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

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Part of the wage-controlled growth depended on the said Memorandum of Understanding
between the government and the Jamaica Confederation of Trade Unions to reduce the
wage bill by implementing a two-year policy of public employment and wage restraint
effective April 1 2004 to March 31 2006. Interest payments on domestic debt are expected
to decline as the Central Bank maintains its current policy of gradually reducing the cost of
borrowing.
Tax revenue was expected to increase from 26.9 percent to 27.5 percent of GDP between
FY 2003/2004 and 2004/2005. For its part expenditure was forecasted to decline from 36.7
percent to 34.45 percent of GDP. Within this category recurrent expenditures, and in
particular wages and salaries and interest payments, were expected to drop from 12.4
percent to 11.1 percent and from 18.15 percent to 16.9 percent between FY 2003/2004 and
2004/2005. The authorities projected a primary surplus of 13 percent of GDP and as a
consequence a decline in the public debt to GDP ratio from 145 percent in FY 2003/2004 to
136 percent in FY 2004/2005.
2.2 Monetary and exchange rate policy
During 2004, the expected continued improvement in the overall macroeconomic
conditions allowed the Bank of Jamaica to ease its monetary policy stance and reduce the
spectrum of interest rates on its tenors, lowering the cost of the internal debt service of the
government and also that of the Bank of Jamaica’s open market operations.
From May 2003 to May 2004, the rates of interest on the 90 and 180-day reverse
repurchase instruments declined from 20 percent and 24percent to 14.40 percent and
14.55percent respectively. Accordingly the nominal exchange rate depreciated in line with
the fall in interest rates ($60.61 and $61.18 per US$1.00 for the weighted selling nominal
exchange rate in December 2003 and June 2004). The exchange rate was also expected to
remain stable throughout the year. The
The progressive reduction in interest rates would have been facilitated by the moderate
buildup in the stock of international reserves as a result of the placement of a euro and a
regional bonds in the international capital markets totalling US$250 million and the
projected increase in the current account due to the increase in the oil import bill and higher
outflows of profit repatriation.
The reduction in nominal interest rates and the expected reduction in the rate of inflation
would not have had a significant effect in the level of real interest rates. Notwithstanding
the demand for loans was expected to increase in line with the positive developments in the
real sector.
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