KINGSTON, Jamaica – The Government of Jamaica has secured an emergency liquidity line of credit from the Inter-American Development Bank (IDB), which will be made available to the commercial banks for on-lending to the productive sectors, where lines of credit have been cancelled.
Minister without Portfolio in the Ministry of Finance and the Public Service, Senator Don Wehby, said that the Government had been in discussions with the IDB on the matter and approval for the line of credit came last Wednesday (Nov. 5).
He was addressing the Jamaica Employers’ Federation (JEF) CEO Breakfast at the Knutsford Court Hotel in Kingston yesterday (Nov. 11).
Turning to the global financial crisis, which emanated from the United States (US) sub-prime mortgage fallout, the Minister said that Jamaica’s past experiences would enable the country to weather the storm.
“Fortunately, there has been limited contagion in Jamaica’s financial market. We are experiencing a strain on liquidity, but having survived the test of the 1990s financial meltdown, more commonly referred to as FINSAC, our regulatory framework has been strengthened and our capitalisation requirements are more stringent,” Senator Wehby stated.
He reiterated the Ministry’s position, that depositors, policyholders and pensioners could rest assured that Jamaica’s financial system remained well capitalised, well supervised and had the strong backing of the central bank and the Government.
The Minister noted that earlier this year, when market conditions were more favourable, the Government went to the capital market and raised US$350 million, which was more than half of the country’s US$600 million requirement for the fiscal year.
“In fact, following repayment of the bond maturing in February 2009, the borrowing requirements for the Government of Jamaica going forward will be significantly lower. There are external payments of approximately US$233 million in fiscal year 2009/2010 and US$204 million in fiscal year 2010/2011, and they are almost entirely due to multilaterals and governments,” he informed.
Senator Wehby observed that even before the global economic crisis, the Jamaican economy was under much pressure and compared to that of its Caribbean counterparts, had been underperforming by large margins. “Over the last five years, Trinidad & Tobago’s GDP (gross domestic product) grew at an average rate of 9.7 per cent; Barbados’ grew at 3.6 per cent; and for the same period, Jamaica grew at an average of 1.7 per cent,” he noted.
He cited the country’s debt burden as a major contributory factor. “Possibly the biggest factor is our high public debt, now in the realm of $1 trillion, quadruple what it was 10 years ago. It means that everyone in this room is carrying a debt burden of $370,000 versus $85,000 in 1997. It means that 54 cents of every dollar in the budget goes towards payments on the debt. This is taking away from valuable resources that could and should be dedicated to important social services,” he argued.
The Minister observed that this situation was compounded by the fact that Jamaica had been confronted by a number of exogenous economic shocks over the last year, which included rising commodity prices, accelerated inflation and an overall slowdown in growth.
“Looking back on when economic conditions really began to trend downwards, we see that the first major issue was the food crisis. Food prices rose by 25 per cent last year and between February and September of this year, the price of rice went up by more than 60 per cent. Then there was the oil crisis with crude oil reaching a record peak of US$147.27 in mid-July of this year, spending a total of six months above US$100 per barrel,” Senator Wehby said.
The Minister noted that these were frightening figures because they affect the country’s import bill as Jamaica was dependent on oil for 90 per cent of its energy needs and a great portion of the country’s food grains were imported.
Addressing persistent fears that remittances and tourism earnings would be the major casualties of the global financial crisis, the Minister noted that with respect to the country’s tourist arrivals this year, indicators were pointing to an increase of approximately five per cent over last year while remittances (more than half of which comes from the US), would experience slower growth.
“The average size of remittance payments is US$200 to US$300. Based on research, over 80 per cent of that amount goes to basic consumption, which makes it a top priority for Jamaicans abroad to send money back home to their families. Currently, this sector accounts for just over US$2 billion annually, and in discussions with the market, the estimated growth rate of remittances was to be between six per cent and seven per cent this year,” he informed.
Flows totalled US$1.5 billion for the first nine months of the year, representing 8.8 per cent higher than in the same period of last year, but slower than the 11.1 per cent pace in the first nine months of 2007. The Minister disclosed that the Government’s overall projection was for a 5.6 per cent increase of remittance flows this year over the previous calendar year. (JIS)
