ECLAC predicts economic growth of 1.7% for Jamaica in 2019

ECLAC predicts economic growth of 1.7% for Jamaica in 2019

Friday, December 13, 2019

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SANTIAGO, Chile (CMC) — The Jamaican economy recorded growth rates of 1.5 per cent in the first quarter of 2019 and one per cent in the second with the projections being for a 1.7 per cent growth this year, the Economic Commission For Latin America (ECLAC) has said.

ECLAC, in its latest “Preliminary Overview of the Economies of Latin America and the Caribbean 2019,” released here, said that overall, Jamaica is likely to record economic growth of 1.6 per cent next year.

It said that the government's main policy objective in 2019 was to meet the annual requirement of the three-year, US$1.64 billion stand-by arrangement with the International Monetary Fund (IMF) signed in November 2016.

“The government is not expected to enter into another formal agreement with IMF upon the expiration of the current agreement in November 2019. The overall policy focus going forward will be on promoting economic growth to foster gradual expansion even after the IMF agreement expires,” ECLAC said, noting that in June this year, ahead of the sixth and final review under the stand-by agreement, strong programme implementation continued to anchor macroeconomic stability and all quantitative performance criteria and structural benchmarks for the period were met.

ECLAC said that while the IMF executive board in November had indicated that Jamaica's sustained policy discipline, together with a fully operational fiscal council and an independent central bank, would help institutionalize the gains achieved under successive Fund-supported programmes, “fiscal challenges continue to be the main concern as the government…seeks to control its public finances.”

ECLAC said that the primary surplus was almost 7.5 per cent of gross domestic product (GDP) in fiscal year 2018/19 with the public debt falling to about 95 per cent of GDP at end-March 2019, the lowest figure since financial year 2000/01.

It said public expenditure control is a major part of the fiscal adjustment strategy and, in the first half of fiscal year 2019/20, most categories of government expenditure were below budget and overall government expenditure was 1.5 per cent under budget.

Capital expenditure, the category that has tended to bear the brunt of the adjustment, was 1.8 per cent below budget. This resulted in a primary surplus of 7.8 per cent of GDP, within the IMF target.

ECLAC said that for 2019, loan receipts were some 11.8 per cent above budget, arising from an increase in external loans, as the government has leveraged the low-interest regime prevailing internationally to reduce debt service costs.

It said on the tax side, all the revenue components showed increases, and grants went up by 7.8 per cent.

“The principal challenge facing the Jamaican economy is the debt overhang, which is still high. External debt was the largest component, at 61.2 per cent, while domestic debt was 38.8 per cent. Strong fiscal discipline and prudent debt management helped to reduce the debt-to-GDP ratio from 135.3 per cent in fiscal year 2012/13 to 101 per cent in 2017/18.

“The ratio has continued to trend steadily downwards and is estimated to have reached 96.4 per cent at the end of March 2019, heading for 90.9 per cent at end-March 2020, 5.1 percentage points,” ECLAC said, noting that based on the current trajectory, the government is on track to meet its debt-to-GDP target of 60 per cent or less by the end of fiscal year 2025/26.

Last year, the Jamaican dollar experienced at least four cycles of appreciation and depreciation, showing a year-over-year depreciation of 2.2 per cent against the United States dollar at the end of the year, compared with an appreciation (2.7 per cent) at end-2017.

In 2019, the currency showed a faster quarter-on-quarter depreciation in the second quarter and closed the third quarter with a weighted average selling rate against the United States dollar of J$131.07 =

US$ One dollar, reflecting a quarter-on-quarter depreciation of 3.5, ECLAC said.

It said the currency depreciation will remain a downside risk throughout 2020 but the Bank of Jamaica expects to manage a moderate depreciation as part of its intervention strategy.

“Depreciation could accelerate should the government fail to meet its fiscal targets by a significant margin, which could affect business confidence and reignite capital flight. Despite IMF recommendations that the central bank intervene less frequently in order to build up reserves, the monetary authorities may step up foreign-exchange sales if they need to contain faster depreciation, imported inflation or rises in external debt servicing costs. Factors such as droughts or floods (which could push up imports) and commodity price swings could also fuel depreciation.

“Although the depreciation of the Jamaican dollar may be improving the country's competitiveness, especially in light of depressed oil prices, its persistence over time would begin to affect inflation and prompt demands for wage increases, especially among public servants.,' ECLAC said.

It said that the Bank of Jamaica's stated monetary policy objective is to achieve and maintain an inflation target of between four and six per cent, a level that is believed will facilitate sustained growth and economic development.

ECLAC said that preliminary data show that Jamaica's current account deficit worsened to 3.1 per cent of GDP in 2018 relative to 2.7 per cent in the previous year.

“Consequently, the net international reserve position stood at US$3.005 billion at end-2018. It was fairly unchanged at the end of June 2019, at US$3.035 billion, which represented about 24 weeks of projected goods and service imports.

“The economic growth rate was 1.7 per cent in 2018 and 1.5 per cent and one per cent, respectively, in the first two quarters of 2019. In the first quarter, the goods-producing sector posted expansion of 1.8 per cent, with most industries making a positive contribution, and services registered growth of 1.5 per cent, again generally across the board, with tourism in particular performing well.”

The report notes that total visitor expenditure is estimated to have grown by 11.5 per cent to US$945 million, within which stopover expenditure increased by 13 per cent to US$880.9 million. In the second quarter, growth in the goods-producing industry remained flat while real value added for the services industry expanded by 1.4 per cent, with gains made in all segments.

ECLAC said that the outturn in the real sector was attributed mainly to improved performances in mining and quarrying (4.5 per cent) and manufacturing (1.7 per cent) and a decline of 2.5 per cent in the agriculture, forestry and fishing industry.

“The latter sector was adversely impacted by drought conditions owing to below-normal rainfall. The growth outlook for 2020 is positive but modest, at 1.6 per cent, driven mainly by tourism receipts and a favourable performance in agriculture and industry,” ECLAC added.

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