Byles: Low private sector credit contributing to slow growth
Richard Byles, co-chairman of the Economic Programme Oversight Committee (EPOC), has attributed the overall slow growth of the Jamaican economy during fiscal year 2014-15 to the relatively low credit to the private sector.
Bank of Jamaica (BOJ) data show that for the 11 months to February 2015, credit to the private sector grew by 5.1 per cent, compared to an average growth of 9.5 per cent for the last five years, he said.
Lamenting the slow expansion in credit, Byles noted that economic expansion was based on two factors - government spending and the investment activity of businesses.
"We know that the Government has severe restrictions on how they can spend on the capital side or even on the recurrent side. So a lot of emphasis for growth falls to the private sector. And one indicator of private-sector investment is to what extent are they drawing on credit from the commercial banking sector," he said, noting that the low level of credit helps to explain the slow growth of gross domestic product the last fiscal year.
Data from the Statistical Institute of Jamaica on real GDP growth for 2014-15 is not yet available but it is expected to be less than one per cent.
Referring to the 5.1 per cent growth in credit at the last EPOC briefing, Byles said "it sounds reasonable but it's not really, if you want good, strong growth. If you want two, three per cent growth, 5.1 per cent growth in private sector credit is pretty weak".
Noting that inflation for the fiscal year to February was 3.4 per cent, Byles said "it may be that the lowering of inflation is making this 5.1 per cent perhaps being valued a little bit more than when we were having 13 per cent inflation and 8.5 per cent inflation."
He added, however, that "still 5.1 per cent single-digit private-sector (credit) growth is not a good indication of private-sector investment in the economy and therefore, not a good signal about future growth driven by the private sector".
Byles said "this is an issue that I'd really like the Bank of Jamaica, in their briefing when the governor does his quarterly briefs, to dive into a little bit more. He has a lot more of the technical understanding and it would be very useful for the country to understand what this number means".
Agriculture accounted for 14.6 per cent of the growth in credit to the private sector during the period; distribution, 11.7 per cent; and tourism, almost eight per cent.
The sector with the worst performance in terms of credit was electricity, down 28 per cent. "So the electricity sector deleveraged itself (almost) 30 per cent over the period, so borrowed less by 30 per cent," Byles emphasised.
Asked what was attributable to the decrease in private-sector credit, Byles said: "I'm not sure, whether it has to do with reluctance of banks to lend. That's not what I'm hearing but that's a possibility. It could be there is not enough good credits that are coming to the banks. In other words, loan applications that the banks consider to be worthwhile. It could be that also."
Byles, who is also president and chief executive officer of Sagicor Group Jamaica, which owns Sagicor Bank Jamaica, said, "I know that in the experience of our banks we are out hunting credits and if we find any good credit we are going to be disbursing to it. So, maybe it's just a shortage of investment opportunities."
He expressed optimism about economic expansion this year, suggesting that agriculture will be a good growth sector going forward in 2015, so long as the country is not affected by natural disaster, whether in the form of a hurricane or severe drought.
Tourism should also perform well, he said, pointing to Jamaica Tourist Board data for January which show that stopover arrivals was up 4.3 per cent and cruise ship passengers up 4.1 per cent compared with January 2014.
Between January and December 2014, stopover visitors grew by 3.6 per cent, and room rates also rose, he said.
"So the actual revenue from tourism would have been greater than the 3.6 per cent increase because the rates per room per night rose by about five per cent. And that's my experience with the hotels that we have," he added, referring to three Jewel resort properties in St Ann and the Hilton Rose Hall in Montego Bay, St James.
It's also expected that bauxite and alumina, manufacturing and the energy sectors should expand.
"I certainly feel optimistic about 2015, a little concerned about the private-sector credit drawdown, of course, concerned about any natural disasters, and concerned that we really focus our attention on compliance of taxes and make it a little easier for the country to hit those IMF targets," he said.