Improvement in current account deficit
DWINDLING oil imports and reduced payouts to foreign-owned companies narrowed Jamaica's current account deficit to its second lowest since the Great Recession, official data indicate.
The island recorded a current account deficit of US$100 million between January and March 2014 as it benefited from over US$300 million in reduced chemical and fuel imports.
"The outrun for the review quarter is the second lowest current account deficit recorded since 2007 and a significant improvement over the deficit of US$401.2 million recorded for the corresponding quarter of 2013," stated the Bank of Jamaica (BOJ) in its quarterly Balance of Payment (BOP) report published this month.
The island continues to import at lesser amounts with the goods balance totalling negative US$900 million from negative US$1 billion a year earlier. Concurrently, foreign-owned companies reduced their repatriated profits to US$28 million from US$89 million a year earlier.
"The deficit on the income sub-account narrowed by US$61.2 million, largely stemming from lower imputed profit repatriation by direct investment companies," stated the BOP news release for the review quarter.
The reduced imports, especially of basic goods, stems from the depreciation of the local currency seen as a conditionality of the International Monetary Fund (IMF) agreement. Since signing the IMF agreement in May 2013, the local currency lost over 13 per cent of its value against its US counterpart from $99.30 to more than $112. Hitherto, the currency usually lost four to five per cent of its value annually.
The IMF described the local currency depreciation as painful, but necessary to achieve competitiveness.
Under the current IMF arrangement the island will get nearly US$2 billion in loans over four years, with half from the IMF and the remainder from the World Bank and the Inter-American Development Bank.
This is Jamaica's second IMF programme since 2007 when many western economies experienced an economic downturn which started in the US when the housing market plunged, resulting in significant losses in large amounts of mortgage-backed securities and derivatives.