JSE CAPITAL MARKETS CONFERENCE 2014 - IMF official assures dealers that market conditions will get better
Published:Friday | January 24, 2014 | 12:00 AM
Avia Collinder, Business Reporter
Dr Bert Van Selm, IMF resident representative in Jamaica, says some of the glitches which have arisen, including reduced liquidity within the financial sector should be addressed as the economic reform programme continues, leading over time to the availability of more funds for lending to the private sector.
The financial sector is now experiencing very tight conditions, Van Selm acknowledged in a presentation at the Jamaica Stock Exchanges Ninth Regional Conference on Investments and the Capital Markets held in Kingston this week.
The Central Treasury Management System is very good and means that the government has one account held at the central bank. The amount of funds that the government needs to hold is less. (However) The transition toward that has an impact on the domestic financial sector, meaning that there is much less liquidly floating around. Thats something we have seen.
The Central Treasury Management System was implemented to more effectively manage: cash and Government's bank accounts; financial assets; financial planning and forecasting of cash flows; public debt management; administration of foreign grants and counterpart funds from international lending and donor agencies.
Currently 30 government agencies have had their accounts consolidated, with funds redirected from private financial institutions.
Van Selm stated that another consequence of the economic programme is a reduction in secondary market trading in government securities.
The secondary market has been quite inactive over the year, which also impacts liquidity. For many financial institutions it is an important asset on the books and has some impact on their lending decisions. We hopes the reform programme continues, and as we continue to do reviews, these issues will be addressed and free up resources for lending to the private sector, the IMF official said.
What we hope to see is because the financing need of the government is reduced and there is no new net borrowing that can also mean that in principle there is financing available for others. The financing sector should be looking to channel those funds to productive investments, he adds.
As for the performance of the reform programme, said having completed two reviews, so far everything is moving along on track, both the structural and macro-economic agenda, said Van Selm.
We had an excellent 2013 but at the same time there is a very long way to go to rebuild the economy.The next big item on the agenda is legislation of the fiscal rule, which aims to entrench fiscal consolidation and set targets for debt ratios.
This is used in the EU where I am from, said the IMF official, who is Dutch.
The rule targets a level of debt which allows you to avoid spending all you have on debt servicing. Coming form 138 per cent which is the current level for Jamaica to 60 per cent will take a long time. But, the idea is to set such a target, he told the conference.Jamaica is now debating just how flexible the laws surrounding the fiscal rule should be. Van
Selm said the legislation should include an escape clause in case a natural disaster hits, but also actions to be taken subsequently to ensure the economy does not derail.
Put this into legislation to make sure that despite the party in power, things will remain on track, he said.