In its recently released Executive Board Review, the Fund highlighted that strong programme implementation continues to anchor macroeconomic stability.
“All quantitative performance criteria and structural benchmarks for end-December 2017 were met. Fiscal consolidation is ongoing; primary surplus is expected to be at least seven per cent of gross domestic product (GDP) in financial year (FY) 17/18 and a similar target is set in the FY18/19 Budget. Public debt is projected to be under 100 per cent of GDP by end-March 2019,” the report said.
The multilateral agency noted further that the unemployment rate is at a 10-year low, inflation and the current account are modest, international reserves are at a comfortable level, and external borrowing costs are at historical lows.
The Executive Board Review said that inflation remains anchored. It said that higher food prices resulting from flooding have begun to unwind, and Consumer Price Index (CPI) inflation has remained low (2.7 per cent in February 2018), in part due to weak domestic demand.
In addition, the current account deficit remains relatively low (at 2.8 per cent of GDP in FY17/18) and it is expected to shrink over the medium-term as oil prices remain contained and tourism earnings improve.
The Executive Board, in its review, pointed to the need to boost growth, which was estimated at 0.5 per cent in 2017, with the growth forecast revised down to 0.9 per cent in fiscal year 2017/2018.
It was noted that weakness in agriculture, slow recovery in mining, and a deceleration in manufacturing had offset growth in tourism and construction.
The Fund stated that formalising the current inflation targeting regime will help entrench macroeconomic stability and promote growth.
“With inflation likely to remain in the lower part of the Central Bank’s target range, a looser monetary stance remains appropriate. Upcoming revisions to the BOJ Act – including a clear mandate for price stability, a reformed governance structure, and a strong Central Bank balance sheet – will help institutionalise the inflation targeting framework,” the IMF said.
The Fund further noted that structurally reducing the wage bill is critical for the Government to reprioritise spending towards growth-enhancing projects.
It said that more expenditure is needed for infrastructure, citizen security, building agricultural resilience, health, education, and the social safety net.
The Fund contended that creating the space for such spending will require going beyond temporary remedies like wage freezes and adjustments to non-wage benefits.
The entity noted, further, that building the resilience of agriculture to weather-related events, and investing in school attendance and youth training programmes will improve growth and social outcomes.
It added that continued reform implementation will not only safeguard hard-won gains but also deliver stronger growth and job creation.
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