Mark Ricketts | How much more valuable reserves will the country use up?
In terms of my expectations for economic success for Jamaica, I wonder whether I am too hard on the country, and is it really doing much better than I give it credit for.
On February 3, 2020, The Gleaner pointed out that the international ratings agency, Fitch, revised Jamaica’s outlook to positive from stable and gave the country a resounding B+ in its latest Issuer Default Rating (IDR). Here, in the Default Rating, particular emphasis was placed on the country’s efforts in maintaining the debt-to-GDP ratio on a downward trajectory as well as the government’s successes in running large primary surpluses. The agency also noted that prospects for growth have improved, as growth is expected to move steadily to 1.5 per cent by 2021.
Delighted at Fitch’s announcement, Finance Minister Dr Nigel Clarke said the revised outlook was great news for Jamaica: “We are making consistent economic gains that are reflected in the revision by Fitch of Jamaica’s economic outlook to positive.”
Bolstering Fitch’s optimism, tourism continues on a roll; growth in business processing outsourcing (BPO) has surpassed expectations; foreign direct investment (FDI) speaks to ongoing confidence on the part of foreigners in the economy; and, when you fly over the country, swathes of impressive middle and upper class housing define sections of the landscape, and currently cranes and cement and new construction are aplenty in upscale neighbourhoods.
The stock market, which is poised to have several new listings, remains buoyant with some financial institutions posting outsize profits, although the Index has been somewhat subdued in the past year, compared to that which market watchers and enthusiasts had grown accustomed to witnessing.
Then there is the success of every major dancehall event and mas camp around the country. The relentless demand for permits to keep a dance in even the poorest of inner-city communities and to extend them into the wee hours of the morning has to be a testament to happiness, if not affluence.
Clearly, Jamaica, no problem!
Unfortunately, there are some problems which are disconcerting, especially those that have recently come to the fore, adding to those that have lingered for far too long, even with the advent of our major economic reform.
Some of these problems are hardly spoken of, like our current account deficit; others are spoken of, like devaluation, but masked somewhat by our valuable reserves facilitating periodic intervention in rescuing our dollar. Others, like three straight quarters of decline in business confidence, with the most recent quarter seeing the severest decline of the three, is worth worrying about.
Even where consumer confidence remains strong, pollster Don Anderson offers little comfort as he sees such strong consumer sentiment being driven by expectations of an upcoming election. Once the elections are over, consumer confidence wanes, suggesting, if one is cynical, or fearful, the prime minister should delay calling the election in order to avoid pairing declining business confidence with weakened consumer confidence post-election.
Yet another problem is that critical targets such as growth, productivity gains, and the safety and security of citizens still elude our governments, despite the repetition in language over more than six years and the blessings, past and present, received from rating agencies.
Governments can’t seem to get exports performing in line with expectations, so our trade deficit widens, and they can’t get annual GDP growth rates to be in the same ballpark with forecast.
As for the crime monster which saps so much of our national output, wrestling it to the ground is not child’s play and is clearly not amenable to optimistic platitudes. Last year, the murder figures rose over the previous year, and let’s hope the start of this year is not any indication of what’s to come, otherwise there will be no peace in the valley or the mountains.
To get a sense of the limited impact of repetition in relation to Jamaica’s transformational needs, read former finance minister Dr Peter Phillips’ speeches six years ago in which he highlighted macroeconomic stability, acknowledged by improved performance scores by rating agencies.
His language was that of being impressed with Jamaica’s national debt declining in relation to GDP; improved international reserves; inflation trending down; and unemployment declining. Continued fidelity to the economic reform programme would result in impressive growth pay-offs.
A year or two later, former finance minister Audley Shaw’s message was not much different, except we got actual numbers with growth rates rising to five per cent within four years.
Dr Nigel Clarke has kept the drumbeat going, except now we are taking comfort in Fitch’s 1.5 per cent growth expectation in 2021, clearly a far cry from five per cent. That figure was regarded as important to transform the economy, concretise prosperity, and be a reasonable pay-off to the population for its years of sacrifice under the structural adjustment programme.
Something is not right. Clearly, we have got a six for a nine. It is sad that we are normalising 1.5 per cent growth after a protracted economic reform programme across both administrations.
A current account deficit occurs when a country is importing more goods and services than it is exporting. It should be noted that the current accounts include inflows and outflows (net income) on such things as dividends and interest, tourism receipts and expenditures, and transfers from abroad, such as remittances.
When an open economy like Jamaica benefits from large foreign direct investment, economic reform programmes, as the country has had for some time, should show improvements in domestic savings as well as investment in areas that drive growth. If those occur, we should begin to show surpluses in our current accounts.
Instead, based on the last report, our current account has had four straight quarters of deficits, amounting to US$447.20 million for the year ending June 2019. Not good.
STABILISING THE DOLLAR
In May 2017, the country used US$240 million to stabilise and revalue the dollar. In 2018, the level of intervention, in the form of flash sales, was US$200.53 million. In 2019, the intervention was US$395 million. In two and a half years, we pumped in US$833.53 million, mostly to save our dollar.
No country under a sustained economic reform programme can be running a current account deficit requiring coverage through foreign investment or loans, while utilising its precious reserves to stabilise and strengthen its currency.
Irrespective of comfort received by international rating agencies, the volatility and vulnerability of our dollar are telling us we have serious issues to address, and we cannot continue to mask our problems by using so much of our valuable reserves to protect our dollar.