One of the interesting aspects of the public discussions about the process involved in reaching an agreement with the International Monetary Fund (IMF) for a US$1.2 billion two-year standby agreement, is that there seems to be an implicit assumption on the part of some commentators that when the agreement is signed and the IMF releases the funds to Jamaica, then the monies will be available for use as government budgetary support.

Nothing could be further from the truth.

While there have been some suggestions that the IMF might consider varying its current mandate to allow the fund to lend directly for government budgetary support purposes, no moves have yet been made in this direction.

Budgetary support

As a result, it is to the other multilaterals, the Inter-American Deve-lopment Bank (IDB), the World Bank and the Caribbean Develop-ment Bank (CDB), to a lesser extent, as well as the European Union, that the government will have to turn to for budgetary support.

However, as things currently stand, the other multilaterals are awaiting the approval of the IMF facility, and the presentation of the government's medium-term socio-economic framework (MTEF).

The European Union has already indicated that it is sticking to the commitments given to the Government of Jamaica (GOJ) for the current financial year.

Similarly, the World Bank and the CDB have indicated that they could provide around US$100 million and US$30 million respectively, during this fiscal year.

Therefore, the bulk of the funds that the Government has been expecting to access during the rest of fiscal year 2009-2010 and through the next few years will be from the IDB.

The IDB is the leading lender to the GOJ among the multilaterals. Earlier this year, indications were that Jamaica could possibly receive funds from the IDB in excess of US$600 million, including an emergency loan up to a maximum of US$500 million, and budgetary support in the region of US$170 million.

However, checks by the Fin-ancial Gleaner suggest those are basically on hold, with the IDB awaiting the signing of the standby agreement with the IMF.

Then, based on this agreement and the details of the MTEF, the IDB would fine-tune its new Jamaican Country Strategy — which would have to be consistent with the country's MTEF — as well as prepare its funding submissions to its executive board for approval.

The current IDB Country Strategy was prepared by the IDB in August 2006 and covers the period 2006-2009. And, as at March 2009, outstanding loans with the IDB stood at around J$56 billion, denominated in about 10 currencies.

As the government's protracted negotiations with the IMF continue to drag out into December 2009 and possibly January 2009, the slimmer are the prospects for the Government to access the full range of loans available from the multilaterals before the end of March 2010.

This will have serious implications for the final out-turn of the fiscal deficit at the end of the current financial year.

Coupled with the announcement this week of a downgrade by the ratings agency, Moody's, of Jamaica's local and foreign government bond ratings from B2 to Caa1, this should be a wake up call to the Government and the local private sector.

Running out of room

Moody's has now joined Standard & Poor's in pointing out that-despite the Government's commitment to honouring its debt obligations, it is running out of room to manoeuvre. But, even more devastating is the statement by Moody's Vice-President Alessandra Alecci that "after several months of negotiations with the IMF and various statements indicating progress, there are signs that an agreement with the IMF may not be in reach yet. Such agreement is crucial to maintain confidence, meet this year's government's funding needs and provide foreign currency inflows to sustain the external position."

Alecci continued that "even though an IMF programme would probably give some much-needed breathing room to the fiscal position, the size of the public debt is such that Jamaica is unlikely to restore debt sustainability in the medium-term without some sort of meaningful debt restructuring at some point."

Perhaps now that foreign analysts are making the same points that others of us had bravely made over a year ago, that the country will finally understand the dire straits facing the Jamaican economy.

renee.shirley@yahoo.com