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Document of
The World Bank
Report No: ICR00001658
IMPLEMENT A TION COMPLETION AND RESULTS REPORT (IBRD-76530)
ONA
LOAN
IN THE AMOUNT OF US$ 100 MILLION TO THE
JAMAICA
FORA
FISCAL AND DEBT SUSTAINABILITY DEVELOPMENT POLICY
December 21,2010
Poverty Reduction and Economic Management Caribbean Country Management Unit Latin America and Caribbean Region
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AAA ASEAN-5
BOJ CAD CARl COM CAS CPS CCRIF CCT CDB CEM CEMBI CFAA CIDA CIT CPAR CTCS DBJ DFID
DPL ECD EIA EPA EU FTA FY GCT GDP GNI GOJ IBRD
ICBSP IDB IFC IF!
ABBREVIA TIONS AND ACRONYMS
JAMAICA-FISCAL YEAR
April 1 - March 31
CURRENCY EQUIVALENTS
US$1.00 = J$83.00 (Dollars) (as of September 20,2010)
WEIGHTS AND MEASURES
UK (Imperial system)
ABBREVIA TIONS AND ACRONYMS
Analytical and Advisory Activities lMF Indonesia, Malaysia, Philippines, Singapore JLP and Thailand JUTC Bank of Jamaica LAC Current Account Deficit MDGs Caribbean Community and Common Market MF Country Assistance Strategy MFN Country Partnership Strategy MOU Caribbean Catastrophe Risk Insurance Fund MP Conditional Cash Transfer MTF Caribbean Development Bank Country Economic Memorandum NIR Corporate Emerging Markets Bond Index NROCC Country Financial Accountability Assessment Canadian International Development Agency OECS Caribbean Institute of Technology PA Country Procurement Assessment Review PAJ Caribbean Technology Consultancy Service PATH Development Bank of Jamaica Department for International Development PAYE (U.K.) PB Development Policy Loan PEFA Early Childhood Development Environmental Impact Assessment PER Economic Partnership Agreement PFM European Union PHRD Free Trade Agreement Fiscal Year PIOJ General Consumption Tax PPIAF Gross Domestic Product Gross National Income ROSE Government of Jamaica SCI International Bank for Reconstruction and SEA Development SWAp Inner City Basic Services Project UNDP Inter-American Development Bank USAID International Finance Corporation International Financial Institution WB
Vice President: Pamela Cox
Country Director: Yvonne M. Tsikata
Sector Manager: Rodrigo A. Chaves
Task Team Leader: Zafer Mustafaoglu
ICR Main Author: David E. Yuravlivker
International Monetary Fund Jamaica Labour Party Jamaica Urban Transit Company Latin America and the Caribbean Millennium Development Goals Ministry of Finance Most Favored Nation Memorandum of Understanding Member of Parliament Medium-Term Socio-Economic Policy Framework Net International Reserves National Road Operating and Constructing Company Organization of Eastern Caribbean States Poverty Assessment Press Association of Jamaica Program for Advancement through Health and Education Pay-as-you-earn Public Body Public Expenditure and Financial Accountability Public Expenditure Review Public Financial Management System Policy and Human Resources Development Fund (Japan-supported) Planning Institute of Jamaica Public-Private Infrastructure Advisory Facility Reform of Secondary Education Sugar Company of Jamaica Strategic Environmental Assessment Sector Wide Approach United Nations Development Program United States Agency for International Development World Bank
.. ~.> .
. ".:,.:
JAMAICA FISCAL AND DEBT SUSTAINABILITY DEVELOPMENT POLICY LOAN
CONTENTS
Data Sheet A. Basic Infonnation ....... : .................................................................................................... i B. Key Dates .... ; .......... : ........................................................................................................ i C. Ratings Summary ............................................................................................................ i D. Sector and Theme Codes ........................................................................ " ........................ ii E. Bank Staff ...................................... ; ......................... : .................... ".; ................................ ii F. Results Framework Analysis ................................................................ " ......................... iii G. Ratings ofPrognlm Perfonnance in ISRs ..................................................................... iv H. Restructuring (if any) .................................................................................................... iv
1. Program Context, Development Objectives and Design ...................... : ......................... 1 2. Key Factors Affecting Implementation and Outcomes .................................................. 6 3. Assessment of Outcomes ....................................................................... " ...................... 12 4. Assessment of Risk to Development Outcome ............................................................ 20 5. Assessment of Bank and Borrower Performance ......................................................... 21 6; L~ssons Learned ............................................................................................................ 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ............... 24 Annex 1. Government of Jamaica Policy Actions to be supported by the DPL - Results
Framework ............... " ......................................................................................... 25 Annex 2: Analytical and Fiduciary Work ......................................................................... 30 Annex 3: Bank Lending and Implementation Support/Supervision Processes" ............... 31 Annex 4. Beneficiary Survey Results ............................................................................... 32 Annex 5: Stakeholder Workshop Report and Results ...................................................... 33 Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 34 Annex 7: Comments of Co financiers and Other Partners/Stakeholders .......................... 35 Annex 8. List of Supporting Documents .......................................................................... 36
MAP
1
Country: Jamaica Program Name: Sustainability
Development Policy
Pro~E~l1'l I!?: P I 01321 I:(S::(!~~l:lmb~~(~):. IBRD-76530 ICR Date: 12/2112010 .1.<;~!~p~: ..
DPL Borrower: I:e~~i~lS.~~.!~~.I1'),~!: .. Original Total
......••.• , ...... , .. , ........ ,.' .......... ,., .. ,'. ....... ...... . ................ , . ..........•..•. ..... .
100.0M Disbursed Amount:
100.OM
Implementing Agencies:
1\1inis!~~r~!11~nce Cofinanciers and Other External Partners:
B. Key J)~t~s
Process Original Hale
Review: 11126/2008 Effectiveness: 0112712009 ..................... "' ........... .
~pprai~~I: ................. , 12(1?(~0~~.~~s!r~1~~':IEi~1?;(s): ~pproval: 01115/2009
W~ ,.~
q·,;.~fltiI1gs ... ~~.~mary C.l Performance Rating~y~S::R.:
Outcomes: .................. ,.
Risk t()!?~y~l()pl1'l~~~<?~!~(?I1'l~: ...
Bank Performance:
.. C:I()si~1/S:, 01115/2010
Moderatei), Satisfactory
Moderate
Iv1()~.~ratel~ .... ~.~~isr<l~t.()r)' ..... . Moderately Satisfactory
,-" .... - ••••••••••.••• >-_., •• ,'"." ••.•.• ",,,,,,,,,,.,--_.,,,""." ........ " ............ " ... , •••••
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
lOO.OM
01127/2009
Hank: ~atillgs Bornrwer
Q~alit)'~~. f:ntrx: , ........ , ...... ,l\tl?~~~~t~I)'~(1tisf<l~t()~)' Governm.ent:
Ratings Moderately .. Satisfact()ry
Quality of Supervision:
OveraH Bank Performance:
Satisfactory Implementing i\~enc)'1 Agencies:
. Overall Bon-ower Moderately Satlsfactoryp ..
erlormance:
Moderately Satisfactory
Moderately Satisfactory
,~:~2~~!~!y~~!_~~~I]: .. ~,~~L!~pl~~~,~~~~.!.~.o~ .. ~.~~!~E~,~!lce Indicators
Program at any time
(Yes/J'.!?):
No
; DO rating before
gl.~~i~~!I1.~~t!y'e statu .. s .. : ..... ",. "."' ..
Aviation
. ~.:l1tr.~!~?y.:~l1ment adlllinistration
gE?Es. General education sector ....... ' ... ,., •... -.•... ,.- ......
Petrochemicals and fertilizers
!.I1:.~_~.e..c:;~~.~.{~s.~ ... C?!!?!~.~ ... !l..~.~~ .. !i.~~.~.~.i~J~) .. . De bt llllll111G;f.':rT1 f.':l1t~l1d!i~~al.~~ ~!lli.I111~ilitx ... .
Macroecon.?rT1i~rT1~l1a~el11:~t. .. ....... ........ . Public expenditure, financial management and
procurement
QAG Ass.eSS!rUCllts
...... (if
Quality at Entry
(QEA): None
2 5 .••• ,~0~ •. -_·.·····.·.····.,.···_ ••• _._ .
87 86
3 ... ,., .... __ , ................................. _5 2
30
20
22 25
State enterp~~~f.':!~~I1~res.t~u~!~I~iI1~lll1(:Ipr~y.llti:z;ll~i()l1...., .. , ..... . 11 15
Tax p.()Ii~Lll11~~~ll!iI1js.!~ll!i?11
E. Bank Stafr Positions
Vice President: Pamela Cox
Countl)'J:)iEf.':ct?E: Yvonne M. Tsikata
. Se~!()~JYl~I1~~f.':E: . .. .~()dri~()"\:~~ilv .. e .. s ..................... .
·.~r()~~1l11J!f.':al!1Leader: ~il!f.':r~'::ls~ilrll()~lll ... .
ICR Team Leader:~ll!:~~uS.tll!il()glu
David E. Yuravlivker
11
22
At f\ppl:ovaI
Pamela Cox
Yvonne M. Tsikata
Rod~i~() A. Chaves
10
. pavid Gould andSeyIl11~()lISil.~~o
F. Results Framework Analysis
Program Development Objectives (from Project Appraisal Document)
Enhancing fiscal and debt sustainability. The loan supports measures to reduce Jamaica's high level of debt and improve fiscal sustainability, which have constrained the country's growth potential and crowded out productive investment. The loan includes fiscal and institutional reforms to reduce financing vulnerabilities, improve public spending effectiveness and improve the country's ability to cope with the adverse consequences of the on-going global economic downturn.
Increasing the efficiency of public financial management and budgeting processes. The public sector modernization efforts supported by the ,loan are expected to improve the efficiency of public expenditures and investment, strengthen the control of public finances, and enhance the effectiveness of government budgeting practices. Given the potential for decreased fiscal revenues under the current global environment, these efforts are particularly important as a means to improve fiscal discipline and help foster growth in the medium term through a better allocation of scarce public resources.
Revised Program Development Objectives (if any, as approved by original approving authority)
(a) PD~ Indicator(s)
....................................................................................................................................
. : OriginalTa~cL Forrnllfly Actual Valtle Values (froitli .. Rc\'~d •.•. Achieved ilt ...
BaseH~~V~due '.' approvatl"Tatget Conwletionor
.:~ ..... ::..., ................ L ... ~~~!!J!l~.~~L~l". Va,l}lcsl'argct Years .. ; .consolidated Net Public Debt to GDP falls by 3 percentage point. ..... __ ............... _ ........ ··· ..... · ......... -!C~~~~lid;t~d·~~t·p~bii~·r ......... · ..... ······· .. -........ ......................................................... -..... -._................. ..... -....-...............
Value !debt to GDP is 123.1% ' (quantitative or 'in :119.4%
Qualitative) :FY 2007/08 ,~~ ," __ ,"' ••• " • ". ~._ •• ~.,~~ ••• ,_." ••• ~_. ".. .~ •• ~. _ "'_"'0 •••• .. •• .. '''M~~'~ AM'~ h" .,.~.'" .- ~ .. i
Date achieved ,03/3112008 2/3112009: '! 03/31110 . : ........... _ ........................ - ........................... , ... _-_ .............. _ ......... _ ....... _.-... _ ........... _ ................ _ .................. _ ............ _-.. -_ .. _ ................... _,-_ ........ __ ........ _ ................................................. ,.-................................. _ .. _ .... _-_ ................. _ ..... j
IThe baseline value of the debt was revised to 113.5% ofGDP in 2007/08. That i
Indicator 1 :
N/A 139.8%
Comments {incl. % :achievement)
"ratio was 126.1% in 03/3112009, and 139.8% in 03/3112010. jThe international financial crisis was deeper than expected. EMBlspreads ;tripled to nearly 1,000 bps. Interest payments rose from 11.6% ofGDP in 2007/08 to 17% of GDP in 2009/10. The budget deficit rose from 3.8% of ,
GOP in 2007/08 to 10.9% ofGDP in 2009/10. .. .. -... ~.-.- ........ -..,:
Indicat.«>.~.2: . __ .. _:!~~r.~~~~~ .. ~fficiency. of publ!CfiJ1~J1~!~I..E!~Ilage!!.l~t.!~~~~~lI~ge.~ing p~oces .. se~ . , Increased training' . , to senior auditors , Auditor General Office .and upgraded IT (quantitative or . N/A !started restructuring. and physical .
Qualitative) . facilities installed
Value
in AG office . .. j'ii3'i!2009" ... __ ......
III
Major restructuring and strengthening ofHR, IT and physical facilities ongoing.
09115/10
Comments (incl. % achi~vement)
,-.,,~. ,-"---" .~ .....••. ~" .. ,~,,----.. -. " .. --. - ,,_ ...... -.
Reduced distortions and enhanced efficiency and fairness ofthe tax system . Indicator 3 : . Increased number of corporate (CIT and GCT) and (non-PA YE) individual tax
Value (quantitative or Qual itative)
PCl'yer.~<:>.~ th~~Cl.l( roll. .25 percent 'increase of the Inumber of
Number of taxpayers incorporate 2007/08: 93,712 :individual tax
'payers for 2008/09 compared to 2007/08.
" '¥'"
Date achieved 03/3112008 12/3112009
N/A
Number of taxpayers: 2008/09: 105,188 (12.3% increase) 200911 0: 116,547 (10.8% increase). Total 24% increase.
.-03/3112010 .... _ ... ,,_ ...... _ ............ _ ................ _ ..... . , ...... " ............................ " .... -..... . ................ " .................. -... -. ... " .. .................................................................
Comments Achieving the target took a bit longer, but it's still remarkable given the
(incl. % slowdown of economic activity.
Clc~i~'1~I?~~9. . .... .. ......... .
(b) Intermediate Outcome Indicator(s)
Indicator
Indicator 1 : Value (quantitative or
gllali!ativ~) Date achieved
Comments (inel. % aehievenlc l1t).
Baseline Value
N/A
Original Target FormaUy
V~lhu:s (from Revised approval
Target Va.lues . {i()~unl('uts). ..
G. Ratings of Program Performance in ISRs
No. Batt:' ISR Arcbived
07115/2009
H. Restructuring (if any) Not Applicable
1)0 II>
IV
Actual Value Achieved ;11:
Completion or Target Yeurs
Actuai Dishursements (Usn millions)
99.75
1. Program Context, Development Objectives and Design
1.1 Context at Appraisal
A key miderIying problem of the Jamaican economy has been low growth, averaging about 1 % per annum in the last 30 years. Much of the weak growth and periodic economic problems arose from various combinations of oil price shocks, declining export prices, natural disasters, financial crisis, domestic insecurity associated with high crime, as well as political unrest. As a result, policies were often focused on short term stabilization rather than long-term development and growth objectives. While performance improved somewhat in 1999-2008, it was well below other lower middle income countries.
Jamaica's economic performance was severely constrained also by its high level of debt, which reached 113.5% of GDP in 2007/08 (revised from the estimated 123.1 % of GDP at time of appraisal). The high level of debt and the resulting cost of servicing debt (interest payments reached 11.6% of GDP and absorbed more than one-half of government revenues) constrained social spending and investment. The large debt and limited fiscal space resulted also in the economy's vulnerability to external shocks, including those originating from global financial conditions, commodities prices, and natural disasters.
After 18 years in the opposition, the Jamaica Labor Party (JLP) won the 2007 general election, albeit with only a small majority in Parliament. The new administration campaigned on a platform of jump-starting the economy, combating crime and violence, and reducing poverty. Thus, reducing macroeconomic vulnerabilities and providing effective social and investment programs were essential to addressing Jamaica's development challenges. These priorities became even more pertinent in the context of the global financial market crisis and economic slowdown the new government faced immediately after taking office.
The international financial crisis hit Jamaica hard in the last quarter of 2008. GDP declined by 1.6% in 2008/09 and by an estimated 2.5% in 200911 O. Bauxite and Aluminum exports declined by about 60%, and remittances dropped by one-third, leading to a 25% depreciation of the exchange rate. EMBI Global Sovereign spreads tripled to nearly 1000 basis points. Moody's and Fitch downgraded Jamaica with a negative outlook due to the deteriorating external environment and weak domestic fundamentals. The consolidated fiscal deficit surpassed 8% of GDP in 2007/08, the current account deficit widened to 18% of GDP, while the rate of inflation rose from 7% in September 2007 to 21 % in September 2008 due to rising food and fuel prices. GDP growth slowed down to 0.6% from 3.2% a year earlier, and the projection was for negative growth of 0.5% in 2008/09.
The Government took several steps to address the crisis, but its weak fiscal position and high level of debt constrained its options. It introduced a temporary reduction in the General Consumption Tax to offset losses of the tourism industry, and increased the benefit and coverage of the conditional cash transfer program (PATH) to mitigate the
impact of the crisis on the poor. Meanwhile, the Central Bank of Jamaica provided an emergency credit . line to financial firms that were suffering dollar liquidity constraints due to a drop in the value of collateral, and sold foreign exchange to ease pressures on the exchange rate.
While the stabilization measures dealt with the immediate . problems, the Government designed a structural reform program as part of its medium-term socio-economic policy framework. The framework sets out' the broad package of policies, strategies and programs proposed by the Government for implementation over the period 2009-2012. It recognizes that reducing debt and controlling the debt generating process were necessary conditions for achieving its economic and social objectives, such as improving health, education and addressing crime and violence. The government outlined a set of policy measures to lower debt,. including rationalization of public enterprises, improving public sector efficiency, comprehensive tax reform, and improving the business climate as a means for placing the country on a more sustainable fiscal and growth path. Those objectives were fully consistent with the CAS FY06-09 and the CAS Progress Report approved by the Board of Executive Directors in July 2007 (para 3.1).
1.2 Original Program Development Objectives (PDQ) and Key Indicators (as approved)
The Fiscal and Debt Su:stainability DPL was designed to support the Government's reform program. Initially, it was conceived as a programmatic operation consisting of a series of loans, but due to the high risk and uncertainty, it was approved as a free standing operation. However, the medium term reform program prepared for this operation was the basis for the programmatic DPL that followed one year later, as well as a reference for the financial support provided by the CDB, ED and IDB (Annex 1).
The key Program Development Objectives were the following:
(i) Enhancing fiscal and debt sustain ability. The loan supported measures to reduce Jamaica's high level of debt and improve fiscal sustainability, which had constrained the country's growth potential and crowded out productive investment. The loan included fiscal and institutional reforms to reduce financing vulnerabilities, improve public spending effectiveness and improve the country's ability to cope with the adverse consequences of the on-going global economic downturn; and
(ii) Increasing the efficiency of public financial management and budgeting processes. The public sector modernization efforts supported by the loan were expected to improve the efficiency of public expenditures and investment, strengthen the control of public finances, and enhance the effectiveness of government budgeting practices. Given the likelihood of lower fiscal revenues under the deteriorating global environment, these efforts were to be complemented by improving tax policy and administration.
2
Key Outcome Indicators.
1) Improved fiscal sustainability through controlled overall public sector balances and debt generation .
. • Consolidated Net Public Debt to GDP falls by 3 percentage points. (Baseline 123.1 percent in FY2007108 - revised later to 113. 5% of GDP).
2) Increased efficiency of public financial management and budgeting processes .
• Increased training for professional capacity building provided to senior auditors and upgraded IT and physical facilities installed in the Auditor General Department.
3) Reduced distortions and enhanced efficiency and fairness of the tax system .
• Increased number of corporate (CIT and GCT) and (non-PA YE) individual tax payers on the tax roll. (Indicator: 25 percent increase of the number of corporate individual tax payers for 2008109 compared to 2007108).
1.3 Revised PD~ (as approved by original approving authority) and Key Indicators, and Reasons/Justification
PD~ were not revised.
1.4 Original Policy Areas Supported by the Program (as approved)
The main objective of the program was to address the huge debt of the public sector by attacking the debt generating sources. In practical terms, the emphasis was on consolidating overall public sector balances, including divestment of selected state owned enterprises (Public Bodies), improving the efficiency of financial management and budget processes, and increasing the efficiency of revenue collection. In particular, the program called for:
First, consolidating public sector balances to adequately control the spending and debt generation by the Public Bodies (PBs). PBs generated about as much revenue and expenditure as the central government, and accounted for the majority of capital spending and debt creation, but was outside the normal budgeting process. In the medium term, the objective was to rationalize activities of the PBs to focus on activities with a social or regulatory function, and .divest those operating in commercial areas.
Second, improving transparency and efficiency of financial management and budget processes. The existing legal framework was lacking and not always in use. A forward looking process for budget and prioritization of expenditures in the Central Government and Public Bodies was needed, together with timely accounting, and improved monitoring and evaluation of expenditures.
And third, reducing distortions and enhancing the efficiency of the tax . system. To expand the tax base and improve equity, the government plan called
3
for reducing exemptions, special regimes, and zero-rating, which reduced tax revenue by an estimated 30 percent. In addition, tax administration and collection were to be improved. The government was also taking actions to directly reduce the tax burden on the poor, by adjusting the income tax threshold for inflation.
1.4.1 Promoting Fiscal Sustainability through the Control of Overall Public Sector Balances and Debt
Reducing Overall Public Sector Debt
Jamaica had a high burden of public sector debt (113 percent of GDP in net terms in 2008) that was about US$S,OOO per person. Roughly 50 percent of the debt was indexed to or denominated in foreign exchange. Interest payments were absorbing over one half of government revenues, crowding out other public expenditures such as education and infrastructure. Since most debt, including debt issued abroad and denominated in foreign currency, was held within the country, it was not a problem between Jamaica and the rest ofthe world but rather a problem within the country. More specifically, it was a huge transfer of income from tax payers to bond holders. In addition, government borrowing crowded out credit for the private sector, thereby undermining the engine of economic ,growth.
In order to start addressing this problem, the Government planned to implement a Fiscal Transparency and Responsibility Framework. A key element of it would be to control the consolidated balances of the entire public sector, including the Public Bodies. In addition, the Central Government would stop using deferred financing, which in the past led to significant expenditures outside the normal budgetary process.
Rationalizing Public Bodies
Public Bodies generated about as much revenue and expenditure as the central government, and accounted for the majority of public capital spending. They also contributed substantially to debt creation. For example, Air Jamaica was losing about US$150 million per year, making a huge drain on public resources. Historically, it was a one way street, where the Central Government assumed losses of PBs when they couldn't service their debt, but it did not receive transfers from profit making PBs. The Government program called for divesting PBs doing commercial activities, and improving the management and performance of PBs remaining in the public domain. Also, their capital expenditures should be within a coherent public sector investment program, which also includes the investments carried out by the central government. The assets and liabilities of the Public Bodies that remain in the public sector would be centrally coordinated and managed using a single-treasury account.
The anticipated fiscal impact from rationalizirigPublic Bodies was large, but not immediate, because of substantial up-front costs related to restructuring, preparing for sale and assuming unguaranteed debt (including pensions). Thus, receipts from privatizations were not expected to be significant, especially during the crisis. However, in the medium and longer term, the public sector would get rid of major loss and debt
4
generating enterprises. With the full set of reforms, the expectations were that annual fiscal deficits would be reduced by over 3 percent of GDP in 2011112 and thereafter.
The public sector wage bill and compensation strategy was another key area in the reform agenda. Since the early 1990s, the wage· bill had fluctuated in the range of 10-12% of GDP. Starting in 2004, the government signed three Memoranda of Understanding (MOUs) with civil servants' unions, each MOU covering two years. The MOU instrument is credited with bringing the overall wage bill down by roughly one percentage point of GDP since the early 2000s. However, it left out teachers, nurses and police (a big portion of public servants), which received salary increases above the MOU. The government envisioned a medium term strategy, based on two key principles: (i) tying public sector wages to performance; and (ii) adjusting salaries to levels that would retain qualified personnel in key groups of employees who are critical to public sector performance. However, since there was no information on public employment, it was necessary first to survey public sector employment, compensation and incentives. The education sector, which represents over 25 percent of the public sector workforce, was chosen as the pilot for such survey.
1.4.2 Increasing the Efficiency of Financial Management and Budget Processes
Public Financial Management (PFM) and public procurement processes were not sufficiently transparent and manageable in practice. The most important challenges included: (i) need for a forward looking process for budget and prioritization of expenditures, within the Central Government and especially PBs, and for a solid public sector investment program; (ii) better budgetary control for Public Bodies, as elaborated above; (iii) reducing the divergence between the originally approved budget and what was actually spent; (iv) reducing delays in reporting of the accounting, auditing and publication of results; (v) making the public procurement system more efficient and transparent by improving procurement performance and monitoring; and (vi) expanding the scope of the Internal Control Units to procurement activities carried out by public agencies and project implementing units.
Accounting, recording and reporting standards were in place but they were not in line with international standards. Relatively good institutions, like the Auditor General Office, were thwarted in the execution of their duties by delays in submission of financial statements and the absence of a timely follow-up of audit reports. In order to enhance financial management and budget processes, the Government plan called for: (i) enhancing the methodology to evaluate, compare and prioritize projects in line ministries; (ii) introducing multi-year fiscal and expenditure frameworks, enforcing spending envelopes, eliminating ad-hoc allocation through supplementary budgets, and presenting a plan for reduction of arrears; (iii) implementing the Performance Management and Evaluation Framework; (iv) implementing systems for integrated financial management information and accrual accounting; and (v) strengthening auditing within the government and at the Auditor General level. The Auditor General would timely review financial statements and expand the scope of audits to include performance audits.
5
1.4.3. Reducing distortions and enhancing the efficiency of the tax system
Highly variable tax rates with many exemptions, special regimes, and zero-rating reduced tax revenue by an estimated 30 percent and also distorted allocation of resources in the economy. On top of that, tax administrators faced barriers to getting information and pressing enforcement, making tax evasion arid avoidance relatively easy. For taxpayers who wanted to comply, the complexity of the system made it difficult to do so.
The Government had already taken measures -to increase uniformity of indirect tax rates. In 2006, it converted several GCT zero-rating into exemptions, and in 2008, it raised tax rates (and fees) on tobacco, guns and cars. The Government plan called for continuing expanding the tax base by eliminating exemptions and phasing out special sector incentives. Also, individual income tax threshold would be adjusted for inflation, to reduce the tax burden on the lower income segments of the population.
In addition, a comprehensive reform of tax administration would: (i) facilitate compliance by consolidating payroll tax and reduce filing requirements; (ii) strengthen enforcement, as a follow-up to the amnesty; (iii) add 4,000 non-PA YE taxpayers to the roll of taxpayers each year; (iv) increase tax authority's ability to verify financial information (credit cards, bank accounts,etc) and cross check to fight fraud; and (v) improve collection of property tax, including enforcement of confiscation for tax liens.
1.5 Revised Policy Areas (if applicable)
N/A
1.6 Other significant changes
N/A
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
While the government stayed the course in its reform program, implementation was slower than expected, as shown in Table 1. The international financial crisis was far deeper, and its impact on the Jamaican economy much stronger, than expected at the time of appraisal, which resulted in a slowdown in implementation of the program. All the refon:.ns supported by this DPL were conditions for Board presentation, and thus were met prior to approval of the Loan. However,Table 1 reports also on the status of the Expected Outcomes by December 2009, as originally set in the DPL Results Framework, and as of September 2010, when the ICR mission visited Jamaica. It is necessary to assess developments to date since there were delays in implementation, and in order to have a broader perspective when evaluating achievement of the PDOs. This DPL program was the basis for the First Programmatic Fiscal Sustainability DPL approved in February 2010, about the same time when the IMP approved a Stand-by arrangement with Jamaica.
6
Table 1: Prior Actions and Status of the Reforms
Reforms Supported by this DPL- Expected Outcomes by Actual. Outcomes by December Met prior to Board approval December 2009 2009 (or,as of September 2010) The govemmenthas maintained a Consolidated primary Met. satisfactory macroeconomic framework balance (Public Bodies As consequence of the crisis, the
and Central Government) consolidated primary balance was as a share of GDP remains 2.3% ofGDP in 2008/09, but over 4 percent (Baseline increased to an estimated 4.5% bf 4.4 percent in FY GDP in 2009/10. 2007108)
Not met. Consolidated Net Public Consolidated net public debt to to GDP falls by 3 GDP rose to 126% ofGDP in percentage points. 2008/09 and to an estimated (Baseline 123.1 percent in 139.8% ofGDP in 2009110, about FY 2007108 -later revised 2/3 in the PBs and 1/3 in the to 113.5% ofGDP) Central Government. The increase
in the ratio was partly due to the drop in GDP. Meanwhile, however, Jamaica implemented a successful debt exchange and it entered into a Stand-by agreement with the IMF in early 2010. The second review of the program was completed satisfactorily in September 2010.
1. Legal framework for Met. the Fiscal Responsibility Cabinet approved the proposal in Framework is approved by February 2010, and Parliament Cabinet to be included in approved the amendment to the the FAA and the PBMA F AAand PBMA Act in March Acts, as a first step to 2010. MFPS is now preparing improve control, strategic regulations for its implementation. allocation and In parallel, the MFPS developed a accountability of public template for a Medium Term resources. Expenditure Framework, consistent
with the Fiscal Responsibility Framework. In the first stage, it will be implemented in 6 ministries which represent 90% of total expenditures.
7
2. The MoF has developed and approved an action plan for the consolidation of Public Bodies' and Central Government accounts
3. The MoF has: (a) ceased authorization of deferred financing in the Central Government since 2005; (b) communicated its commitment to the Cabinet (on December 10, 2007) and Parliament (on December 11, 2007) not to utilize any deferred financing arrangement.
4. The MoF has approved a plan to achieve the rationalization of Public Bodies and the following actions have been taken by the GoJ consistent with the plan: (i) the divestiture of forty-nine percent of Petro jam Limited and significant advances in the divestiture of the Gol's sugar cane industry assets and Petrojam Ethanol Limited, as evidenced by the Heads of Agreement signed by the GoJ with a potential buyer on June 27, 2008; (ii) the engagement of privatization advisors for the divestment of Air Jamaica
. Limited; (iii) the arrangement reached by the GoJ, in principle, to privatize Clarendon Alumina Partners, an entity which represents the GoJ's equity in the Jamalco refinery; (iv) the preparation of a draft information memorandum in respect of the privatization of Mavis Bank Coffee Factory Ltd. to be issued to prospective bidders; and (v)the identification of fifteen .entities (including Wallenford Coffee Company Ltd. and Caymanas Track Limited) of commercial nature for privatization.
2. Necessary conditions for the consolidation of public bodies and central government accounts are . in place for greater transparency, accountability and control
3. Increased control of fiscal and debt aggregates (Baseline: Average annual deferred financing from FY2000/0 1 to FY2005/06 was J$497 million)
4. Reduced losses of Public Bodies and preparation of strategic analysis for more divestitures, have laid the foundations to enhance public expenditure effectiveness (Baseline: Public Body Primary Deficit -2.5 2007108, later revised to-3.4%ofGDP)
8
Partially met. The 2010/11 budget presented the expeilditures of the Central Government and of the Public Bodies, but fully consolidating the accounts is taking longer than expected. However, while beforehand the expenditures of Public Bodies were just tabled in Parliament, this time Parliament had the opportunity to discuss and am:lrove them. Met. There was no deferred financing in 2008/09 and in 2009110. In January 2010, Parliament approved an amendmentto the Fiscal Administration and Audit Act eliminating MFPS' authorization to approved deferred financing. MFPS is preparing a Central Treasury Management System. Partially met. The Public Bodies' balance improved from -3.4% ofGDP in 2007/08 to -2.5% of GDP in 2008/09. The Public Enterprises Division at the MFPS prepared a public seCtor rationalization plan, which was approved by Cabinet in March 2009. (i) forty nine percent of Petro jam was sold to PDVSA in February 2008. They are now discussing the sale of an additional 2%, which would give PDVSA controlling poWer. Petrojam Ethanol Limited was not divested yet. Privatization of the sugar industry was completed in July 2010. (ii) Air Jamaica, which was losing US$150 million per year, was sold to Caribbean Airways in March 2010. Government of Jamaica bought 16% of Caribbean Airways (valued at US$28.5 million) to guarantee service in routes previously served by Air Jamaica. (iii) Clarendon Alumina: in April
2010, Government reached agreement to sell 45% to Complat, which is now doing due diligence. Closure expected by end 2010 .
. (iv) Mavis Bank Coffee Factory Ltd.: Process is well advanced. (v) Wallenford Coffee Co.: process in preparatory stage. Caymanas Track Limited: initial transaction fell through. Preparation for .new attempt has started.
5. The GoJ has completed an education 5. Information is available Met sector employment survey which is the on the number and posts The MFPS completed an first step of an employment survey of . of public employees in the employment survey (post audit) of the public sector to be included in a education sector-which all the Central Government and study to evaluate a medium-term represent over 'l4 of total about Y:z of the non-self financing strategy for. public sector workforce public sector workforce- PBs either fully or partially skills needs and compensation. laying the groundwork for financed by the budget. In.parallel,
a comprehensive public the Public Sector Transformation sector workforce Unit compiled the first full data compensation study in the base of employees in the public medium term. Sector through a census and (Indicator: Report of payroll analysis, including those of public employment survey Public Bodies, collecting other in the education sector) information.
Wage bill was frozen on April 1, 2009, and the freeze was extended in February 2010 through March 31,2012 ..
6. The Public Sector Modernization 6. Methodology for Not met Division of the Cabinet Office has echnical evaluations of Anew methodology for project prepared a draft technical framework ",apital investment is prioritization has been deyeloped. for the capitai investment prioritization, 'mplemented in strategic In the first stage, estimated for establishing the link between policy, lMinistries with large capital 2011112, it will be applied in 6 key planning and budget allocation. projects ministries.
7. The Auditor General is 7. Increased training for Met. implementing its action plan for professional capacity The Auditor General's Department institutional and professional capacity building provided to senior has been undergoing a major I building; and the Minister of State in auditors and upgraded IT restructuring to enhance its the Ministry of Labor and Social and physical facilities independence and improve its Security and the Deputy Leader of the installed in the Auditor professional capacity. IT facilities House, on behalf of the MoF, have General Department were upgraded, and training is submitted to Parliament for approval a being provided to both senior and proposal to update legislation more junior staff. The Auditor governing the internal audit General plans to expand departments and audit committees (the perforr'nance auditing, which Financial Administration and Audit focuses on the cost efficiency and (Amendment) Act, 2008). effectiveness of public sector
progra'11s.
9
8. TheMoF has: (a) issued: (i) the • 8. Simplified and fairer Partially· met. Provisional Collection of Tax (Income tax system. The income tax threshold wa~ Tax) Order, 2008 on June 20, 2008 to (Indicators: Increase in increased to J$270,504 in 2009, increase the threshold above which the income tax threshold and to J$441,169 in 2010. ·individual income tax is due; (ii}the toJ$220,272 in 2009 from The Special Consumption Tax on Provisional Collection of Tax (General $196,872 in 2008 and cigarettes was raised twice in 2009 Consumption Tax) Order, 2008 on May simplification in tax rate (by 41.7% and by 23.5%). 9, 2008, to simplify the general categories for tobacco and Licenses fees for luxury vehicles consumption tax on motor vehicles; motor vehicles) were increased in 2009, and (iii) the Provisional Collection of backtracking on the simplification Tax (Stamp Duty) Order, 2008 on April of the tax structure for motor 11, 2008 to simplify the special vehicles. consumption tax on tobacco; and (b) The first stage of an amalgamation submitted to Cabinet a proposal for of statutory payroll deductions has amalgamation of statutory· payroll begUn (December 2010). deductions.
9. The GoJ has: (a) issued a six-month 9. Increased number of Partially met tax amnesty for taxpayers with arrears co~orate (CIT and GCT) The number of tax payers due and payable on or before April 11, an (non-PA YE) increased, but slower than 2008; anq (b) published a plan to individual tax payers on expected: the tax roll continue its efforts to reduce tax arrears (Indicator: 25 percent
2007/08: 93,712 tax payers and improve revenue collections during increase of the number of 2008/09: 105,188 (12.3% increase) its fiscaJ year 200812009 and beyond.] corporate individual tax 2009110: 116,547 (10.8% increase)
payers for 2008109 compared to 2007108)
Tax administration is being restructured, and the private sector . perceives an effort to improve collection. .
2.2 Major Factors Affecting Implementation:
A major factor affecting implementation was the deeper than expected recession, as GDP growth in 2008/09 was -1.7% instead of the projected -0.5% (growth in 200911 0 is estimated at -2.5%, compared to a projection of 0 growth at time of appraisal). In addition, the government had only a small majority in Parliament, which complicated passage of reforms, .and escalation of the fight against crime affected daily life in the spring of2010. On the other hand, the program was underpinned by a substantial body of analytical work carried out by the Bank in conjunction with the Government of Jamaica (Annex 2), and it was designed to address highly relevant problems affecting the country.
The Program was endorsed by other donors, including the Caribbean Deveiopment Bank (CDB), which incorporated an earlier version of the DPL matrix to its own operation, and by the European Union. Donor coordination added weight to the Program.
) For (b) no publication was found.
10
Further, one year after this DPL was approved, the Bank approved the First Programmatic Fiscal Sustainahility DPL forUS$200million, and the IMF approved a 27-month Stand-by arrangement with Jamaica in an amount of SDR 820.5 million (300 percent of quota). In parallel, the government was able to engineer a successful debt exchange, which reduced interest payments by over about 5% of GDP, and led to a substantial drop in interest rates (Box 1). While in various aspects implementation was slower than expected, all these factors helped maintain the momentum of the reform process.
Box 1: Jamaica Debt Exchan~e Offer
The Government of Jamaica (GoJ) on January 14, 2010 announced a domestic debt exchange (JDX) initiative with the primary objectives of: (i) improving the maturity profile of domestic debt, of which 40.0 percent was due to mature in less than 24 months thereby presenting high levels of roll-over risk and vulnerabilities to adverse shifts in market sentiment; (ii) reducing the interest expense associated with debt, which at end-2009 represented 15.9 percent of GDP and accounted for an average of 60.0 percent of Gol's revenues annually; and (iii) reducing the variable portion of domestic debt.
The JDX, which closed on February 24, 2010, involved the consolidation of 345 securities into 25 new benchmark bonds and offered bondholders the opportunity to surrender old bond for new bonds with longer maturity and lower coupons. The exchange was fully voluntary and included all domestically issued bonds (excluding Treasury Bills) scheduled to mature on or after 16 February 2010 and issued on or prior to 31 December 2009. The total value of the offer was J$700.0 billion or 65.0 percent of GDP. The offer was executed as a par-for-par exchange of principal amounts and nonparticipating securities were called. In an attempt to improve the predictability of interest payments the variable rate, the variable rate (VR) bonds were reissued for fixed rate CFR), VR and inflation (CPI) linked bonds. FR bonds were reissued as fixed bonds, while US dollar and US dollar-linked instruments were reissued in US dollar. The GoJ also offered several short-term FR instruments ranging from 3 months to 1 year to maintain adequate liquidity in the domestic market.
The JDX recorded a participation rate of 99.2 percent and resulted in notable change in the matu rity profile of the domestic debt. The average maturity of the domestic debt after the JDX increased to 8.9 years from 4.5 years, lowering pressures on interest rates and improving the Government's ability to respond to shocks. The share of domestic bonds attributable to FR instruments increased to 38.0 percent from 34.0 percent, while the newly introduced CPI-linked bonds accounted for 3 percent. The JDX was also successful in lowering the VR portion of the domestic debt by 6.0 percentage points to 48 percent and the share of domestic debt priced in US dollars fell to 11 percent from 12 percent. The average coupon on outstanding Jamaica and US dollar domestic debts declined by 650 basis points (bps) and 200bps to average 12.5 percent and 7 percent, respectively.
The JDX eased both the rollover and refinancing risks in the government's debt portfolio. The JDX is estimated to have generated annualized interest savings for the government of J$41.0 billion (5 percent of GDP) in FY201 0111, representing a decline of 34 percent in first year of implementation. This contributed to the significant contraction in the budgeted fiscal deficit to 6.5 percent of GDP for FY20 I 011 1 from 9.4 percent and 7.3 percent in FY2009/10 and FY2008/09, respectively. The portion of domestic debt due in FY20 1 0111 was also reduced from 28.0 percent to 5.0 percent.
The exchange was broadly endorsed by the multilateral agencies, including theIMF, IADB, the CDB, and the Bank, who combined committed financing ofUS$2.4 billion to the Government's reform program.
Source: Program Document for the Proposed First Programmatic Fiscal Sustainability DPL, Feb. 8,2010
11
2.3 Monitoring and Evaluation (M&E) Design, Implem~ntation and Utilization:
Design
The Bank and the Ministry of Finance and the Public' Service (MFPS) agreed ,that the MFPS will play the primary role in coordinating monitoring and evaluation of program implementation. The Government and the Bank agreed to Jake advantage of several local data sources to assess progress of the DPL, including the Statistical Institute of Jamaica, Central Bank of Jamaica reports and analysis, PIOJ and the Auditor General.
Implementation
Information from those, sources, however, 'was not always available in a timely fashion. That was compensated by Bank, CDB, IDB and IMF supervision missions and reports, which helped monitor and evaluate implementation of the program. In particular, Jamaica was under intensified surveilh:mce from the Fund, which produced a bi-annual staff report ·assessing its economic and fmancial stability. In early 2010, the IMF approved a Stand-by arrangement in early 2010, which implies a much closer monitoring of the Government's reforin program. The World Bank has been coordinating with the Fund' on its monitoring of the economic and financial situation.
Utilization
In mid 2009, the Bank started preparation of the First Programmatic Fiscal. Susfainability DPL. Monitoring of the performance of the Fiscal and Debt Sustainability DPL was an important input for, and it became an integral part of, preparation of the neW operation. '
2.4 Expected Next PhaselFoliow-up Operation (if any):
This DPL was initially envisioned as a Programmatic operation - the first in a series of loans. As such, the team worked with Government on a medium term program with three phases of reforms. That matrix became the basis for the second operation - the First Programmatic Fiscal Sustainability DPL, approved about one year later. ,A Second Programmatic DPL (third in the seri€s) is currently under preparation.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
The objectives of the DPL program were· highly releva~twhen the operation was appraised and they remain relevant to date. The very high level of public sector debt and the huge burden of servicing that debt were and stiU are a major impediment for economic growth and poverty reductiori: it crowds out social spending as well as lending to the private sector. The perpetual demand for funds by the public sector wa~ supplied by the financial sector at interest rates of about'18%. In that environment, there was lio incentive whatsoever for banks to lend to the private sector for productive undertakings.
The objectives of the program were fully consistent with the government's fiscal and debt sustain ability reform program,which was part of its medium-term socio-
12
economic policy framework. The framework sets out the broad package of policies, strategies and programs proposed by the Government for implementation over the period 2009-2012. It supports the overall vision, goals and outcomes of Jamaica's long term development plan, Vision 2030.
The objectives of theDPL were also in line with the Country Assistance Strategy FY06-09, which was approved by the Board of Directors in April 2005 and updated in July 2007. The amount of this DPL, however, is higher than envisioned in the CAS (US$75 million) or in the CAS Progress Report (US$50 million). The increase in the size of budgetary support reflects the priorities of the new Government of Jamaica, which wanted to focus Bank's support on fiscal and debt sustainability issues, given the country's vulnerabilities and the looming international financial crisis. That emphasis was reflected in the new Country Partnership Strategy (CPS) FYlO-13 approved by the Board of Directors in March 2010.
3.2 Achievement of Program Development Objectives
As mentioned above, the Fiscal and Debt Sustain ability DPL was originally conceived as a programmatic operation, with a Policy Matrix and Results Framework that included three phases of short term as well as medium term reforms. While this DPL was eventually approved as a self standing operation, its Policy Matrix was the basis for the First Programmatic Fiscal Sustainability DPL approved one year later. Thus, in order to evaluate the achievement of this DPL's PDOs, it's not sufficient to look at what happened through the end of 2009 only, but it's necessary to have a broader perspective and assess developments to date.
3.2.1 Enhancing Fiscal and Debt Sustainability - Moderately Satisfactory
The international financial crisis hit Jamaica hard. As mentioned above, GDP declined by 1.6% in 2008/09 and by an estimated 2.5% in 2009110, while exports and remittances dropped sharply. The recession led to lower tax revenues and the global crisis led to higher interest rates and currency depreciation. Due to lower tax revenues as well as higher expenditure, the primary surplus declined from 7.8% ofGDP in 2007/08 to 4.9% of GDP in 2008/09, but it bounced back to 6.1 % of GDP in 200911 O. Interest payments shot up from nearly 13% of GDP in 2008/09 to 17% of GDP in 200911 0 due to the steep increase in interest rates and the depreciation of the Jamaican dollar, and the consolidated net public debt rose from 126% of GDP in 2008/09 to 140% of GDP in 200911 O. At the time of the preparation it was recognized that selecting debt to GDP ratio as PDO indicator could be risky since there are many factors affecting it, while the ability of the DPL program to influence its course could be limited. Nonetheless, it was selected on the basis of its importance as a focal point to the whole DPL program and in the dialogue with the government. The Bank program in Jamaica has continued· to emphasize the criticality of reducing debt to GDP ratio in order to improve fiscal and debt sustainability. On the other hand, the slowdown in economic activity eased inflationary pressures, and the consumer prices index dropped from nearly 20% in 2007/8 to 12.4% in 2008/09, and to 9.7% the following year (Table 2).
13
Notwithstanding those· shocks, government remained committed to its reform program. In particular, in April 2009, it froze public sector wages for one year (later extended for two additional year), and in early 2010 it announced a domestic debt exchange program, involving about one half of its. total debt, which resulted in a reduction of interest payment of about 5% of GDP andJonger maturities. As a result of that exchange, interest rates dropped to 8% in September 2010, the lowest level in 30 years.
In parallel, Government reached agreement with the IMF on a 27-month Stand-by Arrangement in an amount of SDR 820.5 million. The SBA was approved on February4, 2010, and two reviews of the program were satisfactorily completed in June and in September 2010. The program with the IMF calls for the virtual elimination of the
. public sector deficit within 3 years.
The Fiscal Responsibility Framework (FRF) would· be a central instrument for achieving that objective. It would establish an institutional framework such that the Government is accountable for applying principles of prudent fiscal management to achieve medium-term fiscal targets established by in law. Accountability would be ensured through the presentation of a Fiscal Policy Paper (FPP) to Parliament and requirements to submit the budgets of all public entities to Parliament. However, there were delays in the preparation process, and Parliament approved the amendments to the Financial Administration and Audit Act and Public Bodies Management and
. Accountability Act to establish an FRF only in March 2010. Government is working now on the regulations to implement it, and expects to make it operational in the last quarter of calendar 2010.
14
Table 2: Key Economic Indicators and Macro Framework
GOP, prices, and employment
Real GOP
Nominal GOP
Consumer price index (end of period)
Consumer price index (average)
Exchange rate (.end of period, in J$/US$)
Exchange rate (average, J$/US$)
End-of-period REER (percent change, appreciation +)
Unemploymentrate (in percent)
Government operations
Budgetary revenue
Tax
Non~Tax
Grants
Budgetary expenditure
Primary expenditure
Wages and sal.aries
Other Expend; ture
Capital expenditure
Interest payments
Domestic
External
Budget balance
Of which: primary fiscal balance
Off-budget expenditure
Public entities balance
Public sector balance
Public debt
External sector
Current account balance
Of which: exports of goods, f.o.b.
Of which: imports of goods, f.o.b.
Net international reserves (in millions of US$)
Gross international reserves (In millions of US$)
Money and credit
Net foreign assets
Net domestiC assets
Of which: credit to the central government
Broad money
Velocity (ratio of GOP to broad money)
Memorandum items:
Nominal GOP (in billions of J$)
Source: IMF
2005/20062006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013
1.2
12.2
11.2
14.8
65.3
63.2
4.0
11.6
26.2
23.2
2.8
0.1
29.5
16.3
8.8
5.7
1.7
13.2
10.0
3.2
-3.3 9.9
1.0
119.9
3.2
14.2
8.0
7.4
67.6
66.3
-0.7
10.8
25.9
23.6
2.1
0.2
30.8
18.9
9.7
5.9
3.3
11.9
8.6
3.3
-4.8
7.0
1.5
116.5
0.6
13.2
19.9
12.4
70.8
69.7
4.0
9.7
27.3
24.3
2.5
0.5
31.1
19.5
9.3
7.0
3.1 .
11.6
8.1
3.4
-3.8
7.8
1.1 -3.4
-8.2
113.5
-1.7
12.1
12.4
20.2
88.0
76.3
-10.1
10.8
26.9
24.4
1.7
0.7
34.3
22.0
10.9
7.1
4.0
12.3
8.8
3.5
-7.4
4.9
-0.7
-2.6
-9.2
126.1
-10.5 -9.7 -18.4 -18.4
16.0 17.9 18.3 17.0
40.0 42.3 50.4 50.0
2,078.0 2,329.0 2,083.0 1,628.6
2,373.0 2,614.0 2,106.0 1,663.5
1.7
6.9
-5.6
8.6
3.1
714.0
4.2
6.6
-3.5 10.8
3.2
815.0
0.9
11.6 2.7
12.5
3.2
923.0
-13.3
24.8
8.7
11.6
3.2
1,027.6
Estimate
-2.5
8.2
13.3
9.7
89.0
88.9
9.9
11.4
27.0
24.1
2.4
0.6
37.9
20.9
11.4
5.5
3.1
17.0
13.0
3.9
-10.9
6.1
0.0
-1.6
-12.5
139.8
-7.5
11.2
35.4
1,761.7
2,434.2
14.6
-11.6
4.2
3.0
3.4
1,111.6
Project
0.6
11.0
6.1
11.1
26.0
23.1
1.8
1.1
32.3
21.1
10.3
6.2
4.6
11.1
7.6
3.5
-6.2
4.9
0.0
-1.0
-7.2
139.0
-7.7
11.6
34.6
1,905.2
2,977.7
2.8
10.4 -2.0
13.3
3.4
1,234.1
Project
1.8
8.9
5.0
5.3
26.2
23.3
1.8
1.1
28.6
19.4
10.0
6.0
3.4
9.2
6.9
2.4
-2.4
6.8
0.0 -0.6
-3.0
132.9
Project
2.0
8.7
5.5
5.3
26.5
23.6
1.8
1.1
27.5
18.9
9.7
S.8
3.4
8.6
5.3
2.3
-1.0
7.6
0.0
0.1
-0.9
125.7
-7.0 -5.7
11.8 12.0
34.8 34.0
2,002.2 1,944.4
3,312.0 3,254.2
4.0 0.1
8.0 8.6
0.3 0.4
12.0 8.7
3.3 3.3
1,344.0 1,460.9
Employment surveys of the Central Government were completed early this year, and they are now being conducted in all Public Bodies either fully or partially financed by the budget. As of September .2010,66 out of a total 129 had been completed. These surveys are expected to be reconciled with the census and payroll
15
information collected by the Public· Sector Transformation Unit (PSTU) as part of a future payroll audit. The government is committed to maintain the wage freeze (at the April 2009 level of Jam$27 billion - 11.8% of GDP) through 2013. This freeze excludes retroactive payments owed to teachers and nurses as part of previously agreed increases, which are being paid in annual installments'. However, pressures for salary increases are brewing in various sectors of the public service, and the question is how the government will deal with those pressures when the freeze ends. The government's plan calls for reducing the wage bill to 9.5% of GDP by 2014 and to 9% of GDP by 2016. This reduction would be achieved through implementation of the public sector master rationalization plan prepared by the Public Sector Transformation Unit (PSTU), which was tabled in Parliament in July 2010.
There was progress in the rationalization of Public Bodies (PB), albeit slower than expected. This involves divesting PBs doing commercial activities,. and improving the performance 0 those staying in the public sector. Air Jamaica, which was losing about US$150 million per year, was sold to Caribbean Airlines in March 2010, and divestment of the sugar industry was completed shortly thereafter. On the other hand,.divestment of several PBs included in the government's program have not been completed yet (Table 1). In parallel, PSTU's master rationalization plan mentioned above calls for full devolution of authority to 12 PBs by April 2011, including enhanced powers and accountability of management through management contracts. Devolution would be granted only upon accreditation by these 12 PBs.
As part of public sector reform, and given the huge size of Jamaica's public sector debt, government is putting special emphasis on improving the capacity and performance of the Debt Management Unit (DMU). In consultation with relevant players, it is preparing new legislation to modernize debt management practices, including management of government guarantees and contingent liabilities, and it plans to restructure the DMU and establish front, middle and back offices by December 2010. In addition, the authorities are in the process of establishing a Debt Management Committee comprising high-level staff from ·MFPS, the Bank of Jamaica and the AG's Office. This Committee, which will evaluate. alternative medium~term debt management strategies. and make recommendations on the strategy to follow, is expected to be in place by year's end.
3.2.2 Increasing the EfficiencYQf Public Financial Management and Budgeting Process - Moderately Satisfactory
There was progress in this area, but slower than expected. In particular, while the accounts of the Public Bodies were presented to Parliament together with the budget for FY2010111, they were not fully consolidated· with the accounts of the Central Government. In addition, the new methodology for putting together the Public Investment Program is not in place yet. On the other hand, government is procuring software for integrating the financial management system, and is establishing a Central Treasury Management System. At the same time, the office· of the Auditor General is making strides in modernizing its structure and building its HR capacity.
16
Medium Term Expenditure Framework (MTEF). The Ministry of Finance and Public Service is putting together a MTEF consistent with the Macro Fiscal Framework. The MTEF would establish expenditure ceilings for each ministry for 3 years on a rolling basis. As a pilot, it will be implemented in 6 ministries which constitute 70% of total expenditures (MFPS, Public Works, Education, Health, Agriculture and Fisheries, and National Security). Expenditure reviews will be conducted in each ministry as inputs to theMTEF. .
Public Investment Program. Currently, the Planning Institute of 1amaica (PIOl) conducts a technical evaluation of projects presented by Ministries, and the Infrastructure Committee of Cabinet decides' which would be implemented. The Program calls for a new methodology for the evaluation of capital investment, but it is not in place yet. A new software for project evaluation, used by the US Environmental Protection Agency, is currently being customized for this purpose, .and government plans to begin implementation in 6 key ministries. The new methodology should resolve the ongoing problem of excessive project commitments, leading to delays and postponements due to insufficient funds, and inefficient use of resources. The new methodology would be accompanied by a set of clear decision processes which would allow a transparent and cost effective selection of investment projects, including the closing of un viable or low return projects under execution.
The government is working on strengthening th'e technical basis of budgeting and financial management through: (i) introducing an Integrated Financial Management Information System (IFMIS); (ii) strengthening internal control and internal audit· systems; and (iii) enhancing external audit by improving the capacity of the office of the Auditor General. .
Integrated Financial Management Information System (IFMIS). The government is in the process of procuring off the shelf software for integrating the PFM information system, which is also known as the Enterprise Resour-ce Management System. As part of computerization of the PFM system, the government is establishing a central treasury management system (CTMS) to bring responsibility for treasury management functions under one agency. The CTMS wil1 establish a Treasury Single Account (TSA) to improve
. cash management, to consolidate all general government cash resources, and close the individual bank accounts of government entities. The new system would also help moving from cash to an accrual basis.
Internal audit. Jamaica has about 200 internal auditors in all ministries. However, the majority of these are internal controllers, concerned mostly with checking transactions rather than internal audit per se. While internal audit should be the responsibility of each ministry, the Ministry of Finance sets the audit guidelines· and procedures for all, to ensure consistency and uniformity across the Central Government.
External Audit. The Auditor General (AG) is an inQependent fin:l,ction, reporting directly to Parliament. The AG is implementing an action plan for institutional and professional capacity building, with the assistance of the UK Audit General Office, which includes IT as well as human resources. Training programs include not only senior
17
auditors but all personnel. That build up is essential to increase performance auditing from 5% to 50% of its activities, and.to meet new·requirements derived from the Fiscal Responsibility Framework. The AG is also one of the agencies targeted by the Public Sector Transformation Unit for devolutiori, to provide it with more control over [mancial and HR management. Under the revised structure, the Public Accounts· Committee of the Parliament will have oversight of the AG'g office.
3.2.3 Reducing Distortions and Enhancing the Efficiency of the Tax System: Moderately Satisfactory .
Tax issues were included in the second PD~, but they are discussed in the Program. Document· as a third area supported by the Program, so they are reviewed here separately. FUrther, tax policy and tax administration reforms performed differently, and are thus discussed and rated separately too.
Tax Policy:· Moderately Ullsatisfactory
In 2009, facing a deepening crisis, Government introduced 3 tax packages mostly to boost revenues rather than to improve the tax system. The first one, in April, increased the income taxtlu:eshold from J$196,872 to J$270,504. It also removed some tax preferences, expanded the GCT tax base, imposed tax on dividends, and increased the specific tax on petrol and petroleum products. However, in May, government revised this package by reintroducing some GCT exemptions, offsetting the loss in revenue by increasing taxes on cigru:ettes and alcohol. In September, it announced the second tax package, which increased the departure tax for tourists and the GCT rate on telephone calls and equipment. The third package, announced in December, increased several GCT and SCT rates,· included electricity supply in the GCT base, increased income tax rates on high earners, and hiked license fees and custom duties on selected luxury items; including vehicles.
Following those increases, the authorities implemented some additional revenue measures in 2010, but their impact is likely to be limited. The· payroll tax rate was temporarily increased (until March 31, 201 I) from 25% to 27.5% and to 35% for incomes above J$5 million and J$10 million respectively. This departure from a flat rate could complicate administration and compliance. In addition, the authorities have made progress in reducing the use of tax incentives and waivers. A July 26, 2010, Cabinet decision forbids the issuance of any new incentives or waivers as of August I, 2010. The authorities' plan calls for a new waiver policy which would establish. the specific criteria governing and/or limiting the discretion of the Minister in granting waivers, but implementing such policy would be a challenge.
Tax reform has not been comprehensive but rather bits by bits, resulting mostly from the need to ~nhance revenues to deal with the crisis. In particular, little has been done to improve the uniformity of the tax code. A proposal to lower the corporate income tax from 33.33 percent t6 25 percent (in line with the current 25 percent tax rate on personal income tax) has been postponed due to the potential negative revenue
18
implications. Amalgamation of statutory payrolL deductions has not been made operational yet. The authorities have, however, signaled their intention to address distortions in the local alcoholic beverage regime by reforming the way the consumption of alcohol is taxed, although a timeline for implementation is yet to be determined.
Strengthening Tax Administration: Satisfactory
The number of corporate and individual tax payers in the tax roll has increased by nearly 25% in 2 years (by 12.3% in 2008/09, and by 10.8% in 2009110). While this is slower than projected, it's still quite an achievement given the slowdown of economic activity in those years.
Reorganization of the tax office started in April 2009, to be done in 4 stages over a period of 3 years. The authorities have issued a Cabinet decision to consolidate Inland Revenue, Taxpayer Audit, and Assessment and the Tax Administration Services Departments into a single Jamaica Tax Administration UTA) led by a Commissioner General. Under the reorganized structure, the existing departments will be consolidated into one unit with the responsibility for administering domestic taxes. The authorities have also completed the preparation and costing of the Tax Restructuring Plan. The preparation of the plan,. funded by USAID, was completed in August 2010. Its implementation is expected to substantially reduce overhead costs and improve efficiency.
In October 2008, the authorities introduced online filing and payment of GCT and SCT. One year later, they broadened the scope to the filing and payment of payroll deductions. In March 2010, the authorities made further advances by allowing online filing and payment of individual and corporate income tax, education tax for the selfemployed, and NIS. Currently, however, on line filing is done only by 1 % of tax 'payers, who pay 2-3% of all taxes.
3.4 Justification ofOveralJ Outcome Rating
Rating: Moderately Satisfactory
Although there were delays in implementation of the program, the overall outcome of this operation is rated moderately satisfactory because: (a) the Bank responded to the new Government of Jamaica's commitment to reform, helped the Government to . spell out its reform program, and reengaged Jamaica in policy based lending after many years; (b) the issues addressed in the program, particularly the focus on debt generating sources and on fiscal management and transparency, were highly relevant; and (c) the Bank took the risk in an environment of high uncertainty, paving the way for other IFIs and dollor agencies. That risk was eventually justified by Government's continuous commitment to the reform program, which was supported by a Programmatic Fiscal Sustainability DPL, an IDB PBL, and by a new 27-month Stand-by arrangement with the IMF. .
19
3;5 Overarching Themes, Other Outcomes arid Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
There were no gender aspects to this operation, and with the international crisis gathering steam in the background and the short period of implementation, it's not possible to attribute any specific impact on poverty to this DPL. Likewise with regard to social development. At the sametime, the DPL triggered additional support for Jamaica by other multilateral and bilateral donors during a difficult period for the country, and as such it helped mitigate the impact on the international crisis on its citizens.
(b) Institutional Change/Strengthening
This DPL, together with other operations supported by multilateral and bilateral donors, contributed to the strengthening of institutions in Jamaica. In particular, the focus on the Fiscal Responsibility Framework and improving fiscal management in general and the transparency of Public Bodies' accounts in particular, is essential for improved fiscal performance and accountability. In addition, the DPL supported the adoption of a modem methodology for evaluating public investment projects and consolidating the Public Investment Program, it supported restructuring and capacity building in the General Auditor's office, as well as improvements in tax administration.
(c) Other Unintended. Outcomes and Impacts (positive or negative, if any)
N/A
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops·
N/A
4. Assessment of Risk to Development Outcome
Rating: Moderate
The risks that development outcomes will not. be maintained are rated moderate because of the commitment by Government to its reform program, the ong~ing Programmatic DPL, and the Stand-by arrangement with the IMF. This risk could become significant, however, in the medium term due to factors identified when the DPL was approved, namely: economic, political,and natural disasters. The economic risks are· due to the global financial crisis and the resulting economic downturn, which indeed reduced demand for Jamaica's key exports of goods and services, and slowed remittances from the US and Europe.. Those risks are partly mitigated by the successful debt exchange in early 2010 and by the subsequent large drop in domestic interest rates, which saves the government about 5 percentage points of GDP in interest payments, and by the increased support by the IFIs. Still, with debt of 140% of GDP and interest payments absorbing nearly one half of government revenues, Jamaica is very vulnerable to external shocks. The Political risk is due to the small majority that the Government has in Parliament, which complicates approval of reforms. That risk is augmented by recent
20
discussion in the press of the possibility ofeatly parliamentary elections. Finally, the risk of natural disasters is a permanent feature, as the September 2010 floods show. Jamaica mitigates. this risk by its participation in the Caribbean Catastrophe Risk Insurance Facility (CCRIF), which helps to offset financing costs in the case of a major disaster, and by programs wjth donors aimed at addressing natural disasters when they happen.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance -
(a) Bank Performance in Ensuring Quality at En.try
Rating: Moderately Satisfactory
Bank performance during preparation is rated Moderately Satisfactory based on two seemingly contradicting elements: on the one hand, the remarkable work by the DPL team to help the government formulate a strong medium-term -reform program, and on the other hand, decisions at the institutional I~vel to minimize risks, which forced a reformulatjon of the program into a one-shot stand alone operation at the last minute. The work by the DPL team was particularly challenging due to: (i) the difficult conditions under which the operation was prepared, including a fragile and deteriorating macroeconomic environment, a civil service that was not on board with the reforms, local distrust of IFIs, etc.; (ii) the thorough work of the team helping the new government to spell out its medium term reforni program; and (iii) the fOCliS on difficult issues, such as divestment and reform of Public Bodies, in particular the divestment of Air Jamaica and the sugar industry. The back and forth withgovemment resulted in higher than expected preparation costs, but the program contributed to nailing down important and long overdue structural" reforms in Jamaica, and it led the way to wider support by the CDB, IDB, the IMF and bilateral donors. It has also set the foundations for further operations in Jamaica to advance the reform programs.
Due to the high risk and uncertainty prev.ailing at the time of the preparation,the Bank decided to make this DPL a self standing operation, instead of the first phase of a programmatic DPL, as it was originally conceived. That change required formulating short term outcome indicators which did not do justice to,and were not consistent with, the longer term PDOs (1.2 above). In particular, the debtlGDP ratio was not directly affected by this operation nor was it fully under government control, strengthening the AG office, while important per se, was not the best indicator of effiCiency of public financing management and the budgeting process, and the number of tax payers does not reflect the efficiency and fairness of the tax system.
(b) Quality of Supervision
Rating: Satisfactory
Bank performance during supervision is rated Satisfactory. The new Bank team :which took over supervision of the DPL visited Jamaica three times in 2009, and in
21
between visits it held several VCs to follow up on implementation 'of the· program. In early 2010, that follow up (overlapping with supervision of the First Programmatic Fiscal Sustainability DPL) was greatly enhanced by the recruitment of a local economist in the Country Office, who wrote monthly progress reports on implementation of the policy matrix. TheM&E arrangements, however; were useful but not sufficient. Initially there was no point person on the government side to coordinate the follow up with the various ministries and agencies that were implementing reforms. That was an important void since~e composition of the Bank team that supervised the DPLwas quite different from the team that prepared the operation. Eventually, a coordinator was appointed at the Planning Institute of Jamaica (PIOJ), which was very helpful both for supervising the DPL as well as for preparation of the following operation.
(c) Justification of Rating for Overall Bank Performance
Rating: Moderately Satisf~ctory
Bank performance is rated Moderately Satisfactory. The program, while tentative in parts, addressed critic;:t1. issues that constrained Jamaica's perspectives for fiscal sustainability and economic growth. After many years, the Bank responded to the opportunity of reengaging with Jamaica in policy based lending, and it took a calculated risk that with hindsight was fully justified~ As mentioned' above, preparation of this operation was negatively affected by the decision to convert it to a self standing DPL instead of the first phase of a programmatic DPL. However, while this DPL was a self standing operation, its policy matrix contains a medium term reform program, which provided a medium term framework to the policy actions included in this operation as well as a solid basis for the programmatic DPLapproved one year later.
5.2 Borrower Performance
(a) Government Performance
Rating: Moderately Satisfactory
The new government that took office in 2007 campaigned on a platform of reforms to put Jamaica on a higher and sustainable growth path. Further, iminediately after taking office, the new authorities sought support from the IFIs to spell out a coherent reform program. and implement it. Bowever, within government there were different views about what the components of that program should be, its majority in Parliament was slim, and it faced parts.ofthe civil service which were not on board with the reforms. In addition, several. local agencies had good professionals· at the top but weaker capacity at lower levels. Therefore, there were delays in implementation of various policy measures. Notwithstanding those difficulties and the international financial crisis, government maintained its commitment with the program, implemented a successful debt exchange and signed a Stand-by arrangement with the IMF, all of which make Jamaica's situation substantially better today than when it took office three years ago.
22
Justification of Rating for OverallBorrower Performance
Rating: Moderately Satisfactory
Government committed to the reform ,program and maintained its commitment under difficult conditions, both external and internal. That is evidenced by its agreement on a follow up programmatic DPL. However, overall performance is rated as moderately satisfactory due to partial impl~mentation of several policies as well as delays in implementation of parts of the Program supported by this DPL.
6.,Lessons Learned
1. The Timing of Engagement is Crucial. Since the early 2000s, Jamaica shunned contacts with the IFIs, particularly on policy based lending. In 2007, after nearly 20 years is the opposition, the Jamaica Labor Party (JLP) won the elections on a
. platform of structural reforms. The new government requested support from the IFIs to implement those reforms. Risks were high, and Jamaica's recorq of. reform implementation was poor, but it was also a moment of opportunity for the Bank and other IFIs. The main lesson of this DPL is that the Bank should be ' aware of these moments of opportunity, and should be willing to take risks. With hindsight, that decision was well justified by the results.
2. Using the Programmatic Approach. The programmatic approach to policy based lending has two main advantages: it provides a medium term perspective to a reform program, coupled with more flexibility than a conventional multi-tranche loan. It is particularly suitable when the agenda includes difficult reforms, which cannot be implemented all at once. But even in cases, such as this DPL, where for various reasons the Bank decides to go with a self standing operation, the policy matrix should have a longer term horizon and be designed as if it were a programmatic DPL, as in this operation. Such a matrix provides a context to the prior actions of a DPL, and it would be the basis for following operations if and when they materialize.
3. Technical Assistance (TA) and capacity building. Implementation of the DPL could have been helped by a better synchronization' and coordination of Technical Assistance provided by donors: Given the weaknesses in the local civil service, TA should focus on capacity' building and public sector modernization in accordance with the timing of implementation of the DPL program. Since Jamaica has been over studied, what is needed is strengthening the local capacity to implement policies in timely manner. A combination of longer term presence of
'experts in the country coupled with on the job training of local staff in donor countries would help achieve the Government's development objectives. '
23
7. Comments oD.Issues Raised by Bo,rrower/lmplementing Agencies/Partnets (a) Borrow~r/lmplementing agencies
N/A
(c) Cofinanciers N/A
(d) Other partners and stakeholders (e.g. NGOslprivate sector/Civil society)
NIA
24
Annex 1. Government of Jamaica Policy Actions to be supported by the DPL - Results Framework
The government has The government has government has Consolidated primary macroeconomic maintained a primary balance maintained a maintained a balance (Public Bodies stability satisfactory (Public Bodies and satisfactory satisfactory and Central
macroeconomic Central macroeconomic macroeconomic Government) as a framework Government) as a framework framework share ofGDP
share ofGDP increases by 3 remains over 4 percentage points percent (Baseline (Baseline 4.4 percent 4.4 percent in FY in FY 2007/08) 2007108)
Consolidated (Public Bodies and Central Government) fiscal deficit as a share of GDP falls by 5 percentage points
Consolidated Net (Baseline 10.1· percent Public Debt to inFY 2007/08) GDP falls by 3 percentage points. Consolidated Net (Baseline 123.1 Public Debt to GDP percent in FY falls by 15 percentage 2007108) points. (Baseline 123.1
percent in FY 2007
1.2 Control of 1. The MoF has I. Legal 1. Key features of }. Full Greater overall public submitted to the framework for the framework implementation of transparency, sector balances and Cabinet proposed the Fiscal implemented the framework accountability, debt amendments to Responsibility control, and
the Financial Framework is strategic allocation Administration approved by of public resources and Audit Act and Cabinet to be under multi-year the Public Bodies included in the fiscal planning and Management and FAA and the control of Accountability PBMA Acts, as expenditures for the Act, which a first step to consolidated public introduce a fiscal improve control, sector. (Baseline: no responsib i lity strategic consolidated public framework. allocation and sector accounts,
accountability of October 2008). resources.
25
developed and approved an action plan for the consolidation of Public Bodies' and Central Government accounts
3. The MoF has: (a) ceased authorization of deferred financing in the Central Government since 2005; (b) communicated its commitment to the Cabinet (on December 10, 2007) and Parliament (on December II, 2007) not to utilize any deferred financing arrangement.
1.3 Rationalization of 4. The MoF has Public Bodies approved a plan to
achieve the rationalization of Public Bodies and the following actions have been taken by the GoJ consistent with the plan: (i) the divestiture offortynine percent of Petrejam Limited and significant. advances in the divestiture of the Gol's sugar cane industry assets and Petrojam Ethanol Limited, as evidenced by the Heads of Agreement signed by the GoJ with a potential buyer on June 27, 2008; (ii) the engagement of
2. Necessary conditions for the consolidation of public bodies and central . government accounts are in place for greater transparency, accountability and control 3. Increased control of fiscal and debt aggregates (Baseline: Average annual deferred financing from FY2000101 to FY2005/06 was J$497 million)
4. Reduced losses of Public Bodies and preparation of strategic analysis for more divestitures, have laid the foundations to enhance public expenditure effectiveness (Baseline: Public Body Primary Deficit -2.5 . 2007108)
26
framework in place for consolidation of all PB accounts into the Central Government budget process
3. The GoJ has repealed the authority of the MoF to permit deferred financing in the central government and has developed a comprehensi ve Public Sector Investment Program (PSIP)
4. The Gol has significantly advanced in its Public Bodies Rationalization Plan
implemented for major Public Bodies
4. The GoJ has completed the implementation of the Public Bodies plan
Reduced costs and enhanced public expenditure effectiveness through the rationalization of functions and better control of Public Body (PB) expenditures. (Baseline: Preliminary Public Bodies deficit reduced to 75 percent of central government expenditure, October 2007)
1.4 Improving Efficiency and Effectiveness of Public Service Compensation and Incentives.
divestment of Air Jamaica Limited; (iii) the arrangement reached by the GoJ,
. in principle, to privatize Clarendon Alumina Partners, an entity which represents the Gol's equity in the Jamalco refinery; (iv) the preparation of a draft information memorandum in respect of the privatization of Mavis Bank Coffee Factory Ltd. to be issued to prospective bidders; and (v) the identification of fifteen entities (including Wallenford Coffee Company Ltd. and Caymanas Track Limited) of commercial nature
,completed an education sector employment survey which is the first step of an employment survey of the public sector to be included in a study to evaluate a medium-term strategy for public sector workforce skills needs and compensation.
5. is available on the number and posts of public employees in the education sectorwhich represent over Y4 of total public sector workforce- laying the groundwork for a ' comprehensive public sector workforce compensation study in the medium term. (Indicator: Report of public employment survey in the education
27
5. Employment surveys for additional strategic sectors have been completed
5. Study on the medium term strategy of the public sector workforce has been finalized and its main features have been implemented
Improved compensation framework for public sector employees, and sustainable strategy to control the wage bill over the medium term implemented
11.1 Achieving fiscal discipline and strategic allocation of resources
11.2 Improving the accounting and financial reporting system
11.3 Improving internal and external control systems
Modernization Division of the Cabinet Office has prepared a draft technical framework for the capital investment prioritization, establishing the link between policy, planning and budget allocation.
7. The Auditor General is implementing its action plan for institutional and professional capacity building; and the Minister of State in the Ministry of Labor and Social Security and the Deputy Leader of the House, on behalf of the MoF, have submitted to Parliament for approval a proposal to update legislation governing the internal audit departments and audit committees (the Financial Administration and Audit (Amendment)
for technical evaluations of capital investment is implemented in strategic Ministries with large capital projects
7. Increased training for professional capacity building provided to senior auditors and upgraded IT and physical facilities installed in the Auditor General Department
28
implemented sectoral Medium Term Expenditures Framework in all ministries
New accrual accounting framework is approved and the timeliness of annual appropriation accounts submission of selected Ministries, Departments, and Agencies (MDAs) to Auditor General has improved
7: The Government has implemented. the Auditor General's operational Plan
. and developed internal audit plans for all ministries
6. The GoJ has implemented the MTEF and the Performance-Based budgeting framework to all Ministries, Departments and Agencies
An Integrated Financial Management Information system (IFMIS) is implemented and the timeliness of annual appropriation accounts submission of seIected Ministries, Departments, and Agencies (MDAs) to Auditor General has 7. The GoJ has implemented Internal Audit Plans in all Ministries and improved the timeliness of the submission of the annual Auditor General reports to Parliament
Government Reforms in the Medium Term
Improved fiscal discipline and strategic allocation of resources as indicated via increasing PEF A indicator 12 (multi year perspective in fiscal planning, expenditure policy and budgeting) to a rating of A: (Baseline: C+ PEFA Report May 2007 Improved quality and timeliness of annual financial statements as indicated by PEF A indicator 25 increasing to aB rating (Baseline: D rating in PEFA report May 2007)
Improved scope, nature and follow up of external audits as indicated by PEF A indicator 26 increasing to a B rating (Baseline: C+ rating, PEFA report May 2007)
8. The MoF has: (a) 8. Simphfied and Expansion of the tax issued: (i) the fairer tax system. approved measures implemented the base and improvement Provisional (Indicators: to increase the measures to in the uniformity of Collection of Tax Increase in the uniformity of the increase the the tax system as (Income Tax) income tax Tax Code. uniformity of the indicated by a Order, 2008 on June threshold tax code reduction in the value 20, 2008 to increase to}$220,272 in of goods and services the threshold above 2009from receiving exempt or which individual $196,872 in 2008 zero-rated status in the income tax is due; and simplification GCT as a share of all (ii) the Provisional in tax rate goods and services Collection of Tax categories for (Baseline: 39 percent (General tobacco and motor 2007108) Consumption Tax) vehicles) Order, 2008 on May 9, 2008 to simplify the general consumption tax on motor vehicles; and (iii) the Provisional Collection of Tax (Stamp Duty) Order, 2008 on April 11,2008 to simplifY the special consumption tax on tobacco; and (b) submitted to Cabinet a proposal for amalgamation of statutory payroll deductions.
IIl.2 Tax 9. The GoJ has: {a) 9. Increased . The GoJ 9. The GoJ Increased efficiency in Administration issued a six-month number of continues to continues to tax collection and
tax amnesty for corporate (CIT and implement its tax implement its tax enforcement efforts taxpayers with GCT) and (non- administration administration lead to a 2 percent arrears due and PA YE) individual reform plan reform plan increase in tax payable on or tax payers on the collections. (Baseline: before April 11, tax roll revenue to GDP for 2008; and (b) (Indicator: 25 GeT and Income published a plan to percent increase of Tax- corporate and continue its efforts the number of personal: 14 percent to reduce tax arrears corporate 2007108) and improve individual tax revenue collections payers for 2008109 during its fiscal compared to year 2008/2009 and 2007108)
29
Poverty Assessment (2006)
Country Economic Memorandum (2002)
Public Expenditure Review (2005)
Annex 2: Analytical and FiduCiary Work
A. Analytical Reports-Recommendations
Maintain macroeconomic stability, notably through low inflation, to avoid "taxing" the poor.
Expand the Program of Advancement through Health and Education (PATH) program to newly displaced households [which a reduced burden of debt service would allow] to prevent economic shocks from doing' . petmanent harm to the poor .. Reduce payroll taxes and increase the value added tax [e.g., by
expanding coverage of the base] to reduce the wage wedge and increase labor demand. Undertake regular monitoring and evaluation of program outcomes. Reduce growth of public sector wage bill.
Privatize public entities and reduce contingent liabilities Reduce tax rates and expand the tax base Maintain credible macro policies
Make sustained reduction in the debt a Government priority
Reduce contingent liabilities (arising from deferred fmancing and from public sector loans such as in sugar and highways), and make them more transparent. Rationalize the tax system to reduce the wide dispersion of effective
rates. B. Fiduciary Rep~>rts-R~commendations
Address the fundament~ issues of indebtedness and efficiency of expenditures in consideration of the fiscal situation. . Move to a Medium-Term Expenditure Framework to improve the
Country Fiduciary Assessment (CFAA/CPAR 2006) '.' predictability of the budget and the link between policy, planning and
budget allocation.
PEFA (2007)
CART ACIIMF: Jamaica: Str~tegy for Reform of Tax Incentives (200~)
Tax Policy Review Committee (Matalon report) (2004)
Improve the quality and timeliness offmancial reporting. Expand oversight coverage of public enterprises by Parliament and the' Auditor General. . Expand coverage of effective fiscal controls to include off-budget entities. Improve effectiveness of the Audit Committees and Auditor General, inter alia, through more timely submission of financial statements. Improve fiscal discipline and strategic allocation of resources.
Reports by non-World Bank or2anizations Grant no new tax holidays, and phase out existing holidays. Repeal or s<;ale back significantly the powers of the Minister of Finance to grant discretionary waivers of taxes. . Reduce the corporate tax rate to 30 percent. Develop systematic costing of all expenditures, to be included in tax expenditure budgets published with annual budgets. Reduce exemption list for the VAT (GCT) Increase individual income tax threshold. Amalgamate the various payroll taxes. Harmonize personal and corporate income tax rates
30
Links to DPL Actions: Annex 1)
I.l
1.2
III. 1
11.1
1.4
1.3 111.1
I.l
1.1& 1.2
11.1
1.2
1.2,11.1
1.2,
11.2,11.3 1.2, 1.3, 11.2, 11.3
I.l & 1.2 11.2 & 11.3
l.l & 11.1
111.1 111.1
III. 1 1.2 -'.
111.1 1I1.1 111.1 111.1
.,
Annex 3: Bank Lending and Implementation Support/SuperVision Processes
'Sunervision . :D~~id"Y;~~ii~k~~-·-·······-·····""-··""c~;;~it~~t···· .. " .......... _- ...... " ..... ······ .... ·· .. ········ .. ········ .. ··LCSPE
Ya()_ .. ~ 0!t~~ .... ...... ....... .... ____ .. ..:S~ })~()~~~~~!!!.~P~cj~!!!.! Zafer M ~~t<lfa.() .. ~~1!........._ ............ ~r :~~()~()l!!!~!_ .... . .. __ .. . . ...i D
(~).§.!~ff .. TiIn~~Il!! c;::o .... s .. t ....................................... ..
Stage of stafnveeks
114.94 189.63 ; ....................... _ ..................... _ ............... ; .......... - •. · .... ··· .. ···· .... · ...... ·_ .. ·c .. •· ... c .. ··· ........ _ ..................... _ ..... -.... " ................. -..... _ .... -... " ............ -....... . ................................ .. .................. "'"'' .. --..
'.
!~~J1~ryi~~~~~R .. ..... -.... FY09 FYlO ........... ~., ~ ... " " .. , ~ ......... ~ ........ .
FYll
Total:!
218.02
522.59
10.00 9.43
22.58 ... _ .... "_ .......... _.,, .. -_ ...... --.. - .................................... _. __ ... _ .... -....... -... -... __ .. _ ..... " ........... _ ... _--_ .......... -----_ ........ __ ... --_ ... + ............. _ ............... _ ........... _........ . __ ..... _ ...... _ ......................... ; Total: 42.01
31
Annex 4. Beneficiary Survey Results (if any)
N/A
32
Annex 5: Stakeholder Workshop Report and Results (if any)
N/A
33
Annex 6. Summary of Borrower's ICR and/or Comments on Draft ICR
The Government of Jamaica agrees with the assessment of the. ICR and has no comments on the document.
34
Annex 7: Comments of Cofinanciersand Other Partners/Stakeholders
N/A
35
Annex 8. List of Supporting Documents
N/A
36
MAP
37
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