Jamaica’s Net International Reserves jumped $75 million to US$3.85 billion in November data released by the Bank of Jamaica shows. The amount is an improvement over October which ended with NIR at US$3.77 billion after a US$33 million fall from September a month that enjoyed a rise of $57 million and August with an increase of US$90 million following a fall of US$144 in July.
The balance at the end of November this year is at the highest at the end of any month for 2022 but is down US$150 million from the end of December last year with a net of US$4 billion which was up $100 million over November 2021. The data suggest that the NIR could match the amount at the end of 2021, with December historically a month that brings in surplus foreign exchange inflows into the country.
With tourist arrivals expected to jump sharply in the first four months of 2023 over 2022 which was about a third lower than in 2019, inflows could be up some fifty percent over 2022 from that sector and could boost the NIR for the first quarter.
Jamaica’s NIR jumps
Jamaica’s NIR jumps $104m in December
One signal of the health of a country’s international trade can be viewed from the performance of its net international reserves, based on this, the Jamaican economy could be in a pretty decent shape.
Jamaica has seen a bounce in remittances in the country climbing from just $2.4 billion in 2019 to $2.9 billion in 2020 and is expected to touch US$3.6 billion last year. In addition, tourism inflows have bounced back well in 2021, with preliminary data indicating that in December last year arrivals could be down 24 percent against that of 2019 before the disruptions in 2020 started, with all of 2021 down 45 percent on 2019. Bank of Jamaica reported that the country’s net international reserves rose US$104 million in December over November 2021 to close the year at $$4 billion and is up from US$3.1 billion at the end of 2020.
Jamaica GDP set to gain in 2020
Economic growth for Jamaica is expected to remain positive in 2020 following increases in 2019, even as the closure of Alpart acts as a drag on the economic growth rate in the first half of the year.
Jamaica will see steady growth with improvements in several areas during the year, with increased output for manufacturing, tourism, finances and other service sectors such as BPO and entertainment. The continuation of major road construction projects and many new buildings going up in the country will also aid the continuation of economic growth during the year.
Growth in stopover arrivals bounced to 7.6 percent in the December quarter up from a slightly slower summer months with gains of 4.5 percent, 2019 finished with an overall increase of 6.5 percent in stopover arrivals and bettered the 4.6 percent increase in 2018 over 2017. The increase in 2019 suggests a very strong demand for the Jamaican product. Increased demand for the product provides room for greater revenues per room as hotels do not have to do a deep discount of rates as they did in the early part of the last decade. The sector should continue to grow around 7 to 10 percent for the coming year and bring in addition inflows around US$400 million over 2020. It could do even more with the strong demand for rooms that could see hotels getting average rates that are higher than in 2019.
Concerns regarding the coronavirus are worth watching. If the spread in the west is more broad-based than it currently the case, it could negatively affect visitor arrival numbers to Jamaica.
Data out of Statin indicates a 4.9 percent increased output in the manufacturing sector for the September quarter, helped by gains in PetroJam production. That is faster than the July quarter, with growth of 3.2 percent and the first quarter growth with negative 1.3 percent following a 2.4 percent increase in the December 2018 quarter. The trend is positive for the manufacturing sector and augurs well for a good increase in 2020. Continued growth in loan financing and increasing interest of companies seeking fresh long-term capital through the capital market are big positives for the business sector in 2020 and beyond. The Manufacturing sector’s use of borrowed funds, excluding cement, was consistent with 20 percent increased borrowing in 2019 and 2018.
An important thrust in Jamaica’s economic development is the increasing number of companies raising long-term capital and listing on the Jamaica Stock Exchange. Increased long-term capital is an important move in getting greater productivity and production of goods and services out of local businesses that will help greater economic growth in the current year and beyond. Increased listings provide investors with viable opportunities to invest capital long term and be an integral part of the wealth creation in society. During 2019, there were several new listings on the Jamaica Stock Exchange. The exchange is forecasting 20 new listings in 2020 based on information provided by stockbrokers. The country will see the majority of companies seeking to list, raising fresh capital for business upgrading and expansion.
Growth in the construction sector will pick up, with the start of the Kingston to Port Antonio road construction and demand continues in the BPO sector that will stimulate the need for more space while adding to employment. Data out of the Bank of Jamaica shows a sharp rise in lending to the sector with an increase of 37 percent over the amount lent in 2018 and well ahead of the 27 increase in 2018 over 2017. The increase in 2019 suggests a further rise in growth in the sector, which should continue into 2020.
The new Old Harbor power plant commenced operation on December 17 and uses natural gas that is much more efficient than the oil-powered plant that was 50 years old and was highly inefficient. The South Jamaica Power Centre plant will provide a more reliable and efficient source of electricity and will result in fewer power disruptions and lower electricity cost as the new plant will use less fuel, fewer workers and requires lower maintenance than the old one, that will be closed in early 2020. With capital expenditure of US$300 million, some of the lower operating costs will be eaten up by interest and depreciation costs. JPS quarterly financial gave a glimpse of what to expect from the switch over with a 10 percent drop in fuel cost for the quarter even as the official switch over took place in mid-December.
The Foreign exchange market went through a number of changes as the central bank reduced the compulsory take from the market from 25 percent down to 20 percent for dealers and 15 percent for Cambios. In effect, the central bank bought no funds from the market through its weekly intervention tool and had no scheduled sale to the market. About four bouts of strong demand resulted in BOJ intervening by selling funds to the market. Notwithstanding, the interventions, the central bank ended the year with the NIR rising from US$3.005 billion at the end of December 2018 to US$3,16 billion after the NIR sank to US$2.95 billion in July.
Over the course of 2019, the exchange rate moved from $127.72 to US$1 at the end of 2018 to end 2019 at J$132.58 to US$1, after it reached its lowest level of J$141.89 to the US dollar on November. The NIR movement for 2019 suggests that the market is in a fairly balanced position. The country has periods when demand and supplies are higher than at other times and the two may not coincide thus creating some disquiet. There are other times when capital flows can impact the market positively or negatively. Unexpected capital flows can create a serious temporary imbalance in the system and may warrant BOJ’s intervention as occurred on a number of occasions over the last twelve months.
Growth in tourism expected in 2020
Money Market rates have been down and “This decline was also related to the increased supply of liquid assets during the quarter, given the maturity of GOJ bonds over the period.” Interest rates have been generally trending downwards from April of 2019, following sharp falls in 2018.
Spike in the exchange rate of the Jamaican dollar to the US dollar in the last quarter of the year put added pressure on prices and pushed inflation rate for the year to 6.2 percent, well above the 4.6 percent for the last 12 months to November 2019. Inflation for January dropped sharply by 1.1 percent as the FX rate impact was not present with the Jamaican dollar appreciated. Movements of the local currency accounted for a large part of increased inflation in 2019. The natural level of inflation is in the two to three percent range. The inflation rate should move back to more moderate levels in 2020 than it ended in 2019.
Government normal revenues up to November were running 7.5 percent ahead of the $373 billion intakes forecasted, with inflows at $400 billion to December 2019. This increase is after the government removed or reduced taxes at the start of the 2020 fiscal year with no new taxes levied. The preliminary guideline for the 2021 fiscal year, is for increased expenditure amounting to $18 billion in non-interest expenditure, but that is likely to be well below a probably $30 billion increase in normal revenues. With interest cost on government debt set to fall below that of the 2020 fiscal year, following the sharp fall in interest rates during 2019. The government will have room to increase spending in an election year. There is likely to be increased in capital spending, to be well ahead of the $75 billion projected for 2020, the Ministry of Finance instructions suggest for fiscal 2021.
Unemployment rates continue to fall, with the October 2019 unemployment rate down to 7.2 percent, the lowest on record. Labour Market conditions are projected to continue improving for the next eight quarters, the country’s central bank contends “the expected improvement reflects employment growth in manufacturing, finance & insurance, and business process outsourcing.” The Statistical Institute of Jamaica data shows the number of unemployed dropped to 96,700 persons in October with the number employed rising to 1.248 million persons. Based on the trend seen over the last three years, the unemployment rate should drop a possible one-percentage-point in 2020 compared to 2019 putting the unemployment around 6 to 6.5 percent. What is important about this improvement is the increase in the number of employed persons that will lead to increased demand in the economy, helping to stimulate increased growth levels.
Crime continues to be a major negative on the country acting as additional taxes on the wider economy, unfortunately, this major negative will continue to be present for some time to come.
NIR steady despite BOJ sales
Jamaica’s Net International Reserves slipped by just US$32 million in September according to data just released by the country’s central bank – Bank Of Jamaica ( BOJ).
According to BOJ the NIR stood at US$3.027 billion at the end of September down marginally from US$3.027 billion at the end of August. Reserves amounts to just over 19 weeks of Goods & Services Imports, the central bank states.
The change comes against the back ground of sale of US$41 million in B-FXITT weekly auction of foreign currency.
Huge surge in NIR mostly temporary
Jamaica’s international reserves surged to $4.25 billion at the end of August, with net reserves climbing to $3.67 billion, up from a net of US$2.74 billion at the end of July.
The increase came from a number of sources with the inflows from the issue of bonds by the Government of Jamaica (GOJ) as well as inflows from the foreign exchange market.
“The increase in the NIR of US$933 million in August 2017 was attributed mainly to receipts from Eurobond of US$834.4 million by GOJ, net purchases of foreign exchange by BOJ from authorised foreign exchange traders and issuance of BOJ USD CDs,” Bank of Jamaica confirmed in response to an IC Insider.com’s query.
“Notably, the impact of the large inflow from the GOJ Eurobond is transitory. During September, GOJ will pay approximately US$530 million (principal and interest) to investors on prepayment of two USD Bonds,” the BOJ’s response concluded.
Data for the first two weeks in September suggest that there is likely to be no new net inflows for the month from the regular foreign exchange market and the NIR could end at just about US$3.1 billion after the payout of the GOJ bonds, if BOJ does not issue new CDs to mop up the liquidity that would flow from the payout.
Jamaica’s FX Reserves jump in December
Jamaica’s Net International Reserves shot up by US$163 million in December to hit US$2.72 billion with gross reserves climbing to US$3.29 billion.
The increase for December is just US$15 million less that the net inflows of foreign exchange, the financial system generated in the month. The reserves represent 38.40 weeks of imports of goods and 22.27 weeks of goods and services. Data of daily trading of foreign exchange collated by IC Insider.com show that net inflows of all currencies, amounted to a surplus of US$178 million in December last year.
Jamaica started 2016 with net reserves of US$2.437 billion, strong demand between April and May saw the amount dipping to a low of US$2.265 billion in June, as the country’s central bank sold funds into the market to meet demand.
Devaluation pushed by NIR build out
Net 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.
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
Jamaica’s NIR jumps by US$250M
Jamaica’s Net International Reserves (NIR) benefited from buoyant flows during the summer months to shoot up by US$250 million, taking the net reserves US$2.52 billion at the end of August. The reserves shot up by US$124 million in July and jumped by US$126 million in August, as the banking system raked in much more foreign currency over the two months than they sold.
In spite of the net heavy inflows during the period, the local dollar declined marginally by less than two percent against the critically important US dollar, with the selling rate moving from $125.46 at the end of June to $127.57 at the end of August.
The build-up of the NIR took place over the period when bankers net purchasing of foreign currency amounted to just under US$300 million in July and August.
The reserves at the end of August are above the 2016 peak of US$2.42 billion at the end of March, just before the central bank intervened by selling to the market, pulling the reserves to a low of US$2.265 billion in June.
The build in the NIR places the country’s central bank in a good position to control of the foreign exchange market in the months ahead, before the next period of higher inflows starts in mid-December.
NIR shoots up in July
Net International Reserves of Jamaica shot up by US$124 million in July, to end at US$2.39 billion. The build-up has taken place over the period when bankers purchased US$100 million more than they sold, with the amount climbing to US$116 million up to the first week in August and US$124 million including Monday’s intake.
The reserves are just slightly below the amount of US$2.42 billion it was at the end of March at the 2016 peak, just before the central bank had to intervene by selling to the market with the reserves declining to a low of US$2.265 billion in June, just above the US$2.2 billion at the end of January.
With August being another month when inflows of foreign currency is high, the prospects are good for further build-up of funds in the system, before the end of the month and could place the country’s central bank in full control of the foreign exchange market in the months ahead before the next period of higher inflows starts in mid-December.
NIR climbs US$94m in December
Jamaica enjoyed a week of strong net inflows on the FX front
The inflows brought the net inflows to US$93.9 million for the month, moving the reserves to $2.437 billion from $2.34 at the end of November.
Reserves now amount to 33.37 in Weeks of Goods Imports, up from 31.80 weeks and 22.98 weeks in reserves of Goods & Services Imports up from 21.90 weeks from the November amounts a release from Bank of Jamaica disclosed.
Bank of Jamaica confirmed that for the December 2015 quarter the net purchase by them amounted to US$137.48 million. The intake by the bank helped to build up the reserves.
