Jamaica : Eighth Review Under the Arrangement Under the Extended fund Facility and Request for Waiver for the Nonobservance of Performance Criterion and Modification of Performance Criteria

EXECUTIVE SUMMARY Investment and growth prospects are gradually improving. Growth is projected to be about 2 percent in 2015/16, as the full-year impact of lower oil import costs and the recovery from last year's drought materialize, and as improvements in the business climate and confidence feed through to activity. Lower oil prices are expected to reduce inflation faster than previously expected. Implementation of the government's reform agenda remains strong. All performance criteria were met, with the exception of the end-March performance criterion for the primary balance which was narrowly missed. Structural reforms have advanced broadly in line with the program. Staff supports the authorities' request for the completion of the eighth review of the arrangement. Focus of the review. At the half-way juncture of the authorities' IMF-supported program, discussions centered on how best to capitalize on improving business and consumer confidence to catalyze higher private investment, employment and growth. The authorities have produced a comprehensive growth strategy that tackles the need for macroeconomic stability, strategic investments that promote job creation, and improvements in the business environment. Meanwhile, the program continues to bolster revenue administration and financial stability. Although risks to the program are slowly receding, they remain high. Without stronger economic activity, social support for the demanding reform program may falter. External financial flows could be affected by exogenous shocks, notably higher U.S. interest rates or changes in PetroCaribe flows. Continued weakness in budget revenue could jeopardize the sustainability of the fiscal consolidation over a longer horizon. Vulnerabilities in the financial system are temporarily elevated due to the securities dealers sector transitioning to a new business model and the domestic government bond market remaining frozen.