The Inter-American Development Bank (IDB) issued their quarterly briefing last week, personifying our economic issues, headlining that Jamaica has hill behind the hills, indicating problems beyond problems. Despite attempts at fiscal reform, debt exchange and reduction in interest rates, Jamaica's debt-to-GDP ratio remains one of the highest in the world at more than 140 per cent. The Jamaican Government, under programming from the International Monetary Fund (IMF), wants to reduce the debt-to-GDP ratio to 100 per cent of GDP by 2020, but face an insurmountable task.
The IDB briefing highlighted the cost of energy as a major problem in Jamaica, since the country is susceptible to shocks from the external energy sector. Increases in global oil prices can have a negative impact on the price of Jamaican energy. Notwithstanding this, the PetroCaribe Fund helps to reduce the cost of energy to Jamaica. According to the IDB, Jamaica benefits from the Petro-Caribe Fund in two ways: 1. Jamaica does not have to make full payments for the oil upfront, and, 2. The Jamaican Government and state-owned enterprises have access to credit from the fund at preferential rates. Every year, the current account of the balance of payments benefit by more than US$500 to $US600 from the Petro-Caribe Fund (an estimate of between 25 and 30 per cent of last year's current account).
What about consumers?
Consumers electricity bill are expected to increase again this month as the JPS blames the exchange-rate depreciations and fluctuations in global oil prices as having the greatest impact on the prices. Electricity bills are expected to increase a further four per cent this October. On the brighter side, the Office of Utilities Regulation has confirmed that the preferred bidder for the 360-megawatt project has managed to come up with the one per cent project bond. This sounds like good news as the project is needed ASAP.
How is our overall progress?
The Jamaican dollar has been depreciating faster than normal over the last couple of months. The Bank of Jamaica (BOJ) sold US$25 million last Friday and the Jamaican dollar appreciated by 15 cents, moving from $105.16 to $105.01 to US$1 the same day. The governor of the BOJ had indicated that they were serious about controlling any unusual depreciation of the Jamaican currency, but confirmed that the current value of the currency was in line with the expectations of the IMF programme. With the exchange rate depreciating more than rapidly, the inflation rate increased by 2.8 per cent in September, the highest for a single month this year. Although, there are signs of progress, for example, the S&P upgraded Jamaica's long-term rating from CCC+ to B- recently.
What is the problem?
We continue to purchase unnecessary imports as usual. For example, we have huge inventories of peanuts in St Elizabeth, which we should have been consuming and exporting the surplus. However, it appears the country has been importing peanuts and neglecting local production. The Government said the peanuts were not sold because it appears buyers were not aware of the inventory in St Elizabeth. Poor information channels (asymmetric information) is really disrupting our progress, it appears every one is just quick to import since they can purchase foreign currency in large quantities freely. I spoke to a farmer who said they were also importing mongooses to help eradicate snakes on sugar plantations. Whatever problems we have we try to import to solve it. As soon as we find more creative ways to solve our issues locally, our attempts to solve one problem will only lead to another.
Dr André Haughton is a lecturer in the Department of Economics at the Mona campus of the University of the West Indies. Follow him on twitter @DrAndreHaughton; or email firstname.lastname@example.org.
HAUGHTONGladstone Taylor / PhotographerAt 29 years, Dr Andre Haughton has achieved a lot and is set on achieving a lot more by making a difference in others' lives.
The Jamaican dollar has been depreciating faster than normal over the last couple of months. The governor of the Bank of Jamaica had indicated that they were serious about controlling any unusual depreciation of the Jamaican currency, but confirmed that the current value of the currency was in line with the expectations of the IMF programme.