Finance minister welcomes 1.8% growth

Senior staff reporter

Wednesday, August 22, 2018

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Minister of f inance and the Public Service Dr Nigel Clarke says he welcomes news from the Planning Institute of Jamaica (PIOJ) of the 1.8 per cent growth in the economy registered for the April-June quarter.

The announcement was made by the Dr Wayne Henry director general of the Planning Institute of Jamaica (PIOJ) during a quarterly press briefing at the institute's Oxford Road, New Kingston, office on Thursday.

Dr Henry told the press that this was the strongest quarterly growth in approximately two years, and marked 14 consecutive quarters of positive growth since the July-September 2016 quarter.

He attributed the growth to several factors, including: improved weather conditions, positive impact of the resumption of operations at the Alpart/JISCO refinery, and higher levels of construction activities. However, he noted that further growth during the period was stymied by plant downtime, which impacted output in manufacturing.

Henry also suggested that the decline in the average length of stay by foreign nationals impacted growth during the period. But Tourism Minister Edmund Bartlett has raised concerns about this position, noting that the reduced length of stay does not necessarily lead to reduced spending.

However, Dr Clarke, who was making his earliest response to the PIOJ report, told Nationwide News Network's (NNN) morning programme Front Page, on Friday morning that the news “all around” was good for Jamaica.

He remarked that he was not surprised by the outcome for several reasons, including the fact that the country now has the lowest interest rates of any time in its history — a development he urged both consumers and investors to take advantage of.

“It is a time of unprecedented opportunities in Jamaica and those who miss it will regret it. Those who fail to take advantage of what is happening in Jamaica today will wish that they did in a few years. It is a time of unprecedented opportunity,” he said.

Dr Clarke noted that the fundamentals of the economy continue to point in the right direction, including low inflation, increasing employment, decline in poverty, robust activity in construction and mining, plus the recovery and showing of gains in traditional as well as non-traditional crops for the agricultural sector.

The finance minister said that the movement of the Jamaican dollar is reflective of the demand and supply dynamic, and added that sometimes when the movement is not understood – in Jamaica's history — based leads to anxiety, which spurs increased demand and depreciation.

He suggested that instead of dealing with the hypothetical , it would be better to await the results of steps being taken by the Bank of Jamaica (BOJ) over the next two weeks.

Dr Clarke said that there was confusion that the BOJ, having missed the Government's inflation target, had also missed the target set by the International Monetary Fund (IMF), and some traders mistakenly believed that the bank seeks to return inflation to the Government's target range through a depreciation in the local currency to correct the irrational buying of US dollars.

He said that afterwards he committed to release the correspondence between his ministry and the BOJ governor, in which the bank pointed out the reasons for the missed inflation target as well as the corrective actions being taken to ensure that at some point in the medium term the target will be attained.

“None of those measures involved a depreciation of the currency,” he noted.

He added that he was “sort of leading the charge” to ensure that the market has accurate and up-to-date information that would not lead to further irrationality.

He stated, too, that the fact that Jamaica was paying down the public debt in line with programme expectations means that when funds mature the country can pay out on the bonds without the need to borrow all of it back.

He noted that in June, the Government paid out $58 billion and only needed to borrow $10 billion back.

He said that the targets, as well as the actions of the BOJ, were misinterpreted by the market, as well as some portfolio conversion.

He said that the Government was now focused on recognising the need to combine real assets that investors can invest in and thus set the stage for a borrowing decline.

“Investors are used to lending to the Government. They are used to take their money and lend the Government and sitting down. That is going to be less and less feasible as the Government's appetite for borrowing goes down. So what do they do then? We want an environment where they have an incentive to invest in the real economy as opposed to taking the money and converting it into US dollars. And so, over the next year to 18 months we are going to ensure that [it] is the provision of domestic access that investors can invest in that [will] offer them attractive and real returns.

“This is a moment of opportunity in Jamaica not to be missed,” the minister argued.

He urged both investors and consumers to take advantage of the low interest rates to do things like purchase a home or start a business, and for expansion of their assets.

Clarke also addressed the issue of the 1.8 per cent growth achieved during the quarter and how it relates to the “five per cent in four years” growth which was projected by the Michael Lee-Chin-led Economic Growth Council (EGC) started under the previous Government, and for which he and Prime Minister Andrew Holness were prominent spokesmen up to recently.

According to the finance minister, while the council, of which he had been a member since 2016, had been projecting 5-in-4 or five per cent growth in four years, there were several variables, including crime reduction, on which that projection was based.

He said that Holness had “correctly” endorsed the prediction that Jamaica could achieve beyond the potential two per cent plus growth projected by government technocrats as the “positive thing” to do.

So he said that while the “5-in-4” existed as an aspirational objective of “a group of persons trying to encourage the country to better”, the ministry of finance and the public service and other government agencies, as well as the BOJ and the IMF, stuck to the 2.2 per cent to 2.4 per cent range, which was the official position.

Dr Henry noted that the outlook for the July–September 2018 quarter was generally positive.

He said that the forecast for calendar year 2018 for the Jamaican economy is that growth will be within the range of 1.5 per cent to 2.5 per cent; and for fiscal year 2018/19, growth is projected to be within the range of 2.0 per cent to 3.0 per cent.

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