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Ministry of Finance and the Public Service Fiscal Policy Paper 2021 Part 1 | Page 111

Rationalisation of Public Bodies The GOJ continues the Public Bodies’ Rationalisation programme aimed at reducing the number of public bodies. The consolidation of public bodies, which may take the form of mergers, closures, divestment or reintegration, is expected to reduce risks to the Central Government budget through, inter alia, curtailing losses, reducing operational costs and minimizing overlapping functions. As at September 2020, the programme resulted in savings for the Government in excess of $1,000.0 million. Public Private Partnerships7 PPPs are often a preferred means of executing major investment projects, as the Government partners with a private entity which takes on a portion of the project cost and risk. Nonetheless, if PPPs are not appropriately designed and monitored, the GOJ might face unplanned costs. This concern has been addressed by the enhanced fiscal rules which were adopted under the Financial Administration and Audit (FAA) Act, and the PBMA Act in 2014. The Development Bank of Jamaica (DBJ) and the PPP Unit within the MOFPS are charged with ensuring that PPP transactions are consistent with the criteria established in the PPP Policy. PPPs are assessed on project viability, value for money, marketability and fiscal responsibility to ensure that project operations will not undermine the GOJ’s fiscal position. Transactions are also subject to sensitivity analysis to test the Government’s capacity to absorb worst case scenario losses, without derailing the fiscal programme. In the event that either party desires adjustments to a PPP contract, the transaction may enter a renegotiation stage in the absence of competitive pressure. This could result in private parties seeking to improve their positions in a way that worsens the Government’s position. To treat with this, the GOJ: limits renegotiations to cases in which there will likely be improved value for money, consults specialised advisors, and establishes competent and experienced teams to lead the process of renegotiation. PPPs in Progress The following PPP transactions are currently in progress:

Rio Cobre Water Treatment Plant

7 A public private partnership is a long-term procurement contract between the public and private sectors, in which the proficiency of each party is focused in the designing, financing, building and operating of an infrastructure project or providing a service, through the appropriate sharing of resources, risks and rewards (GOJ Policy and Institutional Framework for the Implementation of PPPs, 2012).

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The PIMS is also bolstered by other legislations and policy which existed prior to the 2014/15 FAA and PBMA Acts being amended. These also form part of the policy and legislative framework for the PIMS. The Ministry of Finance also undertook a review of the 5-year Public Sector Investment Programme (PSIP), which revealed that there were public sector projects being implemented which had inherent deficiencies and weaknesses which occupied fiscal space and was being resourced through provision in the PSIP and national budget. This brought into question the effectiveness and the due diligence with which prospective projects were being screened prior to entry into the PSIP. Some of the weaknesses identified included:

i. Poor project design & planning; ii. Weak institutional capacity to properly assess the long run feasibility and

sustainability of these projects; iii. Policy mismatch with project goals and objectives and national priorities; iv. Readiness/lack of preparedness of executing bodies to implement

projects. In response to these identified weaknesses, the Government of Jamaica in revising the FAA Act in 2014, also enshrined in law a body, the Public Investment Management Committee (PIMC), charged with the responsibility for the screening and appraisals of all public investment projects from specified public sector (SPS) entities which must be ratified through this body, for approval by Cabinet prior to entry in the PSIP. This led to the creation, under statute, of the Public Investment Management Secretariat (PIMSEC) to be the secretariat of PIMC to undertake the screening and appraisal of public investments and to provide advice to PIMC. PIMSEC became operational in 2015 under the Strategic Public Sector Transformation Project (SPSTP). 2.0. Introduction: 2.1. Strategic Public Sector Transformation Project: The Government of Jamaica (GOJ) received loan financing from the International Bank for Reconstruction and Development (IBRD) towards the cost of the Strategic Public- Sector Transformation Project (SPSTP). The Project Development Objective (PDO) is to strengthen public resource management and support selected public sector institutions in facilitating a more enabling environment for private sector growth. The project is being executed through six (6) Components divided into 2 thematic areas.

The first thematic area seeks to reinforce fiscal discipline and revenue enhancement through four main components: (a) Strengthening the Public Investment Management System (PIMS); (b) Strengthening the Budget Preparation Process and Results Based Budgeting (c) Adaptive Public-Sector Approaches to Promote Fiscal Sustainability and Project Management; (d) Modernizing of the Accountant General’s Department. The second thematic area seeks to support those institutions that sit at the interface

between the public and private sectors: Bureau of Standards of Jamaica (BSJ) through

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1.0. BACKGROUND:

The Government has committed to strengthen Jamaica’s public investment management system, as part of a comprehensive public financial management (PFM reform) agenda. This reform has seen the incorporation of public investment management as part of an enhanced fiscal governance framework that seeks to increase fiscal surpluses over time and concurrently reduce the debt to gross domestic product (GDP) ratio so that public resources can be allocated to public investment and other activities that have the potential to contribute to growth in the economy. Cabinet Decision #38/13 of October 2013 gave approval for the institutionalization of the Public Investment Management System (PIMS) and, in doing so, standardized the treatment of public investment with respect to the entire project cycle. Public investment projects, have significant budgetary impact requiring fiscal prudence and are formally defined as investments that require planning, execution, monitoring and evaluation carried out as an integrated set of activities aimed at meeting a development objective, at a specific cost and within a defined timeframe (Section 48A, FAA Act Amendments 2014). The Financial Administration and Audit Act (FAA Act) (Amended), 20141 sets out the elements of the strengthened Public Investment Management System (PIMS) which will seek to create a common framework for the preparation, appraisal, approval and management of all public investments in Jamaica, irrespective of the source of funding or procurement and implementation modalities. A key element of the system is the Public Sector Investment Programme (PSIP); a rolling 5-year plan of Cabinet approved public investment projects. Since these amendments, additional legislative and regulatory work has been done to further refine the PIMS and, by extension will have a bearing on the PSIP. In February 2015, additional amendments to both the FAA Act and the PBMA Act provided for exceptions to the definition of public investment. The exception limits public investment to those undertaken by entities within the Specified Public Sector. The Specified Public Sector is defined as the public sector minus those entities that will be certified as commercial by the Auditor General and are therefore outside of the fiscal rules, as at April 1, 2017. It is anticipated that only a few entities will qualify and the Specified Public Sector will encompass much more than 90% of the public sector. The ambits of the PIMS and PSIP, therefore, is quite extensive in scope.

1 Gazette 31st day of March 2014, enacted April 1, 2014

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IMF International Monetary Fund

IMF/PBSA International Monetary Fund Precautionary Standby Arrangement

IR Investor Relations

IRP Investor Relations Plan

JMD Jamaica Dollar

JSE Jamaica Stock Exchange

JamClear CSD JamClear Central Securities Depository

LIBOR London Inter-Bank Offered Rate

LMO Liability Management Operation

MTDS Medium-Term Debt Management Strategy

NDX National Debt Exchange

NIR Net International Reserves

PD Primary Dealers

PBMA Act Public Bodies Management and Accountability Act

PED Public Enterprises Division

PDMA Public Debt Management Act

REPO Repurchase Agreement

SPS Specified Public Sector

T-bills Treasury Bills

USD United States Dollar

WATBY Weighted Average Treasury Bill Yield

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GDP Gross Domestic Product

GGL Government Guaranteed Loan

GOJ Government of Jamaica

ICM International Capital Market

IDB Inter-American Development Bank

IMF International Monetary Fund

IR Investor Relations

IRP Investor Relations Plan

JAMAN Jamaica’s Global Bonds

JAMCLEAR-CSD Central Securities Depository

JMD Jamaica Dollar

JSDA Jamaica Securities Dealer Association

JSE Jamaica Stock Exchange

LIBOR London Inter-Bank Offered Rate

MTDS Medium-Term Debt Management Strategy

NIR Net International Reserves

PBMA Act Public Bodies Management and Accountability Act

PD Primary Dealer

PDMA Public Debt Management Act

PSBA Precautionary Standby Arrangement

USD United States Dollar

VaR Value at Risk

VR Variable-Rate

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