Jamaica's net insurance reserve projected to continue climbingSunday, June 20, 2021
Jamaica's net international reserves (NIR) are expected to further increase into unprecedented territory as the country's tourism sector continues to regain its footing after the fallout from the novel coronavirus pandemic.
The NIR gained US$100 billion in just one month, between April to May 2021. It's now at a record high of US$3.42 billion, slightly below the International Monetary Fund (IMF) target of US$3.485 billion.
Speaking on Taking Stock with Kalilah Reynolds, financial coach, founder and CEO of Profit Jumpstarter, Keisha Bailey, said she expects the NIR to get a boost over the short term based on the developments in the tourism sector.
“US$3.4 billion is very close to the mark. The US$100 million increase over April is really coming from tourism; it's doing well. Tourism is the largest source of foreign currency inflows into the country and because of that it's really pushed up the foreign assets number to US$3.7 billion for currency and deposits so that's really what has been the main driver of the NIR,” she reasoned.
The net reserves as at May represent an estimated 30 weeks of 'goods and services' imports for Jamaica. Bailey said with Jamaica's stopover arrivals picking up due to more people travelling, the IMF's figure remains in clear sight and could be reached by July.
She said Jamaica continues to be an attractive destination for travellers especially with airlines and local hotels offering discounts to visitors.
In April, Tourism Minister Ed Bartlett told Taking Stock that some 850,000 air seats to Jamaica were lined up for the summer season. He also said in August, the country should see about 70 per cent of the number of tourists who visited in 2019.
“There's a pent-up demand. People have been locked up for a year now and finally vaccinations are rolling out. Summer is here too and people are heading to the beach, heading to the hotels for a nice drink on the beach... so it all augurs well for Jamaica's gross reserves and I expect going forward that we'll see the NIR continuing to go higher and possibly hitting the IMF target in the next month or so and that's fairly good,” said Bailey.
Sovereign research analyst at JMMB Group, Theodore Mitchell, has cautioned against suggestions to use the reserves outside of the intended purpose. He said Jamaica's growing net reserves are likely to attract further investments for the country.
The Bank of Jamaica holds the NIR as a security for times of crises. For example, should the country stop getting resources from tourism or remittance inflows, that money could then be tapped to help players in the economy to continue purchasing goods and services and pay bills.
This was the case during the last year as the pandemic disrupted the global supply chain and forced local sectors to pivot in order to survive.
Several times, the BOJ also dipped into the reserves to intervene in the foreign exchange market to sell US dollars to authorised dealers and cambios under its BFXITT programme to mitigate against volatility.
“Having that sufficient reserve provides insurance to companies operating locally and in the event they experience a significant falloff in foreign exchange flows, they then have access to that resource. The resource also provides some levels of insurance for individuals and corporate companies outside of Jamaica who are looking on,” said Mitchell.
Even before hitting the record mark in May, the central bank had insisted that Jamaica's NIR was adequate to see the country through the pandemic. It's projections remain on track with an economic rebound expected to start this quarter.
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