Economic Prospects Remain Positive – Davies

Finance and Planning Minister, Dr. Omar Davies has said that overall, the prospects for the economy remained positive and that progress should continue for the rest of the fiscal year, albeit at a slower rate than originally projected due to the damage caused by Hurricane Ivan.
He was making a presentation in the House of Representatives yesterday (Dec.14), on the first supplementary estimates for 2004/05, which were tabled in the Lower House last week and reviewed and approved by the Standing Finance Committee.
Speaking to the context of the supplementary estimates, Dr. Davies pointed out that the three main factors impacting on the budget were: the need to respond to Hurricane Ivan, the oil price increases and the movement of the United States dollar.
He informed that preliminary estimates prepared by the Office of National Reconstruction (ONR) indicated that the cost of the hurricane reconstruction programme for 2004/05 would be over $3 billion.
Pledges of $2.9 billion have already been committed including the provisions in the supplementary budget. These include $1.2 billion from the government of Jamaica; $524 million from state agencies, $3.61 million from the private sector, and $792 million from donor agencies and countries.
Oil prices, Dr. Davies said, although declining, remained a concern for inflation, given the volatility in the price of the commodity. He noted that the lagged effect of oil price increases had contributed to a 12 per cent increase in the fuel rate, which influenced an increase of 5.1 per cent in electricity rates in October.
On the movement of the US dollar versus other major currencies, Dr. Davies said, “we are tied to the US dollar and hence, we in a sense move with the US dollar as it moves against the Euro. There have been certain negative implications, but to be fair, on the other hand, the devaluation of the US dollar against the other currencies has assisted in stabilizing the relationship between the Jamaican dollar and the US dollar”.
The Finance Minister pointed out that importantly, net international reserves (NIR) stood at $1.8 billion at the end of last month. “We had a major hurricane and the NIR is above that which we had projected,” he stated. Meanwhile, Dr. Davies said, public debt repayments reflected an overall $1.9 billion of which $1.4 billion related to interest and $429 million to amortization.
He further informed that external interest payments were estimated at $1.5 billion below the original budget. “One of the reasons for that is that international interest rates have increased at a slower rate than had been projected and clearly, it has an impact on our situation insofar as our loans are being contracted with variable rates,” he explained.
Secondly, Dr. Davies pointed out, the issuance of the Euro, denominated bonds in the international capital markets and attracted interest payment on an annual rather than semi annual basis.