OPM Publication
Much has happened in the Jamaican economy since we had the last postCabinet press briefing on July 11.
1. INFLATION
I am pleased to note that inflation is remaining contained at 2.8 per cent point-to-point, or June-toJune, or for the 12 month period.
When we last reported to you on inflation for the 12 months that was for the period ended May 2018 inflation was then 3.1 per cent.
The Statistical Institute of Jamaica reported that inflation for the group called “housing, water, electricity, gas, and other fuels” moved up by 1.2 per cent for the period under review. If you disaggregate and look at a subset that is only “electricity, gas, and other fuels”, that group moved by two per cent, while the group called “water supply and miscellaneous services related to the dwelling” increased by 0.8 per cent as a result of higher water and sewage rates.
“Food and non-alcoholic beverages” showed very muted inflation, moving up 0.3 per cent due to an increase of 0.7 per cent in “vegetables and starchy foods”. Higher prices were recorded for produce such as Irish potato, yam, carrot, lettuce, and onion during the month under review.
The division called “transport” recorded an increase in its index of 0.8 per cent for the period, mainly due to increased prices for petrol. The calendar year-to-date (January to end of June) inflation was -0.3 per cent, while the movement in the index for the fiscal year-to-date (April to end of June) was 0.0 per cent. For the month of June 2018, inflation was 0.4 per cent.
I am going to go a little further to give you figures by regions. Greater Kingston Metropolitan Area, (0.3 per cent), Other Urban Areas (0.6 per cent), and Rural Areas (0.4 per cent).
In summarising this segment on inflation, let me say that over the last 16 years, 2002 to 2017, there has been only one other year in which the inflation reading has been lower, and that was 2016 when the reading was 1.7 per cent.
2. RATINGS AFFIRMED; OUTLOOK CHANGED TO POSITIVE
The international credit rating agency Moody’s took two actions: it affirmed Jamaica’s B3 ratings, and it changed its outlook on the ratings from stable to positive.
The outlook provides information to investors on the potential evolution or the potential path of a rating. Hence, the outlook increases the precision or the accuracy of the rating.
For rating agencies such as Moody’s, Fitch and Standard & Poor’s, a positive outlook means that a rating may be raised. Contrast this with the stable outlook, which means that a rating is not likely to change.
So within the space of about one year and a half, Moody’s is signalling again that our credit ratings may be raised. Moody’s last upgraded Jamaica’s rating two notches to B3/Stable from the Caa3/Positive on November 21, 2016.
3. DEBT REPAYMENT
The GOJ repaid $58 billion of debt in the last two weeks and only needed to borrow back $10 billion from the market. Yields on its $5 billion 30 year fixed rate new issue bond was 7.09 per cent. Compare this to the 30-year bond that it issued in May 2017 at 11 per cent and you will see how far this market has come in the right direction.
We have much to celebrate. Investors are willing to lend the Government money for 30 years at a fixed rate. All we have known for a long time is that investors were only willing to lend short term – three months, six months or maybe as long as 18 months. This marks a lot of confidence in the Government.
4. SPECIAL ECONOMIC ZONE
We officially opened the office of the Special Economic Zone Authority. The SEZ act was passed in 2016 as one initiative to attract foreign investors to the zone. This new infrastructure will also allow domestic suppliers to sell to companies located in the SEZs and potentially become part of global supply chains.
In conclusion, tax revenues remain buoyant relative to budget. The seven per cent primary surplus still anchors our economic and fiscal programme, and of significance, our debt trajectory towards at least 60 per cent debt to GDP by FY2025-26 remain on that track.
QUESTIONS ON FOREIGN EXCHANGE MARKET
Two things are happening simultaneously that have caused a somewhat higher demand for USD. I believe that understanding these will help us to understand the movements in the FX market.
We are seeing companies take a look at their debt structure as interest rates in the local market on JAD loans come down and are choosing to switch from USD loans to JAD loans. This is a good thing. But the executing of this requires the company to buy USD in the market to repay the loan.
To help us understand what is happening in the FX market, we also have to understand what is happening in our international merchandise trade. We are importing more than we did last year. The economy is growing, and we need to import more for input into the production process. When we look at the data, what do we see? We see mineral fuels, machinery and transport equipment, chemicals, manufactured goods, and food leading the increase in imports.
Import of “mineral fuels, etcetera” was valued at US$375.6 million, an increase of 16.7 per cent. This increase was due mainly to higher imports of crude oil and liquified natural gas.
Expenditure on the imports of “Food” was valued at US$228 million, an increase of 7.2 per cent. This increase was due primarily to higher imports of “cereal & cereal preparations, miscellaneous edible products and fish (not marine mammals), crustaceans, molluscs, etc.”
Imports of “Machinery and Transport Equipment” amounted to US$346.1 million. Higher imports of power-generating machinery, general industrial machinery and electrical machinery, apparatus and appliances were primarily responsible for the 24.7 per cent increase.
Imports of “manufactured goods” were valued at US$174.3 million, 21.7 per cent above the comparable period in 2017. This was due primarily to higher importation of “iron and steel” and “non-metallic mineral manufactures”.
So yes, we are seeing higher depreciation than we saw last year for the similar period. The data suggest increased imports and the realignment of debt structure to take advantage of lower interest rates, which, we believe, will soon work its way through the system.
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