Jamaica in a good place to operate on its own — Duncan

Business reporter

Wednesday, February 27, 2019

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CO-CHAIR of the Economic Programme Oversight Committee (EPOC), Keith Duncan, reckons that Jamaica is in a “good place” to operate on its own when the Precautionary Stand-By Arrangement (PSBA) with the International Monetary Fund (IMF) comes to an end in June.

“Our debt levels are down, we have sufficient reserves, tax revenues are buoyant and we will continue to run primary surplus so that our debt to GDP ratio can be reduced as in our fiscal rules to 60 per cent in 2025/2026,” the co-chair told journalists during an update on the three-year PSBA yesterday.

“Can you imagine, when our debt to GDP is down to 60 per cent, the room that the government will have to increase fiscal space to move into the areas of education, health, social transformation, and social intervention into spurring economic growth? Jamaica has been on this track and we are moving in the right direction,” Duncan continued.

His remarks were based on preliminary results on Jamaica's performance for the nine-month period, April to December 2018, which showed that the government 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 fell to 2.3 per cent for January 2019.

“Definitely, we are poised to do this on our own and we are putting in the capacity. The Minister of Finance has indicated through central bank independence, and through setting up the fiscal council – independent bodies to ensure that Jamaica remains on track,” Duncan said.

The fiscal council is expected to be operational by the end of the calendar year while the Bank of Jamaica's independence is currently being reviewed.

The co-chair credited Jamaica's sustainability to both administrations, which he said, has been very disciplined for the past seven years.

For the review period April to December, Jamaica's fiscal performance continued its positive trend.

Revenue and grants of $448.8 billion for the first nine months of the fiscal year exceeded the budgeted amount of $437.3b by 2.6 per cent. Tax revenues of $388.7 billion also outperformed IMF PSBA target of $360 billion and the Government of Jamaica first supplementary budget target of $378.1 billion.

Overall, tax revenues increased year over year by $35.6 billion, 10.1 per cent from $353.1 billion for the period April through December 2017 to $388.7 billion for the comparable period in 2018.

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 $107.7 billion exceeded the $68 billion IMF PSBA programme target and the GOJ's $89 billion first supplementary budget target for April-December 2018.

Non-borrowed reserves as at the end of December 2018 stood at US$2,522 million significantly exceeding the IMF PSBA programme target of US$2.2 billion, while net international reserves stood at US$3,005 million.

Expenditure was, however, 2.6 per cent below budget to total $11.6 billion. Of this amount, recurrent expenditure was $11 billion, 2.8 per cent below budget, while capital expenditure was $0.6 billon, 1.3 per cent below budget.

As for Jamaica's missed inflation target, the Bank of Jamaica has responded by lowering policy interest rates to 1.5 per cent and will, for the first time, reduce the cash reserve requirement for deposit taking institutions (DTIs) effective March 1, 2019.

The cash reserve ratio will be reduced from 12 per cent to 9 per cent. The reduction is expected to release $16.8 billion 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”.

The BOJ has also committed to further reductions in the cash reserve ratio over the year. The lowered interest rates and lowered cash reserve ratios should lead to increased domestic demand, thus strengthening Jamaica's inflation rate to the prescribed rate of 4 to 6 per cent.

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