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

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3.2 Prices, wages and employment
The rate of inflation was projected to decline relative to the previous year as a result of the
dynamism in economic activity and also due to monetary and exchange rate stability
despite the increase in international oil prices. This upward impulse was expected to be
reflected in higher energy and transportation costs. Overall the rate of inflation was
forecasted to decrease from 14percent to 9percent on a calendar year basis and from 17
percent to 10 percent on a fiscal year basis.
The growth in wages was expected to be moderate due to the Memorandum of
Understanding signed by the government and the Jamaica Confederation of Trade Unions,
which should reign in the rate of growth of the wage bill for a two-year period. Under the
agreement wages are expected to increase by less than 3 percent.
3.3 The evolution of the external sector
The current account deficit was projected to decline (-12 percent and –10 percent of GDP
in 2003 and 2004) due to the improved performance of mining and agriculture and higher
tourism inflows. The current account imbalance was projected to be more than offset by
financial inflows leading to an increase in the stock of international reserves. Between the
first and the last quarter of the year, the stock of international reserves was expected to
increase by US$93 million (US$1604 and US$1666 millions for the first and fourth quarter,
respectively of the year).
The performance of merchandise exports (15 percent) responded favourably to price
conditions, as well as greater levels of demand for Jamaica’s main export products as in the
case of mining export products. In the case of agriculture, export products had registered a
vigorous expansion especially in the first quarter of the year (19.7 percent and 3.8 percent
for the first and second quarter, respectively), which was projected to moderate in the
second semester. The projected behavior of merchandise imports (11 percent) was
determined by the productive needs of an expanding economy, the moderate growth in the
Construction sector, and the increase in the international price of oil.
The widening of the surplus in the services balance (US$560 and 606 million) was
projected to respond to the increase in tourist arrivals and the good prospects of the tourism
industry in general. For their part current transfers (12 percent) evolved in line with the
evolution of the United States economy. The result on the investment income account was
foreseen, as in the past, to be driven by profit repatriation.
Finally, the financial and capital account surplus responded to the issue of a Euro and
regional bonds by the government and to private foreign direct investment flows in the
Tourism and Mining sectors.
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