REPORT TO CONGRESS ON

THE INTERNATIONAL MONETARY FUND’S

LOAN TO JAMAICA

A Report to Congress

consistent with

Section 1501 of the

Dodd-Frank Wall Street Reform and Consumer Protection Act, 2010

United States Department of the Treasury

May 2013
Introduction and Overview

This report has been prepared consistent with section 1501 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 2010.

1

 As required, the report provides an assessment of 

the likelihood that the recently-approved International Monetary Fund (IMF or Fund) loan made 

to Jamaica will be repaid in full, including Jamaica’s debt status, vulnerabilities, and debt 

management strategy. 

As directed by section 1501, and consistent with its longstanding practice with respect to all 

loans, the Office of the United States Executive Director (USED) at the IMF, in close 

coordination with the Treasury Department, conducted a careful and thorough evaluation of the 

proposal for the Jamaican program submitted to the IMF Executive Board given that Jamaica’s 

debt-to-GDP ratio exceeded 100 percent2and Jamaica is not eligible for assistance from the 

International Development Association.

The USED at the IMF, in close coordination with the Treasury Department, evaluates all 

proposals for country loans submitted to the IMF Executive Board. This includes a careful 

examination of a country’s macroeconomic situation, debt sustainability, and the quality of the 

proposed policy adjustment measures to ensure a return to stability. In cases when exceptional 

access is requested, the USED also takes into account IMF documentation assessing potential 

financial risks to the Fund, which is prepared for each new program proposal. The top priority of 

any such evaluation is to verify that IMF resources are adequately safeguarded and that 

repayment risks are mitigated. USED and Treasury staff meet with IMF staff to discuss the key 

elements of such proposals in order to inform a judgment on the program on the likelihood of 

repayment. If repayment is in serious doubt, the USED would not support the proposal. 

On May 1, 2013, the IMF Executive Board approved a four-year Extended Fund Facility (EFF)

in the amount of $926 million for Jamaica. The main pillars of the program are: (i) structural 

reforms to boost growth; (ii) actions to improve price and non-price competitiveness; (iii) 

upfront fiscal adjustment, supported by extensive fiscal reforms; (iv) debt management 

operations that place public debt on a sustainable path, while protecting financial system 

stability; and, (v) improved social protection programs to help the most vulnerable. To support 

restoration of debt sustainability, the authorities implemented a debt exchange in early-2013 

which will contribute 8.6 percentage points of reduction in the public debt ratio by 2020. IMF 

disbursements will be contingent on the Jamaican government’s successful implementation of 

agreed policy measures. Based on aggressive fiscal consolidation measures already 

proactively undertaken by the government, the linkage of additional IMF disbursements to 

meeting policy commitments, and the IMF’s preferred creditor status, the Treasury 

Department and the USED assess that, while this loan poses somewhat greater repayment 

risks to the Fund than those normally associated with a Fund program, the prospects for 

 

1

P.L. 111-203; codified at 22 U.S.C. 286tt(b) , section 68(b) of the Bretton Woods Agreements Act: “Within 30 days 

after the Board of Executive Directors of the Fund approves a proposal [to make a loan to a country whose public 

debt exceeds gross domestic product and is not eligible for assistance from the International Development 

Association] the Secretary of the Treasury shall report in writing . . . assessing the likelihood that loans made 

pursuant to such proposals will be repaid in full . . . .” 

2 As of December 2012 (the latest date for which data is available), the Jamaican government’s debt was 147 percent 

of 2012 GDP. 
repayment are still strong and the loan is likely to be repaid in full. As such, the Treasury 

Department instructed the USED to vote in favor of the program.

Background

Jamaica is a small, tourism-driven island economy sensitive to the U.S. business cycle and 

Caribbean weather patterns. It has faced persistent low growth and high debt, with the high cost 

of debt servicing hindering growth-enhancing investment and needed social spending. 

Jamaica’s performance under its last Stand-By 

Arrangement, approved in early 2010, was 

initially positive, but deteriorated in late-2010 

and the third review in January 2011 was the 

last to be completed due to significant fiscal 

slippages. The new government, that took

office in January 2012 with a large majority in 

parliament, introduced a budget for fiscal year

2012/13 that aimed at raising the central 

government’s primary surplus to 6 percent of 

GDP, from 3.2 percent in the previous year, 

and enacted a tax package which aims to raise 1.6 percent of GDP in revenues on a full year 

basis. However, these efforts, while necessary, on their own would not return Jamaica to a 

sustainable debt path given the large debt overhang. Accordingly, the authorities implemented a 

debt exchange in early-2013 which will contribute 8.6 percentage points of reduction in the 

public debt ratio by 2020. 

Program Description

The main pillars of the program are: (i) structural reforms to boost growth; (ii) actions to

improve price and non-price competitiveness; (iii) upfront fiscal adjustment, supported by 

extensive fiscal reforms; (iv) debt management operations that place public debt on a sustainable 

path, while protecting financial system stability; and, (v) improved social protection programs to 

help the most vulnerable. IMF financing would partially fill Jamaica’s anticipated external 

financing gaps - $346 million in FY2014 and $259 million in FY 2015 – with additional 

multilateral financing (the World Bank and the Inter-American Development Bank have 

provided financing assurances of $1 billion over the course of the program, with $364 million in 

the first year, provided that Jamaica establishes a track record of strong program 

implementation). IMF financing would also increase the Financial Sector Support Fund, which 

was established to provide liquidity support to and possible recapitalization of financial 

institutions that participated in the debt exchange.

Strong fiscal adjustment is at the heart of the program. The public sector balance is targeted to

improve by almost 4.8 percent of GDP in 2013/14, following a projected 1.2 percent of GDP 

improvement in 2012/13. The program targets an annual central government primary surplus of 

7.5 percent of GDP throughout the program period. The program also contains significant 

measures to boost Jamaica’s competitiveness and enhance growth potential. The authorities 

have committed to reforms that will: (1) improve the business climate; (2) enhance labor market 
flexibility and address the mismatch between training and employment opportunities; (3) 

improve efficiency in public sector operations; and, (4) reduce over time the cost of energy.

Debt Status

As of December 2012 (the latest date for 

which data is available), the Jamaican

government’s debt was $19.8 billion, 

equivalent to 147 percent of 2012 GDP. 

The private debt restructuring, completed in 

February 2013, will improve debt dynamics. 

In addition, as growth-enhancing reforms 

take hold, Jamaica’s debt position should 

continue to improve as revenues are

Jamaica's Public Sector Debt

US $ billions

Domestic 10.7

External 6.0

Guarantees 1.8

Petrocaribe 1.3

Total 19.8

bolstered and GDP growth directly contributes to a lower debt to GDP ratio. 

In February 2013, the Jamaican government 

completed a debt restructuring to reduce the 

level of indebtedness to a sustainable level

over the medium-term. The debt exchange 

was designed to maximize the savings for 

the government, expressed in terms of 

reduction in debt-to-GDP by 2020, subject 

to an acceptable level of financial sector 

risk. The bonds targeted by the exchange 

included local currency and U.S. dollardenominated bonds amounting to 

approximately $9.5 billion, or 64 percent of 

GDP. The exchange significantly 

lengthened the maturity and reduced the interest payments on the government’s domestic debt. 

The participation rate was high at 99 percent of targeted debt, and the exchange is projected to 

result in savings estimated at about 8.6 percent of 2020 GDP. 

Debt Management Strategy

The government’s primary objective is to place 

Jamaica’s public debt on a downward 

trajectory, aimed at achieving a 96 percent 

debt-to-GDP ratio by 2020. In order to meet 

this objective, the government is committed to 

running primary surpluses that reduce the need 

for additional debt and allow for a reduction in 

outstanding debt. It has also identified options 

for debt swaps and guarantees aimed to 

Contributions to the Decline in Public Debt

Public Debt in 2012/13 147.0

Fiscal consolidation and growth -36.4

Domestic debt exchange -8.6

Debt swaps and guarantees -2.0

Other measures -4.0

Public debt in 2020 96.0

Source: IMF

contribute two percent of GDP in debt reduction by 2020. 
Vulnerabilities 

Jamaica’s primary external vulnerabilities are its exposure to the U.S. and UK economies, 

natural disasters, and oil price shocks. Jamaica’s tourism sector is dependent on an economic 

recovery in the United States, Canada, and the United Kingdom. Jamaica is also highly 

vulnerable to commodity price shocks and weather-related natural disasters. Savings gained 

from planned fiscal consolidation and debt restructuring under the IMF program should help to 

provide a cushion for the government to guard against and mitigate these vulnerabilities.

Jamaica’s primary internal vulnerability is the large exposure of its banking sector to government 

debt. Banks’ holdings of government securities were close to 20 percent of their assets – or 12 

percent of GDP. The securities dealers sector’s assets are 64 percent of their total assets or 22 

percent of GDP. The Financial Sector Support Fund, established with financing from the IMF as 

part of the previous program and bolstered under this program, will provide a liquidity backstop 

to financial institutions (banks, securities dealers, insurance companies) if required to help 

address vulnerabilities arising in the financial sector due to the debt exchange. 

Overall Assessment

Jamaica is heavily indebted and vulnerable. However, its IMF-supported program, combined 

with the debt restructuring, provides the best opportunity for the country to return to a 

sustainable debt path and mitigate its vulnerabilities. IMF resources will be safeguarded by the 

following:

 Completion of measures prior to program approval to enhance the starting point of the IMF 

program. For example, the government has reached agreement with public sector unions 

representing more than 81 percent of workers to limit wage increases and secured cabinet 

acceptance of the elimination of discretionary tax waivers. 

 Completion of a debt restructuring process in an open and transparent manner, with 

constructive Jamaican government engagement with creditors.

 IMF financial support and policy guidance, which will help to fill Jamaica’s financing gap, 

and mitigate vulnerabilities by backstopping the banking sector during the debt restructuring, 

and ensuring sound policies.

 Strong IMF program conditionality and rigorous reviews. Program conditionality agreed to 

by the government focuses on the following areas: maintaining government fiscal surpluses 

at a level consistent with achieving debt reduction over the medium-term; strengthening 

public financial management; and, enhancing competitiveness. 

 The IMF’s preferred creditor status, ensuring that it is repaid ahead of all other creditors. 

With these factors in mind, the Treasury Department assesses that the IMF’s loan to Jamaica is 

likely to be repaid in full.