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

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For their part expenditures rose above the planned target for the first quarter of the year due
to increases in the two most important categories, wages and salaries and interest payments.
However, in the second quarter, expenditures were below budget due to the reduction in
recurrent and capital expenditures.
Government operations were financed by a mix of foreign and domestic sources. The
government’s financial resources were augmented by the issue of the Euro and Regional
bond mentioned above. At the end of May the public debt increased to US$710 million
US$ which represented a 4.8 percent increase with respect to March.
2.2 Monetary and exchange rate policy
During the first two quarters of the year, monetary conditions remained stable. The effect of
the increase in net international reserves, consequent upon the improved performance of the
external sector on the monetary aggregates, was partly offset by sterilisation operations.
These managed to contract the growth of net domestic assets with respect to the previous
year without altering the declining and convergent trend of the term structure of interest
rates. As a result the monetary base, and the narrow and expanded money supplies rose by
1.2 percent, 0.1 percent and 1.5 percent respectively. In the same vein the main tenors of
the Bank of Jamaica decreased from 14.85 percent to 14.20 percent; 16.0 percent to 15.05
percent and from 15.57 percent to 14.98 percent for the 30-day, 180-day repo and 180-day
treasury bills, respectively. The commercial banks and the weighted average loan rate
decreased from 19.10 percent to 17.75 percent between March and June.
In line with these developments the exchange rate remained stable and saw an insignificant
depreciation with respect to the previous year ($59.42 and $60.76 in May 2003 and May
2004 respectively).
3. Evolution of the main economic variables
3.1 Economic activity
The level of economic activity picked up in the second quarter of 2004. For that quarter the
economy registered one of the highest rates of growth in the past eight years (2.7 percent).
Growth was fuelled by the dynamism of the Mining, Manufacturing and Tourism sectors.
The Agricultural sector registered a contraction mainly as a result of the stagnation of
domestic agricultural activities (-1.25 percent on average for the first two quarters) as
export agriculture expanded especially in the first quarter of the year (19.7 percent and 3.8
percent for both quarters, respectively). The performance of agriculture was due to the
effects of drought on the output of domestic crops.
The Mining sector (9 percent on average for the first two quarters) responded to favourable
external conditions for alumina and both higher capacity and close to full capacity
utilization levels at bauxite and alumina plants.
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