates operate in multiple jurisdictions with different oversight practices. Sizable public debt holdings by all segments of the groups and across financial institutions mean that the stability of the financial system is closely bound to discipline in public finance, sustainability of the macroeconomic outlook, and debt dynamics.

Executive Board Assessment [2]

Executive Directors concurred with the main findings and recommendations of the Financial System Stability Assessment (FSSA). They commended the authorities for the progress made in the implementation of the reform program since the 2006 FSSA.

Directors noted that the financial sector is sizeable and complex, and dominated by large intra- and inter-connected financial conglomerate groups with cross-border linkages. They agreed that the financial sector overall shows broad resilience, and the main risks arise from exposure to natural disasters, the tightening of global financial conditions, and a possible reversal of fiscal discipline driven by reform fatigue. Directors cautioned that, given the increased interconnectedness of the financial sector and associated risks of contagion, priority should be given to intensified oversight and consolidated risk-based supervision, especially of systemically important groups with systemically important connections.

Directors underscored the importance of improved data sharing, cooperation, and coordination with regional supervisors, in particular for those affecting systemically important groups. They emphasized the importance of an effective oversight framework together with heightened commitment to transparency and accountability. Work reinforcing the resilience of securities dealers, the deepening of capital markets and broadening of instruments to manage credit, liquidity and market risks should continue.

Directors encouraged efforts to expand skilled supervisory resources, highlighting that all supervisory agencies need to expand their capacity to fulfill their current mandates and new demands. They noted that data collection also needs to be strengthened to further facilitate the monitoring of risks of a complex group-based financial system, and to conduct sound financial stability analyses and risk assessments.

Directors welcomed progress on the crisis preparedness and resolution management frameworks, but highlighted that the reforms are incomplete. They underscored the need for further work to clarify several key aspects and properly sequence the work on recovery planning, resolution plans, and resolvability assessments. Directors agreed that system-wide preparation for a systemic crisis is an area that requires the authorities’ attention.

Directors welcomed efforts to maintain correspondent banking relationships in Jamaica, including through ongoing strengthening of the AML/CFT framework.

Executive Board Completes Fourth Review under the Stand-By Arrangement 

November 5, 2018

• Program implementation remains strong 5 years into the authorities’ economic reforms.
• Structural impediments need to be quickly addressed to foster private capital formation and accelerate growth and job creation.
• Modernizing the central bank will help facilitate the needed move to full-fledged inflation targeting.

On November 5, 2018, the Executive Board of the International Monetary Fund (IMF) completed the fourth review of Jamaica’s performance under the program supported by the Stand-By Arrangement (SBA). The 36-month SBA, with a total access of SDR 1,195.3 million (about US$ 1.66 billion), equivalent to 312 percent of Jamaica’s quota in the IMF, was approved by the IMF’s Executive Board on November 11, 2016 (see Press Release No.16/503). The Jamaican authorities continue to view the SBA as precautionary, an insurance policy against unforeseen economic shocks that could lead to a balance of payments need.

Following the Executive Board’s discussion today, Mr. Tao Zhang Deputy Managing Director and Acting Chair issued the following statement:

“The authorities continue their impressive track record under the Stand-By Arrangement. While macroeconomic stability is entrenched, with reduced public debt and improving social and unemployment indicators, growth remains subdued. Against this backdrop, supply-side reforms to facilitate private sector investment are needed to achieve higher, sustained growth and job creation.

“The Bank of Jamaica (BOJ) remains committed to maintaining inflation within the 4-6 percent target range over the medium term. The recent tabling in Parliament of legislation to upgrade the BOJ Act is an important step toward the eventual shift toward full-fledged inflation targeting. Maintaining exchange rate flexibility and limiting FX sales during periods of disorderly market conditions is necessary to support an inflation targeting framework. The authorities are also planning to accelerate FX market development and the building of technical capacity in monetary operations.

“The public-sector wage bill needs to be placed on a sustained downward path. Reduced wage outlays will allow the government to reprioritize public spending toward security, social assistance, and growth-enhancing capital expenditure. Achieving such a wage bill reduction will require a broad overhaul of the public compensation and allowance system and a reduction in the size of the government workforce.

“The financial sector should be further strengthened in line with the recommendations from the accompanying Financial Sector Stability Assessment. Priority should be placed on enhancing coordination, data collection, monitoring, and strengthening technical capacity of the financial regulators. Improving consolidated and risk-based supervision are important reform areas. Addressing impediments that constrain access to finance would help support private-sector investment.

Table 1. Jamaica: Selected Economic Indicators 1/
Population (2013): 2.8 million
Quota (current; millions SDRs/% of total): 382.9/0.08%
Main products: Alumina, tourism, chemicals, mineral fuels, bauxite, coffee, sugar
Per capita GDP (2014): US$4955
Literacy rate (2015)/Poverty rate (2016): 87%/17.1%
Unemployment rate (Apr. 2018): 9.7%

 

 

 

 

					Prog.	Projections
	2016/17	2017/18	2018/19	2018/19	2019/20	2020/21	2021/22	2022/23
(Annual percent change, unless otherwise indicated)
	1.4	0.9	1.7	1.4	1.6	1.8	2.1	2.2
	5.9	8.1	6.8	5.5	7.1	6.9	7.2	7.3
GDP and prices	4.1	4	5	4.7	5.1	5	5	5
Real GDP	2.4	4.6	5	3.7	5.5	5	5	5
Nominal GDP	128.7	126	…	…	…	…	…	…
Consumer price index (end of period)	127.3	127.9	…	…	…	…	…	…
Consumer price index (average)	5.4	-2.1	…	…	…	…	…	…
Exchange rate (end of period, J$/US$)	-2.6	3.2	…	…	…	…	…	…
Exchange rate (average, J$/US$)	6.3	5.1	…	…	…	…	…	…
Nominal depreciation (+), end-of-period	6.1	5.1	…	…	…	…	…	…
End-of-period REER (appreciation +) (new methodology) 2/	12.7	9.7	…	…	…	…	…	…
Treasury bill rate (end-of-period, percent)
Treasury bill rate (average, percent)
Unemployment rate (percent) 3/	27.9	29	29.3	29.8	28.9	28.6	28.5	28.3
(In percent of GDP)	25.7	25.7	25.8	25.9	25.4	25.3	25.3	25.3
Government operations	28.1	28.6	29.5	29.6	28.1	27.9	27.4	26.8
Budgetary revenue	20.3	21.6	22.4	22.8	22	22.1	22	21.8
Of which: Tax revenue 4/	9.3	9.2	9.2	9.1	9.1	9	8.8	8.8
Budgetary expenditure	7.8	7	7.1	6.8	6.2	5.8	5.4	5
Primary expenditure	-0.2	0.5	-0.2	0.2	0.8	0.7	1.1	1.5
Of which: Wages and salaries	7.6	7.4	7	7	7	6.5	6.5	6.5
Interest payments	2	0.6	0	0	0	0	0	0
Budget balance	1.5	1.1	-0.2	0.2	0.8	0.7	1.1	1.5
Of which: Central government primary balance	115.1	102.2	98.3	99.6	93.6	88.3	82.1	75.8
Public entities balance 8/	121.8	109.1	104.8	105.8	99	92.7	85.2	77.7
Public sector balance
Public debt (FRL definition) 4/ 6/	-2.6	-5.4	-3	-5	-4	-3.7	-3.6	-3.5
Public debt (EFF definition) 5/ 7/	8.8	9.2	10.4	10.8	11.2	11.1	10.8	10.5
External sector	15.8	14.2	14.5	14.5	15.3	15.7	15.4	15.1
Current account balance	31.5	34.9	33.2	36.9	36.6	35.9	35.4	35
Of which: Exports of goods, f.o.b.	21.4	20.6	21.1	21.1	23	24.1	24	23.8
Exports of services	2,769	3,075	3,219	2,965	3,168	3,221	3,229	3,426
Of which: Imports of goods, f.o.b.	1,944	2,398	2,428	2,454	2,820	2,887	3,065	3,295
Imports of services
Net international reserves (US$ millions)
of which: non-borrowed	7.1	5.5	4.7	2.8	5.5	2.6	2	5.3
(Changes in percent of beginning of period broad money)	15.4	2.6	2.1	2.7	1.6	4.3	5.3	2.1
Money and credit	22.4	9	9.5	7.8	8.4	8.8	9.9	11.6
Net foreign assets	0.4	2.8	5.2	2.8	0	-2.1	0.6	0.1
Net domestic assets	22.5	8.1	6.8	5.5	7.1	6.9	7.2	7.3
Of which: Credit to the private sector
Of which: Credit to the central government	1,789	1,933	2,016	2,039	2,184	2,334	2,503	2,687
Sources: Jamaican authorities; and Fund staff estimates and projections.

IMF Communications Department

Mexico

Executive Board Review 

November 27, 2018

On November 26, 2018, the Executive Board of the International Monetary Fund (IMF) completed its review of Mexico’s qualification for the arrangement under the Flexible Credit Line (FCL) and reaffirmed Mexico’s continued qualification to access FCL resources. At the request of the Mexican authorities for a reduction of access under the FCL arrangement for Mexico consistent with their intention last year, the Executive Board approved the FCL access of SDR 53.4762 billion (about US$74 billion[1]). The Mexican authorities stated their intention to continue treating the arrangement as precautionary.

The current two-year FCL arrangement for Mexico was approved by the IMF’s Executive Board on November 29, 2017 for an original access amount equivalent to SDR 62.3889 billion (about US$86 billion) (see Press Release No. 17/459). Mexico’s first FCL arrangement was approved on April 17, 2009 (see Press Release No. 09/130), and was renewed on March 25, 2010 (see Press Release No. 10/114), January 10, 2011 (see Press Release No. 11/4), November 30, 2012 (see Press Release No. 12/465), November 26, 2014 (see Press Release No. 14/543), and May 27, 2016 (see Press Release No. 16/250).

Following the Executive Board’s discussion on Mexico, Ms. Christine Lagarde, Managing Director and Chair, made the following statement:

“Very strong policies and policy frameworks have helped Mexico navigate a complex external environment. Growth has remained resilient while inflation declined. Fiscal policy has stemmed the rise in the public debt-to-GDP ratio, monetary policy has maintained a prudent stance, and financial regulation and supervision remain strong. The flexible exchange rate has played a key role in helping the economy adjust to external shocks.

“The current and the incoming administrations have stated their commitment to maintain very strong policies and policy frameworks, including the independence of economic-policy institutions. They are also committed to fostering a reform agenda to strengthen the rule of law and boost private investment. It will be important to adhere strictly to these commitments to preserve hard-won gains and instill policy predictability.

“Given its openness to financial and trade flows, the Mexican economy remains exposed to external risks. These risks include renewed volatility and increased risk premia in global financial markets, a sharp pull-back of capital from emerging market economies, as well as weakening global growth and intensified global trade tensions. The risk of an abrupt change in Mexico’s trade relations, however, has receded.

“The Flexible Credit Line arrangement plays an important role in supporting the authorities’ macroeconomic strategy by providing insurance against tail risks and bolstering market confidence. In light of the dissipation of some of the risks facing Mexico and given Mexico’s strong buffers, the authorities requested a reduction in access under the current arrangement, in line with the commitment they made at the time of its approval a year ago. The lower access is appropriate and consistent with the authorities’ strategies that envisage a gradual phasing out of Mexico’s use of the facility subject to a reduction in risks. Both current and incoming administrations intend to continue to treat the arrangement as precautionary.”

[1] Amount based on the Special Drawing Right (SDR) quote of November 27, 2018 of I USD=SDR 0.724065.

IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: MARÍA CANDIA ROMANO

PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG

Brazil

Technical Assistance Report-Public Investment Management Assessment
Author/Editor:International Monetary Fund. Fiscal Affairs Dept.Publication Date:November 29, 2018Electronic Access:Free Full Text. Use the free Adobe Acrobat Readerto view this PDF fileSummary:

Brazil is the largest country in Latin America with a varied geography and a population of over 200 million spread across 26 diverse states, generating wide-ranging infrastructure needs. Over the decades, many government investment initiatives have been launched to address these needs, however there remains a significant infrastructure gap in Brazil which continues to hamper growth potential. Over the past two decades, public investment has been considerably below the regional and income group averages and this has translated into much lower capital stock. Public investment averaged around 2 percent of GDP during the period 1995 to 2015, compared with 6.4 percent for Emerging Market Economies (EME) and 5.5 percent for Latin American Countries (LAC). As a result, public capital stock in 2015 was only 35 percent of GDP compared with an average of 92 for EME and 87 for LAC.Series:Country Report No. 18/249
ENGLISH
Publication Date:November 29, 2018ISBN/ISSN:9781484372050/1934-7685Stock No:1BRAEA2018001Price:$18.00 (Academic Rate:$18.00)Format:PaperPages:70

Honduras

IMF Staff Concludes Visit
November 16, 2018

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
An International Monetary Fund (IMF) team led by Esteban Vesperoni visited Tegucigalpa from November 12-16 to assess recent economic developments since the completion of the 2018 Article IV consultation in May and the medium-term outlook. At the conclusion of the visit, Mr. Vesperoni issued the following statement:

“Macroeconomic conditions have remained stable and growth is expected to be resilient over the next years. After rapid growth in 2017, economic activity is expected to reach 3½ percent this year, close to its trend. On the back of higher world oil prices, annual inflation reached 4.7 percent in end-October, within the 4±1 percent central bank target range. The current account deficit is projected at 3¼ percent of GDP in 2018, amid declining terms of trade due to lower coffee prices and higher oil prices. Buoyant activity in the U.S. and prudent macroeconomic policies will support growth in coming years.

“The fiscal position continues to be anchored by the Fiscal Responsibility Law, including through measures to contain the financial situation in the public electricity company. The Nonfinancial Public Sector deficit is expected to stay within the law’s ceiling of 1.2 percent of GDP in 2018.

“The mission and the authorities have agreed to continue engagement towards negotiations for an economic program that could be supported by a financial arrangement with the IMF.

“The mission held discussions with Central Bank Governor and Head of the Economic Cabinet Wilfredo Cerrato, Minister of Finance Rocío Tábora, Minister Director of the Tax Agency Miriam Guzmán, commissioner of the National Commission of Banking and Insurance Adonis Lavaire and other senior officials and representatives of the private sector. The mission wishes to thank the authorities for their hospitality and all stakeholders for the candid dialogue.”

IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: RAPHAEL ANSPACH

PHONE: +1 202 623-7100EMAIL: MED

IMF Executive Board Concludes 2018 Article IV Consultation with Belize

November 16, 2018

On November 12, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Belize.

Belize’s economic recovery is strengthening, supported by a favorable global environment. Real GDP is estimated to have increased by 1.4 percent in 2017, and recent data indicate an acceleration in economic activity. This acceleration reflects growth in the tourism and agricultural sectors, on the back of economic expansion in Belize’s trade partners, expanded capacity, and foreign direct investment. Unemployment decreased to 9.4 percent in April 2018 from 9.7 percent six months earlier, the current account deficit narrowed to 7.6 percent of GDP in 2017 from 8.4 percent of GDP in 2016, and the financial sector is strengthening. The government delivered a significant fiscal adjustment in FY2017/18, with a primary fiscal balance surplus of 1.3 percent of GDP.

The medium-term outlook remains challenging. Real GDP growth is projected at just below 2 percent in the medium term. The current account deficit is projected to gradually narrow, but remain significant, with international reserves projected below 3 months of imports of goods and services over the medium term. A fiscal stance that is stronger than currently projected would be needed to reduce public debt from its end-2017 level (94 percent of GDP) to prudent levels over the long term and build buffers against shocks. Contested legacy claims, estimated at about 5 percent of GDP, could lead to large public and external financing needs. The risk of renewed pressures on correspondent banking relationships (CBRs) remains. On the upside, additional foreign direct investment, including in connection with the tourism industry’s expansion, and a successful implementation of the Growth and Sustainable Development Strategy (GSDS) could result in a sustained rise in growth.

Executive Board Assessment2

Belize’s economic recovery is strengthening and Directors welcomed the authorities’ progress in restoring fiscal sustainability and financial sector soundness. However, the medium‑term outlook remains challenging with elevated government debt and external imbalances. With this background, Directors encouraged the authorities to implement reforms to raise economic growth and resilience, reduce government debt, and strengthen the financial sector.

Structural reforms are key to enhance the business climate and improve medium‑term growth prospects. Directors encouraged the authorities to take steps to facilitate access to credit, address labor market rigidities and skill gaps, improve governance, and amplify support for crime prevention. Directors welcomed the Climate Change Policy Assessment, conducted with support from the IMF and the World Bank, and emphasized the need to intensify ongoing efforts to build resilience to natural disasters, through investment in adaptation infrastructure, greater self‑insurance, and optimized use of risk management instruments.

Directors welcomed the significant fiscal consolidation achieved in FY2017/18 and further adjustment envisaged in the FY2018/19 budget. Reducing public debt to prudent levels would require additional fiscal reforms. Directors highlighted the need to broaden the tax base, strengthen tax administration, reduce wage spending and undertake pension reform. To support the poverty alleviation strategy, Directors saw merit in strengthening the social safety net by increasing the use of formal targeting mechanisms. They encouraged the authorities to support fiscal adjustment with a well‑designed fiscal rule.

Directors noted that the financial system is strengthening but should remain under tight supervision. They encouraged the authorities to fortify the bank resolution legal framework with more effective tools and greater regulatory autonomy, with IMF technical assistance. They also highlighted the need to undertake an asset quality review to assess banks’ capital buffers.

Directors welcomed recent progress in strengthening the AML/CFT framework and recommended further steps to enhance its effectiveness and support the recovery of Correspondent Banking Relationships. They underlined the need to strengthen the regulatory, supervisory, and enforcement powers of the International Financial Services Commission. Directors also encouraged the authorities to further develop their capacity to conduct AML/CFT risk‑based supervision. They saw merit in conducting a study on the overall benefits as well as the costs and risks of the offshore sector.

Belize: Selected Social and Economic Indicators, 2015-2022

I. Population and Social Indicators
Area (sq.km.)	22,860		Human development index (rank), 2016					103
Population (thousands), June 2018	398.1		Under-five mortality rate (per thousand), 2016					15
GDP per capita, (current US$), 2016	4,811		Unemployment rate (percent), April, 2018					9.4
Life expectancy at birth (years), 2016	70.1		Poverty (percent of total population), 2009					42

II. Economic Indicators, 2015-22
	2015	2016	###	2018	2019	2020	2021
			Prel.	Proj.	Proj.	Proj.	Proj.
National income and prices	(Annual percentage changes, calendar year)
GDP at constant prices	3.4	-0.6	1.4	2.2	2.1	2	1.8
Consumer prices (average)	-0.9	0.7	1.1	1.2	1.5	1.7	2
Central government 1/	(In percent of fiscal year GDP)
Revenue and grants	28.2	28.9	30	29.9	30.1	30.1	30.1
Current non-interest expenditure	23.1	23.8	24	24	24	24	24
Interest payment	2.5	3.3	3	3	2.9	2.8	2.7
Domestic	0.4	0.5	0.9	0.9	0.9	0.8	0.8
External	2.1	2.8	2.2	2.1	2.1	2	1.9
Capital expenditure and net lending	10.2	7	6.5	3.9	4	4.1	4.1
Capital expenditure	7.3	6.9	4	3.8	4	4.1	4.1
Net lending	2.8	0.1	2.5	0.1	0.1	0.1	0.1
Primary balance	-5.1	-1.9	-1	2	2.1	2	2
Overall balance	-7.5	-4.2	-4	-0.9	-0.8	-0.8	-0.7
Public debt	(In percent of calendar year GDP)
Stock of public debt	79.3	93.3	94	94.2	91.8	89.4	86.9
Domestic debt	14	28.3	28	30	29.1	28.7	28.7
External debt	65.3	65	66	64.2	62.7	60.7	58.3
Principal payment	2.1	2.2	2.4	2.6	2.7	3.3	3.4
Domestic	0	0	0	0	0	0.8	0.7
External	2.1	2.1	2.4	2.6	2.7	2.5	2.6
Money and credit	(Annual percentage changes, calendar year)
Credit to the private sector	4.8	-3	3.9	3	3	3	3.5
Money and quasi-money (M2)	7.3	2.6	-0	3.4	3.6	3.7	3.8
External sector	(Annual percentage changes, unless otherwise indicated)
External current account (percent of GDP) 2/	-9.8	-8.4	-8	-6.2	-6.1	-5.8	-5.7
Real effective exchange rate (+ = depreciation)	8.6	1.7	-2	…	…	…	…
Gross international reserves (US$ millions)	437	377	304	299	308	311	305
In months of imports	4.8	4.2	3.3	3.1	3.1	3	2.9
Memorandum items
Primary balance (excluding one-off capital transfer 3/	-5.1	-1.9	1.3	2	2.1	2	2
Nominal GDP (BZ$ millions)	3,525	3,613	###	3,853	3,992	4,141	4,299

 

Sources: Belize authorities; UNDP Human Development Report; World Development Indicators, World Bank; 2009 Poverty Country Assessment; and IMF staff estimates.

1/ Fiscal year (April to March).

2/ Including official grants.

3/ Excludes assumption of UHS debt by the government in FY 2017/18 (2.5 percent of GDP).

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: RANDA ELNAGAR

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Belize

: 2018 Article IV Consultation-Press Release; Staff Report; Informational Annex; Debit Sustainability Analysis and Statement by the Executive Director for Belize
Author/Editor:International Monetary Fund. Western Hemisphere Dept.Publication Date:November 16, 2018Electronic Access:Free Full Text. Use the free Adobe Acrobat Readerto view this PDF file

Summary:Belize’s economic growth has slowed over the last five years, following decades of outperforming regional peers. As in other countries in the region, a central challenge is exiting the cycle of low growth and elevated public debt. Belize’s 2017 debt rescheduling provided cash flow relief. In March 2017, the government reached a restructuring agreement with private external bondholders on its US$526 million bond (about 30 percent of GDP).1 As part of the agreement, the authorities committed to tighten the fiscal stance by 3.0 percentage points in FY2017/18 and to maintain a primary surplus of 2.0 percent of GDP for the subsequent three years. The authorities are delivering on these commitments and have made progress in implementing recent Article IV recommendations (Annex I).Series:Country Report No. 18/327

ENGLISH  Publication Date:November 16, 2018ISBN/ISSN:9781484385401/1934-7685Stock No:1BLZEA2018001Price:$18.00 (Academic Rate:$18.00)Format:PaperPages:66

Belize : Climate Change Policy Assessment

Author/Editor:International Monetary Fund. Western Hemisphere Dept.Publication Date:November 16, 2018Electronic Access:Free Full Text. Use the free Adobe Acrobat Readerto view this PDF file

Summary:Belize is exceptionally vulnerable to natural disasters and climate change. It already faces hurricanes, flooding, sea level rise, coastal erosion, coral bleaching, and droughts, with impacts likely to intensify given expected increases in weather volatility and sea temperature. Hence, planning for resilience-building, and engagement with development partners on environmental reforms, have been central to Belizean policymaking for many years, since well before Belize submitted its Nationally Determined Contribution (NDC) to the Paris Accord in 2015. This Climate Change Policy Assessment (CCPA) takes stock of Belize’s plans to manage its climate response, from the perspective of their macroeconomic and fiscal implications. The CCPA is a joint initiative by the IMF and World Bank to assist small states to understand and manage the expected economic impact of climate change, while safeguarding long-run fiscal and external sustainability. It explores the possible impact of climate change and natural disasters on the macroeconomy and the cost of Belize’s planned response. It suggests macroeconomically relevant reforms that could strengthen the likelihood of success of the national strategy and identifies policy gaps and resource needs.Series:Country Report No. 18/329

ENGLISH Publication Date:November 16, 2018ISBN/ISSN:9781484385517/1934-7685Stock No:1BLZEA2018003Price:$18.00 (Academic Rate:$18.00)Format:PaperPages:63

Suriname

Executive Board Concludes 2018 Article IV Consultation
November 16, 2018

On November 16, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Suriname.

Suriname’s economy has stabilized and is expected to further improve .Real GDP grew by 1.7 percent in 2017 after two consecutive years of contraction, supported by higher gold production and a pickup in commodity prices. The unemployment rate has also declined. Inflation has subsided to single digits as the exchange rate has stabilized, and the current account deficit fell to almost zero in 2017 from its 2015 peak. Financial soundness indicators point to an improvement in the banking system, although important vulnerabilities remain. Recent indicators point to further improvements in economic activity this year. Real GDP growth is projected at 2 percent in 2018, followed by a gradual acceleration to 3 percent over the medium term.

This year’s Article IV consultation focused on the challenges ahead . Fiscal deficits are large, and public debt is expected to rise in coming years unless strong fiscal consolidation is implemented. The slow pace of reforms and a recent step-up in current public expenditures have the potential to worsen the fiscal situation in 2019-2020. The public financial management framework remains weak, although the authorities are taking steps to strengthen it. The monetary framework lacks standard instruments. Despite improvements since 2016, pockets of vulnerability remain in the banking sector. Suriname’s economy remains heavily dependent on the mineral sector. This year’s Article IV consultation focused on policies to assure fiscal sustainability, strengthen the monetary framework, improve the resilience of the banking system, and boost potential growth through structural reforms.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Suriname’s ongoing economic recovery, following the deep recession, that is underpinned by increased commodity exports. However, Directors noted that the economy faces challenges arising from a weak fiscal position, rising public debt, an underdeveloped monetary policy framework, a vulnerable banking sector, and heavy dependence on the mineral sector. They encouraged the authorities to use the current economic environment to build policy buffers, enhance resilience, and promote diversified and sustainable growth.

Directors emphasized that priority should be given to strengthening the fiscal position and reducing public debt. They recommended that adjustment efforts should focus on reducing energy subsidies, containing the public wage bill, implementing a broad‑based value‑added tax, and continuing to improve tax and customs administration. These measures would put debt on a downward path and create space for public investment. Directors called for a strengthening of the social safety net to protect vulnerable groups.

Directors welcomed the strengthening of the fiscal framework. They emphasized that further efforts are needed to strengthen revenue administration, improve public financial management, and strengthen the public investment system to improve public finances. Directors agreed that a fiscal framework focusing on the non‑resource primary balance could help safeguard long‑term fiscal sustainability.

While Directors considered the current monetary policy stance to be broadly appropriate, they called for quick absorption of the excess liquidity in the banking system. Directors emphasized the need to strengthen the monetary framework by adopting reserve money targeting and developing open market operations and standing facilities to allow the central bank to effectively conduct monetary policy operations. Directors underscored the need to strengthen both institutional and financial settings of the Central Bank. They agreed that maintaining a flexible exchange rate would support the economy’s adjustment to external shocks.

Directors recognized the recent improvements in the financial sector indicators but noted that vulnerabilities remain. They underscored that developing a robust contingency plan and bank resolution framework will help strengthen financial stability. Directors noted the progress so far in the AML/CFT framework and encouraged the authorities to further strengthen this framework in line with the 2012 FATF standards, as it will help mitigate risks regarding the withdrawal of correspondent banking relationships.

Directors emphasized that structural reforms should focus on boosting productivity and diversifying the economy to foster sustained strong growth. They called for reforms to enhance the business climate and improve the environment for private investment. Priority also needs to be given to investing in education and increasing labor market flexibility while providing a meaningful safety net for the unemployed. Strengthening governance will also support investor confidence and promote growth.

Table 1. Suriname: Selected Economic Indicators

		Proj.
	2016	2017	2018	2019	2020	2021
Real sector	(Period average percentage change, unless otherwise indicated)
Real GDP	-5.6	1.7	2	2.2	2.5	2.1
Nominal GDP	20.6	16.5	11.6	9	8.7	12
GDP deflator	27.7	14.6	9.4	6.6	6.1	9.7
Consumer prices	55.5	22	7.5	6.5	5.7	9.4
Consumer prices (end of period)	52.4	9.3	7.2	6.7	5.7	9.4
Money and credit	(End of period percentage change, unless otherwise indicated)
Broad money (constant exchange rate)	5.9	8.6	7.6	8.2	8.2	9.7
Reserve money (constant exchange rate)	8.1	22.2	24.7	12.7	10.8	14.1
Reserve money (percent of GDP)	15.2	16	17.9	18.5	18.9	19.3
Private sector credit (constant exchange rate)	-5.7	0.9	-3.9	2.9	5	7.6
Private sector credit (percent of GDP)	38.1	33.1	28.6	27.4	26.8	26.2
	(Percent of GDP, unless otherwise indicated)
Central government
Revenues and Grants	17.6	23	22.7	22.7	22.9	25
Expenditures	23.9	29.7	30.2	31.9	32	31.8
Of which: Primary expenditures	22.1	25.9	26.5	28	27.7	27.3
Statistical discrepancy	-1.8	-1.3	0	0	0	0
Overall balance (net lending/borrowing) 1/	-8.1	-8	-7.5	-9.2	-9	-6.8
Primary balance	-6.2	-5	-4.1	-5.2	-4.8	-2.3
Non-resource primary balance	-9.4	-11.8	-12.3	-12.9	-12.5	-10.1
Net acquisition of financial assets 2/	13.1	0.3	-9.8	0	0	0
Net incurrence of liabilities	21.2	8.3	-2.4	9.2	9	6.8
Net domestic financing	-2.7	5.2	-1.5	4.3	2.6	1.6
Net external financing	23.9	3.1	-0.9	4.9	6.4	5.2
Public (central government) debt 3/	78.5	77.2	69.8	72.7	77.3	78
Domestic	21.1	23	21.8	22.6	23.6	23.1
External	57.4	54.2	48	50.1	53.7	55
External sector
Current account balance	-5.3	-0.1	-2.4	-3.4	-2.5	-1.6
Capital and financial account	16.2	5.8	6.1	3.5	3.7	3.8
Overall balance	1.6	1.4	3.7	0.1	1.3	2.2
Change in reserves (- = increase) 4/	-1.6	-1.4	-3.7	-0.1	-1.3	-2.2
Memorandum items
GDP at current prices (SRD billions)	19.7	23	25.6	27.9	30.4	34
Terms of trade (percent change)	9.5	-3.9	-3.9	-3.2	2	2.6
Gross international reserves (USD millions)	381	424	552	555	606	700
In months of imports	2.5	2.3	3.1	3	3.1	3.5
Real effective exchange rate (percent change, + = appreciation)	-12.6	-3.8	…	…	…	…

Sources: Surinamese authorities; and IMF staff calculations and projections.

1/ The overall balance is computed using net financial transactions, and therefore, includes statistical discrepancy.

2/ Includes acquisition of stake in gold mine and loans to state-owned enterprises.

3/ The debt-to-GDP ratios are based on IMF’s 2014 Government Financial Statistics Manual. They would be different if computed using the definition in the Government Debt Act of Suriname.

4/ Includes valuation changes.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:http://www.imf.org/external/np/sec/misc/qualifiers.htm.

IMF Communications Department
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United Kingdom-Anguilla-British Overseas Territory :

Technical Assistance Report-Report on External Sector Statistics Mission (March 27–31, 2017)
Author/Editor:International Monetary Fund. Statistics Dept.Publication Date:November 20, 2018Electronic Access:Free Full Text. Use the free Adobe Acrobat Readerto view this PDF file

Summary:A technical assistance (TA) mission on external sector statistics (ESS) was conducted in The Valley, Anguilla, during March 27–31, 2017. This was the first mission to Anguilla carried out as part of the Caribbean Regional Technical Assistance Centre (CARTAC) work program on external sector statistics (ESS) and in response to requests from the Anguilla Statistics Department (ASD) of Anguilla’s Ministry of Finance, Economic Development, Commerce, Tourism, Land & Physical Planning (MFED).1 The purpose of the mission was to assist the ASD in strengthening the compilation and dissemination of ESS. This is intended to facilitate a robust assessment of external sector developments and policy impact. Reliable ESS are essential for informed economic policy-making by the authorities.Series:Country Report No. 18/320

NGLISH  Publication Date:November 20, 2018ISBN/ISSN:9781484384879/1934-7685Stock No:1AIAEA2018001Price:$18.00 (Academic Rate:$18.00)Format:PaperPages:9

Dominican Republic

Technical Assistance Report-Report of the Technical Assistance Mission on Financial Accounts Topics (March 16-26, 2015)
Author/Editor:International Monetary Fund. Statistics Dept.Publication Date:November 20, 2018

Electronic Access:Free Full Text. Use the free Adobe Acrobat Readerto view this PDF file

Summary:As part of the Regional Harmonization Project on External Sector Statistics (RHPESS) of the Central America, Panama, Dominican Republic Regional Technical Assistance Center (CAPTAC-DR) member countries, a technical assistance (TA) mission on Financial Account Topics visited the Central Bank of the Dominican Republic (BCRD) on March 16–26, 2015. The objective of the TA mission was to assist the BCRD in further improving the external sector statistics (ESS). The BCRD is responsible for compiling the balance of payments (BP), international investment position (IIP), and external debt statistics (EDS). The mission focused on following up on the recommendations provided to the BCRD on the Coordinated Direct Investment Survey (CDIS) and the Coordinated Portfolio Investment Survey (CPIS) during previous a TAmission. The mission work included review/revision of (i) direct investment questionnaires; (ii) memorandum data received from the Banking Superintendence on banking portfolio assets; and (iii) debt information from business surveys.Series:Country Report No. 18/323

ENGLISH Publication Date:November 20, 2018ISBN/ISSN:9781484385104/1934-7685Stock No:1DOMEA2018003Price:$18.00 (Academic Rate:$18.00)Format:PaperPages:19

St. Vincent and the Grenadines

Staff Concluding Statement of the 2018 Article IV Mission
November 21, 2018

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

Background

1. The economy of St. Vincent and the Grenadines has been recovering. The closure of Buccament Bay Resort (the largest hotel on the main island) and heavy rains with flooding and landslides slowed down growth in the second half of 2016 and early 2017. Following the opening of the new airport, however, tourist arrivals have recovered, boosting tourism-related services (such as hotels, restaurants, and retail). Increased demand for reconstruction materials from Dominica (struck by Hurricane Maria in September 2017) also helped the recovery. As a result, quarterly data show that output growth (year-on-year) has turned positive since the third quarter of 2017. Over the past year, inflation has remained around 2-3 percent.

2. Nonetheless, St. Vincent and the Grenadines continues to face challenges in sustaining the growth momentum over the longer-term. Like other Caribbean economies, its high exposure to natural disasters, a narrow production and exports base, and limited physical and human capital constrain potential growth. The mission focused on policies to achieve stronger and sustainable growth, build fiscal buffers, bolster resilience to natural disasters, and ensure financial stability.

Outlook and Risks

3. The growth outlook is positive. Staff expects real GDP growth to rebound from 0.7 percent in 2017 to 2 percent in 2018, and further to 2.3 percent in 2019, driven by increases in tourist arrivals, tourism-related activities (including investment in hotels and resorts), and related local production. Beyond 2020, growth would be sustained at around 2.3 percent, assuming steady tourism and investment growth.

4. This outlook is subject to both external and domestic risks. External risks include weaker-than-expected global growth, tighter global financial conditions, and higher oil prices. Domestic risks include more severe and frequent natural disasters and the loss of correspondent banking relationships. There is also upside potential stemming from stronger-than-expected tourist arrivals, investor interest, concessional financing for capital projects, and the successful completion of the geothermal power plant.

Key Policy Messages

5. Advancing structural reforms remains key to capitalize on growth opportunities created by the new airport. Its economic benefit is already visible with the increased number of tourists. For its benefits to reach broader economic sectors beyond tourism, the authorities need to make further efforts to foster private sector activity, by improving the investment environment and strengthening physical and human capital. More specifically:

• · To enhance transparency, reduce red tape, and attract investors, tax incentives should be streamlined, discretional tax concessions minimized, and an investment law established. Invest SVG (the government’s investment promotion agency) should be revamped as a one-stop-shop.
• · Efforts should continue to improve infrastructure, particularly irrigation, roads, and ports, that are resilient to natural disasters. Developing a long-term infrastructure plan, in collaboration with key stakeholders, would help prioritize projects consistent with the government’s strategic development goals, solicit donors’ support, and boost investors’ interest.
• · The government’s focus on improving education is welcome, but more efforts are warranted to reduce labor skill mismatches and unemployment which remains very high. The effectiveness of the ongoing Technical and Vocational Education and Training program should be periodically reviewed.

6. The mission welcomes the government’s commitment to bringing the debt-to-GDP ratio down to 60 percent by 2030. To this end, under the mission’s baseline scenario, the primary surplus needs to be raised by ½ percentage points to around 1 percent of GDP. This could be done by containing wage bill growth at 3.5 percent a year and setting capital expenditure at 3.9 percent of GDP.

• · The 2019 budget should demonstrate the government’s commitment to fiscal consolidation, by maintaining the primary surplus at around 0.7 percent of GDP, slightly above the 0.6 percent of GDP (the mission’s estimate) in 2018.
• · The mission recommends incorporating expected fiscal costs of natural disasters, equivalent to 1.4 percent of GDP a year (the average of the past 15 years), in the budget framework. This could be partly covered by the contingency fund and insurance payouts (in total, 0.7 percent of GDP), with the balance covered through allocating expenditure reserves for emergency operations.
• · Consideration should be given to expanding the coverage of disaster insurance, especially against floods to achieve additional buffers.

7. Fiscal risks remain, however. If growth momentum falters or natural disasters intensify, the 60 percent target would not likely be achievable by 2030. The government also plans to launch several large developmental projects in the tourism and transport sectors to enhance growth, but this could widen the deficit if they are not accompanied by new fiscal consolidation measures.

8. It would thus be prudent to introduce some additional measures to increase buffers and create space for additional capital projects, by aiming to increase the primary surplus to 1.6 percent of GDP within the next two years. Both revenue and expenditure measures should be explored, for instance by streamlining tax and customs duty concessions and moving ahead with pension system reform. In the capital budget, prioritizing projects, seeking grants or concessional loans, and containing procurement costs remain important.

9. Structural fiscal reforms should continue, in order to enhance the effectiveness of fiscal policy and operations.

• · Moving towards a risk-based approach to collect customs revenues would facilitate timely customs clearance. The effectiveness of revenue collections can be bolstered by fully implementing the single Tax Identification Number and enacting the Tax Administration and Procedures Act. IT systems should also be upgraded.
• · The planned submission of the Medium-term Fiscal Framework to parliament together with the 2019 budget is welcome. The effectiveness of the recently established Cash Management Committee should be further enhanced by preparing cash flow forecasts periodically, and the stock of arrears be reviewed and cleared. Going forward, the authorities should also consider introducing fiscal rules.
• · The Ministry of Finance (MOF) is planning to issue a regulation requiring state owned enterprises to submit timely financial information, aimed at strengthening oversight over state-owned enterprises. The MOF should also put in place a framework to assess financial risks pertaining to Public-Private-Partnerships.

10. The new Contingency Fund is important to protect public finances from natural disasters. To ensure its effectiveness, a specific legal framework defining the governance and operational framework should be established. Alongside, efforts should continue to strengthen disaster preparedness, which includes updating the National Emergency and Disaster Act, conducting a national risk assessment for disasters, and updating river basin flood risk maps. Enhancing public education and awareness would be useful to improve compliance with the regulations on land use planning and the building code. A strategy to relocate communities facing threats from coastal erosion should also be developed, while the National Emergency Management Office should be provided with resources for immediate emergency disaster response.

11. The financial system remains broadly stable but has vulnerable spots in the non-bank sector. Most credit unions report the capital ratio above 10 percent, but t he implementation of IFRS 9 may raise their provisioning requirements and reduce their capital. Accordingly, the Financial Services Authority (FSA) should remain vigilant. It should also maintain the enhanced supervision of the Building and Loan Association. To strengthen the FSA’s power to enforce prudential standards, the regulations of the FSA Act, the amendments to the Building Societies Act, and the Friendly Societies Act should be enacted promptly. The review of the adequacy of the FSA’s budgetary resources is also encouraged.

12. Efforts to safeguard financial system stability should continue. Stress testing has been introduced as a supervisory tool for credit unions. It should be extended to (i) analyze multi-factor shock scenarios for credit unions, (ii) cover insurance firms, and (iii) incorporate interlinkages among various institutions in collaboration with the Eastern Caribbean Central Bank (ECCB). Supervision of insurance firms can be further strengthened by enhancing group-wide supervision. The mission encourages the FSA to more periodically communicate its financial stability assessment to the public. Furthermore, the authorities should consider preparing a crisis management plan for the non-bank financial sector, in consultation with the MOF and the ECCB, and setting up a Financial Crisis Management Committee, involving representatives from the FSA, MOF, and ECCB.

13. Progress has been made in addressing remaining legal deficiencies in the AML/CFT framework. Last year, the government amended several AML/CFT related laws, which helped close many of the deficiencies identified in the 2010 AML/CFT assessment. The authorities should now focus on ensuring the effectiveness of AML/CFT preventative measures. To this end, the National Risk Assessment should be completed by September 2019.

The IMF team would like to thank the authorities, private sector counterparts, and other stakeholders for their warm hospitality, and constructive dialogue.

IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: RANDA ELNAGAR

PHONE: +1 202 623-7100EMAIL: MEDIA@IMF.ORG

Please address any questions about this title to publications@imf.org