United Nations Development Programme Jamaica

Promoting Policies and Strategies for Inclusive Growth:

 UNDP Jamaica's Support to Effective Debt Management

 and Expanded Fiscal Space in the Drive to Achieve the MDGs

Jamaica's progress toward the Millennium Development Goals (MDGs) has been significant: An estimated 9.9 percent of its 2.7 million people lived below the poverty line in 2007, indicating a halving of the poverty rate of 19.9 percent recorded in 1997.[*] Jamaica has appeared on track to achieve MDG1, eradication of extreme poverty and hunger; has achieved Goal 2 of universal primary education; and has made significant progress in eliminating gender disparity in primary and secondary education. Life expectancy is 73.5 years, and access to health care is universal.

But Jamaica is a small island developing country at a critical development crossroads. It has long faced a colossal debt burden, persistent trade and fiscal deficits, consistently sluggish economic growth, structural imbalances and an inefficient tax system. All this has been exacerbated by the impacts of consecutive food, fuel and financial crises and global recession.

"Burgeoning economic challenges threaten to slow, or even derail, progress in human and social development and may compromise Jamaica's efforts to achieve the MDGs by 2015," warns UNDP Resident Representative Minh H. Pham.

These profound challenges have resulted in an ever-tightening fiscal space, limiting the   Government's capacity for development financing. Jamaica has the fourth-largest debt-to-GDP ratio in the world, recorded at  128 percent in 2008. In May 2009, public debt stood at US$6.3 billion, with some 54 percent owed domestically.[†] Debt servicing consumes about 53 cents of each dollar of the national budget.[‡] With the global recession, the contracting local economy has choked off a significant portion of Government revenue, particularly from tourism, bauxite and remittances, all major sources of foreign exchange earnings. As foreign exchange earnings fall far short of demand to meet financial obligations, the local currency has come under increasing pressure; in 2008, the Jamaican dollar depreciated 5.5 percent against the US dollar.[§]

The country's continued deteriorating economic performance, along with the Government's inability to rein in the fiscal deficit within projected levels, has resulted in downgrading of Jamaica's international credit rating, from B- to CCC+.  This will make it more difficult for the country to find financing on the global capital market; at the same time, because Jamaica is classified as a middle-income country, Official Development Aid is reducing steadily.

The economic crisis also has translated into increased unemployment as local businesses scale down operations, with about 12,000 persons losing jobs by April 2009 in the sugar, bauxite, banana, manufacturing, construction and other sectors. The Government thus is hard-pressed to address development priorities such as infrastructure and social programmes and services (education, health and other critical public goods), thwarting the potential for sustained development. Moreover, budget estimates do not include possible impacts from natural disasters such as hurricanes and floods, which have strained Jamaica in almost every year of the last decade.

The current situation thus places Jamaica at a developmental "inflection point."  According to Pham: "The central challenge is to improve fiscal conditions so as to create the economic climate necessary to generate greater levels of productivity - and, by extension, wealth - to enhance social and environmental conditions and the general well-being of the people."

Amid this economic crisis, UNDP has established a Strategic Flexible Funding Facility as part of its upstream policy support to the Government. This facility represents a smart way for UNDP to work meaningfully at the policy and strategy levels with the Government, international financial institutions and international donors such as the European Union. The facility provides assistance in policy development and implementation for high-impact, quick-turnaround and well-defined short-term development needs and is used to leverage additional support from other development partners, giving UNDP a voice far larger than its own level of funding. The focus is on supporting debt, revenue and expenditure management, with funding committed for technical assistance in areas such as tax incentive and reform costing, public investment prioritization and public expenditure review  in the education sector.

In addition, the UNDP Country Office is using funds from the Poverty Thematic Trust Fund to support development of a Government debt management strategy, a central requirement to restart loans from the International Monetary Fund (IMF), which the Government is pursuing. The debt management strategy is expected to provide a "road map" for improved fiscal efficiency and effectiveness that can reduce debt servicing costs to a more manageable level.

The Strategic Flexible Funding Facility has successfully reduced the period between project approval and initiation to a minimum, with project assessment meetings convened within days of a request. For projects considered a priority, immediate approval is possible. Once approved, resources again are disbursed within days, using NEX implementation by the Planning Institute of Jamaica.

Two projects have been initiated thus far: One is assessing the national tax structure and lost revenues, then proposing reforms of tax incentives to assist the Government in developing an effective tax expenditure budget. The other, now completed, assisted the Government in designing a framework for prioritization of public investment projects, including a mechanism for ranking such projects and a computerized tool for application. Future projects that may receive support include public debt management legislation and policy frameworks; consolidation of public bodies and central Government accounts with regard to policy, legislation and database development; rationalization of public bodies; and a workforce compensation study and medium-term workforce strategy.

The Strategic Flexible Funding Facility also is proving useful in providing mechanisms to finance some of the analytical work necessary to fulfil conditions for disbursements through multilateral development funding sources. In so doing, it is helping the Government consolidate its move away from higher-cost private funding, toward lower-cost programmes financed by the European Union, Inter-American Bank, World Bank and Caribbean Development Bank. In short, UNDP is helping to ensure timely disbursements of loans from international development partners that will underpin the continuation - or even expansion - of Government development programmes. Shortly expected is an international debt management strategy adviser, who will provide substantial expertise in assisting the Government to reduce its debt servicing costs, with at least some savings diverted to development spending, particularly in key areas of education and health.

Although it has been challenging to identify and fund highly skilled consultants to undertake the necessary specialized tasks, UNDP is optimistic about Jamaica's prospects for expanding the fiscal space for development spending. "The Strategic Flexible Funding Facility is starting to bear fruit," declares Pham. "Topping up of the flexible fund will be required in order to keep up with the demand created by the sheer number of worthy and much-needed projects to be supported. But based on the initiatives identified for potential support, the results will only improve, and Jamaica can continue its strong push toward the MDGs."

[*] Jamaica Survey of Living Conditions 2007.

[†] Ministry of Finance and Planning, Debt Management Unit.

[‡] Ministry of Finance and Planning, Debt Management Unit.

[§] Bank of Jamaica.