REPORT TO CONGRESS ON

THE INTERNATIONAL MONETARY FUND’S

LOANS TO ST. KITTS AND NEVIS, JAMAICA, AND GREECE

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

June 2013
Introduction 

Consistent with section 1501 of the Dodd-Frank Wall Street Reform and Consumer Protection 

Act, 2010,

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 this report provides an annual update of the assessment of the likelihood that the 

International Monetary Fund (IMF or Fund) loans made to St. Kitts and Nevis (SKN), Jamaica, 

and Greece will be repaid in full, including these countries’ 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 

proposals for the SKN, Jamaica, and Greece programs submitted to the IMF Executive Board 

given that these countries’ debt-to-GDP ratio exceeded 100 percent and they are not eligible for 

assistance from the International Development Association.

St. Kitts and Nevis

On July 27, 2011, the IMF Executive Board approved a three-year $84 million Stand-By 

Arrangement (SBA) for SKN. The fourth review of the IMF program was approved by the IMF 

Board on November 30, 2012. All quantitative performance criteria under the program for the 

end-June 2012 reference period were met, and the structural benchmarks were also completed. 

A waiver of applicability was granted for performance criteria for end-September 2012, because 

data were not yet available to assess performance. A disbursement of $4.9 million was 

approved, bringing total funding disbursed to SKN under the program so far to approximately 

$66 million. The fifth and sixth reviews of SKN’s program are expected to be discussed by the 

IMF Executive Board in July. These joint reviews, which will assess program performance 

through end-March 2013, were delayed primarily due to a delay in the passage of the 2013 

budget caused by elections in Nevis and political uncertainty in St. Kitts. The budget was finally 

passed in May.

St. Kitts and Nevis has made significant progress in restructuring its public debt and 

implementing a debt-for-land swap, resulting in a sharp decline in general government gross debt 

to under 100 percent of GDP at the end of 2012. The overall fiscal balance for the first half of 

2012 reached a surplus of $23 million (3.1 percent of GDP), significantly above the program 

target floor of a $19 million deficit. Revenue from direct taxes and the citizenship-byinvestment program exceeded program expectations, offsetting weaker receipts from taxes on 

goods and services and international trade. The IMF estimates the overall fiscal balance for the 

year 2012 reached a surplus of $18 million (2.4 percent of GDP), which would again 

 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] and annually thereafter by June 30, for the duration of any 

program approved under such proposals, the Secretary of the Treasury shall report in writing . . . 

assessing the likelihood that loans made pursuant to such proposals will be repaid in full . . . .” 
substantially exceed program objectives. The authorities’ 2013 budget aims at an overall surplus 

of 2.5 percent of GDP.

In addition, the authorities completed all program structural benchmarks for end-June and endSeptember 2012, including an update to the stress test of the banking system and plans for public 

land sales and civil service reforms. The current review (joint fifth and sixth) will measure 

progress against end-Dec. 2012 and end-March 2013 benchmarks.

Debt Status

Following the Paris Club meeting in May 2012, the United Kingdom cancelled its debt claim in 

June 2012. Moreover, to facilitate the restructuring of domestic debt through a debt/land swap, 

1,200 acres of land were transferred to the land asset management company (Special Purpose 

Vehicle, or SPV) commissioned with selling the land. Combined with the debt exchange 

concluded in April 2012 with bondholders and external commercial creditors, these operations

have contributed to reduce public debt from 153.6 percent of GDP at end-2011 to 89.3 percent of 

GDP at end-2012. 

Debt Management Strategy

The government’s primary objective is to achieve a 60 percent debt-to-GDP ratio by 2020, in 

line with the Eastern Caribbean Currency Union (ECCU) debt target for its members. The debt 

restructuring already achieved has helped put SKN’s debt on a downward trajectory, as reflected 

in the recent sharp decline in government debt to under 90 percent of GDP at end-2012. In 

addition, under the program the government is committed to continuing to run primary surpluses 

to reduce the need for additional debt and allow for a reduction in outstanding debt. 

Vulnerabilities 

Like other small Caribbean island economies, SKN is vulnerable to natural disasters. The last 

hurricane to strike SKN, in late 2008, resulted in the extended closure of a major hotel on Nevis, 

adversely impacting the SKN tourism industry. Tourism receipts, equivalent to about 15 percent 

of GDP, are also dependent on economic activity in the United States, SKN’s primary tourism 

market. To a lesser extent, uncertainties surrounding the euro area economy also present a 

downside risk to SKN. Savings gained from fiscal consolidation and debt restructuring under the 

IMF program should help to provide a cushion for the government to guard against and mitigate 

these external vulnerabilities.

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

debt. The authorities and IMF staff are monitoring the impact of the restructuring on domestic 

banks closely for any signs of strain. The Eastern Caribbean Central Bank’s (ECCB) quarterly 

stress tests, as updated, have confirmed that the banking sector is sufficiently well-capitalized to 

absorb the impact of the ongoing government debt restructuring. Moreover, the Banking Sector 

Reserve Fund, established with financing from the IMF as part of its program, remains in place 

to provide a liquidity backstop to banks if required to help address vulnerabilities arising in the 

financial sector (although its use has not been necessary thus far). 
Overall Assessment

SKN remains indebted and vulnerable. However, its IMF-supported program, combined with 

the debt restructuring, is providing the best opportunity for the country to return to a sustainable 

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

following:

• Demonstrated commitment of the SKN government to implement the policy measures that 

are a precondition of subsequent IMF financing under the program. Performance under the 

IMF program has been very strong, and all targets have been met.

• Successful restructuring of Paris Club and other external debt and bonds in 2012, and 

significant progress in debt restructuring of domestic creditors in the context of the ongoing 

debt-for-land swap. 

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

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

ensure sound policies.

• Strong IMF program conditionality and rigorous quarterly reviews to ensure continued 

adjustment and reform implementation by SKN. 

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

With these factors in mind, the Treasury Department continues to assess that the IMF’s loan to 

SKN is likely to be repaid in full. 

Jamaica

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.

Fiscal performance for Jamaica’s fiscal year 2013 (ended March 2013) slightly outperformed 

projections, with the central government primary surplus improving to 5.4 percent of GDP 

(versus a projection of 5.2 percent), mainly owing to a decline in primary expenditure. The fiscal 

year 2014 budget, tabled in Parliament in April, is in line with the government’s program and 

targets a central government primary surplus of 7.5 percent of GDP. Work is progressing on the 

tax reform agenda, and on actions to improve public financial management and the business 
climate. Unsustainable policy settings had resulted in a significant loss in Jamaica’s foreign 

exchange reserves, but since program approval, the situation has stabilized and Jamaica has 

begun to rebuild reserve buffers.

Debt Status

Since the last report to Congress on Jamaica’s IMF program approved on May 1, no further data 

on Jamaica’s debt have been released. As noted in the last report, 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 bolstered and GDP growth 

directly contributes to a lower debt to GDP ratio. 

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 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. 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 are – and will continue to 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.

Greece

On March 15, 2012, the IMF Executive Board approved a four-year Extended Fund Facility 

(EFF) for Greece, making available approximately $36 billion in funding. The third review of 

Greece’s progress under the program was concluded on May 31, 2013, and the total amount 

disbursed under the IMF program has risen to approximately $8.5 billion. Greece completed all 

of the measures it had undertaken to implement for the review. Fiscal performance through endMarch was running slightly ahead of program targets, bank recapitalization is nearing 

completion, and competitiveness has improved, in part due to wage adjustment following 

reforms that have increased labor market flexibility. Greece’s economic reform program is part 

of a broader European Union (EU) effort to promote European and global financial stability, 

which remains critical to ensuring a robust U.S. economic recovery. It is very much in the 

interest of the United States that the IMF – with its vast experience designing credible economic 

adjustment programs – is engaged alongside the European Union to help restore macroeconomic 

and financial stability in Europe and globally.

Greece is carrying out a necessary and ambitious fiscal adjustment, having exceeded its program 

fiscal targets for 2012 and on track to meet its targets for 2013. The overall fiscal deficit for 

2012 is estimated to have been 6.3 percent of GDP, compared to a program target of 6.7 percent. 

The deficit is projected to come down to 4.1 for 2013. Moreover, Greece’s primary deficit fell to 

1.3 percent of GDP for 2012, compared to a program target of 1.5 percent, and is projected to be 

in balance this year. 

The IMF, along with the European Commission and the European Central Bank, has engaged 

fully with the Greek government, elected last June, to ensure that the program remains on 

course. Through its Task Force for Greece, Europe is providing technical assistance to help 
Greece deliver on its EU-IMF program commitments, through measures focused on enhancing 

competitiveness, growth, and employment. 

A recently published IMF report assessing Greece’s first IMF-EU program, approved in 2010, 

concludes that overly optimistic economic assumptions and shortfalls in the EU institutional 

capacity to deal with crises contributed to Greece’s first program going off track. Greece’s 

current (second) program has drawn lessons from the weaknesses of the first program. The 

current program is based on more realistic macroeconomic assumptions and revised fiscal 

multipliers that better reflect the current growth and interest rate environment, and includes €50 

billion for bank recapitalization. Moreover, since the first program, Europe has made significant 

progress on institutional reforms to strengthen the foundations of the currency union and on tools 

to bolster financial stability.

Debt Status

Greece’s public debt is estimated to have reached 157 percent of GDP in 2012 and is projected to 

peak at 175 percent of GDP this year, declining gradually thereafter. Staff’s debt sustainability 

analysis (DSA) continues to show Greek debt declining to the target of 124 percent of GDP in 

2020 under the baseline scenario. The public and private debt restructurings last year helped 

reduce government debt, but the economic recession is still weighing on Greece’s debt 

dynamics. 

Debt Management Strategy

The Greek government’s primary objective continues to be placing its public debt on a 

downward trajectory, aimed at achieving a debt-to-GDP ratio of about 124 percent by 2020. To 

this end, the government is committed to reducing debt by undertaking fiscal consolidation under 

the program. Measures are aimed at achieving and maintaining a primary surplus through 

effective expenditure controls and reforms to increase revenue collection. The achievement of 

primary surpluses, projected to be reached in 2014, will reduce the need for additional debt and 

allow for a gradual reduction in outstanding debt. In addition, the Greek government has 

committed to undertake significant privatizations to raise further revenues. While this process is 

moving forward, efforts need to be stepped up to avoid further delays. The authorities are 

aiming to regain medium- and long-term market access in the period after the program. 

Vulnerabilities 

The Greek authorities have committed to an ambitious package of reforms to regain growth and 

competitiveness, but these will take time to implement and bear fruit. Greece’s expected gradual 

downward debt trajectory is highly vulnerable to growth shocks and program delays. The 

greatest risks to debt sustainability are program implementation delays (in particular, 

privatization and reforms of the tax administration, public financial management, and public 

administration) and weaker-than-expected economic performance in the euro area. The prospect 

of having to endure high public debt for many years itself poses an added risk to debt 

sustainability. Public and political support for continued adjustment could wane, and investor 
concerns about debt sustainability could further delay economic recovery and, hence, debt 

reduction. 

Overall Assessment

Greece is heavily indebted and vulnerable. However, its EU/IMF-supported economic reform 

program, following on last year’s restructuring of government debt, provides the best opportunity 

for the country to return to a sustainable debt path. The IMF program was carefully designed to 

address the significant vulnerabilities facing Greece, limit the IMF’s own exposure, and to 

enhance the likelihood of the IMF being repaid. 

IMF resources will be safeguarded by the following:

• Strong commitment of the authorities to meet the program criteria and reform benchmarks. 

Greece met its performance criteria for the first three reviews and is on track to meet its fiscal 

target for 2013. 

• The Greek government has made significant progress in restructuring and recapitalizing the 

banks, and vulnerabilities will be tamed through plans to strengthen bank governance, reduce 

household and corporate debt, and conduct a new set of bank stress tests. Greece’s

competitiveness has also improved, in part through labor market reforms, and its current 

account deficit has narrowed.

• The government has already completed a large debt exchange that sharply reduced the face 

value of its privately held debt. Without this restructuring, the government’s debt would be 

even higher.

• The IMF program includes strong conditionality and rigorous quarterly reviews. Program 

conditionality agreed to by the government focuses on the following areas: fiscal 

consolidation aimed at achieving debt sustainability over the medium-term; strengthening 

public financial management; reforming the social transfer system and improving its 

effectiveness; and, enhancing the stability of the financial sector.

• Greece’s European partners have committed to provide debt relief as needed to ensure 

financing under the program and beyond. The Eurogroup (the 17 finance ministers of the 

countries in the euro area monetary union) has made financing assurances to provide longterm support to Greece on adequate terms, provided that Greece continues to adhere to 

program policies. This commitment was not explicit under Greece’s first program and is a

key element of the financing assurances under the current program.

• The IMF’s lending to Greece is set be repaid over a much shorter time horizon (4.5-10 years) 

than that of the European contributions (25 years with a 10-year grace period) and the 

restructured privately-held Greek government bonds (30 years with a 10-year grace).

• The IMF’s preferred creditor status, ensuring that it is repaid ahead of all other creditors. 
With these factors in mind, the Treasury Department continues to assess that the IMF’s loan to 

Greece is likely to be repaid in full.