By Deon McLennon, Contributor THE CONSEQUENCES of action or inaction cannot be avoided. The high interest rates used to stabilise the currency earlier this year are now bearing heavily on our fiscal accounts. With the currency stabilised, sleepless nights have disappeared for many. However, we have arrived at a frail bridge. We want to cross to the other side, which promises growth, jobs and prosperity. But we have arrived at this bridge with the heavy burden of debt and high interest rates. This burden makes our journey precarious and raises the risk of a catastrophe. Despite some positive signals tourism rebounding, GDP growth and new investment opportunities, interest rates remain perilously high. Lower interest rates cannot be overemphasised as one the critical buttresses of this frail bridge that we must navigate, if we want to get to the other side. However, lower rates by themselves cannot do the job.
The yield at the latest six-month Treasury bill auction declined by 232 bps as the bid to offer ratio was over 3:1. T-Bill yields and the 180 day repo rate are now closely aligned once more.
With exchange rate stability as a catalyst, BOJ took the opportunity to guide yields lower with their fifth rate reduction since June.
All groups saw price hikes in August. Food & Drink and Fuels & Other Household supplies registered the highest movements of 1.4 per cent and 5.1 per cent respectively, while other groups recorded increases of less than one per cent.
While the first quarter out-turn was expected to be positive with the new tax package, rising interest costs have begun to reflect in the second fiscal quarter as the interest coupons get paid. Unfortunately, these charges have overwhelmed cost containment and the new tax revenue measures. For the first time since the beginning of the fiscal year, August YTD results reflected the deficit being wider than budgeted. With Wages and Salaries four per cent above budget, the Minister ordered an immediate hiring freeze. Note however, that interest costs are 66 per cent of Revenue.
The NIR declined by US$44 million verses the prior month. The BOJ intervened less frequently in the FX market during August and at month-end, the NIR stood at 11 weeks of goods and services. We expect the NIR to climb back above US$1.1B with successful US$ bond issued in September.
Jamaica had a record August, with the highest number of stopover visitors. Cruise ship arrivals as at the end of August accounted for 44 per cent of our visitor arrivals, and continues to lead the charge. YTD, stopover arrivals were up seven per cent Cruise-ship arrivals are up 73 per cent and 15 per cent in Montego Bay and Ocho Rios respectively.
Imports grew by 10 per cent while exports declined by eight per cent Export receipts fell by US$120M as imports increased by US$300M. Remittances continue to partially fill the gap rising by 18 per cent to US$993M.
U.S. deposits in the banking system declined by US$45M when compared to last month. However, year over year, deposits increased by US$180M.
The country's internal debt stood at J$394B at July 3 up $80B from last year. Deficit spending and debt assumption contributed to higher debt levels.
External Debt declined as the GOJ repaid a Euro200M issue in February 3 as market conditions were unfavourable for refinancing.
Article written by Deon McLennon, Assistant Manager, Research & Analysis at Pan Caribbean Merchant Bank. Please call 9295583
for more information.
