Capital market rebalances - Wynter says crowding out of private sector at an end
At one time, the constant refrain was that the Jamaican government was crowding the private sector out of the capital markets, but central bank chief Brian Wynter says the country is now witnessing a long overdue correction and can consider the era of government domination at an end.
The financial data spanning several quarters is now pointing to a crowding in effect, said the Bank of Jamaica governor, in which the financing needs of companies are being met as the State's appetite for debt wanes.
"Years, and decades even, of feeding an insatiable appetite for borrowing by the Government and its agencies diverted the flow of financial resources from the private sector and made investment harder and more costly, and this impeded growth," Wynter said on Tuesday at his quarterly briefing on monetary policy.
The central banker said fiscal discipline and smart debt management have resulted in a decrease in Jamaica's debt ratio to 122 per cent of GDP at March 2016 from 145 per cent three years before a 23 percentage point shrinkage.
That performance contributed to Moody's Investors Service upgrading Jamaica's sovereign debt rating by two notches to B3 in November 2016, and more recently, Fitch Ratings Inc. affirmed its B sovereign rating for the country, whose sovereign risk premium has trended to all-time lows, Wynter said.
The result was that annual growth in commercial bank credit to the private sector grew by 14.8 per cent as at December 2016, significantly stronger than the 9.5 per cent recorded a year earlier, said the Governor in his briefing on the October-December 2016 quarter.
In real terms, Wynter said loans grew by 12.8 per cent for 2016 compared to 5.7 per cent a year earlier.
"The sustained increase in bank credit has supported the improved economic performance we have seen in eight consecutive quarters of expansion, with GDP growing at one per cent to two per cent in the December 2016 quarter," the Governor said.
Loans and advances increase
Annual flows in loans and advances totalled $52 billion, according to December 2016 data in the monetary policy report, up from annual flows of $34 billion at the 2015 period.
Wynter also pointed to the latest labour force survey for October 2016 showing the unemployment rate down to 12.9 per cent from 13.5 per cent the year before, saying it represented the fifth consecutive quarter of employment growth, which has delivered annual growth in new jobs of three per cent.
Inflation in January brought the annual rate to 2.6 per cent, compared to 1.7 per cent in December, but down from 3.7 per cent a year ago.
"The uptick is entirely expected and presents no change to the current monetary conditions," he said.
"As I have pointed out on a number of occasions during last year, the sub-2.0 per cent 12-month inflation of the last few months was a reflection of the unusual fall in prices, or deflation, recorded in the first four months of 2016, caused in the main by the agricultural recovery in that period compared to the same period in 2015," Wynter said.
He expects fiscal year inflation at end-March to fall somewhat below the projected range of 4.5 per cent to 6.5 per cent. For the next fiscal year, 2017/18, the forecast ranges from four per cent to six per cent, underpinned by oil prices that the central bank expects to remain below US$60 per barrel on average. Oil is currently trading on the world market below US$55 per barrel.
The BOJ governor also commented on the performance of the Jamaican dollar, the value of which has been rising and falling intermittently. During the December quarter and up to this month, the JMD has fluctuated above $129 but at one point fell below $128 relative to the US dollar. It traded at $128.11 on Monday.
"This kind of up and down movement, which is quite different from what we have been used to in the past, will become more of a norm for us and should be taken as a signal of the need for market participants to pay more attention to the economic data that is reported and rely less on old rules of thumb which may have been useful guides in the past," Wynter said.
He noted that a team from the International Monetary Fund is currently in Jamaica to conduct the first review under the precautionary standby agreement and that if successful an additional sum of about US$170 million will be added to that available for drawdown by the BOJ as needed.