CASE STUDY JAMAICA -ITS PATH TO PFM REFORM: 2012 TO 2021

Macroeconomic and fiscal crisis

o In 1990s Jamaica suffered a massive financial crisis, which was exacerbated by the 2008 global financial crisis impacting most Caribbean countries.

o Between 1991 and 2011 Jamaica's real GDP growth averaged only 0.8% per year

o By 2011, Jamaica was on the verge of an economic and fiscal collapse, with no access to international capital markets. Economic and Fiscal Meltdown

Successive policy missteps led to:

o Fiscal deficits reached 11.1% of GDP in 2009 thus resulting in the public debt to rise from 82.7% of GDP in 1999 to 143.9% of GDP in 2012, making it one of the world's most indebted country. The public debt grew rapidly from US$297 billion in 1999 to US$2,028 billion in 2013.

o For every dollar spent by Government:

48 cents went to debt servicing

25 cents to wages and salaries

4 cents to Government pensions

23 cents left for all else (health, education, other non-salary expenditure)

o Inflation averaged 17.7% during the period 1991 - 2011

o Real GDP growth ranged between 1.5% and -0.5% in 2011 and 2012

o Based on the above, Jamaica in 2013 went to the IMF for support.

Jamaica's Fiscal Turnaround

Under the 2013 IMF Extended Fund Facility and subsequently the 2016 IMF Precautionary Stand-By Arrangement, the Jamaican authorities with technical assistance from Development Partners led to a program that resulted in significant progress in stabilizing the economy and improving social outcomes.

Over the 2010s, fiscal and external sustainability were restored. Jamaica achieved a level of unprecedented fiscal discipline across two governments from opposing parties:

o A sustained reduction in public expenditures of 26.7% of GDP in 2014, from 38.7% of GDP in 2009.

o Generating an increase in primary fiscal surplus from 3.2 % of GDP in 2011 to a level above 7% of GDP for six consecutive years from 2013 to 2019

As a result of the restoration of fiscal discipline

o Public debt dropped below 100% of GDP in 2018 for the first time since 2001.

o Interest payments lowered to 7.8% of GDP in 2016, from 9.8% of GDP in 2011.

o Tax reforms resulted in a switch from direct to indirect taxes.

o Government revenues averaged to 29% of GDP during 2013- 2020, from 24.8% of GDP during 1991 and 2011.

Unemployment in 2019 was at an all-time low of 7.7% and real GDP was on a positive trajectory from 2013-2019 growing in a sustained manner for 16 consecutive quarters from 2016 to 2019.

Inflation was brought under control, averaging 5.1% between 2013 and 2020

Capital and social spending rose over this period.

Capital spending, which was often crowded out was on the rise with major ongoing road infrastructure works.

Social spending also rose over this period.

Fiscal Responsibility Framework (FRF)

FRF is a methodology designed to require Government to act in a fiscally prudent i.e., "responsible" manner to achieve better fiscal outcomes such as:

o Reduce an unacceptable high level of debt

o Increase GDP growth

o Reduce interest rates

o Increase domestic revenue mobilisation

The FRF was implemented through the following legislation (2010-2014):

o Amendments to the Financial Administration and Audit (FAA) Act

o The issue of the FAA (Fiscal Responsibility Framework) Regulations, 2012

o The new Public Debt Management Act 2013

o Amendments to the Public Bodies Management and Accountability Act. 2014

o Independent Fiscal Commission Act (2021)

Underpinning the FRF is the following;

o The revision of the roles and function of the AGD and the MOFPS.

o The revision of the Budget Process including adoption of a Budget Calendar.

o The revision of the Chart of accounts

o Introduction of the principles of responsible fiscal management, and - to improve fiscal transparency

o A Comprehensive Debt Management Strategy

PFM Reform Implementation

Jamaica's economic turnaround is attributable to the implementation of various key PFM reform measures, which included the following actions:

o Implementation of a Central Treasury Management System and a Treasury Single Account (2013 -2016).

o New Procurement legislation and Regulations (2014 - 2018)

o Public Sector Pension Reform (2018 - to date)

o Implementation of MTRBB in 2017 - a management and planning tool aimed to align resource allocation to specific and measurable results within a medium-term framework.

o Introduction of a Multi-year budgeting/MTEF system i.e., a three-year rolling fiscal and budgeting framework, as the context within which annual budgets are prepared.

o Public Sector Investment Programme (PSIP) prioritisation system.

o Acquisition and roll out of a standard integrated Human Resource and Payroll System throughout the public sector 2018 - to date

o Development of IFMIS Policy and Systems Requirements in 2018 which pivots around the revised and updated COA.

o Rationalisation of public bodies through mergers and closures

o Capacity Building and Change Management activities aimed at specific functions.

Each area of reform was executed through training by the responsible section of the Ministry of Finance as shown below: o Procurement Reform - MOF Procurement Policy Unit

o Debt Management Reform - MOF Debt Management Unit

o Budget Reform - MOF Public Expenditure Division

Jamaica's PFM Achievements Ownership and Donor Support

Commitment and leadership and the Political Level as evidence by the following statement by Jamaica's Minister of Finance Dr Nigel Clarke:

"What began as an IMF programme became Jamaica's programme with IMF support".

All major reforms were approved by Cabinet and were backed by legislation.

The authority and power of the Financial Secretary to issue Financial and Administrative Instructions/Circulars was utilised when required

PFM reforms received strong support from the IMF, CARTAC, World Bank, IADB, EU, USAID, DFID, UNDP, and UNCTAD and were coordinated adequately through the PFM Oversight Committee.

Preparation of Public Financial Management (PFM) Reform Action Plan Quarterly Implementation Progress Report by the PFM Oversight Committee, to check on the status of each reform and to address slippages and other problems.

Reorganisation of the AGD, Ministry of Finance, which includes the transfer of all financial policy matters to the MOF and all financial operational to AGD.

The placing of Risk Management and Change Management at the top of the agenda at all times. For example, the Central Treasury Management System initially had a high level of resistance by MDAs and suffered from a high level of payment rejections by the banks as well many instances of payments made to wrong accounts.

The weight and pressure of the IMF were instrumental in many of the reforms being done particularly through its quarterly monitoring of achievements which was tied to disbursement of tranches.

A lesson not to learn is Jamaica's development and deployment of its IFMIS called "JIFMIS - Jamaica Integrated Financial Management Information System. The JIFMIS policy and Systems Requirement has been completed but the recruitment of technical staff and the issue of the RFP are not yet done due to funding issues.

Based on the attached case study and on your own readings from acknowledged sources answer the following questions: a. What was the state of the Jamaican economy prior to the IMF intervention in 2013 and the possible causes of these problems? (15 Marks)

b. Improved public financial management was recognised as critical to resolving the problems stated at (4) above).

To address this, various legislative change were made to effect the necessary administrative changes and to ensure financial discipline. Outline the main legislative and administrative changes that were made. (30 Marks)

c. What would you say is largely responsible for the turnaround of the Jamaican economy? (12 Marks)