Economy — Page 3

GOJ’s program for reduction & growth

January 26, 2014 by IC Insider.com

The principal objective of the Government of Jamaica’s programme is to reduce the national debt and raise the sustainable growth rate of our national output.

The governor of the Bank of Jamaica, Bryan Wynter, stated in a recent address at a JMA’s 2014 Economic Forum, that the Government has committed to implementing revenue, expenditure and debt management measures to ensure that the debt goes down in relation to GDP. This commitment entails the achievement of annual primary surpluses of 7.5% of GDP over the life of the programme. The governor went on to outline other measures that are to be put in place to achieve the main objectives.

“With this,” he stated, “the borrowing need of the Government has fallen sharply, which is leading to a steady reduction in the debt to GDP ratio to below 100% by 2020. Government intends to make the current fiscal responsibility framework stronger by developing binding fiscal rules. This will increase transparency, lock in the gains of fiscal consolidation and ensure that budgets will be sustainable even beyond the end of the four-year IMF agreement.

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“A central plank of the programme is the implementation of structural reforms aimed at creating an environment supportive of economic growth. One of the main structural reforms to which the Government has committed is the improvement of the tax system, including tax administration.

“Fiscal incentives legislation was also passed in December which overhauls and simplifies decades of tax law to the advantage of productive businesses.

“To kick-start growth, the government has started to implement catalytic, strategic, public-private investments. Already, the government has initiated production in six agro-parks, aimed at import substitution. The objective is to develop a total of nine such parks by the end of 2014.

“The GOJ is also committed to improving the competitiveness of the economy through legislative and administrative changes. Additionally, amendments to the Companies Act were passed which streamline the business registration process through the use of a multi-purpose registration instrument. A bill to modernise our bankruptcy rules, the Insolvency Bill, was also tabled in Parliament.

“The Government is in the process of establishing a Port Community System to electronically integrate and streamline export and import procedures. It is also moving to establish more flexible work arrangements and improve access to skills training. Furthermore, initiatives to achieve energy diversification and conservation are in progress.

“Supporting these reforms will be the preservation of a stable macroeconomic environment through sound monetary and fiscal policies. Inflation is expected to decline over the medium term towards our long-run objective. This decline in inflation, in conjunction with a more competitive exchange rate, will foster increased price competitiveness of Jamaica’s exports of goods and services.

“Lower inflation will also allow Jamaican businesses to finance investments at lower interest rates. The reduction in fiscal deficits and the public debt will make more resources available to the productive sector and will complement Bank of Jamaica’s thrust to maintain single-digit inflation.

“The Government also committed to undertaking reforms which will increase the efficiency and competitiveness of the financial system and credit market. You may have seen in the media recently, where we committed to a timetable for raising the cap on investments in foreign securities from 5% of assets to at least 25% by end-2015 and removing it by end-2016, unless extraordinary circumstances require a reassessment. The drafting of Jamaica’s Omnibus Banking statute, which includes regulations to give consumers increased protection and to underwrite the regulatory basis for agency banking, is far advanced.

“We are confident that we will be successful with the December test both with respect to the structural benchmarks and the quantitative performance criteria. More importantly, the Government is already looking ahead to the coming fiscal year with a view to crafting policies and commitments aimed at further improving the business climate in Jamaica and securing stronger growth.

“The economy began its recovery during the September quarter, registering growth of 0.5 per cent. We expect that growth of a little under 1.0 per cent will materialise for the fiscal year, in line with our projections.

“As the economy stabilises, the fiscal and external balances improve and the debt ratios are brought down towards sustainable levels, we should see the Government being able to address more effectively important social and developmental issues such as education and training and crime and social peace.”

Filed Under: Economy, Feature Stories Tagged With: BOJ, Economy, GOJ, IMF

Ministry confirms deficit wipe out

January 25, 2014 by IC Insider.com

The Ministry of Finance is now confirming the Investor’s Choice forecast that the fiscal year deficit to March 2014 will be effectively wiped out due to the revenue measures put in place earlier in 2013.

The Ministry, in a review of its operations and the economy to October 2013, indicates that the deficit is now “projected at 0.1% of GDP or $1.28 billion, a significant improvement on the 0.5% of GDP budgeted”. The deficit was originally projected at $8.046 billion and would have been down from a deficit in 2013 of $54.6 billion.

The estimated fiscal deficit of 0.1% of GDP is the lowest since Fiscal year 1995/96, when Central government operations generated a fiscal surplus, the ministry in their review states.

The projected improvement will emanate from the reduction in interest costs below the amount originally budgeted.

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The paper went on to state that “In spite of new tax measures that were implemented in 2013, there has been revenue shortfall. In an attempt to partially address the issue the Tax Administration Jamaica (TAJ) and Jamaica Customs Agency (JCA) have stepped up their administrative and operational activities, in an effort to keep collections in line with budget for the remainder of the year. While the actions are anticipated to yield positive results, they are not expected to be sufficient to reverse the revenue shortfall up to the end of October 2013. Within this context, the GOJ identified expenditure restraint measures of 0.5% of GDP, equivalent to $6,944.7mn, which will serve to ensure that the primary surplus remains on track with the programmed 7.5% of GDP target in the EFF. These adjustments will be reflected in Supplementary Estimates to be tabled in Parliament for approval in the final quarter of FY 2013/14.”

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Filed Under: Economy Tagged With: Deficit, Economy, GOJ

Major cost input for production in 2013

January 24, 2014 by IC Insider.com

The Producer Price Index (PPI) is up nearly 1 percent in November and for the 12 months to November there was an increase in the index for the Mining Quarrying industry of 13.4 per cent and the Manufacturing industry of 8.5 per cent based on the point-to-point movement.

Statistical Institute of Jamaica (STATIN), who compiles the data stated that “for the Mining & Quarrying industry PPI for November, increased by 0.9 per cent”, mainly due the continued depreciation of the Jamaican dollar during the period. “The producer prices for the Manufacturing industry increased by 0.8 per cent. This increase in the index for the Manufacturing industry, was mainly impacted by the upward movement in the index for the major groups; ‘Food, Beverages & Tobacco’ and ‘Other Non-Metallic Products’ of 0.9 per cent, and 3.2 per cent respectively”.

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The point-to-point movement to November in the Manufacturing industry mainly resulted from increases of the following major groups: ‘Food, Beverages & Tobacco’, 7.5 per cent, ‘Refined Petroleum Products’ 12.0 per cent and ‘Other Non-Metallic Mineral Products’ 20.9 per cent.

The period April 2013 to November 2013, the Mining & Quarrying industry reflected an upward movement in its index of 8.1 per cent and the Manufacturing industry’s index rose by 3.5 per cent.

Related post | November worse month for revenues

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Filed Under: Economy Tagged With: Economy, PPI, Statin

October remittances up

January 24, 2014 by IC Insider.com

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Net remittances into Jamaica grew by 7.8 percent for October last year to US$152 million, an increase of US$11 million over the same month of 2012 while gross inflows grew by 4.5 per cent or US$7.4 million to US$171 million. Remittance outflows actually declined for the period.

The rise in total remittance inflows reflected an increase of US$8 million in inflows through Remittance Companies and a decrease of US$0.5 million in inflows of Other Remittances.

Net remittances for January to October 2013 were US$1.5 billion, a growth of US$34 million or 2.3 per cent over 2012. The outturn for the review period reflects an increase in gross remittance inflows and a contraction in outflows.

For the review period, total remittance inflows were US$1.7 billion, an increase of US$14 million or 0.8 per cent. The increase in total remittance inflows reflected an increase of US$13 million in inflows through Other Remittances and an increase of US$0.7 million in inflows via Remittances Companies.

Related posts | Remittances inch up | BOP improvement for Q3 confirmed

Filed Under: Economy, FX Market, Stock Market Tagged With: BOJ, Economy, FX Market, Remittances

2013 inflation 9.7%, worse than 2012

January 23, 2014 by IC Insider.com

The Statistical Institute of Jamaica (STATIN) has reported Jamaica’s inflation rate for December 2013 as 0.6 percent, which brings the 2013 calendar year inflation to 9.7 percent and 1.7 percentage points above the 8.0 percent recorded for 2012. Inflation is measured by the All Jamaica ‘All Divisions’ Consumer Price Index. The movement of the local currency, which suffered from a devaluation, played a role in the increase.

The division recording the highest movement for the calendar year 2013 was ‘Transport’ which increased by 20.4 percent due to increased bus fares in September. The ‘Communication’ division recorded the only decline, moving down by 4.2 percent as telecommunication rates fell during the year.

All divisions recorded increased movements for December. ‘Food and Non-Alcoholic Beverages’ moved up by 0.5 percent due mainly to increased prices in eggs and sugar; ‘Transport’ which moved up by a similar 0.5 percent due to the higher cost of petroleum and its related products and air fares; and ‘Housing, Water, Electricity, Gas and Other Fuels’ moving up by 0.7 percent, due to the higher cost for electricity. The movement from April was 6.8 percent as at December 2013.

All other divisions that make up the All Jamaica index recorded increases for December 2013. ‘Miscellaneous Goods and Services’ went up by 0.8 percent. ‘Furnishings Household Equipment and Routine Household Maintenance’ and ‘Restaurants and Accommodation Services’ each increased by 0.7 percent. ‘Clothing and Footwear’ rose by 0.5 percent, ‘Alcoholic Beverages and Tobacco’ 0.4 percent, ‘Recreation and Culture’ 0.3 percent and ‘Health’, 0.2 percent. There was no movement recorded for ‘Education’ and ‘Communication’.

The Index advanced in all three regions: Greater Kingston Metropolitan Area (GKMA), 0.7 percent, Other Urban Centres (OUC) and Rural Areas, 0.5 percent.

Filed Under: Economy Tagged With: Economy, GOJ, Inflation, Statin

Is Jamaica’s business tax the highest?

January 23, 2014 by IC Insider.com

“T&T ranks the best among Caribbean counties for business taxes. Jamaica not so good, since GCT (sales tax) is included” is the story heading of a Facebook post from a Caibjournal.com article compiled from a World Bank report.

The problem is that one has to be careful in making definitive statements as the comparisons may not be correct. First off, one would need to look at the overall tax situation in each country to get a better picture. In Jamaica, a large part of the tourism sector is free from corporate taxes or because of large capital allowances, pays less. Most of the agricultural sector pays no corporation taxes at all. Data in Jamaica also shows that approximately 70-80 percent of taxes are paid mostly by the Jamaica Stock Exchange listed companies. Hence, it is difficult to come to the conclusion that Jamaican companies pay as much taxes as the article suggests.

The reality is that after corporate taxes of 33⅓ percent on profits after capital allowances, payroll taxes are next in size. Other taxes are very small and would make no meaningful impact on the total tax collected apart from financial entities and a few others who can’t recover the full impact of GCT.

Since GCT is not direct a tax on the majority of corporations, this leaves payroll taxes that corporations are required to make a contribution. Even then, only the portion that the company absorbs is the true cost since payroll taxes are deducted from income before corporate taxes. It is difficult to see how the nominal tax rate of 33⅓ percent could hit 44.3% in Jamaica. Additionally, since 2013, some corporations pay 25 percent and some 30 percent.

The CaribJournal.com stated that “The World Bank defines the total tax rate as the “amount of taxes and mandatory contributions payable by businesses after accounting for allowable deductions and exemptions as a share of commercial profits. Taxes withheld, such as personal income tax, or taxes collected and remitted to tax authorities like VAT or sales tax, were excluded in the data”.

Jamaica may end being the country with the highest effective tax rate for some corporations but more details are needed to make this conclusion.

If the data on the various countries is close to reality, then there is a huge difference between Jamaica and Trinidad of 50 percent. If true, it explains why Jamaica finds it difficult to compete with Trinidad.

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Filed Under: Economy Tagged With: Economy, GOJ

Interest rate eases

January 17, 2014 by IC Insider.com

Rates on the most recent Treasury Bills fell in the latest offering by the Government of Jamaica.

The rate for the January Treasury bill came out at 6.12 percent compared to 6.2522 percent in December. Investors on Wednesday, 15 January, applied to purchase $400 million 30 days Government of Jamaica Treasury Bills dated Friday, 17 January 2014. This resulted in the average yield of 6.11877 percent. However, yield went as high as 6.29577 percent. A total of $567,065,100 was submitted by applicants in their bid to obtain the instruments.

Related post | T-bill rates mixed at auction

Filed Under: Economy Tagged With: BOJ, Economy, GOJ, TBills

Is aluminium vehicles good news?

January 15, 2014 by IC Insider.com

At the recent Detroit Auto Show, Ford introduced an aluminium-bodied F-150 pickup that is as much as 700 pounds (318 kilograms) lighter, than the predecessor, making it the “most fuel efficient it’s ever been”, Ford CEO Alan Mulally said.

“Overall, up to 700 pounds of weight have been saved, helping the F-150 tow more, haul more, accelerate quicker and stop shorter, and contributing to efficiency,” Ford says in a statement about the new truck.

Ford will expand its use of aluminium, which is more costly than steel, throughout its line-up, starting with larger models that can realize the biggest weight savings, he said. Aluminium is more expensive to utilise but offers benefits such as less weight for the vehicle thus saving on fuel as well as being a longer lasting and tougher material, Mulally said. Aluminium is said to costs about twice as much as steel, but the vehicles will be made from an alloy of aluminium.

As reported in ABC News, Brian Johnson of Barclays Capital estimates Ford earns about $11,000 on a pickup truck sale compared to $5,000 for a car, the Los Angeles Times reported, and the F-Series trucks comprises nearly half of Ford’s North American profits.

Aluminium is already being used in motor vehicles but has not replaced steel, the historical material of choice for more than a century. If Ford succeeds with usage across the majority of its vehicles, it’s likely to result in others in the industry doing likewise. Jamaica would stand to benefit, as greater usage could mean greater demand for alumina which historically is a major export product for the country.

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Chart via The Wall Street Journal

Filed Under: Economy Tagged With: Economy

BOP improvement for Q3 confirmed

January 13, 2014 by IC Insider.com

Provisional data for the September 2013 quarter shows that there was a significant improvement in the current account deficit of Jamaica’s Balance of Payments. The outturn in the quarter reflected improvements on all sub-accounts. However, net private and official capital inflows were insufficient to finance the deficits on the current and capital accounts for the September 2013 quarter, which was funded by Bank of Jamaica from the net international reserves.

The central bank, in a release on the current account, stated that it “recorded a deficit of US$409 million for the period July to September 2013, an improvement of US$202 million over the corresponding period in 2012”. This outturn, the release stated, “reflected improvements on all sub-accounts but was primarily evident in a decline of US$146 million in the deficit on the merchandise trade sub-account, associated with a contraction of US$197 million in imports, there was a reduction of US$51.5 million in exports. The decline in imports mainly reflected reductions of US$132 million and US$73 million in expenditure on chemicals and mineral fuels, respectively. For exports, the fall was mainly due to lower earnings from chemicals, in particular, ethanol”.

For the quarter, there was a decline of US$8 million in the deficit on the income sub-account stemming mainly from a decrease of US$20 million in investment income outflows. The decline in investment income outflows was largely related to lower remittances of direct investment companies. With regard to the services sub-account, there was an increase of US$5 million in the surplus due principally to a decline in transportation charges as a result of the lower imports. The surplus on the current transfers sub-account increased by US$44 million reflecting growth of 6.2 per cent in gross remittance inflows.

Related post | Balance of payment improves

Filed Under: Economy Tagged With: BOJ, Economy, GOJ, Remittances

Remittances inch up

January 8, 2014 by IC Insider.com

Remittances is an important source of foreign currency for Jamaica and many parts of the Caribbean basin countries. The data made public by Bank of Jamaica for the year to September reflects moderate growth.

Net remittances for January to September 2013 were US$1 349 million, which represented a growth of US$23 million or 1.7 per cent relative to 2012. The outturn reflects an increase in gross remittance inflows and a contraction in outflows. Total remittance inflows were US$1,532 million, an increase of US$7 million.

What the report has failed to indicate that the lower than normal growth is not necessarily an indication of worsening economic conditions in the source countries. In fact North America, from which the bulk of flows emanate, has been showing growth in the economy.

Limited studies done by the Investors Choice going back to 2008-09 indicates a strong correlation between exchange instability of the Jamaican dollar with a reduction in inflows. It should come as no surprise that some funds that would normally flow into the formal system have in fact been diverted thus reflecting what may be considered lower inflows. In the first 4 months of 2013 when there was scarcity of foreign exchange in the system, remittances actually declined compared with 2012, while in 2012 for the same period, remittance increased during a period when foreign exchange was easily available.