Jamaica’s gross reserves swelled to US$4.8 billion earlier this week, as the US$520 million that was promised by the International Monetary Fund (IMF) has been disbursed.
The funds Jamaica received are part of the US$650 billion which IMF member nations approved on August 2 as part of efforts to give the global economy “a shot in the arm” in dealing with the novel coronavirus pandemic. The Bank of Jamaica (BOJ) has explained that the increased allocation is not a loan from the IMF and will therefore not increase the country’s debt stock.
Kristalina Georgieva, managing director of the IMF, said the financing will go to “supplemening countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt. Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis”.
Jamaica’s finance minister, Dr Nigel Clarke, welcomed the new inflow of funds but added that “a strong gross foreign exchange reserve position does not represent a panacea nor is it a solution to all of our challenges.” However, he was quick to point out in a series of tweets that “without a strong foreign exchange reserve position our problems — at the level of the country & individual — would be ‘ten times worse’ and Jamaica, as a country, would step way backwards on our journey to economic independence.” The current level of gross reserves is a record for Jamaica.
Clarke also highlighted that “the instability that would be caused by a weak gross foreign exchange position at this time would be extremely disruptive to life. Inflation would end up being much higher. Investments would plummet. Jobs losses would be much higher. Furthermore economic recovery would be a far more distant prospect. We have been that way many times before.”
For its part, the IMF has not indicated what countries should do with the funds. It said “the decision on how best to use them rests with our member countries”, adding that “for the maximum benefit of member countries and the global economy, those decisions should be prudent and well-informed.”
Jamaica has so far indicated that the funds will be held in reserve. Clarke indicated that with Jamaica being a very open economy and trade representing 80 per cent of gross domestic product (GDP), the “strong foreign exchange reserve position is essential to stability and to guaranteeing the supply of goods from overseas on which we critically depend. This is especially true in times of severe disruption such as what the Jamaica and the world has been experiencing with COVID-19.”
He reminded the nation that a strong gross foreign exchange reserve position signals to foreign suppliers that they can safely extend trade credit to domestic importers and signals to foreign investors and those contemplating investment in Jamaica that their investments are likely to yield positive returns. It also “helps to keep the [Government’s] cost of borrowing from overseas low by reducing the riskiness of the Jamaican economy.”