Contraction in economy a blemish, but Government meets fiscal, monetary targets
The significant 1.4 per cent negative growth, July to September quarter, was a blemish on the otherwise good performance of the Jamaican economy since the start of the economic support programme with the International Monetary Fund (IMF), co-chairman of the Economic Programme Oversight Committee (EPOC), Richard Byles, said.
The contraction was much larger than the 0.8 per cent estimated by the Planning Institute of Jamaica and indicated that the drought and the extended maintenance closure of the Petrojam refinery took an even greater toll than first expected, he pointed out.
However, Byles said that with tourism growing by 4.1 per cent during the quarter, and other services up 1.6 per cent, "the expectation for October to December, I think, is pretty good in terms of GDP (Gross Domestic Product) growth. I don't think there were any obvious negative issues because the drought receded before the quarter, so I expect that agriculture will rebound and make a good contribution to growth."
Reporting on the performance of key economic indicators at a media briefing at Sagicor Life Jamaica, New Kingston, yesterday, Byles said the cumulative primary surplus of $54.4 billion, for the period April to November 2014, was 12.8 per cent better than the Government's budget of $48.2 billion.
At the end of December 2014, the Net International Reserves stood at just over US$2 billion, some US$740 million more than the December IMF target of US$1.26 billion.
"I think this positions Jamaica well to meet the December 7 quarter IMF test," he said.
Tax revenues for the period remained below budget, by $8.1 billion, and, according to the EPOC co-chairman, as was the case in previous months, the major underperforming taxes were company tax, short by $4.7 billion, with October and November showing some improvement, and General Consumption Tax (GCT), on local and imported goods, short by $6.9 billion, partly as a result of higher-than-programmed refunds and lower-than-expected collections from Government purchases.
However, pay-as-you-earn and tax on interest continue to exceed budget by $1.7 billion and $2.9 billion, respectively.
Expenditure was $16.4 billion below budget, with the recurrent contributing $9 billion and capital $7.4 billion.
Byles said that more than compensated for the revenue shortfall and helped to surpass the budgeted primary surplus.
However, he said that as EPOC had expressed before, while it understood the need to meet the primary balance target, "we are concerned that we have to do so by persistently under-spending the capital budget. EPOC would prefer to see an even more determined effort to collect taxes from companies and individuals who don't pay their fair share."
The fiscal deficit - the primary balance plus interest payments - was $24.8 billion, 39 per cent better than the budgeted deficit of $34.4 billion.
Byles noted that the quarter January to March, this year, is very important for taxes and the IMF agreement, given that this is the period in which the primary surplus has to rise to $121 billion.
Byles also quoted data from the Statistical Institute of Jamaica (STATIN) which showed that, for the quarter to September 2014, the service sector grew by 0.7 per cent, but the goods-producing sector contracted by 7.8 per cent.
Leading the decline in the goods sector was agriculture, down 22.8 per cent, followed by manufacturing, down 5.6 per cent, a result of the temporary closure of the Petrojam refinery.
0.5 per cent inflation
STATIN also announced inflation of -0.5 per cent for November, driven largely by lower prices for vegetables and a reduction in the cost of electricity and water. That brought the calendar year-to-date inflation to 6.7 per cent, the fiscal to 5.0 per cent and the trailing 12-month inflation rate to 7.3 per cent.
He said that if the lower inflation trend persists, it would create conditions for a slowing of the rate of depreciation of the Jamaican dollar.
Noting the beneficial effect of the lower oil prices for Jamaica, Byles said the authorities should use it as a window of opportunity to rebuild the generating capacity to be able to produce power efficiently.
"We can use this bridge that US$50 a barrel oil has given us to take the time to sort out everything that's involved in putting that generating capacity in place, so that if and when oil prices rise again what we will have in Jamaica is a more efficient generating capacity and that will give us a bridge from low oil prices to similarly low power costs through electricity rates, because of the greater efficiency," he added.