How is Jamaica's current debt situation?
THE AIM of the International Monetary Fund (IMF) agreement is to put the country on a sustainable growth path by gradually reducing its debt over time so that additional resources can be made available to invest in infrastructural development necessary to set the right platform for growth.
This, however, is only in theory at the moment, as Jamaica's total national debt continues to increase over time. The national debt at the end of July stands at $1,857.6 billion up from $1,812.6 billion as of the end of March this year, 53 per cent of which is denominated in foreign currency.
In the foreign exchange market on Monday, the three major traded currencies; the US dollar, the British pound and the Canadian dollar traded at an all time high against the Jamaican dollar, indicating that our currency is getting weaker and weaker as the year progresses.
Recall also that for every 0.1 per cent increase in US exchange rate, there is a 0.5 per cent increase in Jamaica's external debt. As a result, even though the interest rates on the IMF loans may be negligibly zero, Jamaica will have to pay them back more in the long run, if the exchange rate continues to depreciate at this pace.
What are the IMF targets to be met by the end of Sept?
The IMF targets more formally known as structural programme conditionalities to be achieved by the end of September 2013, are:
1. Government must table a Charities bill in Parliament, guided by an arrangement provided by the IDB with consultation from the IMF staff team.
2. Government must also table the omnibus tax incentive scheme in the House of Representatives, guided by an arrangement provided by the IDB with consultation from the IMF staff team; this will remove ministerial discretionary power to grant or validate any tax relief, and establish a more transparent regime which offers limited tax incentives.
The quantitative performance criteria which Jamaica must satisfy by the end of September include:
1. Primary balance of the central government must reach $38.2 billion.
2. Tax revenues must be at a minimum of $150 billion.
3. Central government direct debt incurred must not exceed J$21.4 billion.
4. Central government guaranteed debt must not exceed $8 billion.
What about the balance of payment and the NIR?
The Net International Reserves (NIR) dipped to US $881 million on Monday, which can only purchase 11 weeks of goods and services, a drop by 48 million, just a little below the international benchmark of 12 weeks of goods and services. This reduction in the NIR will not impact the country's IMF agreement by much, but it is still indicating that we are spending too much foreign currency as a country.
Our demand for foreign currency is still high, which may go beyond our foreign currency allocation soon and very soon. As a part of the PetroCaribe arrangement with Venezuela, it has just been revealed that goods and services can be traded for some of Jamaica's debt. Arrangements are being made to swap cement or cement components for oil as well as there is a proposal for English teachers from Jamaica to trade their services for oil.
These will have a positive impact on our current account, as we will be exporting more goods and services in exchange for oil import. This will also reduce the debt to GDP ratio. We will also be required to produce more for export, as well as our debt will be reduced since we will barter some amount of goods and services for oil instead of owing Venezuela, which is usually the case.
What about prices and the macro economy?
Economic growth for the last quarter remains negative, the country has not found its way to prosperity just yet, but it appears we are getting there. The Government prides infrastructural development as the key to economic growth, this they are working on at the moment. There is still no public discussion on the roles and responsibilities of those who will be employed within the various logistic centres to be established around the island by 2015.
Inflation continues to increase, but remains within the Bank of Jamaica's target of between seven point five and nine per cent for the year. Inflation in Kingston in July was 0.8 per cent, while for other metropolitan areas the inflation rate was 0.5 per cent and only three per cent in rural areas. At least those of us who can hardly afford it, are not facing the brunt of price increases.
Dr André Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on twitter @DrAndreHaughton; or email email@example.com.