The Implementation Completion Report for the Jamaica Private Sector Development Adjustment Loan (L3622-JM, approved in FY1993) was prepared by the Latin America and Caribbean Regional Office. The Borrower's separate evaluation of the operation is attached as Appendix A. The US$75 million loan was fully disbursed in two tranches and closed in December 1995, a year later than planned.
The loan's objectives were to help the government to restore sustained growth and redirect its resources away from commercial activities and towards the social sectors. These objectives required the achievement of macroeconomic stability and the creation of a business-friendly environment for fostering a competitive private sector. The operation included the following major components and reforms: fiscal adjustment (improvements in revenue efficiency and expenditure allocations to the social sectors and infrastructure); trade reform involving substantial tariff reductions and an overhaul of customs administration; deregulation of key domestic activities including sugar and petroleum; continued privatization and private sector participation in such key sectors as infrastructure (airlines and railways), sugar, banking, and petroleum; and legal, regulatory and institutional reform covering competition policy, the Companies Act, capital market regulations and investment and export procedures.
The main project objectives were substantially achieved. The fiscal balance registered a surplus of 4.7% and 2.3% in FY 1994-95 and FY1995-96 respectively; tariff reforms were largely adopted (import tariffs were reduced from a 0-70% range to 5-25 %) and customs procedures streamlined; the sugar and petroleum sectors were deregulated; the operation's privatization objectives were met; and the legal, regulatory and institutional reforms were substantially achieved. The government sought and obtained two waivers on tranche release relating to the elimination of stamp duties on agricultural products (to reflect GATT rulings) and the promulgation of securities regulations (delayed because the need for licensing regulations and fees was identified at a late stage). The impact on the economy has been mixed. While the growth rate remained below 1 percent and the inflation rate rose in 1994 before dipping below 20% in 1995, the current account balance improved from a deficit of 5% of GDP in 1992 to a surplus of about 2% by March 1995; exports increased by 13% and 17% in 1994 and 1995; deregulation introduced competition in the domestic sugar market and transparency into petroleum product pricing; and privatization encouraged sugar production to increase to a five-year peak.
The ICR rates outcome as satisfactory, sustainability as likely and institutional development as substantial. OED agrees with these ratings. Sustainability of the operation's benefits for the private sector remains likely, even though Jamaica is currently beset by a financial sector crisis, a re-emerging fiscal deficit (due to increases in public sector wages and domestic interest payments), and a poor investment climate (induced by a tight monetary regime). OED rates overall Bank performance as satisfactory.
A major lesson is the need for the Bank to assess not merely the borrower's commitment but also its capacity to implement reform. This lesson is emphasized by the Borrower's evaluation, which was critical of the extensive demands the operation made on Jamaica's weak implementation capacity and of certain aspects of loan design and Bank supervision.
The ICR is of satisfactory quality. Since the project was supervised from the Resident Mission, no formal Aide Memoire was addressed to the Government at the final supervision stage. No audit is planned.