Finance Minister Highlights Low Inflation in Budget Debate

Minister of Finance and Planning, Dr. Omar Davies has said that one of the most positive achievements for calendar year 2006 and the fiscal year 2006/2007 was the sharp reduction in inflation, compared to the two previous years.
“The rate for the calendar year 2006 was 5.8 per cent and the rate for the fiscal year was 6.6 per cent. The calendar year figure of 5.8 per cent was the lowest in over 30 years,” said Dr. Davies. The Minister was opening the 2007/08 Budget Debate in the House of Representatives today (April 12).
He informed the House that a major factor impacting this sharp reduction in inflation was the recovery in agriculture.
“The truth is, we built a programme for 2006/07 around a projected inflation of 9.5 per cent. Given the extent to which domestic food plays a role in the basket of goods and services, the recovery in agriculture was the major factor in bringing inflation down as was the relative stability in international oil prices,” said Dr. Davies.
He added that the reduction in inflation rate played a major role in facilitating completion of negotiations for the second Memorandum of Understanding (MOU) with the public sector.
Dr. Davies also informed the House that consistent with the reduction in inflation, the rate of interest on Government Paper declined from 13.18 per cent at the end of March 2006 to 11.64 per cent at the end of March 2007 on six-month Treasury Bills. “To complement the reduction in domestic interest rates, the rates on Government of Jamaica (GOJ) Eurobonds have also moved downward. Interest rate on the 32-year Eurobond issued in March 2007 carried an 8 per cent coupon. This is the lowest coupon the Government has obtained on a Eurobond. It shows an improvement in what we were very proud of last year, where we issued a 30-year Eurobond in February 2006 and that carried a coupon of 8.50 per cent and so we are now issuing a 32-year bond at a better interest rate,” said Dr. Davies.
The Minister stated that the foreign exchange market remained extremely stable during the fiscal year, and the Net International Reserves stood at US$2.318 billion at December 31, 2006 and US$2.329 billion at March 31, 2007. He added this was adequate to meet any unforeseen emergency or crisis.
“At the same time, the holdings of foreign exchange by private individuals and companies stood at over US$2 billion at December 31, 2006,” informed Dr. Davies.