EPOC Press Statement – Quarterly Media Briefing

Kingston, Jamaica – 26 February 2019

The Economic Programme Oversight Committee (EPOC) met on February 15, 2019 and reviewed the latest available results for the period ending December 2018.

The fifth formal review mission by the IMF under the
current Precautionary Standby Arrangement (PSBA) is scheduled for the period
February 25 – March 8, 2019. This review mission assesses the performance of
the Government of Jamaica (GOJ) in meeting the targets for the end-December
2018 period, and to discuss the performance to date in meeting the structural
benchmarks and commitments under the programme.

Based on the preliminary results for performance to date
through the end of December 2018, the GOJ is on track to meet the targets for
the Quantitative Performance Criteria and indicative targets for the IMF PSBA,
with the exception of the inflation target which triggers a staff consultation
clause whereby the BOJ will consult with IMF Staff on the outlook for inflation
and the proposed policy response.

For the review period April to December 2018, the Fiscal
Performance continued its positive trend.

Revenues Outperform Budget

Revenue & Grants of $448.8b for the first nine months
of the fiscal year (April-December) exceeded the budgeted amount of $437.3b
(+2.6%). Tax Revenues of $388.7b outperformed IMF PSBA target of $360b and GOJ
1st Supplementary budget target of $378.1b.

Tax Revenues year over year increased by $35.6b (10.1%)
from $353.1b for the period April through December 2017 to $388.7b for the
comparable period in 2018.

behind Budget by $11.6b

Expenditure for the first nine months of the fiscal year
(April-December) was $11.6b below budget (-2.6%). Of this amount, Recurrent
Expenditure was $11.0b below budget (-2.8%), while Capital Expenditure was
$0.6b below budget (-1.3%).

Expenditure up 46.6% year over year

Capital Expenditure year over year increased by $14.4b from
$31.0b for April through December 2017, to $45.4b for the comparable period in
2018.This represents a 46.6% increase year over year.


As a result of the Revenue and Grants performance and the
under-expenditure for the first nine months of the fiscal year, the Primary
Balance of $107.7b exceeded the $68.0b IMF PSBA programme target and the GOJ’s
$89.0b 1st Supplementary Budget target for April-December 2018.


Non-Borrowed Reserves as at the end of December 2018 stood
at US$2,522m, significantly exceeding the IMF PBSA Programme Target of US$2.2b,
while Net International Reserves stood at US$3,005m.

dips to 2.4% in December 2018; triggers IMF Staff consultation clause

The 12-month point-to-point inflation rate at December 2018
was 2.4%, below Bank of Jamaica’s target of 4.0% to 6.0% and lower than the
same measure at December 2017 (5.2%).

In line with the Governance Process, Bank of Jamaica (BOJ)
will send a report to the Minister of Finance and the Public Service within 60
days on why the target was missed in December and proposed remedial actions, as
deemed necessary.

Exchange Market

On 25 February 2019, the value of the Jamaican Dollar
vis-à-vis the US dollar was J$131.02= US$1.00, reflecting an appreciation of
1.90% ($2.54) for the Month to Date. This follows depreciation of 6.56% ($8.38)
for January 2019.

The appreciation in the value of the Jamaica Dollar for the
review period was influenced by: (1) the BOJ injecting liquidity of US$80m
through its B-FXITT flash operations as well as (2) low demand for US dollars
as end users anticipate lower rates.

The BOJ continues to use the transparent B-FXITT mechanism
to sell or buy USD when the market reflects a projected shortage or surplus
respectively. FX interventions are intended to address excess volatility and
disorderly market conditions.

estimated growth of 1.7% for October to December 2018

The PIOJ estimated a 4.2% increase in in the Goods
Producing industry and a 0.8% outturn in the Services sector. Mining and
Quarrying was estimated to have grown by 22.9%, Construction estimated at 3.5%
and Agriculture and Fishing estimated at 2.6%.

levels continue to increase

As reported by STATIN, the unemployment rate for October
2018 was 8.7%, a 1.8 percentage point decline compared to the rate of 10.5% for
October 2017. The employed Labour force was 1,219,700 which was 14,400 higher
than in October 2017.

BOJ reports that Private Sector Credit through Deposit
Taking Institutions (DTIs) Increases Year over Year.

Lending to the Private Sector by Deposit Taking
Institutions (DTIs) grew by 14.6% at November 2018; an acceleration relative to
the growth of 12.7% at November 2017. Lending to the productive sector by DTIs
reflected annual growth of 17.7% at November 2018 relative to 8.4% for the
corresponding period of 2017.

continues decline to 2.3% for January 2019

The CPI declined by 0.2% in January 2019. The point to
point inflation was 2.3% which continues to be below the IMF Precautionary
Standby Arrangement (PSBA) inner band of 3.5% and the BOJ’s target of 4-6%.

responds to missed inflation target by lowering policy Interest rates to 1.5%

On February 20, 2019 the Bank of Jamaica announced its
decision to lower its signal interest rate by 25 basis points to 1.50%. This
decision was driven by the continued out-turn of inflation below the BOJ target
of 4-6% and its forecast that inflation over the medium term in the context of
low core inflation “will fall below the target at various points”.

The BOJ’s decision to lower interest rates “is aimed at
increasing the rate of expansion in private sector credit and is not aimed at
influencing the exchange rate.”

reduces Cash Reserve Requirement for Deposit Taking Institutions (DTIs)-March
1, 2019

The Cash Reserve Ratio for DTIs is to be reduced effective
March 1, 2019 from 12% to 9%. This reduction will release $16.8b to the DTIs,
which the BOJ states “will improve their ability to provide more credit to
households and businesses at lower rates and on better terms.”

Bank of Jamaica committed to further reductions in the cash reserve ratio over
the year

EPOC continues to be supportive of the BOJ’s accommodative
stance as it uses its monetary policy tools to stimulate private credit,
through lower interest rates and lower cash reserve ratios which should lead to
increased domestic demand and strengthening of the Jamaican Economy.

Trading Platform to strengthen Market Infrastructure and Price Transparency

The Minister of Finance, Dr. Nigel Clarke, reiterated a GOJ
commitment under the IMF PBSA Programme for the implementation of a FX Trading
Platform by the end of 2019. This FX Platform will be integrated with the
existing payments and settlements systems and regulations will be issued by
September 2019.

EPOC is of the view that this will lead to greater
transparency and price discovery which could result in reduced volatility and
trading margins which would be a major positive for market participants.

upward Trajectory in Tax Revenues, Growth projections below 2% for 2019/20

The selected highlights of Fiscal Policy Paper of Budget
Estimates for FY2019/20 Issued February 14, 2019 are as follows:

Revenues are projected to increase by 7% from $537b in 2018/19 to $576b in
Expenditures will see a marginal increase from a projected $68.8b for 2018/19
to $72.1b in 2019/20The
Primary Balance which is projected to close Fiscal Year 2018/19 at $142.1b is
estimated to close the Fiscal Year 2019/20 at $150.9b

to GDP ratio is projected to fall to 96.4% at the end of the Fiscal Year
2018/19 and is projected to fall to 90.9% at the end of Fiscal Year 2019/20Net
International Reserves (NIR) is projected to close Fiscal Year 2018/19 at
US$2.914b and is estimated to increase to US$3.045b at the end of 2019/20The
inflation for 2019/20 is projected at 4.3%.GDP
growth is projected to be 1.8% for Fiscal Year 2018/19 but is projected to fall
to 1.5% in 2019/20.

Mining and Quarrying is projected to grow by 2% in 2019/20,
which is significantly down from the projected 27% growth for 2018/19 for this

This baseline forecast for GDP growth for 2019/20 is
impacted negatively by the assumption that production is likely to be disrupted
at the Alpart Plant for a total of 3 months due to the installation of various
pieces of equipment.

Despite the missed inflation target and growth level persisting below the 2% growth levels, the economy despite its continued challenges seems poised for growth in the medium term.

EPOC is of the view that the Economic Programme remains on

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The Economic Programme Oversight Committee’s (EPOC) role in monitoring Jamaica’s economic reform programme will continue beyond the end of the Precautionary Stand-By Arrangement (PSBA) with the International Monetary Fund (IMF) in November 2019.
This was announced by Hon Dr Nigel Clarke, Minister of Finance and the Public Service at a press conference on 22nd August. 
He noted that the Committee will have a broader base to include Civil Society members, who this morning signed a Memorandum of Understanding with the Ministry of Finance and the Bank of Jamaica for the extension of its monitoring role.  
The Minister has appointed the current Co-Chair of EPOC, Keith Duncan, to be Chairman of the expanded Committee.
The Civil Society parties that were signatory to the agreement were:  Jamaica Confederation of Trade Unions, Private Sector Organisation of Jamaica, MSME Alliance, and Main Domestic Creditors comprising JMMB, Sagicor Jamaica, NCB and BNS.
Dr Clarke stated, “Today we are empowering EPOC to continue in its monitoring role until (the Government’s) policy commitments are operationalized.”
He referred to the agreement made with the IMF to maintain its office in Jamaica for another two years after the end of the PSBA, and stated: “These decisions are a demonstration of our commitment to maintaining a credible and sustainable macro-economic path, including a fiscal trajectory that is consistent with our fiscal responsibility law, long into the future that provides the foundation of economic opportunity for the current and future generations.”
Chairman Keith Duncan stated:  “We believe that it is extremely important that civil society has a voice in Jamaica’s economic programme; that we are plugged in, that we understand where we are in this programme, what our targets are, where we are going as a country as we move towards economic independence.”
He continued, “We’ve already seen the fruits of fiscal responsibility in relation to our ability to invest in capital expenditure, in infrastructure and this year, in national security apparatus.”
As Jamaica moves towards significantly reducing its debt by 2025/26, Duncan noted: “We can only imagine the kind of resources that would be freed up for wider Jamaica, for the investment in our people.” 

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Most recent results The EPOC met on June 28, 2019 and reviewed the latest available results for the period ending April 2019. 
Based on the preliminary results for performance to date through the end of April 2019, Jamaica is on track to meet the targets for the quantitative performance criteria and the indicative targets for the IMF SBA for end-June 2019.


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BOJ holds policy rate as inflation returns to centre of target

The Bank of Jamaica (BOJ) has taken the decision to hold the policy interest rate unchanged at 0.75 per cent per annum, effective June 28, 2019.
The policy interest rate is offered on overnight balances with the central bank.
According to the BOJ, its decision to hold the rate unchanged is based on its current assessment that monetary conditions are appropriate to support the achievement of the inflation target of 4.0 per cent to 6.0 per cent over the medium term.
When the BOJ last lowered the policy interest rate in May by 50 basis points to 0.75 per cent, it said then that the decision was two-fold. It was aimed at stimulating a faster expansion in private sector credit which should lead to higher economic activity, consistent with the bank’s inflation target.
And, it was also done with a view to getting inflation to return quickly to the centre of the BOJ’s target.
At the time, the BOJ said its decision reflected its assessment that, while inflation is expected to increase to an average 4.5 per cent over the next eight quarters, there will be months when inflation will fall below the lower limit of the bank’s target of 4.0 per cent to 6.0 per cent in the context of low underlying inflation.
In its latest statement on Friday, the BOJ said annual inflation as at  May 2019 reported by the Statistical Institute of Jamaica was 4.8 per cent, up from 3.9 per cent as at April 2019 and 3.1 per cent at May 2018.
“The May 2019 outturn is in line with Bank of Jamaica’s previous assessment and represents a return to the centre of the target following five consecutive months of annual inflation being below the target,” the central bank said.
However, it cautioned that while annual inflation has been rising, underlying inflation remains low.
Its current forecast is that, after falling towards the bottom of the target by the September 2019 quarter, inflation would rise towards the mid-point of the target by the March 2020 quarter as (i) domestic agriculture prices increase and (ii) domestic economic activity increases in response to the lowering of the policy rate over the last eight quarters.
“Inflation would then decline towards the bottom of the target in the period after the March 2020 quarter and only return to the mid-point slowly over the ensuing three years,” the BOJ said.
It explained that its policy action in May 2019 was aimed at mitigating the material risk that inflation would fall below the target during 2020.
The bank’s current assessment is that the risks to the May 2019 inflation forecast remain balanced.
It said that at 17.9 per cent, credit from banks, merchant banks and building societies to the private sector grew faster than projected in the 12 months to May 2019 and is likely to continue to grow faster than was previously expected, driven by past monetary accommodation.
This, it said represents an upside risk to economic activity and inflation (i.e, higher GDP growth and higher inflation) in the future. On the downside, an intensification of tensions in global trading arrangements points to a slowdown in world growth, which could result in lower oil prices and weaker domestic demand over the next eight quarters.
Read original article: LoopJamaica.com

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