Barbados faces major challenges

December 20, 2013 by

A statement from the IMF mission chief Ms. Nicole Laframboise: “The Barbados economy continues to face considerable economic challenges. The authorities agreed with staff on the need for urgent policy adjustments and deeper reforms over an extended period to restore fiscal and external sustainability. Weak exports and tourism arrivals, slow growth, and expansive fiscal policy have led to a sharp increase in public debt and fiscal financing pressures. Real output is projected to fall by 0.7 percent in 2013. Inflation has declined and is forecast to average 2.3 percent for 2013. In the external sector, tourism receipts have remained flat and the current account deficit is projected to widen to 11.4 percent of GDP this year. Together with a sharp drop in private capital inflows in 2013, international reserves have fallen this year to US$468 million at end-October”.

The statement continues “In this environment, the fiscal position has come under increasing strain. The central government deficit is expected to rise to 9.5 percent of GDP in 2013/14 and central government debt had risen to 94 percent of GDP by September 2013. Spending cuts under the authorities’ budget proposals announced in August are broadly on track, but tax revenues are falling short of projections. The authorities plan to take additional measures to strengthen adjustment and reduce pressures on the balance of payments.

barbados_flag“A strategic, comprehensive approach is needed to address the underlying weaknesses in public finances and to increase efficiency in the public sector. Policy formulation should be guided by a medium-term fiscal anchor to reduce central government debt to below 85 percent of GDP by 2018. A fundamental review of the tax system is warranted, and the authorities have requested technical assistance on this from the IMF. The goal would be to broaden the revenue base, which has been seriously eroded by statutory and discretionary waivers. In the interim, a number of measures could be taken to significantly improve the yield by strengthening compliance and efficiency in revenue and customs administration.

“The central government wage bill rose to 10.3 percent of GDP in 2012/13, the highest in the region, which together with interest payments limits room for investment spending. Staff takes note of the government’s decision to reduce the civil service up front. This will lower spending and send a strong signal about policy commitment, though these workers should have access to unemployment support and programs for re-employment. Alternatively, downsizing by attrition and implementing a wage formula that freezes the average wage per worker would also reduce the wage bill significantly over time and would contribute to lowering economy-wide labor costs. This is needed to raise Barbados’ external competitiveness, particularly given the nation’s deep commitment to its exchange rate peg, which the IMF recognises.

“There is scope to greatly improve the targeting of social spending and lower costs to ensure that Barbados retains its high standards of equity and social protection. There is some duplication across ministries, and some social programs, such as childcare and housing, are not well targeted and may be benefiting middle and higher income groups at the expense of the most needy.

IMF_logo150X150“It will be critical to address weaknesses in the oversight and operations of the statutory bodies, whose financial performance in many instances is not available. In the near term, the authorities could establish an independent oversight mechanism tasked with enforcing compliance and accountability. Equally urgent, the operations of the main state entities should be reviewed with a view to identifying their strategic purpose, reducing losses and raising efficiency. Fund technical assistance in support of reform of statutory bodies is expected to start in early 2014.

“Under a new interest rate policy framework in place since April, the Central Bank of Barbados (CBB) has increased its holdings of Treasury bills in 2013, resulting in a decline in short-term yields. Direct financing of the government, which is exacerbating pressures on the balance of payments, should be reversed and short-term interest rates allowed to rise to levels more consistent with safeguarding the exchange rate anchor. This would demonstrate that monetary policy is supportive of the currency peg.

“The financial sector, particularly banks, has remained strong, although deteriorating macroeconomic conditions have had a significant impact on asset quality and profitability.

Related story | Barbados gets US$150m loan |  Barbados Bond Yields Trade at Record High as IMF Urges Restraint

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Business confidence drops 24%

December 17, 2013 by

Confidence level, which was at its highest for 2013 in September at 87.4 versus a low of 47.5 in April, dropped sharply in October to 66.5, a 24 percent fall.

Persons in the business sector were asked, “In general, do you think business conditions are better or worse than they were a year ago in Jamaica?” The survey was carried out on behalf of Bank of Jamaica.

Perceptions about future business conditions also fell but not as badly as for current conditions. The responses in September saw the highest reading for the year at 116.6 but it fell sharply to 98.6 in October a 15.5 percent fall. The findings are in response to the question “Do you think that in a year from now business conditions will get better or get worse than they are at present?” Although the survey did not give reasons for the decline, it seems to coincide with the falling rate of exchange of the local dollar and high inflation as well as the view that there is likely to be a 6 percent fall in the value of the Jamaican dollar a year from October this year.

The Statistical Institute of Jamaica (STATIN) undertakes surveys of businesses on behalf of the Bank of Jamaica to ascertain the expectations of economic agents about variables which are likely to have an impact on inflation in the near-term. In this regard, the survey captures the perception of Chief Executive Officers, Managing Directors and Financial Controllers about the future movement of prices, current and future business conditions and the expected rate of increase in wages/salaries. The most recent survey was conducted in October 2013 and had 300 respondents.

Related posts | Businesses see J$ at $110 late 2014 | Inflation high, lower than September

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Fiscal deficit improvement continues

December 11, 2013 by

The Jamaican government’s fiscal deficit projected at $28.78 billion is running below target at $19.55 billion, a savings of $9.2 billion up to October this year. The projection for the full fiscal year is deficit of $8 billion. The improved position is mainly due to a near $15 billion cut in payments partially offset by a $5.5 billion reduction in revenues.

Tax revenues were off by $6.7 billion and non-tax revenues were up by $1.3 billion. Major revenue shortfall came from PAYE $2.75 billion, tax on interest of $1.2 billion and custom duties, GCT and Special Consumption tax on international trade of $5.2 billion. There was an improvement in travel tax of $2.4 billion.

Interest cost was down by $5.4 billion and capital expenditure by $6.2 billion and there was a $2 billion savings on salaries and wages.

The deficit in October is $9.4 billion, some $2.3 billion better than the amount budgeted for, and compared to a surplus in September of $7.66 billion.  Revenues in October was $1.5 billion short of projections.

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Caricom imports drop

December 6, 2013 by

Imports from the Caricom region fell during January to August 2013 by 11.8 percent or US$80 million to US$599 million compared to US$680 million spent in the comparable 2012 period.

The decline of US$91 million to US$403 million for “Mineral Fuels, etcetera” was the main contributor to the decrease. “Food” valued at US$117 million increased from US$103 million in the corresponding 2012 period. Imports of “Beverages & Tobacco” and “Chemicals” were valued at US$28 million and US$17 million respectively in the 2013 period, compared to US$26 million and US$20 million respectively in the comparable 2012 period.

The value of Jamaica’s total exports of goods to CARICOM fell marginally by US$1 million to US$44 million during the review period.

During the eight month period, Jamaica narrowed the trade deficit by US$79 million to US$555.0 million, below the US$634.4 million recorded for the same period in 2012.

Related posts | Big drop in trade deficit | CARICOM balance narrows sharply

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Imports fall and deficit narrows

December 6, 2013 by

The trade deficit for the year to August 2013 continues to narrow as imports fell 7.4 percent to US$4.123 billion compared to US$4.455 billion in the similar 2012 period. Helping to contribute to the improved position is a lower decline in export earnings of 2.8 percent to US$1.1 billion. The trade deficit improved to US$3.026 billion, compared to US$3.326 billion in the same period for 2012 for a US$300 million savings.

Imports | There was a general downward trend in the value of imports for all but three of the commodity groups. “Mineral Fuels, etcetera” with the highest value for this period, accounted for US$1,467.6 million, as it here was a fall of US$270.2 million or 15.6 percent. Imports of “Machinery & Transport Equipment”, also declined from US$616.3 million in 2012 to US$595.9 million.  “Misc. Manufactured Articles”, declined by US$31.7 million to US$279 million, a fall of 10.2 percent, as there was a decline in the imports of furniture, footwear, apparel and photographic apparatus. “Beverages and Tobacco” valued at US$52.6 million moved down from US$54.4 million in the corresponding 2012 review period.

ImportonCube150x150FreeHowever, “Food” increased US$16.2 million to US$651.9 million compared to the 2012 period. The increase was a result of increased importation of ‘cereal & cereal preparations’, ’vegetables & fruit preparations’, and ‘miscellaneous edible products and preparations”, valued at US$549.5 million. The commodity group “Chemicals” increased by US$27.6 million or 5.3 percent compared to the US$521.9 million recorded in the similar 2012 period.

Traditional domestic exports | Earnings from major traditional commodities to August decreased by US$36.5 million or 6.3 percent to US$545.2 million compared to the same period in 2012, resulting from a US$44.3 million decline in the exports of “Manufactured” goods.

There was a decrease in the export of goods classified under “Manufacture” with earnings accounting for US$90 million, which fell below the US$134 million in the comparable 2012 period. “Mining and quarrying” rose by 1.2 percent to US$437 million as a result of increases in ‘Alumina’ and ‘Bauxite’.

The “Agriculture” sector saw receipts moving from US$16 million in the 2012 period to US$18.5 million during the 2013 review period. “Coffee” increased by 17 percent to US$14.6 million. “Citrus” earned US$3 million, a rise of 99.0 percent over the US$1.5 million recorded for the similar 2012 period.

Non-Traditional Exports | Earnings to August fell by US$14 million to US$489 million. Contributing to the decline were “Beverages & Tobacco” that fell by 37.4 percent or US$14 million to US$23.4 million. The sub-commodity ‘Alcoholic Beverages (excl. Rum)’ was responsible for this fall. This subcategory declined by 49.7 percent, moving from US$30.7 million to US$15.4 million in the current 2013 review period. ‘Tobacco’ fell by 73.4 percent. On the other hand ‘Non-Alcoholic Beverages’ increased to US$8 million, up from US$6.6 million in the comparable 2012 period, a rise of 19.7 percent.

The commodity “Other” fell marginally by 1.3 percent to US$345.3 million due to the fact that ‘Mineral Fuel, etcetera’ fell. “Crude Materials” rose mainly due to increased earnings from ’Limestone’ and ‘Other Crude Materials’. ‘Limestone’ moved from US$1.5 million in the similar 2012 review period to US$2.5 million, an increase of US$1 million. ‘Waste and Scrap Metals’ fell, moved from US$16.4 million in January to August 2012 to US$15.5 million in the comparable 2013 period.

“Food” recorded an increase, moving from US$96.0 million to US$99.4 million. Contributing to this increase was Yams’, one of the major export earner valued at US$15.8 million compared to US$11.9 million in the corresponding period.

Related posts | Big drop in trade deficit | Non-Traditional exports up

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Jamaica trade improves with US

December 2, 2013 by

Imports from the United States of America fell by US$212 million during the 2013 period to August with total imports valued at US$1.33 billion, compared to US$1.49 million in the 2012 period. Goods from the United States represents 32.2 per cent of Jamaica’s total import bill, compared to 33.4 per cent in the 2012 period.

Exports to the USA on the other hand, were valued at US$545 million, or 49.7 per cent of total exports of all goods from Jamaica. At the end of the 2013 review period, the trade deficit with the USA moved down to US$785 million, compared to US$997 million in the similar period in 2012.

Related posts | Big drop in trade deficit

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Remittances keeps growing

November 26, 2013 by

Net remittances for August this year increased by US$7.6 million or 5.2 percent to US$155.5 million relative to August 2012. The growth reflected an increase in gross remittance inflows as outflows remained flat at US$22.3 million.

Gross remittance inflows for the month were US$178 million, an increase of US$7.6 million or 4.5 percent versus the same month last year. Inflows were above the average of US$164 million for the previous five corresponding periods. The rise in total remittance inflows reflected an increase of US$8.3 million in inflows through Remittance Companies and a decrease of US$0.7 million from other inflows.

Image courtesy of Marcus/FreeDigitalPhotos.net

Image courtesy of Marcus/FreeDigitalPhotos.net

Net remittances for January to August 2013 were US$1.2 billion, which represented a growth of US$18.8 million or 1.6 percent relative to 2012. The out-turn for the 8 months period reflects an increase in gross remittance inflows and a contraction outflows.

For the year to August, total remittance inflows were US$1.37 billion, an increase of US$2.8 million and was were marginally above the corresponding pre-crisis (2008) out-turn.

The increase in total remittance inflows reflected a US$10.0 million or 5.1 percent growth in inflows through Other Remittances, which was partly offset by a US$7.3 million or 0.6 percent reduction in flows through the Remittances Companies.

Image courtesy of Marcus/FreeDigitalPhotos.net

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Inflation high, lower than September

November 19, 2013 by

A combination of factors led to a hike in inflation in October as measured by the Consumer Price Index (CPI) of movements for householders.

According to the Statistical Institute of Jamaica (STATIN), the inflation rate as recorded by the All Jamaica ‘All Divisions’ Consumer Price Index was 0.8 percent for October 2013. Impacting the index for this month was the 3.9 percent increase in the index for the division ‘Housing, Water, Electricity, Gas and Other Fuels’ due mainly to upward movement in the cost of water and sewerage, which resulted in a rise of 20.0 percent in the group ‘Water Supply and Miscellaneous Services Related to the Dwelling’. Also increasing in this division was the group ‘Electricity, Gas and Other Fuels’ which rose by 2.9 percent. All other divisions with the exception of ‘Transport’ and ‘Communication’ recorded increases in their index Statin stated. Transport fell by 0.4 percent due to lower prices for petrol and air fares while Communication fell by 0.6 percent due to the reduction in some telecommunication rates.

Image courtesy of renjith krishnan/FreeDigitalPhotos.net

Image courtesy of renjith krishnan/FreeDigitalPhotos.net

The calendar year-to-date inflation rate for October 2013 was 8.6 percent, the point-to-point 10.3 percent. The October out turn reflects moderation from the 2.8 percent recorded for September, which Statin said stemmed mainly from bus fare increases.

The other divisions that recorded increases in the All Jamaica ‘All Divisions’ index were: ‘Food and Non-Alcoholic Beverages’ 0.4 percent, ‘Alcoholic Beverages and Tobacco’ 1.8 percent, ‘Clothing and Footwear’ 0.2 percent, ‘Furnishings, Household Equipment and Routine Household Maintenance’ 0.6 percent, ‘Health’ 0.4 percent, ‘Recreation and Culture’ 0.3 percent, ‘Restaurants and Accommodation Services’ 0.1 percent, and ‘Miscellaneous Goods and Services’ 1.1 percent.

The regional index showed upward movements in all three regions: Greater Kingston Metropolitan Area 0.8 percent, Other Urban Centres recorded a movement of 0.9 percent and Rural Areas 0.8 percent.

Related posts | Jamaica’s inflation jumps

Image courtesy of renjith krishnan/FreeDigitalPhotos.net

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Balance of payment improves

November 19, 2013 by

Jamaica’s central bank, Bank of Jamaica, is reporting that the country’s Current Account deficit for January to June 2013 improved by US$268 million to US$519 million compared to the corresponding period in 2012. The outturn for the review period represents a continuation of the improvement in this indicator since 2011 the report said. The enhanced outturn for the six months period to June emanated from all sub-accounts, mainly Goods and Primary Income (formerly Goods & Services) which improved by US$141 million and US$50 million respectively.

Change in presentation | The Balance of Payments (BOP) has been modified from what used to be published in the past. The major change in presenting the report is that the Capital Account will no longer be grouped with the Financial Account, but with the Current Account instead. The overall balance from the Current and the Capital account is now referred to as Net Lending or Borrowing. Also, the use of debits and credits for the Financial Account is replaced by Net Acquisition of Financial Assets and the Net Incurrence of Liabilities. There is also introduction of categories of Primary and Secondary Income, which are conceptually consistent with the System of National Accounts (SNA). Primary Income encompasses returns that accrue to institutional units for their contribution to the production process or for the provision of financial assets and renting of natural resources, while Secondary Income represents Current Transfers between residents and non-residents.

Oil-pricepump150x150Goods producing | For the Goods sub-account, the deficit improved by US$1401 million to US$1.899 billion, versus the corresponding period in 2012. Imports of Goods fell by US$133 million to US$2.779 billion, primarily driven by a US$218 million decrease in Mineral Fuel imports and partially offset by a US$132 million increase in Chemical Imports. Imports of food decreased by US$37.0 million in the period.

Goods Exported increased by US$7.5 million to US$880 million, primarily as a result of a US$66 million increase in Chemical Exports, particularly ethanol.

The balance on the Services sub-account increased by US$50 million to US$453 million for the review period. This resulted primarily from an improvement of US$48 million in the net inflows to the insurance and pension services accounts.

The Primary Income sub-account improved by US$50 million during the review period. This emanated primarily from a US$83 million increase in net investment income flows. Relative to the corresponding period in 2012, the balance on the Secondary Income sub-account improved by US$27 million to US$1 054.1 million. The improvement mainly resulted from a US$18 million increase in the net flows to Financial Corporations, Nonfinancial Corporations, Households, and Non-Profit Institutions Serving Households.

The deficit on the Capital Account improved by US$6.4 million to US$7.7 million for the review period. This outturn together with the balance on the Current Account yielded a net borrowing position of US$527 million, an improvement of US$273.9 million relative to the January-June 2012 period.

The Financial Account recorded a net borrowing position of US$197.4 million, an improvement of US$278.6 million compared to the corresponding period of 2012. The largest contributing subcomponent of the net borrowing balance was Other Investments, which had a net borrowing balance of US$181.2 million. This was primarily due to a decline in the net acquisition of loan assets by US$369 million, coupled with an increase of US$253.8 million in the net incurrence of loan liabilities.

Flows from official and private sources were insufficient to finance the net borrowing balance from the Current and Capital accounts; consequently, the NIR declined by US$100.0 million for the review period.

Related posts | Non-Traditional exports up | NIR up in September

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Businesses see J$ at $110 late 2014

November 19, 2013 by

According to a survey undertaken by Bank of Jamaica in September, senior officers in the business sector anticipate an upturn in the pace of depreciation of the Jamaican dollar for the 3-month, 6-month and 12-month periods beyond the survey date.

This was relative to the August 2013 survey, which showed a lower expected pace of depreciation over all the time horizons. In the September 2013 survey, the exchange rate was expected to depreciate by 1.8 percent, 3.0 percent and 4.7 per cent for the 3-month, 6-month and 12- month horizons, respectively.

By comparison, the August survey had expected depreciation of 1.5 per cent, 2.6 percent and 4.3 percent over the respective horizons.

USD_Clock150x150If the expectations of the interviewees were to materialise, then the exchange rate would be around J$110 to the US dollar but then that is not quite consistent in the September 2013 survey where the respondents’ expectation of inflation 12-months ahead increased to 10.4 percent in the September 2013 survey, relative to 10.3 per cent in the August 2013 survey. This inflation expectation would suggest an exchange rate adjustment closer to 7 or 8 percent.

The Statistical Institute of Jamaica (STATIN) undertakes surveys of businesses on behalf of the Bank of Jamaica to ascertain the expectations about variables which are likely to have an impact on inflation in the near-term. In this regard, the survey captures the perception of Chief Executive Officers, Managing Directors and Financial Controllers about the future movement of prices, current and future business conditions and the expected rate of increase in wages/salaries.

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