BOJ is wrong as inflation keeps falling

Jamaica’s central bank (BOJ) was granted independence in 2021 but they seem to be making a mess of it. For much of last year they fiddled around telling the country that inflation was well under control and that it would remain within the band of 4-6 percent for two years, that’s before they found out that it wasn’t.
They informed the Ministry of Finance in April last year, why they could not increase interest rates as that would trim economic growth. In May, they made an erroneous statement that inflation was still getting higher when the underlying data was suggesting that it was improving and close to their target.
According to BOJ inflation was 11.8 percent in April and would get worse over the next two months. advised that they were wrong and that inflation was running close to the target since October and therefore was not getting worse but was improving.
According to the BOJ after its meetings held on 12, 13 and 18 of May 2022, “the Monetary Policy Committee (MPC) noted that inflation at April 2022 of 11.8 percent was higher than the outturn at March 2022 and represented the ninth consecutive month that inflation has been above the Bank’s target range of 4.0 to 6.0 percent. While inflation is forecasted to rise further over the next two months, the Bank forecasts inflation to fall in the second half of the year, consistent with consensus forecast for a fall in commodity prices. This means that the public should start to see lower inflation rates each month, beginning in the second half of 2022, as long as tensions between Russia and Ukraine do not escalate and inflation among Jamaica’s trading partners falls.”
The latest data from Statin is once more confirming what we stated last month and casting serious doubts on the authority of the central bank.  Statin’s latest reading on inflation is 0.3 percent for May with the year or year rate down to 10.8 percent, which is down 100 basis points from the April reading. The monthly rate for May is the lowest since November last year with zero inflation and April with negative 0.5.
Since October last year, some seven months ago even before the interest rate hikes took effect, inflation was just over 6.4 percent per annum. With an average of 0.535 percent per month. For the period from December last year, the average rate is 0.547 percent per month, but since January it is running at 5.46 percent per annum.
The rate is moderating, but the country is not out of the woods as yet. There are some hopeful signs for the coming months. The rate of exchange of the Jamaica dollar is now officially J$153.45 to the US dollar compared to around $156 up recently, this will cut the cost of imports and will contribute in a major way to cutting imported inflation. The recent increase in interest rates will also slow down economic activity.
The inflation trend since October last year, suggests BOJ has overdone the interest rate hike and the rate should start the downward trek before the end of the year.

More taxes less cost keep GOJ in black

Nigel Clarke, Jamaica’s Minister of Finance

Data put out by Jamaica’s Ministry of Finance shows the government’s operating at a surplus with increased taxes and major cost reductions in two critical areas.
Information for the June quarter shows a surplus of $6.5 billion for the quarter against a planned deficit of a mere $58 million. Helping in achieving the positive outturn was near $4 billion in lower interest payments and the increased taxes and reduced expenditure of $3.6 billion on other areas of government operations. Capital expenditure saw $1.5 billion more spent than budget, while grants pulled in $3 billion less than planned.
Tax revenues brought in $128.7 billion, up 3.3 percent over budget and revenues from PAYE grew just one percent above budget, at $14.4 billion. Motor Vehicle license rose 7.7 percent above budget to reach $1 billion. GCT on local goods and services slipped 2.3 percent below budget to end at $24 billion but is up strongly on the total take for the 2018 first quarter. GCT on imports of $20.4 billion rose 2.7 percent above budget. Travel tax climbed 10.3 percent to $5 billion while betting, gaming and lottery taxes pulled in 28.6 percent more than in 2018 with $1.26 billion coming in for the June 2019 period.
The improvement is a continuation of healthy tax inflows for a number of years and is a sign of continued economic growth for the country.

$50B surplus hikes Jamaican government spend

Minister of Finance Audley Shaw managed to create a huge fiscal surplus before planned increased spending in March.

Government of Jamaica would end up with a huge surplus for the 2017/18 fiscal year with revenues to February running well ahead of forecast and expenditure sharply lower than budgeted, but even with increased spending planned for March, the surplus could still be large.
Figures released by the Ministry of Finance to February showing a large surplus, the fiscal year was set to achieve a huge surplus around the $50 billion. The likelihood of this huge surplus resulted in government trying to spend as much as possible in March, to reduce the excess that has built up. One item that the government earmarked for payment to reduce the surplus funds to February, is the payment of the increase in civil servants’ salaries. Up to February, there was a shortfall of $6 billion in salary payments, which seems to represent mostly back payment for the fiscal year. Payment in March, would cut the under spending showing at the end of February to a $9 billion. The under spending includes interest cost being lower than planned that accounts for $5 billion of the under spent amounts.
In order to reduce the surplus sharply the revised estimates increased spending at $564 billion for the fiscal year, $42 billion more than the original forecast and would require spending of nearly $80 billion in March, if that were to be achieved, even with the back pay for civil servants being done in March that would be a big challenge with underspending to February with just 1 month that was left in the fiscal year, unless they were to clear up arrears of debt they have in the system.
Figures released by the Ministry of Finance, show that the operations to February, resulted in an overall surplus of almost $3 billion well above the projection of a deficit of $23 billion. The vast improvement arose from an $11 billion increase in revenues over budget, to reach $476 billion and less spending of $15 billion, with the latter benefiting from the late payment of increased salaries for the civil service. Revenues would have been far better but for tax refunds on interest that saw a reduction in inflows of more than $5 billion.
The original projection was for revenues for the fiscal year to be $535 billion and expenditure of $537 billion with spending of $37 billion and revenues of $70 billion in March and that would have put the fiscal numbers into a balanced position, with the planned for a fiscal deficit in February.

Fitch upgrades Jamaica’s economic outlook

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International rating agency, Fitch Ratings, in their most recent rating on Jamaica, affirmed the country’s long-term foreign and local currency Issuer Default Ratings at ‘B’ and revised the outlook from “Stable” to “Positive”.
According to information released by the Ministry of Finance, the rating action was predicated on the improvements in the macroeconomic and fiscal indicators. The ratings were also supported by the country’s structural strengths, such as relatively high income per capita and social indicators, policy consensus and relatively strong institutional capacity.
The press release highlighted a number of positives which led to latest positive ratings. The factors are macroeconomic stability continues to improve, the public debt to GDP ratio continues on a downward trajectory, Government is on course to record another primary fiscal surplus of around 7 percent of GDP for the current fiscal year, which is equivalent to an overall balanced budget. The other factors are, appreciation of Jamaica dollar relative to the US dollar, Bank of Jamaica benchmark overnight rates have been lowered, external finances are on a sustainable path and external liquidity has improved.

GOJ chops $7.6b off deficit

Government of Jamaica fiscal deficit dropped by $7.6 billion below budget to end at just $4.2 billion for the first two months of the 2017-18 fiscal year. Unbudgeted inflows of $5.2 billion and reduced expenditure of $1.9 billion versus budget were mostly responsible for the improvement.
The primary surplus projected at $8.2 billion jumped to $15.5 billion with the help of the increased inflows and reduced expenditure.
Corporate taxes accounted for a shortfall of $228 million, PAYE for $568 million tax on interest $272 million, stamp duty $403 million and special consumption taxes on imports $1.1 billion. Categories that out performed are special consumption taxes on local goods $336 million, Education taxes $309 million, GCT on local goods and services $518 million, Custom Duty $348 million, Travel tax $510 million and GCT on imports $376 million.
The collection of PAYE for the two months is running at $8.9 million 30 percent lower than the $12.7 billion the government raked in before the increase in the tax threshold that became effective in July last year for the first tranche. On the other hand, Education tax this year of $4.3 billion, is running 13 percent ahead of the $3.8 billion collected for April and May last year.

Huge increase in Government revenues

MOFGovernment revenues jumped by nearly 6 percent over budget for the first two months of the fiscal year to May, while payments dropped sharply resulting in the fiscal deficit of just $4 billion for the two months, down by $11 billion projected.
Revenue in take for the two month period is just over $9.2 billion or 15 percent ahead of the similar period for 2015.
Tax revenues jumped 6 percent or $3.8 billion over forecast, flowing mainly as a result of an increase of, $530 million in withholding tax on interest, local GCT amounting $1.26 billion, stamp duty of nearly $500 million and GCT and special consumption tax on imports of $1.1 billion.
Interestingly, the increase is taking place with little input from the new taxes government implemented in May this year.
On the expenditure side, interest cost fell by $1.5 billion and normal housekeeping expenses is down by $3.4 billion while the wage bill moved up by $966 million. Capital spending was under, by $3.2 billion, with only $1.6 billion spent by May. Information, gleaned indicates that much of the under spending is due to a slow start to the fiscal year, with June spending expected to catch up.
The increase in revenues is in keeping with a trend seen in the first 9 months of 2015, when revenues were growing well ahead of forecast. Total revenues are up 21 percent or $5.9 billion ahead of the amount generated in April 2015 and 10 percent or $3.37 billion more in May this year, than for May 2015.
It early days yet, but if the trend on the revenue collection continues close to what is now being experienced, it would make it much easier for the government to meet some of the commitments they have, for 2017 onward.