Dr. Omar Davies, Minister of Finance and Planning, is likely to be happy with the latest IMF Article IV report on Jamaica. - Rudolph Brown/Chief Photographer

Keith Collister, Business Writer

In the normal course of things Finance Minister Dr. Omar Davies might not be too unhappy with the latest review of the Jamaican economy by the International Monetary Fund, except perhaps for another lecture about the country's debt burden.

So important does the IMF see the issue that it stressed the need for a political consensus on a debt strategy.

The Washington-based institution released its annual Article IV report this week, the document having been approved on April 30 by its 24-member executive board.

With the caveat that there had been a recent moderation in growth momentum, the IMF noted that growth of nearly 3.0 per cent during the fiscal year "was the best in a decade". Other positives were the declining trend in the current account deficit (down by 1.0 per cent of GDP), and the significant reduction in inflation to 6.5 per cent for the past fiscal year, which was three points below the 9.5% target.

Breach

However, the IMF directors "expressed concern regarding the substantial breach of the deficit target in Fiscal Year 2006/2007" and saw the key policy issue as "debt reduction, where progress had not lived up to expectations laid out in the authorities' medium term plan."

The debt-reduction strategy, the Fund stressed, was "in need of a fundamental reinvigoration."

The IMF's concern is related in part to their projection of the Government's debt reaching slightly over one trillion Jamaican dollars (J$1,016 billion to be exact) at the end of fiscal year 2007/2008.

This is an increase of nearly $60 billion over the $957 billion in debt for the fiscal year just ended in March 2007.

Central Government deficit

Over half of this increase (of $17 billion in both PetroCaribe external debt and Government-guaranteed debt, for a combined $34 billion) is not part of the central Government deficit.

The IMF also saw "the need for a broad political consensus to carry through the reforms necessary to secure sustained debt reduction", a different emphasis from the Government, which in the report "expressed their own disappointment at the budgetary out-turn but also emphasised the importance of keeping an appropriate perspective on the slippage and its implications for the debt dynamics".

The IMF stated that the "overarching theme" of their discussions with the Government, was "the importance of reinvigorating the debt reduction strategy, whilst also guarding against short-run vulnerabilities."

In subtle contrast, the Government view was that "while the debt-related vulnerabilities were real ... the risks were exaggerated to some extent, since measured GDP was significantly underestimated".

Nevertheless, there appeared to be some consensus that the markets would demand progress "to reduce the debt and bring the debt ratio down".

The IMF suggested the challenge was seize the opportunity presented by the still benign international environment to build up a resistance to shocks, and increase the durability of the debt strategy through initiating deep structural reforms to strengthen public finances and foster sustained growth.

The IMF recommended raising the primary surplus (which excludes interest costs) back to at least 10 per cent of GDP in fiscal year 2007/2008, from the current just over 8.0 per cent.

While commending the Government on their collection of tax arrears, they expressed concern that the consequent reduction in the stock of these arrears, combined with existence of numerous specific taxes (which don't go up automatically with increases in the value of an item), implied that revenues could decline.