The International Monetary Fund (IMF) says the Jamaican economy is now recovering strongly as a result of sound policy frameworks and policies prioritising macroeconomic stability.
It also expects Jamaica’s inflation rate to decline during the course of the year.
The IMF Executive Board made the projection in a media release on the conclusion of its Article IV consultation with Jamaica this week.
In relation to inflation, the fund said the Bank of Jamaica (BOJ) has followed a data-dependent tightening of monetary policy to counter the inflationary impulse arising from the rapid recovery in demand and increases in global prices.
“These policies have struck the right balance in responding to shocks, protecting the vulnerable, countering inflationary pressures, and further securing debt sustainability,” the IMF said.
The outlook points to a continued recovery in activity and inflation falling back within the BOJ’s target range by end-2023.
Jamaica’s inflation rate at November 2022 of 10.3 per cent was within the range of 9.5 to 10.5 per cent expected by the bank.
Nonetheless, global risks remain high, as the war in Ukraine may push commodity prices higher, a stronger-than-envisaged tightening of global financial conditions may curb capital flows and reduce remittances, and new COVID variants could disrupt tourism and trade, it said.
Notwithstanding the threats, the IMF said Jamaican authorities’ response to recent shocks has been well-designed.
The fiscal policy response to COVID was nimble, supporting the economy in 2020 but then quickly resuming a downward path for the debt as the impact of the pandemic faded.
Similarly, the response to the upward surge in fuel and food prices was to allow for full pass-through while providing targeted support to the poor within the existing fiscal envelope.
The IMF’s executive directors also agreed with the thrust of the staff appraisal.
They commended the authorities’ strong track record of building institutions and prioritising macroeconomic stability, which together with a nimble and prudent policy response helped Jamaica navigate successfully the pandemic and other recent global shocks.
Directors noted that the continued recovery faces elevated uncertainty and risks from higher commodity prices, tighter-than-envisaged global financial conditions, new COVID outbreaks, and natural disasters.
They also welcomed continued improvement of the fiscal policy framework, including strengthening tax and customs administration and public financial management systems, the recently established Fiscal Commission, and reforms of the wage structure to simplify the system and reward performance.
Directors also called for further efforts to deepen FX markets and refine the macroprudential framework.
They took note of the nascent benefits of financial inclusion of central bank digital currency adoption while stressing the need to manage possible risks.
