Jamaica: Macro-Socio-Economic and Environmental Assessment of ...

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55 The most important measure consisted of restricting liquidity through open market operations while at the same time engaging in interventions in the foreign exchange market. The bank also established a special deposit requirement for financial institutions as a way of absorbing liquidity, which required institutions to hold 5 percent of their average prescribed domestic liabilities on deposits at the Bank of Jamaica. The overall result was a contraction in high-powered money (-5 percent), a higher plateau of the open market instrument term structure of interest rates with the concomitant negative consequences on the government’s fiscal accounts and a decline in the stock of international reserves (US$470 million) which was amplified by the redemption of a Eurobond in the first quarter of the year. The second semester witnessed a relatively more stable macroeconomic environment. At the end of the period the exchange rate halted its rate of depreciation (4.7 percent for the June quarter) and stabilised at $60.62. The monetary authorities took advantage of these circumstances and allowed interest rates to decrease while maintaining a higher interest rate level in relation to the previous year. This lessened to some extent the debt burden of the government and also provided the required liquidity to finance its fiscal deficit. During this period, net credit to the public sector rose by 28 percent and base money and money supply expanded, 15 percent and 13 percent respectively. The central bank's stance did not significantly affect the liquidity position of the commercial banking system. Between December 2002 and December 2003, the loan to deposit ratio advanced from 0.41 to 0.50. Commercial banking system nominal rates increased marginally and real interest rates declined as a consequence of the two-digit inflation level (10 percent and 4.6 percent for overall average weighted real loan rate in December 2002 and December 2003 respectively). The downward trend in real interest rates in conjunction with the level of growth and stabilisation efforts by the Bank of Jamaica, pinned up the demand for loans (22 percent in real terms). Personal loans, tourism and transport and communication accounted for 47 percent of the total. 3. Evolution of main variables a) Economic activity The expansion of economic activity (2.3 percent) responded mainly to the vibrant performance of the primary and services sector, although all sectors with the exception of manufacturing and producers of government services, registered positive rates of growth. 55
56 The performance of Agriculture (-7 percent and 5 percent in 2002 and 2003 respectively) is accounted for by domestic agriculture as export agriculture declined (14 percent and –6 percent respectively). This was in response to an improvement in climatic conditions and government relief assistance to farmers affected by the flood rains. The growth of the Mining sector (3.3 percent and 4.8 percent in 2002 and 2003 respectively) reflected an increase in capacity utilization of alumina plants in JAMALCO and ALPART and higher prices due to favourable external demand conditions. Manufacturing output contracted as in the previous year (-0.8 percent and –1.0 percent in 2002 and 2003 respectively). This was due to declines in the two major manufacturing components beverage, food and tobacco and other manufacturing (-0.6 percent and –1.5 percent, respectively). The behaviour of the former responded to the reduction in sugarcane milled, to the effects of the increase in the tax base, which affected dairy products; and delays in the timely provision of raw material inputs. The evolution of other manufacturing reflected the closure of the refinery plant for repairs and maintenance in the third quarter of the year. For its part textile and apparel continued to exhibit a marked lack of competitiveness. The rate of growth in the Construction sector fell below that registered in the previous year (2.3 percent and 1.1 percent in 2002 and 2003, respectively) and benefited from the expansion and improvement of on-going infrastructure projects including the Highway 2000, the Northern Coastal Highway and the increase in capital expenditures by the utilities companies. The Tourism sector provided the most important impetus to overall economic growth (-0.4 percent and 6 percent in 2002 and 2003 respectively). The performance of this sector capitalised on higher investment levels, efforts to diversify tourism products and a greater number of cruise ship calls. The number of visitor arrivals, mainly cruise ship tourists, and visitor expenditure expanded y 17 percent and 8 percent, respectively. b) Prices, wages and employment The rate of inflation reached double digits (7.3 percent and 14.1 percent on a point-to-point basis in 2002 and 2003, respectively) for the first time in six years. The determining factors included the depreciation of the nominal exchange rate, the tax measures implemented between May and June, higher international oil prices, increases in transport costs and the increase in the minimum wage. The decomposition of the price level into its different components shows that the largest contributor to inflation was the food and drink and transportation categories (48 percent and 13 percent of the total) followed by fuels and other components and housing expenses (9 percent for both). During 2003 the government proceeded to settle wage claims to weekly and daily paid public employees and to education officers. 56
Page 1 and 2:
JAMAICA Macro-Socio-Economic and En
Page 3 and 4:
I. INTRODUCTION The Meteorological
Page 5 and 6: Significant storm surges also impac
Page 7 and 8: Table 2: Comparison of Highest One-
Page 9 and 10: the total population or some 369 68
Page 11 and 12: unable to make the most of the stre
Page 13: The housing stock is relatively stu
Page 19 and 20: damage. Eight of the parishes had 3
Page 21 and 22: Table 2-6 Damage and losses sustain
Page 23 and 24: Table 2-9 Damage and Losses Sustain
Page 25 and 26: 8,000 persons will be out of work f
Page 27 and 28: It is estimated that the coffee pro
Page 29 and 30: each the processing plants and dome
Page 31 and 32: 4. Commerce sector The Food, Bevera
Page 33 and 34: electricity generation rose in the
Page 35 and 36: critical facilities. The high sedim
Page 37 and 38: National Works Agency (NWA) and by
Page 39 and 40: 3. Telecommunications The Telecommu
Page 41 and 42: Erosion within the coastal zone of
Page 43 and 44: Portland Cottage experienced the mo
Page 45 and 46: Table 5-2 Summary of damages to the
Page 47 and 48: TABLE 5-1: Recovery Time and Cost E
Page 49 and 50: VI. SUMMARY OF OVERALL DAMAGE AND L
Page 51 and 52: 50 Based on the above information i
Page 53 and 54: 52 VII. MACROECONOMIC EFFECTS OF TH
Page 55: 54 2. Economic policy a) Fiscal pol
Page 59 and 60: 58 bond loan, which caused a reduct
Page 61 and 62: 60 The performance of Manufacturing
Page 63 and 64: 62 Part of the wage-controlled grow
Page 65 and 66: 64 3.2 Prices, wages and employment
Page 67 and 68: 66 However the two most important i
Page 69 and 70: 68 likely as it stands the increase
Page 71 and 72: 70 also have an impact on employmen
Page 73 and 74: 72 accommodations will recover and
Page 75 and 76: 74 The rehabilitation programme foc
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