Kingston, Jamaica – October 4, 2019: The EPOC met on September 27, 2019 and reviewed the latest available results for the period ending June 2019.
The sixth and final review mission by the International Monetary Fund (IMF) under the current precautionary Stand-By Arrangement (SBA) was conducted over the period September 9–19, 2019. Based on the preliminary results for performance through the end of June 2019, the Government of Jamaica (GOJ) has met the targets for the quantitative performance criteria (QPCs) and indicative targets (ITs) for the IMF SBA as at end-June 2019.
The sixth review will be completed at the meeting of the IMF Executive Board tentatively scheduled for November 2019, and marks the successful conclusion of the SBA. The SBA will expire on November 8, 2019.
The GOJ has also met all twenty-two (22) structural benchmarks (SBs) for the November 2016 to September 2019 period, including eight (8) macro-fiscal SBs, and fourteen (14) SBs for public sector transformation, public bodies and public service reform. It should be noted that there is only one (1) structural benchmark currently remaining under the SBA, namely the capping of the total stock of domestic arrears of seven public bodies at J$6.4 billion during the programme period, which is being met on a monthly basis to date by GOJ.
PROGRAMME REVIEW THROUGH JULY 2019
SELECTED FISCAL INDICATORS
Fiscal and Primary Surpluses exceed April – July 2019 Target
Revenue & Grants of $202.1B for the first four months of the fiscal year (April-July) exceeded the budgeted amount of $198.1B (+2.0%).
Tax collections of $179.8B outperformed budget (+$3.8B).
Expenditure for the first four months of the fiscal year (April-July) was $5.1B below budget (-2.5%). Of this amount Capital Expenditure was $15.6B which was $4.2B below budget (-21.4%).
The slower than programmed implementation of some capital projects, most notably the South Coast Highway Improvement Project, was responsible for the below target performance.
The fiscal balance for the period April – July 2019 showed a surplus of $7.3B which was $9.0B above the deficit of $1.7B that was budgeted.
PRIMARY BALANCE EXCEEDS BUDGET TARGET BY $5.6B
As a result of the Revenue and Grants performance for the first four months of the fiscal year, the Primary Balance of $49.3B exceeded the $43.7B budget target for April-July 2019.
As at September 26, 2019, Jamaica’s Net International Reserves stood at US$3,080.7 million.
Non-borrowed reserves (NBR) are projected to close end September 2019 at US$2,763.3m, which is US$576.1 million above the target of US$2,187.2m.
The 12-month point-to-point inflation rate at August 2019 was 4.1 per cent, within Bank of Jamaica’s (BOJ’s) target range of 4.0 per cent to 6.0 per cent.
Lending to the Productive Sector
Lending to the productive sector by Deposit Taking Institutions (DTIs) reflected annual growth of 16.5% at June 2019 relative to 15.8% at June 2018.
Foreign Exchange Market
On September 30, 2019, the value of the Jamaican Dollar vis-à-vis the US dollar was J$135.16 = US$1.00.
On an annual basis, the Jamaica Dollar at 30 September 2019 depreciated OF 0.3%.
EPOC’S OVERVIEW AND RECENT DEVELOPMENTS
STATIN recorded growth of 1.3% for April through June 2019. The economy outperformed the PIOJ projection of 1% for the quarter. This was impacted by a downturn in Agriculture, Forestry and Fishing of -1.7% which was offset by growth of 4.6% in Mining and Quarrying and 5.8% growth in the Hotels and Restaurants Industry.
Interim Fiscal Policy Paper
An Interim Fiscal Policy Paper was released to the public on September 24, 2019. Of note was the reduction in the GDP Growth target from 1.5% to 0.7% due to the announced closure of the Alpart alumina plant for 18-24 months to facilitate upgrading of the plant facilities. However, the GOJ is committed to accelerating the growth in real GDP to 2% in the medium term.
First Supplementary Budget
The First Supplementary estimates for 2019/20 were tabled in September 2019, which take into account the fiscal performance to date, including higher debt service costs arising from a debt management transaction. The supplementary estimates include:
- Recurrent additional expenditures of $9.9b
- The additional expenditure of $9.9b was primarily for housekeeping matters.
- Amortization which is related to the debt management operation increases by $40.2b.
- This debt management operation actually reduces the debt stock by US$34.2 million and reduces future annual interest cost by US$18.2m. The MOFPS should be congratulated on this operation.
BOJ holds policy rate
On September 30, 2019, the BOJ announced its decision to hold the policy rate at 0.5%. The BOJ’s Monetary Policy stance continues to be accommodative.
Tax Revenues continue to outperform targets and are up by 6.8% or $11.4b year to date over the same period last year, despite the Tax give backs in the removal of distortionary taxes and reduction of ad valorem taxes of $14b in the Budget presented for 2019/20.
EPOC notes the positive trajectory in the growth in credit to the Productive Sector which is a good leading indicator. However, for growth levels to accelerate, greater levels of borrowing are required.
The MSME Sector which represents greater than 50% of GDP and 70-80% but only receives 10.7% (December 2018) of credit from the Banking Sector is fertile ground for inclusive growth. There is significant effort being made by the Private Sector, the Bank of Jamaica and the Government of Jamaica in addressing the access to finance issues which have plagued the sector.
The BOJ projects that inflation will average 4.3 per cent over the next eight quarters before gradually approaching the Bank’s 5.0 per cent target in the medium term.
EPOC Post IMF
As the current three-year Precautionary Stand-By Arrangement (PSBA) with the IMF comes to an end in November 2019, EPOC is happy to continue to serve at the pleasure of the Minister of Finance, the Hon. Dr. Nigel Clarke for one (1) year in the first instance, under a new Memorandum of Understanding. This extended period of service will be aligned with completion of the Institutional strengthening of the Fiscal Council and completion of activities related to the Central Bank achieving Independent status.
Fiscal Council and Central Bank Independence
It is anticipated that legislation and regulations establishing the Fiscal Council and an Independent Central Bank will be completed within the next fiscal year.
Jamaica’s macroeconomic indicators remain strong. However, growth levels continue to hover below 2% and growth projections for the current fiscal year have been lowered to 0.7%. This is occurring within the context of ongoing trade tensions globally, and the fear of a further slowdown in global growth especially amongst Jamaica’s main trading partners.
Jamaica has to remain resolute and continue the economic reforms which have worked well for macroeconomic stability, and continue to drive towards the GOJ’s medium term growth target of 2%. Jamaica needs all hands on deck.
EPOC CONGRATULATES JAMAICA! BIG UP!
As this IMF programme closes out, EPOC would like to acknowledge the achievement of both political administrations in demonstrating the strong political will to successfully execute the Economic Reform programme over the past almost 7 years.
While we still have great challenges ahead, EPOC acknowledges and celebrates the ownership, patience and sacrifice shown by all Jamaicans in ensuring that Jamaica is in a better place today.
We are positive that Jamaica can achieve its true potential, as we embark on this new phase of our journey to true economic independence, which should see real inclusive and equitable growth for all Jamaicans.