EPOC Expresses Improved Confidence in Economy

The Economic Programme Oversight Committee (EPOC), set up to monitor the country’s Extended Fund Facility with the International Monetary Fund (IMF), is expressing improved confidence in the outlook for the Jamaican economy.

“We think the country’s policies are showing the right results and we are happy about that,” said Co-Chair of the EPOC, Richard Byles, as he addressed journalists on Monday, July 14, at the committee’s monthly press briefing.

Several factors which the committee said contributed to this improved confidence include: the increase in the Net International Reserves (NIR) at the end of June, the primary balance and the tax revenues for the April to May period.

Mr. Byles informed that when measured against the budget, the cumulative primary surplus of $3.4 billion for April and May 2014 was better than the budgeted deficit of $1.6 billion. A primary surplus is achieved when the Government’s income exceeds its expenses.

He said while data is not yet available for the month of June, the Financial Secretary, Devon Rowe, has expressed confidence that the target will be achieved.

The Co-Chair also revealed that tax revenues for April to May were “up and doing well” at $50.3 billion, which exceeded the Government’s target of $48.4 billion.

There was also great improvement in the country’s current account deficit (CAD), which measures the difference between export and import of goods and services as well as net income transfer inflows.

Data from the Bank of Jamaica (BOJ), points to a substantial improvement of US$300.6 million in the CAD, which brings the figure to 8.8 per cent of gross domestic product (GDP) for the 2013/14 fiscal year, compared to 11.5 per cent for the previous year.

Mr. Byles explained that the country is now much closer to achieving a 6 per cent CAD, which is the target suggested by economists as suited for the Jamaican economy.

He explained, however, that improvement in the CAD is largely attributed to a reduction in imports, but said EPOC will now have to assess the reasons for a decline in exports.

Mr. Byles also said the improvement in the CAD is an important reason to now slow the depreciation in the exchange rate.

“A major reason why we depreciated the exchange rate was to correct this very current account deficit, and to the extent we are having success with it and it is improving rather quickly, then  I think it gives support to the argument that we should be slowing the rate of devaluation of the Jamaican dollar,” Mr. Byles asserted.

Another notable improvement highlighted by the EPOC Co-Chair is the fall in inflation rate for May which stood at 1 per cent as recorded by the Statistical Institute of Jamaica (STATIN), bringing the year-to-date inflation to 2.35 per cent.  Mr. Byles said this “is better than the same time last year, where we had inflation of 3.6 per cent.”

He further told journalists that one of the reasons for the foreign exchange rate depreciation is to stay competitive with the US dollar. “So, if they (USA) are experiencing inflation that is much lower than ours, then we have to devalue to keep competitiveness,” Mr. Byles said.

The Committee also highlighted the successful placement overseas of an 11-year US$800 million bond by the Ministry of Finance. Mr. Byles noted that this is very important as it will fund all government debt maturities for the next 12 to 18 months.

He also said this means the Government’s budget for 2014/15 is fully funded. “So, there should be no need to come back to us in supplementary budgets for more taxes or to raise any further debt,” Mr. Byles noted.

Additionally, he said proceeds from the bond will add to the NIR and give the Government of Jamaica a comfortable margin over the IMF’s NIR targets for some time to come. “So, at June we were US223 million ahead of the NIR target, and in July we are going to be even much more ahead of the NIR target,” Mr. Byles pointed out.

He said this will also mean the BOJ will not need to venture in the market to buy foreign exchange to support the NIR. This successful bond placement is a good confidence indicator from the international community in the policies of the Government, Mr. Byles noted.

The Co-Chair said a major challenge for the country will be to increase growth in the economy. “We appreciate the positive growth last year, but we need a little bit more this year,” he added.

The Economic Programme Oversight Committee meets once per month and will meet again to analyze the performance of the Jamaican economy and the country’s IMF programme on August 12, 2014.