THE Government expects only three per cent devaluation of the Jamaican dollar during 2010/2011 but is only allowed US$300 million to back the local currency against the US dollar.

The administration agreed to limit its intervention next year under a quantitative performance criterion set out in the memorandum economic and financial policies (MEFP) that was submitted to the International Monetary Fund (IMF).

It took US$346 million between the end of August last year and the end of January 2010 to keep the dollar from moving beyond $89.72 to US$1 coming from $89, a 0.8 per cent reduction. In January alone Jamaica’s NIR lost US$163 million to fall to US$1.57 billion.

That same criterion capped the reduction to the Net International Reserves (NIR) at US$351 million during the three months to March 31, 2009, which means that the Bank of Jamaica (BOJ) has another US$188 million to back the national currency against the US dollar for the rest of the fiscal year.

So far, the dollar has remained relatively stable, and even with heavy trading typical of the beginning of the year, the Jamaican dollar — which started the year selling on average at $89.59 to US$1 — closed yesterday’s trading at $89.72.

At the same time, the IMF will only allow a further reduction to the NIR of US$300 million for all of next fiscal year, according to the programme set out.

So optimistic is the Government’s stance on the programme that it expects the dollar, which averaged $88.84 to US$1 this fiscal year, will average $91.48 to US$1 next fiscal year — less than three per cent devaluation.

The outlook is based on optimistic increases in foreign exchange earnings from exports, tourism and remittances which is expected to stay in line with increased imports, resulting in flat current account deficit, projected at US$1.14 billion for 2010/2011.

Exports are projected to grow by 10 per cent a year — in US dollar terms — over the next two years, followed by eight per cent and seven per cent growth in the following years.

Remittances, hit hard by a world recession in 2009, are expected to grow by six per cent in 2010/2011, then by 14 per cent the following year.

While tourism receipts, which, according to the official data, brought in US$1.97 billion in 2009/2010 — one per cent more than the year before — are projected to grow by five per cent a year over the next four years.

The upshot being a declining current account deficit over the life of the IMF programme that gives the Government access to US$1.27 billion for balance of payment support and another US$1.1 billion from other multilaterals.

Moreover, the net direct investment — a reflection of the amount of foreign currency pumped into investment in Jamaica — which in 2009/2010 was at its lowest levels in over a decade and which is expected to be even lower in 2010/2011 at US$308 million, is expected to start moving upwards in 2011/2012.

The result: a capital and financial account surplus that will cover the current account deficit, placing Jamaica’s balance of payments account into surplus.

But those projections hinge on oil prices — projected to average US$77.30 a barrel in 2010/2011, or 17.6 per cent higher than in 2009/2010 — growing at three per cent or less a year between the next fiscal year and 2013/2014.

What’s more, projections for the Jamaica dollar over the next four years assume devaluation of five per cent or less, on average, going to 2013/2014.