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Given the extent of the documentation which had been tabled, I will only do a summary review of the major macro-economic indicators. Members will recall that a year ago, I presented a medium term framework which represented, at that stage, the best assessment of what could be attained in the economy for the fiscal year and the medium term. This macro-economic framework developed by the Government of Jamaica was used as the basis for the Staff Monitored Programme with the IMF which facilitated our accessing loans from the World Bank, the IDB as well as the Caribbean Development Bank, to assist with completing the rehabilitation of the financial sector.
It will be recalled that the Administration projected a balanced fiscal out-turn for fiscal year 00/01. It is often of some cause for confusion to many what is meant by a balanced budget in macro-economic terms. Simply put, it is when revenues equate to recurrent expenditure plus capital expenditure. Amortization is not taken into account in the calculation of the fiscal balance. The last fiscal year we aimed at a balanced budget, as it was of concern to our creditors and the rating agencies whether the debt servicing obligations would undermine our ability to maintain the targets which had been established. A major item in terms of the inflows projected for the last fiscal year was the divestment proceeds from the JPS. However, given the fact that the conclusion of these negotiations was dependent on a wide range of factors, we adopted an extremely conservative approach with regard to expenditure to ensure that the fiscal target would be met with or without the inflows from JPS. The JPS divestment proceeds did come in just before the end of the fiscal year and as a result the target was exceeded. The fiscal outturn was a surplus of 1.4% of GDP. Later on in my presentation I will indicate how it is planned to utilize these resources in this new fiscal year. The outturn in terms of tax revenue reveals certain significant positives when compared to the budget projections. Total tax revenue was only 1.4% below original projections despite the fact that receipts from the bauxite/alumina levy were significantly below projections. A significant positive relates to PAYE where receipts exceeded projections by 9%. In terms of tax on interest this exceeded projections by 14%.
The Administration’s commitment to continued control of inflation has been well articulated. On several occasions I have indicated that the rationale for this consistent position. Unless inflation levels in Jamaica are consistent with those which obtain in our major trading partners, it becomes increasingly difficult to maintain competitiveness. However, perhaps the most important reason for controlling inflation is that it represents the most cruel form of taxation on the poor and on fixed income workers. In terms of the outturn for calendar year 2000, inflation was 6.1% compared with 6.8% in 1999. For the fiscal year 2000/01 the outturn was 6.4% compared to 8.4% for 1999/2000. This will make the fifth consecutive fiscal year of single digit inflation. It should be noted that these achievements were within the context of significant increases in oil prices and an intense drought which reduced domestic food production, thus forcing up food prices. Within that context, control of inflation represents a significant achievement in terms of macro-economic management.
During the year 2000 the current account recorded a deterioration of US$35 million compared to 1999. The major cause was the deterioration for merchandise and income accounts of US$213 million and US$61 million respectively. However, these negative movements were partially offset by positive changes in the services and transfers account. The capital and financial accounts recorded surpluses of US$27 million and US$279 million respectively, reflecting increases compared to these accounts in 1999. The surpluses on the capital and financial accounts more than offset the current account deficit. As a consequence, the NIR grew by over $500 million during the calendar year. Major highlights of the year included a significant increase in the value of imports of just under 10% due mainly to oil price increases. At the same time, growth in net earnings from travel of just underUS$100 million resulted in an increase in the services balance.
During the year as is well known, there was a period of instability in the foreign exchange market, particularly during the period September through November. Measures taken to rectify the situation included the sale by the BOJ of significant amounts into the FE market as well as upward adjustment in interest rates on BOJ instruments. The corrective measures had their desired impact and by December the market had settled down. At the end of March, the NIR stood at US$1,286 million, an improvement of US$580 million during the fiscal year, despite the sale of significant amounts into the market. These reserves represented a record of over 24 weeks of imports. It may seem superfluous to once more explicitly indicate the rationale for maintaining a healthy NIR. The major reason is to be able to maintain stability in the foreign exchange market and to prevent speculators from bringing about devaluations which have nothing to do with the objective economic indicators. This was demonstrated again last year when sales into the market were a critical part of the set of corrective measures which were put in place to stabilize the exchange rate.
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