Finance Minister Projects Growth Despite Hurricane

Minister of Finance and Planning, Dr. Omar Davies has assured that in spite of Hurricane Ivan, the economy would record positive growth in both the calendar and fiscal years.
He was speaking in the House of Representatives yesterday (September 21) on the impact which the hurricane would have on the current macro-economic programme.
Dr. Davies said that although preliminary estimates indicated that in the wake of Hurricane Ivan, the pace of GDP growth was likely to decelerate to between 2.3 and 2.5 per cent, a combination of the recovery efforts as well as the new investments could increase the growth impetus for fiscal year 2005/06 to a range of between 2.5 per cent and 3.5 per cent.
“The two key export sectors of the economy are expected to rebound by the end of this year, but the adverse impact from the fall out in agriculture and the manufacturing sector, to a lesser extent, is likely to place a damper on economic expansion in the short term. However, offsetting declines in some sectors is an improved outlook for construction, distribution, financing and insurance services, which will all benefit from the reconstruction efforts,” Dr. Davies stated.
Turning to inflation, the Finance Minister said the impact of the hurricane would be felt through increased prices for domestic agricultural products, and building materials. These increases, coupled with the rising cost of fuel, meant that the target of single digit inflation would be a challenge for this year. “However, we have every confidence that we will return to single digit levels in the next fiscal year,” he said.
On fiscal matters, Dr. Davies said projections were that the current account deficit was likely to deteriorate against projections for the year by approximately US$138 million or 1.7 per cent of GDP. “This is as a result of a projected widening of the merchandise trade deficit, due to higher imports of raw materials to facilitate reconstruction, consumer goods, and contraction of exports,” he explained.
On the other hand, Dr. Davies said he expected that private capital inflows should improve by US$50 million over the projections, due to inflows from re-insurance claims and private remittances. As regards the Net International Reserves (NIR), which was at US$1,630 million, he said government expected to make the programme target of $1.4 billion for March 31, 2005.
Dr. Davies informed that revenue collections for the month of September would be below target for a number of obvious reasons, including the cessation of business activities in many sectors as well as the closure of some revenue offices in the pre and post hurricane period. “The priority objective of the revenue departments for the second half of the fiscal year is to seek to compensate for this fall out in order to make the targets, which were an integral part of the overall programme,” he said.
The Minister emphasized that while the country could access additional loan financing, this would only increase overall indebtedness and in light of this, the island’s recovery efforts would mainly be financed from local resources.