Tue | Mar 19, 2019

Briefing year in review (Pt 1)

Published:Wednesday | January 8, 2014 | 12:00 AM
Dr André Haughton

How did the year start?

The year 2013 started with the exchange rate at approximately US$1 to J$93 and low Net International Reserves. With the Jamaican economy on a macroeconomic roller coaster waiting on an International Moneary Fund (IMF) agreement, fiscal-policy decisions were aimed at reducing Jamaica's high debt to GDP ratio.

The Briefing discussed several alternative ways of solving the high debt issue; exploring the possibility that Jamaica's debt could be classified as 'odious', if it was accumulated through pursuing objectives that were not of public interest.

The possibility and the consequences of an actual default by not repaying our debts were also discussed, along with the best-case scenario of an actual debt write-off by the IMF or any other multilateral institutions owed.

How was February?

The VW advertisement illustrating a foreigner using the Jamaican accent was the topic of Super Bowl Sunday. As our culture and music remained global in Black History Month, The Briefing discussed the value of the entertainment industry.

The following week, in an attempt to further improve our debt situation, Jamaica entered into another debt exchange - the NDX. Local debt was given a longer maturity period and lower interest rates and foreign debt remained untouched.

Along with this NDX, the Government implemented additional taxes, including increasing education tax, increase tax on dividends, and increasing customs duties. These, they believe, would help to increase the country's revenues, thereby reducing the debt to GDP ratio. These new tax measures were estimated to add approximately $16 billion to tax receipts per annum.

Housing prices across the island was the next issue to be addressed in The Briefing, as more middle-income young professionals complained about the difficulty in finding affordable housing and the huge renters market that has been developing in the island.

What happened in March?

By the beginning of March, the exchange rate reached J$97 to US$1, four dollars more than the rate at the start of the year. The Briefing discussed the possibility of a currency crisis occurring by the end of the year. Other discussions included dollarising the economy by adopting the US currency to be used in lieu of the Jamaican dollar as legal tender.

The ISSA Boys and Girls' Athletics Championships were record breaking in 2013, as we highlighted the importance of sports tourism to the country as a suitable way to diversify the tourism package to increase foreign inflow which could help stabilise the dollar.

By the end of March, unemployment and poverty become pressing issues and we discussed social entrepreneurship as a plausible solution to the usual safety net structure that exists. We outlined that social enterprises could be a useful way to reduce unemployment in the country.

How was April?

The first of April was the beginning of a new fiscal year. The country had targets to meet, so new taxes were implemented as a result. These new taxes included: increase in tax on dividends, surge tax, education tax, stamp duty and property tax.

The main goal for the year was to achieve a primary surplus of 7.5 per cent of GDP. The Budget was read and the Government proposed to spend approximately $521 billion, 13.5 per cent less than they did in the 2012-2013 fiscal year in nominal spending, and about 23.7 per cent reduction in real spending.

The global economic landscape remains fragile as investors, consumers, producers and governments worldwide desperately try to find the right balance of actions/policies that will restore economic stability and increase economic performance in each country.

Jamaica and Cyprus were two of the most affected by previous bad government policy decisions. Each country at this time was facing its own problems and was tailor-making solutions to solve their individual situations.

In Jamaica, the exchange rate was rapidly depreciating, which was seen by many as a negative blow to consumers and producers who demand large volumes of imports.

Towards the end of April, the Jamaican Government was edging closer to a deal with the IMF and other multilateral institutions, which appeared to be the only hope to stabilise the currency at approximately J$100 to US$1.

The increase in prices and taxes had an impact on people's real income. As real income continued to fall and cost of the living continued to increase, the Government was faced with the challenge of finding the right balance between fiscal and monetary policy necessary to restore macroeconomic stability, increase economic activity and reduce unemployment.

How did we perform for the rest of year?

Find out next week as the 52 weeks of The Briefing in review continues.

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 editorial@gleanerjm.com.