By McPherse Thompson, Assistant Financial EditorTHE GOVERNMENT continues to keep tight reign on spending, ending the first fiscal quarter with a better than projected deficit position.
Additionally, noticeably higher than anticipated revenue inflows from taxes has seen the projections for the deficit cut by $5.4 billion dollars between April and June.
This has resulted in a primary surplus estimated at 1.3 per cent of Gross Domestic Product (GDP), more than twice the surplus of 0.6 per cent targeted for the quarter. It reflects the focus of the Government on the containment of non-interest expenditure, according to Derick Latibeaudiere, Bank of Jamaica (BoJ) Governor.
Addressing journalists, investors and other interest groups at a quarterly briefing at the Bank's auditorium in downtown Kingston last Wednesday,
Mr. Latibeaudiere said the fiscal performance for the period was encouraging as central government operations resulted in a deficit much lower that the $19.3 billion targeted.
"This resulted from strong efforts to contain expenditure, combined with buoyant revenue inflows," said the Governor, in a statement read by Deputy Governor Collin Bullock.
Provisional data published by the Ministry of Finance and Planning show a deficit of $13.9 billion for the first fiscal quarter, or $5.37 billion less than budgeted. The deviation resulted from an almost $1.3 billion increase in the collection of revenue and grants, and $4 billion less on expenditure.
Mr. Latibeaudiere said the most significant events in the June quarter the sharp swings in the exchange rate grew out of a decline in investor confidence, which resulted in adjustments to prices and portfolios that would continue to influence economic behaviour for some time, both at the micro and macro-economic levels.
STABILITY
Noting that containing the fiscal deficit was a necessary complement to the Bank's mandate of maintaining price stability, he said the major challenge for monetary policy remained the restoration of confidence in Jamaica's financial markets, which depended on preserving stability in the foreign exchange market.
"Continued positive fiscal performance is a key factor in the process, and provides the basis for a sustained reduction in interest rates," said Mr. Latibeaudiere.
In reviewing the quarter, he said the exchange rate depreciated by 4.7 per cent, following a 9.4 per cent slippage during the March quarter.
The Governor said that in the context of payment of external Government obligations and the BoJ's management of the foreign exchange market, there was a decline of US$212.3 million in the net international reserves during the period.
"Foreign exchange purchases from the central bank were funded from net maturities of open market instruments, reducing the Bank's interest bearing liabilities by approximately $9 billion. The net effect was an overall decline in the monetary base and a pronounced shift in the pattern of maturities into 2004."
SCARCITY
Mr. Latibeaudiere added that "the resulting scarcity of short dated instruments has contributed to the stability being observed in the foreign exchange market and will persist for some time, given the investment choices that institutions have already made in BoJ longer dated instruments."
The Governor said the events in the June quarter had precipitated important changes in the macro-economic environment, to which the Bank was paying close attention.
Noting that there has been an acceleration in competitive gains, Mr. Latibeaudiere said that mainly as a result of the depreciation in the nominal exchange rate, Jamaica's external competitiveness as measured by the real effective exchange rate, improved by 4.6 per cent in the June quarter and 15.9 per cent over the previous 12-month period.
This, he said, was a potentially strong stimulus to export growth.
A separate but related effect has been the shock to inflation from the movement in the exchange rate and the yet unobserved pressures on consumer prices.
However, Mr. Latibeaudiere said the increase in inflation notwithstanding, growth in the economy is estimated to have been strong in the June quarter relative to a 0.9 per cent decline in the corresponding quarter of 2002.
GROWTH
The Bank's estimates have suggested that during the quarter there was growth in all sectors except manufacturing. The strongest areas of growth, he said, were in domestic agriculture, mining, construction, basic and miscellaneous services.
There was also improved performance in the tourism industry, measured by both visitor arrivals and expenditure relative to the June 2002 quarter. The estimates of sectoral expansion were consistent, said the central bank head, with recent trends in commercial bank loan disbursement, especially to the tourism and communication sectors.
