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Jamaica strengthens its fiscal sustainability with IDB support

An $80 million loan will improve the effectiveness and efficiency of the country’s tax system 

The Government of Jamaica will strengthen its fiscal sustainability path and promote higher economic growth with an $80 million loan from the Inter-American Development Bank (IDB).

Jamaica faces a significant challenge in terms of achieving economic growth and fiscal sustainability. It is important to modernize a tax system that is complex, discretionary and outdated. A more effective tax administration will improve the efficiency and transparency of Jamaica’s public sector institutions. 

This is the first operation of a policy-based loan (PBL), which provides flexible support for institutional and policy reforms by means of a fast disbursement of resources. The program’s goal will be achieved by reducing tax distortions, which hinder private investment, employment and competitiveness; strengthening revenue collection through broadening tax bases and reducing tax rates; enhancing the Government’s control over budgetary expenditures; improving the fiscal sustainability of the National Insurance Scheme (NIS); and strengthening Jamaica’s Fiscal Responsibility Framework (FRF). 

The operation will include the simplification of the tariff structure by reducing tariff dispersion, increase tax revenues by establishing a cap of 50 percent on claims for deduction of tax losses, and reduce economic distortions and promote economic growth by lowering the corporate income tax rate from 30 percent to 25 percent for unregulated companies. 

The Government of Jamaica will improve its efficiency and lower its wage bill as a percentage of its gross domestic product, thereby allowing greater investment in activities that promote economic growth. These tax reforms will reduce the fiscal drain and contingent liabilities by rationalizing their structure and improve accounting practices. 

This first loan will also support the preparation of a concept paper that will address options for possible reforms of the National Insurance Scheme, including its contribution rate, pension benefits and coverage indicators with the goal of reducing the program’s deficit from 6 percent to 4 percent by 2018. 

The IDB loan has a 20-year maturity, a 5.5-year grace period and an interest rate based on LIBOR.

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