Lower call rates positive for economy - PIOJ
Published:Wednesday | June 19, 2013 | 12:00 AM
Steven Jackson, Business Reporter
The Planning Institute of Jamaica (PIOJ) expects increased economic activity and lower inflation because of decreases in mobile telecommunication rates by operators Digicel Jamaica and LIME during the past week.
The decreases are expected provide a respite from rising prices caused by the rapid depreciation of the Jamaican dollar against the benchmark trading currencies, especially over the past five months.
"Overall, other commodities are showing upward price movements. However, this rate reduction will have a pull-down effect," the PIOJ's director of the Economic Planning and Research Division, James Stewart, told Wednesday Business in a telephone interview yesterday.
"Remember, in May there was inflation of 0.5 per cent, so we already have low inflation and it could lead to deflation," Stewart said.
Average annual inflation hit 8.0 per cent in 2012, compared with 6.0 per cent in 2011, according to the Economic and Social Survey Jamaica 2012, published by the PIOJ. The island's inflation rate remains among the highest in Latin America and Caribbean.
Earlier this month, telecommunications providers LIME and Digicel announced rate cuts of nearly 60 per cent arising from a government determination that led to the Office of Utilities Regulation reducing termination rates from an interim $5 to $1.10. The impact resulted in the island receiving historically low mobile telephone rates, among the lowest worldwide.
increased telecoms activity
Stewart said the inflationary effect on the June quarter will be known in early August. Additionally, the full economic effect will be reflected in the July to September quarter, he explained.
He said that the rates slash will also have the economic positives of increasing call traffic while reducing operating costs of businesses.
"Lower rates would mean more call minutes, which would mean more business activity (due to reduced costs) and translate into increased economic activity," he said. "So the telecoms subsector will show increased activity above what was initially projected," Stewart added.
In July last year, the country experienced deflation arising from an initial rate slash from some $9 to $5. The rate cut actually resulted in a 14 per cent rise in LIME's mobile revenues and a 16 per cent rise in its subscribers, according to the company's financials.
LIME Jamaica recorded a J$4.9-billion total loss for its March 2013 year end, compared with a $20 billion loss a year earlier. The financials for Digicel, a private company, are not disaggregated for Jamaica.
Just prior to the rate slash in 2012, the number of mobile subscribers dipped year-on-year from 3.3 to 2.9 million, according to PIOJ data from the Economic and Social Survey at the end of June 2012. The dip was attributed to the removal of one provider, Claro, which was acquired locally by Digicel, along with sluggish economic activity, according to the Economic and Social Survey.