Surplus in 4 months to July

Central government of Jamaica’s fiscal operations, rack up a tidy surplus, in contrast to a sizeable deficit budgeted to July this year, data on the government’s operations, recently released show.
This development is unusual at this time of the year when deficits are usually racked up until the last fiscal quarter, the period when surplus revenues are generated.
The surplus was helped by an $11.4 billion in capital inflows showing up as divestment proceeds/other and is boosted by a near $6 billion increase in recurring revenues over forecast and a $7 billion underspending thus ensuring a healthy surplus for the 4 months period amounting to $5.4 billion, against a budgeted deficit of $7 billion. The critical primary surplus a major benchmark of the IMF agreement rest, ended at $38.6 billion versus $29 billion planned.
Also contributing to the positive outcome was a cut in non-payroll expenditure of $6 billion, reduced interest cost of $3.2 billion and positive tax revenues of $5.4 billion. Corporate taxes rose 34 percent above forecast adding $3.3 billion more than the $10 billion planned but corporations are not paying over tax withheld on dividend with only $386 million being paid versus projection of $506 million. Special Consumption Taxes on import fell $2.8 billion while the tax on local production rose by $3.5 billion, from forecast and travel taxes providing $1 billion more than planned.

Devaluation pushed by NIR build out

Ja$5000Net inflows into Jamaica’s foreign exchange market amounted to US$167.5 million in September, in a month that usually results net outflows with the ending of the peak tourism summer months.
The heavy net inflows did not prevent the value of the Jamaican dollar from slipping during the month from a selling rate of J$127.57 to the US dollar to J$128.27 at the end of September.
For the entire month, there was only one trading day when there was less foreign exchange bought by dealers than the amount they sold with net sales of US$5 million. In contrast, for September 2015, net inflows amounted to just $6.5 million with 11 trading days of negative flows.
The net purchases for September bring the surplus from July to date to US$436 million.
In July and August, the NIR grew by $250 million to US$2.5 billion, well ahead of the target agreed with the International Monetary Fund (IMF), but the IMF is saying the central bank must continue to build up the NIR which is well off the target of the IMF.
The IMF states “Net international reserves (NIR) stood at US$2.4 billion at end-July, nearly US$500 million above the program target, while gross reserves stood at nearly 80 percent of the IMF’s reserve adequacy metric at end-2015. The BoJ’s FX market sales have declined in recent months, and the net FX purchases including the surrender requirement has been about US$388 million in 2016 (up to end-July).”

BOJ reserves climbs by US$250M in early August.

BOJ reserves climbs by US$250M in early August.

“International reserves remain somewhat below recommended prudential needs. Reserves are expected to reach around 85 percent of the IMF’s reserve adequacy (ARA) metric by end-2016, still below the recommended range of 100-150 percent. Moreover, a substantial share of the reserves accumulation was driven by international bond and central bank US dollar CD issuances. The BoJ should continue to steadily purchase FX from the market and limit FX sales to periods of high currency market volatility, while maintaining a market-determined and flexible exchange rate. To further develop the FX market and promote price discovery, the BoJ is working (with the help of IMF TA) on introducing a standard multiple price-auction mechanism for FX sales and purchases with the goal of eventually phasing out FX surrender requirements and using market-based auctions for FX sales and purchases.”
In October 2014 and January 2015 Bank of Jamaica required commercial banks to surrender, in total between thirty percent (30%) to thirty-five percent (35%) up from 25% to £0 percent of foreign currency purchases daily. The surrender requirement to the BOJ for cambios was increased by 5 percentage points to twenty-five percent (25%) of their daily gross foreign exchange purchases from commercial

IMF predicts 1.7% growth for Jamaica

IMF buildingGrowth is projected to increase over the medium term, the International Monetary Funds (IMF) is projecting for Jamaica.
According to the Fund in their review of Jamaica performance under the IMF agreement “Growth for Financial year 2016/17 is revised down to 1.7 percent, largely reflecting the slower-than-expected increase in investment. Agricultural recovery is expected to contribute to a third of the real growth for the fiscal year, in addition to a recovery in manufacturing and sustained growth in BPO, tourism, and trade. Over the medium term, growth is projected to gradually rise to around 2¾ percent, as large transportation and energy infrastructure projects come to fruition and planned structural reforms raise private investor confidence and investment.”

Scotia positive on Jamaica

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SCotia Bnk MbyJamaica’s creditworthiness is improving, Scotiabank’s economic units stated in the economic Executive Briefing on Jamaica. Fitch recently upgraded the country’s sovereign credit rating to “B” and assigned it a “stable” outlook Scotiabank Economic report says.
The revision reflects the successful implementation of the IMF program, strengthening external finances, and decreasing public debt the report stated. The report goes on to state, “Standard & Poor’s and Moody’s rate Jamaica in the “B” (stable outlook) and “Caa2” (positive outlook) categories, respectively. According to the IMF, the public sector debt reduction program is estimated to lower the general government debt-to-GDP ratio to below 115% in 2017 from 124.7% in 2015. Indeed, the buyback of PetroCaribe debt in August 2015 at a discounted face value lowered the country’s public debt ratio by 10 percentage points and will ease the external debt repayment burden.”

IMF – J$ may still be overvalued

1000frontThe International Monetary Fund (IMF) is saying that the Jamaican dollar could be overvalued by as much as 19 percent to a moderate rate of 2.1 percent depending on the methods used. The fund also suggest that other methods show an undervaluation of up to 13 percent as well, based on the fall in the price of oil on the world market.
“Preliminary analysis based on the Fund’s EBA-lite and CGER models does not offer clear evidence ofeither over- or undervaluation, after two years of exchange rate adjustment and an important current account adjustment. Safeguarding the gains in competitiveness will be critical in an uncertain global environment. The increased flexibility in exchange rate has been instrumental in improving competitiveness and strengthening the external position. Continued exchange rate depreciation remains necessary given the ongoing inflation differential with trading partners, the risks to competitiveness from a possible upswing in oil prices, and the recent strengthening of the US dollar”, the IMF reported.
IMFThe IMF stated, “the macroeconomic balance (MB) and the external sustainability (ES) approaches suggest that the Real effective exchange rate (REER) is undervalued (at 11.5 and 12.6 percent) while, the equilibrium real exchange rate (ERER) and the purchasing power parity (PPP) approaches point to some remaining overvaluation (of 19.4 per cent and 14.4 percent respectively). A key assumption for the MB and ES estimates is that oil prices will recover only gradually and partially from their recent decline, thereby supporting the projected improvement in the current account balance. The confidence intervals are very large for all the estimates and, statistically, zero misalignment cannot be rejected. The results of the EBA-lite methodology, which estimates the gap between the current account balance and its norm for 2015, suggest a slight overvaluation” of 2.1 percent. These overvaluation amounts would require adjustments for inflation differential between Jamaica and our main trading partners, which could mean roughly a 5 percent adjustment to the rate of exchange.

Cut the civil service – IMF message

IMF buildingDebt servicing cost, wages and related expenses are two big items that have prevented the Jamaican government from performing the role of government the way they ought as money expended on the excess staffing and by and large part of the debt servicing are non-productive expenditure that divert funds from areas of need. It is therefore not surprising that the International Monetary Fund (IMF) has placed a great deal of focus on these two areas in getting the government to reform the system and move the country intro economic equilibrium. The Fund is of the view that in spite of the move to contain the wage bill by constraints and attrition, more is needed to be done to restore balance in this area.
Public sector reform is a key pillar of the fiscal consolidation effort over the medium term. The authorities aim to reduce the wage bill from a projected 9.9 percent of GDP in fiscal year 2015/16 to 9 percent of GDP in fiscal year 2016/17. To date, much of this lower spending has been driven by nominal wage freezes, and authorities aim to secure continued moderate wage increases in the context of the ongoing wage negotiations, mindful of the trade off with other spending priorities. There is, however, a need to refocus attention on modernizing the public sector and transitioning toward a smaller and more effective civil service”, the IMF review report says.
The target is steep a cut from 9.9 to 9 percent is a 10 percent change. The wage settlement for 2015 is 4 percent and if all of that was paid in the current fiscal year it would require nominal gross domestic product to rise around 5 to 6 percent. With inflation looking very subdued and real growth not looking robust, the target is likely be a big challenge. The other issue is that even if the government were to achieve the target is, will maintaining it be sustainable long term? The government can cut the number of workers and the wage bill by divesting some services rather than lay workers off.

More choices for investors


There were times, not so long ago, when things in the local financial markets were much simpler than they are now. Well up to just a few years ago there were only three unit trust companies operating and about 6 or 7 schemes. At the end of 2014 there were 22 different unit trust offerings and currently there are 27.
NCB Capital Markets added two new ones this year and Barita has just launched two new ones. By the end of 2015 the field is likely to get even more crowded with a number of institutions already indicating that they will be launching new schemes, included are JMMB Securities and Stocks and Securities. Part of the reason for the mush rooming of these schemes is occasioned by the dictates of the IMF and the World Bank who considered the risk financial institutions were taking by issuing repos using government securities as the flip side of the trades as too high and could pose major problems to the financial system. The result is a change in the rules that now require smaller amounts of funds to be routed through managed schemes, where the liability is left with the investors rather than the financial institutions, as is now the case. The market has also changed, with investors looking for a greater number of opportunities to invest in.
Barita Unit Trust is the latest entity to launch new schemes, bringing their suite of schemes to 6 in April. The latest are; the Barita US$ FX Growth Portfolio which invests mainly in international equity, and the Barita JA$ Real Estate Portfolio which invests primarily in commercial and residential buildings for lease or sale.
The US$ FX Growth Portfolio is a US Dollar denominated equity portfolio with investments in foreign currency ordinary and preference shares of countries within the Commonwealth, Caricom and the United States and may extend to other sovereign governments as prescribed by the Financial Services Commission and the Bank of Jamaica. A minimum purchase of 100 units is required to open an account, the current price per unit is US$1.

Barita Property Fund invested in 138 Student Living shares

Barita Property Fund invested in 138 Student Living shares

The real estate portfolio is JA$ denominated with investments in commercial or residential buildings for lease or sale and may also become financiers of real property developments and or participate in construction or financing of such structures.
Real Estate Portfolio investments must be held for a minimum of three years with a moratorium of 6 months’ notice required for encashment of the investment. At the launch, the managers stated that the fund has started off with an investment in 138 Student Living shares that are listed on the Jamaica Stock Exchange (JSE). A minimum purchase of 100 units is required to open an account and the current price is $5,000 per unit.
How the new funds will perform is left to time. What is known is the Cameron Burnett who is associated with the US dollar equity fund, has been investing in the overseas’ market for several years successfully, the fund should benefit from his experience. Hopefully, they will be able to navigate what is set to be a choppy period ahead for the US stock market, with interest rates set to go up.
Locally, real estate values should grow at an increasing pace as the government keeps the target of a balance fiscal operation firmly in sight and be committed to achieving it, which will lead to lower interest rates and higher asset values.
Barita Unit Trust is a subsidiary of Barita Investments a JSE listed stock.

NIR up in September

NIR_YELLOW280x150Bank of Jamaica paid back US$30 million to the International Monetary Fund (IMF) during September, but the Net International Reserves (NIR) climbed from US$2.12 billion at the end of August to US$2.2 billion at the end of September, an increase of US$79 million.
Gross reserves amounts to $2.72 billion compared with $2.67 billion at the end of August.Estimated Official Gross Reserves represent 27.17 weeks of Goods Imports at the end of September, up from 26.68 weeks, in August and 19.52 weeks of Goods and Services Imports, an increase over the 19.17 weeks in August.
The reserves place the central bank in a good position to intervene in the foreign exchange market during the rest of the year, if they so desire. Importantly, it gives them the physiological advantage to keep speculators guessing as to their next move, now that the rate of the Jamaican dollar has been gaining, against the US dollar, since they had a major intervention, in the market on July 10.
Interestingly, the months of high demand and low supply commencing September, should end by Mid December has so far seen no serious dip in supply and no large demands, allowing the local dollar to appreciate. There are some indications that financial institutions who went long in their holdings of foreign exchange, have been offloading, with the absence of any serious overhang of demand that cannot be satisfied.
It does appear that the central bank will be adding to its holdings of foreign currency, as investors reduce their holdings, with the winter months not far away, a period when supply is usually higher than demand.

Jamaica’s NIR passes US$2b

NIR_YELLOW280x150Jamaica’s Net International Reserves (NIR) now exceeds US$2 billion as it sits at US$2.18 billion, up by US$805 million during July. The increase reflects the US$800 million bond, the government raised recently on the international market.
The gross amount of the reserves is US$2.8 billion, up by US$793 million during July, of this amount US$606 million is due to the International Monetary Fund (IMF) and represents primarily, funds obtained from the IMF for liquidity support for the financial system, when the JLP government undertook the first debt exchange, back in 2010.
Reserves of Goods Imports amount to 28.13 weeks and 20.30 weeks of Rreserves of Goods & Services Imports.

GOJ’s program for reduction & growth

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.

Image courtesy of arztsamui/

Image courtesy of arztsamui/

“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.

Investing600x250“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.”

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