Elizabeth Morgan | Widening trade deficit in 2018
A trade deficit or negative balance of trade occurs when the value of imports of goods and services (amount being spent) exceeds the value of exports of goods and services (income earned). This excess expenditure has to be met from other resources (savings/reserves), aid (development support), loans, etc.
It has been stated repeatedly that as a small, open economy, achieving robust, sustained economic growth in Jamaica depends a lot on the country's performance in international trade. I have also pointed out in articles that full implementation of the UN Sustainable Development Goals (UN SDGs) will depend more on Jamaica's ability to earn from international trade than from donor financing for development support.
Over the last 10 years, Jamaica has sought to improve macroeconomic stability focused on reducing the debt-to-GDP ratio and the current account-to-GDP ratio. In this regard, we need to place more emphasis on improving our trade performance in the export of goods and services. You should note that trade performance cannot be properly assessed by only focusing on merchandise (goods) trade. Services trade must also be examined.
In an article in The Sunday Gleaner of December 16, 2018, Dr Andre Gordon looked at 'The prospects for export-led growth in Jamaica', making the point that the only lever Jamaica has to drive significant and sustained increases in growth above the anaemic 1-2% is through increases in net exports. He concluded that Jamaica needs a central strategy for a significant and sustained expansion in net exports. Dr Gordon could be forgiven for overlooking the National Foreign Trade Policy, as it got so little press coverage.
In August 2018, the Statistical Institute of Jamaica (STATIN) reported that Jamaica's overall deficit on merchandise (goods) trade had worsened by 9.4% for the review period, January to June, as spending on imports had increased.
On December 31, 2018, STATIN issued another press release for January to October 2018.
STATIN reported that Jamaica's overall trade deficit for the period was US$3.5 billion, a 2.4% increase over the comparable period in 2017. Expenditure on imports was US$5 billion, a 9% increase over the same period in 2017. Total exports were valued at US$1.4 billion for the period, an increase of 29.6% over the 2017 period. The increase in exports is positive, but it hardly put a dent in the overall merchandise trade deficit.
In the breakdown of bilateral trade, the sparse media coverage of the press release focused on the increase in the deficit with CARICOM. STATIN had also pointed out that imports from Jamaica's primary trading partner, the USA, had increased by 10.8%, while exports increased by 10.3%. For the 2018 period, however, the trade deficit with the USA had actually increased by 10.9% over 2017.
Jamaica used to have a consistent trade surplus with the European Union (EU), including with the United Kingdom (UK), and with Canada. For a number of years, the surplus with the EU has become a deficit. For the 2018 review period, Jamaica recorded a trade deficit with the EU of US$215.1 million. Imports and exports increased over 2017. Jamaica also recorded a trade deficit with the UK. Exports to the UK declined over 2017, while imports increased. Jamaica continues to have a surplus with Canada.
For CARICOM, STATIN reported that the trade deficit increased by US$351.3 million, with imports increasing by 20.7% and exports decreasing by 5.9% over the 2017 period. On imports, it should be recalled that exports of oil products from Venezuela declined and had to be replaced from other sources.
For me, the important information is the increase in Jamaica's trade deficit with the world and the low level of exports to all trading partners, in spite of increases registered. Jamaica has not recovered ground lost in exports from previous years. In the 1990s, for example, the gap between earnings from exports and imports was quite narrow.
More in The Sunday Gleaner.
- Elizabeth Morgan is a specialist in international trade policy and international politics. Email feedback to firstname.lastname@example.org.